Essay Example on Effective Management Control: Strategies for Sustainability

Paper Type:  Essay
Pages:  6
Wordcount:  1570 Words
Date:  2023-03-02


Management control refers to the mechanisms that company controllers put in place to influence individual behavior to steer organizational objectives. Primarily, controlling is a management's function that involves procedures managers implement to prevent possible deviations from set standards. Some relevant techniques that controllers utilize embody personal observation, budgetary control, break-even analysis, cost control, ratio analysis, and internal auditing, to name a few. Sustainability, on the other hand, is broadly defined as the focus on meeting present human needs without compromising the ability to achieve future goals. Therefore, both management control and sustainability share an element of planning for the future.

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Notably, most studies in the existing literature examine managerial control and sustainability separately and not as interrelated concepts. For instance, the benefits of management control, techniques, and functions of a management controller exist in different studies that have been compiled so far in this field. In sustainability also, most studies have focused primarily on the benefits of integrating sustainability with organizational objectives as well as implementing mechanisms to promote societal welfare. However, the literature lacks a significant explanation of the connection that exists between management control and sustainability. This essay intends to fill the research gap by exploring the possible link between management controllers and sustainability, assessment of how controllers foster sustainability, and an evaluation of whether management control and sustainability exist differently.

How Management Controllers Link to Sustainability

Notably, management controllers operate based on sustaining particular desired outcomes of an organization. In other words, it is somehow impossible for controllers to pursue their activities without having some notion of sustainability since the primary goal of controlling is to enable an organization to move from one level, often undesired one, to the desired level (Ussahawanitchakit, 2017). Thus, controllers must ensure the sustenance of the activities they implement to sustain the desired level. More importantly, management controllers approach their functions in more or less of a systems thinking, which is a holistic view of how constituent parts of an organization contribute to the achievement of particular goals (Mononen, 2017). Management controllers do not initiate improvements through a single approach, department, or desired outcome. Instead, controllers aim at ensuring that their organizations improve operations in all the levels, aspects, and units. For instance, a management controller cannot focus on performance targets and overlook production costs. Likewise, these controllers cannot concentrate on reducing costs without implementing mechanisms to realize desirable employee behaviors and beliefs. Therefore, these managers must aim to control every aspect of an organization, including production, inventory control, employee competencies, management style, expenditures, financial efficiencies, organizational culture, and the effectiveness of recruitment strategies.

Sustainability is a complex term that can be defined in various ways. Kuhlman and Farrington (2010) argued that sustainability originally referred to as practices in forestry management. Initially, Germans used the term Nachhaltigkeit, which implied sustainability in 1713 (Kuhlman & Farrington, 2010). In the initial applications, however, people used sustainability and its ethnic variations to guide policies related to preserving soil fertility or preventing the prey from getting extinct. The traditional beliefs behind conserving or optimizing resources were that society comprised of the dead, living, and unborn individuals, who deserved some consideration in the resource allocation (Kuhlman & Farrington, 2010). Today, societies continue adopting sustainability as the measure of increasing efficiency in production and

Still, sustainability is a central theme in economics since economists generally perceive resources to be scarcely available and thus a need to optimize expenditures (Kuhlman & Farrington, 2010). Therefore, since businesses operate primarily on the principle of profit maximization, they are likely to allocate resources to only activities that optimize profit. Notably, implementing sustainability might be costly; however, even though sustainability might necessitate added expenses, it can have more benefits in the future by maintaining particular desired standards of performance. Even though sustainability is a complex term, most of its definitions share common elements like the harmonious existence of resource utilization, investment or expenditure, technology integration, and institutional change. These elements should maintain a country's or organization's ability to fulfill human needs both in the present and in the future (Kuhlman & Farrington, 2010). Hence, like management control, sustainability involves systems thinking that aims at fostering improvement across different aspects. Thus, management control appears to be the basis for sustainability. As indicated earlier, management controllers mostly aim at steering and maintaining the desired level of performance, which they cannot achieve without improving all the relevant aspects of an organization -this typically promotes sustainability.

How Management Controllers Improve Companies with the Topic of Sustainability

Management committed to steer an organization's sustainability develop specific mechanisms to ensure that different parts and layers of an organization maintain a certain desired level of performance or improvement. Firstly, management controllers improve the company's sustainability through personal observation. In this technique, controllers observe patterns of performance that subordinates achieve (Oswaal Editorial Board, 2019). Indeed, direct observation is the oldest method of performance or behavioral monitoring. Through observing, controllers can gain important insights into deviations from the set behaviors and thereby initiate changes. Therefore, direct observation can ensure that employees maintain a certain level of performance that can steer an organization's growth. Kumar, Duggirala, Hayatnagarkar, and Balaraman (2017) argued that supervisors' presence is critical for improving an organization's performance. Many workplaces involve stressful conditions that, without some control, may impede performance (Kumar et al., 2017). Since direct observation is more or less like supervision, it must promote performance by pressurizing employees to commit to fulfilling performance targets.

Additionally, management controllers also use budgetary control, as they also need to avoid wastage. Budgetary control entails a comparison of the actual performance with the corresponding budget performance to determine deviations (Oswaal Editorial Board, 2019). In case controllers find deviations, they either improve by adjusting budget estimates or mitigating the causes of the deviations. Indeed, budget control is a widely-applied controlling tool for optimizing business operations due to its ability to provide a basis upon which corrective mechanisms can be devised. Through the budget control approach, management controllers establish a particular desired performance level that becomes the basis for evaluating an organization's progress to improvements (Oswaal Editorial Board, 2019). Notably, most aspects of budgetary control relate to sustainability. For example, this measure must fully identify concrete goals that the organization must achieve. Therefore, it guides optimal resource allocation across departments, and thereby it promotes sustainability.

Moreover, a management controller committed to sustainability uses the break-even analysis in which they identify the interrelationships among production costs, production volume, and profit margins (Oswaal Editorial Board, 2019). In the technique, controllers identify the total costs involved in the generation of revenue at different levels of sales. Essentially, the break-even analysis enables controllers to determine the minimum sales volume at which an organization can fully recover its production costs and start earning profits (Oswaal Editorial Board, 2019). Likewise, controllers apply the technique to estimate turnover for different levels of the desired profits. Additionally, through dealing specifically with fixed and variable costs, the break-even analysis enables controllers to control variable expenses. Therefore, the technique facilitates sustainability by not only promoting production to reach desired levels but also through mitigation of production costs. The exclusive focus on performance improvements may not be sustainable without cost mitigation as even if workers achieve desired performance targets, a business may not achieve significant profits if huge costs of production persist. However, by facilitating a type of cost leadership strategy, the break-even analysis enables controllers to augment the sustainability of their company's profits.

Management controllers implement further steps through which they focus on improving an organization's financials at the departmental level instead of focusing on the whole entity. In particular, most controllers include ratio analysis in their sustainability initiatives (Oswaal Editorial Board, 2019). Ratio analysis involves the comparison of ratios of different items in an organization's financial statement, such as liquidity ratio, profitability ratio, turnover ratio, and leverage ratio, amongst others (Oswaal Editorial Board, 2019). Specifically, ratio analysis determines the financial condition, efficiency, and profitability of an enterprise. The measurement of financial performance using ratio analysis enables controllers to identify discrepancies at the departmental level and thereby have better insights about how to control the department's financials more effectively. Optimization of finances is a way of controlling wastage, and thus it is a precursor to sustainability (Lavorata & Sparks, 2018).

Moreover, management controllers pursue improvements through cost control through which they determine the standard of evaluating the costs of items, ascertainment of the actual costs of the items, and identification of variations (Weaver, 2012). After this, controllers determine the extent of variations and, together with the management team, implement mechanisms to ensure that the actual costs conform to the established standards in the future. Therefore, this technique necessitates continuous recording of actual costs from which controllers can begin the assessment (Weaver, 2012. As such, controllers also require the management to install suitable reporting systems to furnish timely reports to various levels of management. Such is likely to elicit commitment toward more productive business activities.

More importantly, management controllers foster sustainability by undertaking an internal audit of an organization that involves independent verification and evaluation of the accounting, financial, and other business functions (Oswaal Editorial Board, 2019). In internal auditing, management controllers aim to ensure that the accounts reflect the facts of an organization to facilitate the tracking of wastes. For example, internal audits tend to measure expenditures against the available funds, which ultimately trace deviations. In the internal auditing also, controllers evaluate the effectiveness or performance of current policies, procedures, the application of authority, and other relevant aspects of operations (Oswaal Editorial Board, 2019). M...

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