Behavioural Aspects of Control

One of the most important procedures within the management accounting process is control. This not only includes controlling business costs, but also the behaviour of those involved in the business, ranging from divisional and departmental managers to ordinary working staff.

Budgeting is the process of allocating an organisation’s scarce resources to its divisions, departments, strategic subunits, activities and investments. Although regarded as a practice (an optional technique), it is in fact a reality i.e. it is common in most organisations. They help in;

  • providing information on funding and accountability for management.
  • presenting a realistic estimate of how a particular product, department branch etc. is likely to perform in a future period.
  • providing a means to carry out the process of responsibility accounting.

Control and Controls

Control – the corrective action that is taken to ensure the firms activities conform to its plan and that its objectives are achieved. Controls – measurement systems put in place to help provide information to assist in determining the control action to be taken.

The management control process is an entire array of controls used by an organisation to ensure its targets are met.

Types of Controls

Action (behavioural) controls

These controls impose behavioural constraints on employees e.g. passwords, spending limits etc. These types of controls are most appropriate where the cause and effect are understood, as more appropriate controls can be implemented to combat specific problems. Action controls that prevent undesirable behaviour are the ideal form of control – they are preferable to detection controls as they aim to prevent the behaviour from occurring all together.

Personnel, cultural and social controls


Personnel controls build on the employee’s natural tendency to control and/or motivate themselves. There are three major methods in achieving this;

  1. Selection and placement: finding the right people for the right job and putting them in a good work environment with the necessary resources is likely to increase the probability that work will be done properly and to a higher standard.
  2. Training: can provide useful information about what results and actions are expected and how the assigned task can be best performed. It can also have a positive motivational effect as employees are given a greater sense of professionalism, and they are more interested in performing well in jobs they understand.
  3. Job design and provision of necessary resources: a well-designed job allows motivated and qualified employees a high probability of success.

Cultural controls:

These controls are designed to encourage mutual monitoring i.e. bringing members of the group who deviate from the group’s norms back in line with the group. They are based on the idea that cultures are built on shared traditions, norms, beliefs, values, ideologies, attitudes etc., and organisational cultures remain similar to this over a fixed, long period of time despite strategic or tactical changes of the business.

Results controls:

These involve rewarding/punishing individuals for good/poor results. They influence employee’s actions, causing them to be concerned about the consequences of the actions they take. However, employee’s actions are not constrained; employees are instead empowered to take whatever actions they believe will best produce the desired result. The process involves;

  1. Defining the performance dimensions.
  2. Measuring performance on these dimensions.
  3. Setting performance targets.
  4. Providing rewards or punishment.

The Role of Management

Ultimate responsibility for budgets lies with top management as they see the budget as a means of achieving their longer-term objectives. Top managers need to translate the budget down to lower-level managers who may see it as being too difficult, unachievable and de-motivating. The top managers will also have to set a budget that will achieve some of the needs of the majority of stakeholders (both internal and external). Therefore, the link between top management and lower-level management is very important.

Targets and Motivation

There are a number of target difficulties that management can set to achieve different levels of production from employee’s:

  • demanding targets – motivate managers and achieve the best performance.
  • easy targets – less motivational and often achieve a lower level of performance.

The success of these targets will depend on a number of factors, for example how accepting managers are of budgets – depends on the extent to which the managers have participated in the budgeting process. Some targets can be counter-productive – targets that are unachievable will demotivate managers and result in a lower level of performance. Similarly, top managers attitudes towards adverse variances will also affect behaviour.

Budget Difficulty v Performance Graph

Despite the graph showing an adverse variance, by setting a motivational budget, the manager still performs better than if an easier ‘expectations’ budget is set. Setting the budget too high can in fact have the reverse effect and demotivate managers. Therefore, the way top level managers respond to adverse variances may strongly impact the performance of lower level managers – particularly if the budgets are used for incentive schemes e.g. bonuses.

Management Style

The type of management leadership style employed often strongly affects the behaviour of employees;

Active (give instructions)                         v         Passive (let employees lead themselves

Flexible (open to change)                        v          Rigid (fixed)

Supportive (help employees)                  v          Unhelpful (don’t help employees)

Similarly, the organisational culture has a significant impact on employee’s behaviour;

Blame       v       Tolerance

Rigidity    v       Entrepreneurial

There are three main methods used to evaluate managers performance based on budgetary information. The way that managers are evaluated will have significant implications on their behaviour.

Management style Performance evaluation Behavioural aspects
Budget-constrained style Manager evaluated on ability to achieve budget in the short term.Manager will be criticised for poor results. For example, if spending exceeds the limit set. Job related pressure.May result in short-term decision making at the expense of long-term gain.Can result in poor working relations with colleagues.Can result in manipulation of data.
Profit-conscious style Manager evaluated on ability to reduce costs and increase profit in the long term.For example, a manager will be prepared to exceed the budgetary limit in the short term if this will result in an increase in long-term profit. Less job related pressure.Better working relations with colleagues.Less manipulation of data.
Non-accounting style Manager evaluated mainly on non-accounting performance indicators such as quality and customer satisfaction. Similar to profit concern style but there is less concern for accounting information.Requires significant and stringent monitoring of performance against budget.

Controllability Principle

This is effectively responsibility accounting, and thus suggests that managers should be held responsible for only those costs that they can control or influence. Examples including; cost of materials, allocation/apportionment of head office overheads etc., should not appear on a production manager’s performance report.

Responsibility Accounting

Working out cost per product is not useful for controlling a business, as the business needs to be split into sectors/departments to control them more efficiently. Responsibility accounting enables accountability for financial results to be allocated to individuals throughout the organisation through the creation of responsibility centres. Only costs that a manager can control should be charged to a responsibility centre, however, many things are partially controllable e.g. overheads, materials. A responsibility centre is the subunit of the organisation that has control over costs, revenues, or investment funds. For accounting purposes, responsibility centres are classified as cost centres, profit centres, investment centres or revenue centres.

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