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Management control systems

Behavioural aspects of control systems

3.1 Principles of good performance management systems

 Effective control systems must incorporate a feedback loop

– set targets

– measure actual results

– compare actual with target

– control action taken.

 This will facilitate management by exception.

 When comparing actual and budget consider whether the budget should be
flexed.

 Targets should be neither too easy, nor too hard.

 Participation in target setting usually increases ownership and motivation but
can result in budget padding.

 Controllability – managers should only be assessed on factors under their
control.

 Targets should be linked to the type of business unit – e.g. profit centre.

 Targets should have a mixture of financial and non-financial performance
indicators.

 Targets should be linked to long term performance as well as short term.

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