Evaluating the Completeness and Effectiveness of Management Control Systems with Cybernetic Tools

Posted: 21 Feb 2016

See all articles by Winnie O'Grady

Winnie O'Grady

University of Auckland Business School

Steve Morlidge

Independent

Paul Rouse

University of Auckland Business School

Date Written: February 16, 2016

Abstract

In the MCS literature, accounting control frameworks and the concept of the control package present different views on the components comprising control systems but offer little guidance for assessing the completeness of the systems or the effectiveness of the control being delivered.

This paper draws on two cybernetic tools, namely the Viable System Model (VSM) and variety engineering (VE) to analyze the completeness and effectiveness of management control systems in a case company.

The components of the system are mapped on to the VSM and the completed model used to assess the completeness of the system. The VSM analysis reveals the MCS of the case company is complete and therefore control problems arising from incomplete structures are not anticipated or found. The VE analysis, guided by the VSM, systematically assesses the company’s approach to control by considering how the variety of the control system and the environment are amplified and attenuated, respectively. The analysis reveals the system is designed around processes that amplify branch managers’ ability to respond to highly uncertain external conditions. The MCS is judged to provide effective control, meaning it appropriately balances the variety of the system and the environment, enabling branches to consistently achieve their performance goals. The VSM and VE together provide new tools to describe and analyze MCS and their fit with the external environment.

Keywords: viable systems model, variety engineering, law of requisite variety, management control system

JEL Classification: M4

Suggested Citation

O'Grady, Winnie and Morlidge, Steve and Rouse, Paul, Evaluating the Completeness and Effectiveness of Management Control Systems with Cybernetic Tools (February 16, 2016). Management Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2734541

Winnie O'Grady (Contact Author)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Steve Morlidge

Independent ( email )

Paul Rouse

University of Auckland Business School ( email )

Private Bag 92019
Auckland
New Zealand
+64 9 373 7599 (Phone)
+64 9 373 7406 (Fax)

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