Performance Management Systems
(PMS)


The term „performance“
lperformance levels:
lperformance of individuals
lenterprise performance (incl. enterprise divisions)
lsupply chain performance
ldefinition:
-in a broader sense
= achievement of predetermined objectives of an enterprise
  (e.g measured by satisfaction of each stakeholder group)
-in a narrower sense
= financially measured appreciation of capital
(e.g. measured by ROE, ROA,...)

How would you define PERFORMANCE?

Trends in Performance Management
Source: Bititci, U., Garengo, P., Dörfler, V., Nudurupati, S. (2012) : Performance Measurement:
Challenges for Tomorrow. International Journal of Management Reviews, vol. 14, issue 3, s. 305-327,
p. 312

„Management Control System“ (MCS)
becomes popular term
next to „Performance Management Systems“
lScopus
lTOPIC: ("Management control system") OR TOPIC: (MCS)
lTITLE-ABS-KEY ( "Management Control
System"  OR  "MCS" )  AND  ( LIMIT-TO ( SUBJAREA ,  "ENGI" )  OR  LIMIT-TO ( SUBJAREA ,  "BUSI" )
OR  LIMIT-TO ( SUBJAREA ,  "ECON" )
l

What is
Management Control system (MCS)?
l„Management control refers to a set of processes and mechanisms used by managers to influence the
behaviour of individuals and groups towards more or less predetermined objectives.“
l(D.S. Bedford, T. Malmi in Management Accounting Research 27 (2015) 2–26)
a)
a)
l

Performance Management



•
Different types of controls applied in organizations
lMerchant and Van der Stede (2007):
1.Action (or behavioural) controls
2.Personnel and cultural
(or clan and social) controls
3.Results (or output) controls
l

•
Different types of controls
lMerchant and Van der Stede (2007):
1.Action (or behavioural) controls
lConsist of:
lBehavioural constraints (e.g. PC password; limits,...)
lPreaction reviews (scrutiny and approval of action plans before employee can undertake a course of
action)
lAction accountability (e.g. work rules; codes of conduct)
2.Personnel and cultural
(or clan and social) controls
3.Results (or output) controls
l

•
Different types of controls
lMerchant and Van der Stede (2007):
1.Action (or behavioural) controls
2.Personnel and cultural
(or clan and social) controls
lPersonnel controls build on employees natural tendencies to control themselves (emphasis is on
selection, training and job design).
lCultural controls represent a set of values, social norms and beliefs that are shared by members
of an organization and that influence their actions.
3.Results (or output) controls
l

•
Different types of controls
lMerchant and Van der Stede (2007):
1.Action (or behavioural) controls
2.Personnel and cultural
(or clan and social) controls
3.Results (or output) controls
lresemble cybernetic* control system
lfocus is on reporting information
about the outcomes of work effort
lstages:
1.Establishing performance measures
2.Establishing performance targets
3.Measuring performance
4.Providing rewards or punishments
5.
*cybernetics = the field of science concerned with processes of communication and control
(especially the comparison of these processes in biological and artificial systems

•
Advantages and disadvantages
of different types of controls
lAction (or behavioural) controls
lDirect link between control mechanism and the action.
lMeasurement problems do not apply.
lNot feasible where cause-and-effect relationships are not well understood or easily observable.
lBest suited to stable conditions.
lPersonnel and cultural (or clan and social) controls
lFew harmful side-effects and inexpensive to operate
lAppropriate only in certain circumstances
lResults (or output) controls
lCan be applied where knowledge of desirable actions is lacking.
lSpace for creativity of employees, because focus is on outcomes
l
l

•
Management accounting control systems (MACS)
lTend to be the predominant controls in most organizations because:
1.Monetary measure provides a means of aggregating results from dissimilar activities.
2.Profitability and liquidity are essential for company survival and success.
3.Financial measures enable common decision rules to be applied.
4.Measuring results in financial terms enables managers to be given more autonomy.
l
l

•
Management accounting control systems (MACS)
lTwo core elements:
1.Formal planning processes for establishing performance expectations.
le.g. budgeting, long-term planning, standard costs
2.Responsibility accounting
lCost or expense centres
§standard cost centres (output can be measured)
§discretionary cost centres (output cannot be measured)
lRevenue centres
lProfit centres
lInvestment centres
3.
3.

•
Management accounting control systems (MACS)
lMACS process involves:
1.Setting performance targets.
2.Measuring performance.
3.Comparing performance
against target.
4.Analysing variances
and taking remedial actions.
lResponsibility accounting is implemented by issuing performance reports
about variances between budgeted (planned) and actual performance.
1.
1.
compare with the same idea behind standard costing method

•
MACS
Typical reporting structure

Strategic control



Strategy map and Balanced Scorecard (BSC)
Kaplan, Norton (2004)





References:
lATKINSON, A.A., KAPLAN, R.S., MATSUMURA, E.M., YOUNG, M.S. (2012): Management Accounting :
Information for Decision-Making and Strategy Execution. 6th Ed. Upper Saddle River (New Jersey):
Pearson. ISBN 978-0-13-702497-1 lBititci, U. –  Garengo, P. – Dörfler, V. – Nudurupati, S. (2012) :
Performance Measurement: Challenges for Tomorrow. International Journal of Management Reviews,
2012, vol. 14, issue 3, pp. 305-327. lChenhall, R.H. (2003): Management control systems design
within its organizational context: Findings from contingency-based research and directions for the
future. Accounting, Organizations and Society, 2003, vol. 28, pp. 127-168. lDrury, C. (2012):
Management and Cost Accounting. 8th ed. Andover (Hampshire): Cengage Learning EMEA, 2012.
lFerreira, A. – Otley, D. (2009): The design and use of performance management systems: An extended
framework for analysis. Management Accounting Research, 2009, vol. 20, pp. 263-282. lFranco-Santos,
M. – Lucianetti, L. – Bourne, M. (2012): Contemporary  performance  measurement  systems:  A
review  of  their consequences  and  a  framework  for  research. Management  Accounting  Research
23, 2012, pp. 79–119 lMalmi, T. – Brown, D. A. (2008): Management control systems as a package:
opportunities, challenges and research directions. Management Accounting Research, 2008, vol. 19,
pp. 287-300. lTessier, S. –  Otley, D. (2012): A  conceptual  development  of  Simons’  Levers  of
Control  framework. Management  Accounting  Research, 2012, vol. 23, pp. 171-185.
l