Management Control Systems

1. MANAGEMENT
CONTROL

2. TOPICS:
-AGENCY THEORY
-CONTROL MECHANISMS
-PARTICIPATIVE MANAGEMENT
-THE CRITERIA FOR SUPERIOR PERFORMANCE

3. WHAT IS AGENCY THEORY?
Agency Theory is a
principle that is used
to explain and resolve
issues in the
relationship between
business principals
and their agents. Most
commonly, that
relationship is the one
between shareholders,

4. AGENCY THEORY

5. -Agency theory attempts to explain and resolve
disputes over the respective priorities between
principals and their agents.
-Principals rely on agents to execute certain
transactions, which results in a difference in
agreement on priorities and methods.
-The difference in priorities and interests
between agents and principals is known as the
principal-agent problem.
-Resolving the differences in expectations is
called "reducing agency loss."
-Performance-based compensation is one way
that is used to achieve a balance between

6. CONTROL MECHANISM
A means to control the behavior of
or within a process or system.
There are many types of control
mechanisms. Human decision
making is a control mechanism
made by an individual to start or
delay a process in an attempt to
keep or bring a process within a
desired state.

7. CONTROL MECHANISM
Control mechanisms can be
physical such as limiting the
number of trailers controls the
number of deliveries that can be
made at a given time. Software
provides control by signaling
whether a process should be
started or delayed in order to
achieve or maintain a desired

8. CONTROL MECHANISMS
1.Monitoring
2.Incentive Contracting

9. MONITORING
The principal can design control
systems that monitors agent’s
actions. For example, financial
reports and performance appraisal
are tools of monitoring. Agency
theory has attempted to explain why
different agency relationships involve
different levels of monitoring.

11. INCENTIVE CONTRACTING
A principal may attempt to limit divergent preferences
by establishing an appropriate incentive contracts. The
more an agent’s reward depends on a performance
measure; the more incentive there is for the agent to
improve the measure. Therefore, the principal should
define the performance measure to that it furthers the
employee’s interest. The ability to accomplish this is
referred to as goal congruence.
When the contract given to the agent motivates the
agent to work in the principal’s best interest, the
contract is considered goal congruent.

12. A Performance Measurement
System is a simply a mechanism
that improves the organization
and shows how the organization
will implement its strategy
successfully.

13. MORALE
Morale is generally considered as a
group phenomenon and in some
cases it is viewed as an individual
phenomenon. It may be described as
a feeling of the employee towards his
work, organization more often related
to his personality

14. MORALE AND CONTROL
Morale is viewed as an important component
for increase in productivity. In the same line of
thought, the level of morale also induces the
level of control.

15. CONTROL AND MORALE
Control and morale are interrelated.
On one hand, the high morale level
improves self control in the
organization, which helps in effective
implementation of management
control system. On the other hand, an
effective control system like control of
absenteeism and tardiness will
improve morale. It is a continuous
process and a miss in the link may
develop a serious trouble for the

16. CONTROL AND MORALE
INTERRELATIONSHIP

17. PARTICIPATIVE MANAGEMENT
Participative Management is a
management style that
requires the cooperation of
personnel. It aims to build
commitment and develop
initiatives within work teams.
To do this, the manager must
delegate parts of his power
and it's necessary that the
teams decide together what

21. PARTICIPATIVE MANAGEMENT
Participative management is a
method, which gives employees
responsibility, accountability, and
authority over their work. The
method provides simple tools for
employees to improve their work
performance and positively impact
the bottom line.

22. PARTICIPATIVE MANAGEMENT
participative management indirectly
induces the ‘self-control’ mechanism,
which is rather more powerful than
any other control mechanisms.
People solve their own issues and feel
empowered within the process of
doing so. Executives and employees
learn to redesign their workplace to
be participative and self-managing

23. PARTICIPATIVE MANAGEMENT
Participative management creates a
workforce that is committed to
obtaining positive results for the
organization such as increased
productivity and improved quality.

24. PARTICIPATIVE MANAGEMENT
Participative management works
best when the organization has a
clear and compelling mission and
vision. Employees then can align
their personal mission and vision
to the organization.

25. THE CRITERIA FOR SUPERIOR
PERFORMANCE ARE
➢ Control
➢Learning
➢Variety
➢Mutual Support and Respect
➢A Promising Future
➢Engage one or several of their preferred life interests
➢Challenges that match and stretch individual skills
➢Concentration and Focus
➢Fun

26. Participative management makes it
to people’s advantage to share
their knowledge because when
their team is successful they are
successful. The group excels
because the criteria for superior
performance are being applied and
top management sees the benefit
of all employees contributing to
the organization.

27. RESISTANCE TO THE
PARTICIPATIVE MANAGEMENT
PROCESS
Whenever there is
change we can expect
resistance to the
process. Many people
do not welcome change
even if it is in their best
interests.
People do not want to
lose power and control.

28. RESISTANCE TO THE
PARTICIPATIVE MANAGEMENT
PROCESS
An effective method for managing
this type of situation is to reassure
the person or group that the
change is for the best interest of
the organization.

29. MANAGING RESISTANCE TO
CHANGE
1. Participation and Involvement
2. Communication and Education
3. Leadership
4. Negotiation and Agreement
5. Willingness
6. Timing of Change

33. PARTICIPATIVE MANAGEMENT MAY FAIL
BECAUSE OF THE FOLLOWING
REASONS:
Resistance to Change: Participative
Management calls for a change in the
entire organizational culture..
Workers tendency to deviate: Managers
must be aware of the tendency of the
workers to try spending more time
formulating strategies than focus on job
in hand. This needs to taken care of.
Again top level management may not

34. PARTICIPATIVE MANAGEMENT MAY FAIL
BECAUSE OF THE FOLLOWING
REASONS:
One stop Solution: Participative management can
not always be a one stop solution for every problem.
Often the manager needs to delegate or take a
decision on his own without consulting or seeking
others advice. For example, cases where disciplinary
action is needed do not qualify for participative
management.
Size of the Organization: This style of management
can be more difficult to implement in organizations
that are big in size. Big size means that there are
large numbers of management layers. This often

35. PARTICIPATIVE MANAGEMENT MAY FAIL
BECAUSE OF THE FOLLOWING
REASONS:
Abuse of Authority: Managers sometimes look upon
their own jobs as a license instead as a
responsibility. They are unwilling to give away some
authority to their subordinate which slows down and
chokes the process of decision making. Often such
managers complain of being overburdened with
responsibilities. This fails the idea of participative
management.
Misunderstanding Participation: This is yet another
reason for failure of participative management.
Managers sometimes fail to understand that
participative management is not the same as
delegating or distributing responsibility. They fail to

36. THE END