“Control theory offers valuable insights into the design and operation of management accounting information systems, but only under circumstances where an organization?s environment is stable and predictable...

Two important concepts in control theory are firstly, that a system must have a purpose and must
have controls if it?s to remain cohesive and secondly, that is a system can be divided
into a number of sub-systems and sub-sub-systems, each with it?s own purpose and
controls. Controls provide the binding force, which kept every various elements within the system
all working towards a common objective.
Control theory can be used to analyze or to establish control systems within a business organization.
A model can be constructed and used as follow:
i. The system as a whole, and for each sub-system (and sub-sub-systems) one or more objectives
are identified.
i i. Actual achievements of the system and sub-system are monitored.
iii. Actual achievements are compared with the objective.
i v. Reasons for any differences between the objectives and achievements are identified
v. Where suitable, corrective measures are taken to bring the system under control

- When actual achievements are measured as actual outcomes and results, the comparison of
results with objectives is called a feedback control loop. When actual achievements are
measured as what the system is not expected to achieve and future expectations are
compared with objectives (Such as projected completion dates for a project) we have
feed forward control.

- A control model can also be made to recognize environmental influences, and the ways in
which environment can affect the system?s achievements and objectives.

- The concepts of control theory can provide valuable insights into the design and operation
of a management accounting information system (MAIS) because:-
i. Business organizations need to be controlled by their management.
ii. Management accounting provides an information system for control, based largely on
a system of budgets. This information acts as a feedback loop.
iii. The way in which a MAIS is structured and used can be determined by modeling
techniques.
A control model for a MAIS would: -
i. Identify the sub-systems within the organization
ii. Establish objectives for each sub-system, and for the system as a whole. These
objectives must be measurable, and would usually take the form of budgets,
with the control system being a budgetary control system.
iii. Measure actual achievements for each sub-system, for the system as a whole.
iv. Compare actual results with the objectives (budgets)
v. Identify significant differences, and the reasons for them, indicating where
control action should be taken.

- A MAIS cannot initiate control action itself, but can only indicate where control
measures might see appropriate, control measures must be taken by managers, perhaps
using their judgment. In this respect, a MAIS falls short of the ideals? of a
cybernetic control model.

- The practical application of control principles to a MAIS, using a budgetary control
system does depend on the stability of the environment and accurate measurement of
results.

- When an organization?s environment is unstable ad unpredictable forecasts
of achievements will be uncertain; and a comparison of actual results against plan might
be meaningless. It might also be necessary to alter the system?s objectives in
response to environmental change.

- If environmental changes are continual, or frequent, the problems of redefining systems
objectives will be considerable and budgets would have to be revised at frequent
intervals. In addition, the significance of differences between actual results and budget
would be difficult to assess for control purposes.

- Outcome needs to be fairly clearly measurable for control system to operate successfully.
In practice, there may be problems in applying quantitative measures to qualitative
outputs, and control information might be imperfect and incomplete. This always the
prospect that unless results can be measured objectively managers will manipulate and
„judge? the figures, so that the problems of human behaviour damage the
operation of the control system.

- In conclusion, control theory can provide a useful framework for a MAIS but control of
a business is not “automatic”. Business organizations are largely „human
systems,? ad there will inevitably be difficulties with applying the theoretical

- structure of a control model in practice. Further more, although some environmental change
can be achieved for in a control mode, frequent changes caused by unstable environment
could remove the practical value of feedback systems for control.

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Kavungya answered the question on May 3, 2021 at 10:56