Topic 3- Budgeting and Management Control
1. Definition and concept of control
satu policy atau procedure yang bantu organization untuk capai its goals and
objectives. Contohnya, dalam sesebuah syarikat kita set a standard, receive
feedback whenever the actual performance deviates differently with the
planned performance.
control means we have dominant and information. Denga nada nya
information, we tend to dominate something. If kita Cuma satu je antara dua
element tersebut we tend to not have a control
2. Level of controls (OMO)
Operational control
o Mid level manager akan evaluate the operating level employees
o Lebih focus kepada detailed dan standard performance measure
o Satu process dimana provide feedback kepada employees and their
managers about efficiency of activities that being performed
o Dalam operational level control, dia akan measure and compare the
short term performance dengan short run targets
Management control
o Penilaian (evaluation) from upper level from managers to the
performance of the mid level managers
o Focus kepada long term dan strategic issue
3. Definition of management control
Anthony 1965- satu process where the managers assure the resources obtained
and use effectively and efficiently in the accomplishment of the organization’s
objective
Lowe 1971-satu system of organization information seeking and gathering,
accountability, and designing feedback to ensure that enterprise adapt with
changes in the substantive environment
4. List 3 aspects of management control (3 aspect yang we consider when we want
to design management control)
1. Siapa yang interested dalam evaluating the performance of organization
2. Apa yang dievalute? (what is being evaluated?)
3. Bila performance evaluation will finish? (When the performance evaluation is
done?)
5. 5 element of management control which need to interact with each other
(PCCED)
1. Planning
2. Coordinating (susun)
3. Communication
4. Evaluation
5. Decision making
6. 2 components of management control system
1. Formal MCS
o Policies, rules, performance measure, incentive plan
o Contoh: management acct system, information about cost, revenue and
income
2. Informal MCS
o Aspects such as shared values, mutual commitment among members in the
organization
7. Type of controls
Task control-satu process develop standard procedure yang employee are told
to follow
Result control-process of hiring qualified people to do whatever they think
the best to help organization to achieve its objective, and use control system
untuk evaluate performance
8. Control Mechanism
Control mechanism terbahagi kepada 3 iaitu culture, bureaucracy and market:
1. Culture
o satu social mechanism yang informal dimana control is achieved
through shared beliefs.
o People yang ada culture dan profession yang sama are encouraged
untuk pursue same objective dan pegang kepada prinsip yang sama
o Akan ada goal congruence yang sama so it resulted less supervision
from supervisors
o Semua orang tau tugas masing masing without being told
consistently
2. Bureaucracy
o Keistimewaan (specialization) of authorities and hierarchy
o Lebih kepada formal. Formal route and information and flow of
power
o Supervision yang mengikut turutan
3. Market
o Control dijalankan by way of market mechanism
o Decision making is based on market price information
o Less supervision jika dibandingkan dengan bureaucracy
9. 4 behavioural considerations (ethical code, mix short and long, employee for
decision making, inentive system)
1. Menetapkan (embedding) the ethical code of conduct into MCS design
2. Gunakan gabungan short and long term qualitative and quantitative performance
measure (qualitative is subjective contohnya macam compliment)
3. Empowering employee dengan involvekan mereka in decision making and MCS
design
4. Develop appropriate incentive system to reward performance
10. Motivation-when the employee feels motivated means the MCS is effective
Bila organization design job and specific task, system designer should
consider 3 dimensions:
1. Direction-target (what people need to do)
2. Intensity-effort of employee. Keupayaan employee/ to what extent the
employee would put their effort to do the work
3. Persistence-keep doing
11. Goal congruence
The organization and its employee have the same goal/ both side must align to
their respective goals
How to make sure the alignment of goal occur. The employee need to
1. Perform their job well and help to org objective
2. Attain their individual goals at the same time
12. Budget
Budget is quantitative expression of money inflows and outflows that reveal
whether the financial plan meet the organizational objective
2 types of budget
1. Operating budget-summarize the level of normal activities such as sales,
purchasing
2. Financial budget-identify the expected financial consequences of the
activities that summarized in operating budget such as cash budget, capital
expenditure budget
Methods setting budgets
1. Authoritarian-superior akan terus bagitau subordinates what their budget
2. Participation-semua parties bersetuju about setting the budget target, by
using joint decision making (kesepakatan menyeluruh dari semua party)
3. Consultation-managers ask their subordinates to discuss the idea of
setting the budget, but at the end the manager will determine the final
budget alone
