Accounting for Managers: Interpreting accounting information for decision-making

MANAGEMENT CONTROL, MANAGEMENT ACCOUNTING 39

Business strategy Strategic uncertainties

Organizational

learning

Choice of interactive management control

systems by top management

Figure 4.1 Process model of relationship between business strategy and management
control systems
Reprinted fromAccounting, Organizations and Society, Vol. 15, No. 1/2, R. Simons, The role of manage-
ment control systems in creating competitive advantage, pp. 127 – 43, Copyright 1990, with permission
from Elsevier Science.

Control systems are concerned with feedback control, in which ‘the observed error
is fed back into the process to instigate action to cause its reduction’ (Otley, 1987,
p. 21). By contrast, planning systems are also concerned with feedforward control,
‘because it is only an expected error that is used to stimulate the control process’
(p. 21).
We can consider the management planning and control system as a single
system in which both feedback and feedforward are concerned with reducing the
performance gap (Downs, 1966). Downs defined this as ‘the difference in utility [an
individual] perceives between the actual and the satisfactory level of performance’
(p. 169). According to Downs, the larger the gap, the greater the motivation to
undertake more intensive search.
We can show this diagrammatically in Figure 4.2.
Feedforwardis the process of determining, prospectively, whether strategies
are likely to achieve the target results that are consistent with organizational goals.
Feedbackis the retrospective process of measuring performance, comparing it
with the plan and taking corrective action. The two systems need to be integrated
as a management control system as they share common targets, the need for

Planning system

(feedforward)

Control system

(feedback)

Goal Resource

allocation

Strategy

formulation

Action

(strategy

implementation

and resource

utilization)

Performance

measurement

Target Compare to plan

Figure 4.2 Model of planning and control system