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Organisational activities

1) Explain why the Otley and Berry notions about control maybe useful to the understanding of organisational activities. 2) All organisations have controls in different parts of their work. Explain why these are necessary. Provide four different examples of these. 3) Re-state the four examples in (b). Explain what type of classification you will give to each type of control. To start with, an explanation of the meaning of control is important as any precise definition can be misleading. In various articles, we will often come across controls such as financial, management, operational control and many more but it should be noted the implication of each control is often different and a good understanding of each type is worth knowing.

A clear distinction between management accounting and financial accounting is common in all text books, but it is not often the same for the control side, this is why I will first of all give a brief description of both. According to Otley et al, financial control is clearly concerned with the management of the finance function within organisations while management control is a general management function concerned with the achievement of overall organisational aims and objectives.

From this point, it is clear that the

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description given is quite narrow, a broader definition of management accounting is further outlined below Lowe (1971) gave a comprehensive definition of management control as a ‘A system of organizational information seeking and gathering, accountability and feedback designed to ensure that the enterprise adapts to changes in its substantive environment and that the work behaviour of its employee is measured by reference to a set of operational sub-goals (which conform with overall objectives) so that the discrepancy between the two can be reconciled and corrected for.’

It is evident from this definition that the management control process is usually a complex process but it will be logical to give a definition using the cybernetic approach as it is the type of control system developed by Otley and Berry notion. Pask 1961, defined control as the study of how systems regulate themselves, reproduce themselves, evolve and learn (cited in Emmanuel C. et al, pg 8). After considering the different definitions of control, it will be ideal to give a clear and concise structure of the essay.

The essay will aim to provide three main points; firstly, it will provide the importance of Otley and Berry notions of control to the understanding of organisational activities with the use of a simple system. Secondly, it will highlight and explain the reasons why organisations have controls in different parts of their work and give examples with their respective classification. Finally, conclusions will be drawn from the essay and issues for further research will be considered.

Anthony et al. (1989) described management control as a process for motivating and inspiring people to perform organization activities that will further the organisation’s goal (cited in A. Berry et al page 18). However, a question that needs to be considered is how control will help in understanding such organisational activities? Such question led Tocher (1970) to develop a basic model of control which was applauded by Otley & Berry (1980) and it is now extensively known as the Otley & Berry notion of control. Tocher’s basic model of a cybernetic control process was applied to organisational control where the model suggests that there are four basic conditions to be satisfied before control can be said to exist.

1. The need for an objective 2. The fact that there is an objective simultaneously requires (an individual to produce) a predictive model about the objective. 3. In order to ascertain if the objective has been attained requires the objective to be measurable 4. Finally, there must be an opportunity for any appropriate intervening action, in order to harmonise the objective and the actions being undertaken. (Purdy Derek, Control and the National Health Service) Although the notion of Otley and Berry has been highlighted above, it is obvious it does not give a clear view how it can be useful to the understanding of organisational activities. The notion is applied to a simple system in order to improve the knowledge on the usefulness of Otley and Berry’s notion to the understanding of organisational activities.

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