Decision control is the means by which managers either ratify or monitor decisions. A second tool organizations have created to control employee behavior is the use of periodic performance evaluation systems. Accounting safeguards the firm's physical assets from agency costs; employee embezzlement, theft etc. Often the accounting function is performed independent of the assets or people it is monitoring.
In many organizations the main instrument of management control is responsibility budgeting, which embraces both the formulation of budgets and their execution. Responsibility budget formulation involves the firm's policies. The results of all past policy decisions are converted into financial targets that correspond to the domains of administrative units and their managers.
In this process, budget executions and operations are monitored by subordinate managers who evaluate and reward employee accomplishments. Responsibility budgeting is as much organizational engineering as it is cost accounting. It is the product of the bureaucratic revolution. Large organizations are justified by economies of scale and scope. Economies of scope are produced by exploiting the division of labor sequentially combining highly specialized functional units in multifarious ways to produce a variety of products.
Hierarchy and bureaucracy make large companies possible. Bureaucracy separates tasks into their simplest component parts and recombines them to produce complex goods and services, distributes scarce resources to administrative units, and formulates organizational strategies.
