Essay about What Kind of Management Control Do You Need?

7940 Words Apr 21st, 2016 32 Pages
What Kind of Management Control Do You Need?

05/04/16 18:48


What Kind of Management
Control Do You Need? by Richard F. Vancil

A good method of measuring a manager’s financial contribution to a company must meet two criteria. It must seem fair to the manager, and it must reward him for working for the benefit of the whole company, not just his department or division. Although simple in theory, these criteria become difficult to meet in practice. The characteristics of the business may lead managers to work at cross-purposes; moreover, the strategy of a business should have a profound effect on the kinds of decisions made. In this article the requirements of designing
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Managers understand what profit is all about, and aggressive managers welcome the opportunity to have their abilities measured by the only real entrepreneurial yardstick.

Simple and powerful, profit centers sound like a panacea, the answer to a top manager’s prayer. No wonder the concept has been so widely adopted. However, as with many a miracle drug, all too often the side effects of the medicine may be worse than the illness it was intended to cure.

There is an excellent body of literature on the problems that arise in implementing the profit center concept.1 The question I shall discuss is a more basic one: When should profit centers be used? More precisely, what executives below the president of a corporation (who clearly is responsible for profits) should be held responsible for the profits from segments of the business?

Parts of this discussion will come as no surprise to corporate presidents or to their controllers. I shall stress the relevance of corporate strategy and organization structure to profit center systems—an approach that may seem obvious to such executives. But I cannot find a discussion of these considerations in the literature, and thus I am led to believe that a concise statement of the conventional wisdom may be worthwhile.

Choice of Financial Goals
The cornerstone of every management control system is the concept of responsibility

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