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2023 MCS Chapter 2

The document discusses the concept of results controls in management, highlighting their prevalence since the 1990s and their effectiveness in decentralized organizations. It outlines the essential elements of results controls, including defining performance dimensions, measuring performance, setting targets, and providing rewards, while also detailing conditions for their effectiveness and the importance of tight results controls. Overall, it emphasizes the need for clear communication, measurable outcomes, and strong incentives to ensure desired results are achieved.

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8 views

2023 MCS Chapter 2

The document discusses the concept of results controls in management, highlighting their prevalence since the 1990s and their effectiveness in decentralized organizations. It outlines the essential elements of results controls, including defining performance dimensions, measuring performance, setting targets, and providing rewards, while also detailing conditions for their effectiveness and the importance of tight results controls. Overall, it emphasizes the need for clear communication, measurable outcomes, and strong incentives to ensure desired results are achieved.

Uploaded by

qgminh7114
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chương I:

Chapter 2
Chuẩn mực và
Result Controls
tiêu chuẩn trong
kiểm toán hoạt động

NHÓM 7-KIỂM TOÁN 48C

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Learning outcomes
❖2.1. Prevalence of results controls
❖2.2. Results control and the control problems
❖2.3. Elements of results controls
❖2.4. Conditions determining the effectiveness of results
controls
❖2.5. Tight results controls

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Objectives

❖ Understand the prevalence of results controls

❖ Understand the benefits of results controls

❖ Understand and identify the elements of results controls

❖ Analyze conditions that determine the effectiveness of


results controls

❖ Analyze factors of tight results controls

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2.1. Prevalence of results controls

❖ Results controls became a major management trend starting in the 1990s.


❖ Results controls are consistent with the implementation of decentralized forms
of organization with largely autonomous entities or responsibility
❖ A decentralized structure provides better information over time, which helps
decision-making and accountability
❖ Results controls need not be limited to management levels only; they can also
be driven down to lower levels in the organizationability centers
❖ The decentralization or “delegation of decision rights” to managers, and the
design of incentive systems to motivate these managers to generate the desired
results, are two critical organizational design choices in a results-control
context; they are part of what organizational theorists call the organizational
architecture.
❖ Organizational choices about decentralization and incentive systems should be
made jointly
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2.2. Results control and the
control problems

❖ The results controls alleviate a potential lack of direction.

❖ Results controls also can be particularly effective in addressing


motivational problems

❖ Results controls also can mitigate personal limitations.

❖ The results controls is the essence of a management-by-


exception approach to management

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2.3. Elements of results controls

❖ (1) defining the dimension(s) on which results are desired;

❖ (2) measuring performance in the chosen dimensions;

❖ (3) setting performance targets for employees to attain for


each of the measures;

❖ (4) providing rewards for target attainment to encourage the


behaviors that will lead to the desired results

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2.3. Elements of results controls
Defining performance
dimensions
❖ Defining the right performance dimensions involves balancing
an organizations’ responsibilities to all of their stakeholders,
including owners (equity holders), debtholders, employees,
suppliers, customers, and the society at large.

❖ Firms need to decide what is desired, and they must ensure that
their measurements of the desired performance dimensions are
aligned with what is desired.

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2.3. Elements of results controls -
Measuring performance
❖ Measurement is a critical element of a results-control system
❖ The object of the measurement is typically the performance of an
organizational entity or an employee during a specific time period.
❖ Measures may be financial or nonfinancial
❖ Performance measures typically vary across organizational levels.
❖ The variation in the use of financial and operational performance
measures between higher- and lower-level management creates a
hinge in the management hierarchy.
❖ If managers identify more than one result measure for a given
employee, they must attach weightings to each measure so that the
judgments about performance in each result area can be aggregated
into an overall evaluation

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2.3. Elements of results controls
Setting performance targets

❖ Performance targets affect behavior in two ways:

❖ First, performance targets improve motivation by providing


clear goals for employees to strive for.

❖ Second, performance targets allow employees to assess their


performance

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2.3. Elements of results controls
Providing rewards

❖ The motivational strength of any of the extrinsic or intrinsic


rewards can be understood in terms of several motivation
theories, such as expectancy theory.

❖ The motivational effects of the various forms of reward can


vary widely depending on an individual’s personal tastes and
circumstances

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2.4. Conditions determining the
effectiveness of results controls

❖ Results controls work best only when all of the following


conditions are present:
❖ 1. Organizations can determine what results are desired in the
areas being controlled: organizations must know what results are
desired in the areas they wish to control, and they must
communicate the desired results effectively to the employees
working in those areas.
❖ 2. The employees whose behaviors are being controlled have
significant influence on the results for which they are being held
accountable;
❖ 3. Organizations can measure the results effectively: results
measures should be precise, objective, timely, and
understandable. www.themegallery.com
2.5. Tight results controls

❖ Tighter MCSs should provide greater assurance that employees


will act in the organization’s best interest.

❖ The achievement of tight results control depends on


characteristics of (1) the definitions of the desired result areas,
(2) the performance measures, and (3) the reinforcements or
incentives provided.

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2.5. Tight results controls

❖ Definitions of the desired result areas:

❖ the results dimensions must be congruent with the “true”


organizational objectives;

❖ the performance targets must be specific;

❖ the desired results must be effectively communicated and


internalized by those whose behaviors are being controlled;

❖ if results controls are used exclusively in a given performance


area, the measures must be complete.
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2.5. Tight results controls

❖ Performance measurement

❖ Tight results control also depends on the adequacy of the


performance measures that are used.

❖ A results-control system that is used to apply tight control


requires that all of these measurement qualities are met to a
high degree

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2.5. Tight results controls

❖ Incentives

❖ Results controls are likely to be tighter if meaningful rewards


are directly and definitely linked to the accomplishment of the
desired results.

❖ A direct link means that the accomplishment of results


translates explicitly and unambiguously into rewards.

❖ A definite link between results and rewards means that no


excuses are tolerated.
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