Risk Profile Contingent Analysis of Management Control Systems

As the existence of enterprises is a direct result of the fact of uncertainty (Power, 2007), the question of how firms cope with uncertainty to survive in the long run is at the heart of management science (Knight, 1921). While increasing dynamics of the environment of businesses has been leading to advanced complexity within organizations during the twentieth century (Ansoff, 1979), complexity within an organization leads to uncertainty, which results in a lack of information regarding potential future outcome (Galbraith, 1973). As a result, information tends to be diverse and incomplete, leading to the institution of controls such as rules, documentation, and formalized structures (Child & Mansfield, 1972; Khandwalla, 1975) to cope with evident coordination problems (Arrow, 1964).

This chapter reviews theoretical and empirical literature concerning management control (MC) research. Throughout this section, special focus will be given to the aspect of uncertainty and its consequences, as this is the major underlying theme of this dissertation. First of all, an introduction to MC will be presented in order to build up a theoretical framework and to provide specific terminology.

Drawing on the theoretical and empirical findings of contingency-based research in management accounting and control outlined above, this chapter presents further conceptual developments and testable propositions in order to design a framework for examining the interrelationship between MCS design and use, risk profile, and organizational performance. Although the ubiquitous nature of uncertainty has been given insufficient attention in MCS research (Otley & Soin, 2014), the notion that different sources and degrees of controllability of risk types demand different control models in organizations for these risks to be managed effectively (Mikes & Kaplan, 2014; see also Göstl & Schwaiger, 2016) has recently been pursued. Hence, this study hypothesizes that the choice of MCS design und use reflects the firms’ risk profile, and that firms that choose MCS design and use better suited to their risk profile perform better than others.

Management accounting research can be defined as “the process of using rigorous methods to explain and/or to predict (1) how changes to an existing management accounting system will affect management actions, motivations, and organizational functioning, and (2) how internal and external organizational forces will affect management accounting system design and change” (Foster & Young, 1997, p. 64). This chapter will present the methods and research framework of this study in examining those research questions addressing the second part of the above-cited definition. In general, a quantitative empirical approach has been chosen to explore the hypotheses stated in the previous chapter.

In this chapter the results of the empirical analysis of this study are presented and discussed. As a consequence, evidence is provided for these hypotheses which are supported by data. For analysis of data, the statistical software IBM SPSS Statistics Version 24 is used.

In this final chapter, the main findings and contributions to the research field are presented. Furthermore, as it is the case for most research, this study is limited for a number of reasons, which are discussed subsequently. Finally, in order to highlight potential key avenues, implications for future research are addressed.