Integrating Performance and Risk in a Management Control System: A Framework to Understand Aspects and Directions of Integration

131 Pages·2021·2.649 MB·English

by  Claudia Presti

SIDREA Series in Accounting and Business Administration
Claudia Presti
Integrating
Performance and Risk
in a Management
Control System
A Framework to Understand Aspects
and Directions of Integration
SIDREA Series in Accounting and Business
Administration
SeriesEditors
StefanoMarasca,UniversitàPolitecnicadelleMarche,Ancona,Italy
AnnaMariaFellegara,CatholicUniversityoftheSacredHeart,Piacenza,Italy
RiccardoMussari,FacultaddeEconomia,UniversitàdiSiena,Siena,Italy
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Claudia Presti
Integrating Performance
and Risk in a Management
Control System
A Framework to Understand Aspects
and Directions of Integration
ClaudiaPresti
DepartmentofEconomicsandManagement
UniversityofPisa
Pisa,Italy
ISSN2662-9879 ISSN2662-9887 (electronic)
SIDREASeriesinAccountingandBusinessAdministration
ISBN978-3-030-87081-2 ISBN978-3-030-87082-9 (eBook)
https://doi.org/10.1007/978-3-030-87082-9
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To my parents
Acknowledgments
WritingabookisharderthanIthoughtanditwouldnothavebeenpossiblewithout
thesupportofthepeoplearoundme.IamsincerelygratefultoProf.LucianoMarchi
forhisinvaluableguidance.SpecialthanksgotoProf.GiuseppeD’Onzaforsharing
withmehissuggestionsandexperience.IwouldliketoexpressmygratitudetoProf.
Nicola Castellano and Prof. Giulio Greco for their constant support. Finally, I am
gratefultoDr.FedericaDeSantisforhertime,patience,andfriendship.
ThisbookispublishedinSIDREABookSeries“AccountingandBusinessAdministration”edited
bySpringerasaresultofthedouble-blindreviewprocess.
vii
Contents
1 IntroductiontotheBook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 TowardaContemporaryConceptofManagementControl. . . . . . . 9
2.1 TheDevelopmentoftheManagementControlConcept
inLiterature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1.1 TheStartingPoint:ControlasVerification. . . . . . . . . . . . 12
2.1.2 TheBirthofManagementControl:ControlasaGuide. . . . 17
2.2 TheEvolution(Expansion)ofManagementControl. . . . . . . . . . . 21
2.2.1 TheCrisisofAnthony’sModel. . .. . . . .. . . . . .. . . . . .. 22
2.2.2 AStrategicPointofViewinManagementControl. . . . . . . 26
2.2.3 AnOrganizationalPointofViewinManagement
Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2.4 TheCurrentResearchesonManagementControl. . . . . . . . 33
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3 PerformanceManagementasaPartoftheManagementControl
System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.1 DifferentConceptsofPerformance. . . . . . . . . . . . . . . . . . . . . . . 43
3.2 FromMeasuringtoManagingPerformances. . . . . . . . . . . . . . . . . 46
3.2.1 Mono-dimensionalValue-BasedPerformanceModels. . . . 47
3.2.2 MultidimensionalModels. . . . . . . . . . . . . . . . . . . . . . . . . 50
3.3 ReflectionsontheRelationshipbetweenPerformance
ManagementSystemandManagementControlSystem. . . . . . . . . 59
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
4 TheDevelopmentofRiskManagement. . . . . . . . . . . . . . . . . . . . . . . 65
4.1 FromUncertaintytotheManagementofRisks. . . . . . . . . . . . . . . 65
4.2 RiskManagementinBusinessAdministration. . . . . . . . . . . . . . . 68
4.3 EnterpriseRiskManagement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ix
x Contents
4.4 ReflectionsontheRelationshipbetweenRiskManagement
SystemandManagementControlSystem. . . . . . . . . . . . . . . . . . . 78
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
5 TheIntegrationBetweenPerformanceandRisk. . . . . . . . . . . . . . . . 83
5.1 PreviousStudiesontheNeedofanIntegration. . . . . . . . . . . . . . . 83
5.2 ConceptualDevelopmentsattheBasisoftheFramework
Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5.3 IntegratingPerformanceandRiskManagementinPractice:
AMultipleCaseStudy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
5.3.1 DesignoftheEmpiricalAnalysis. . . . . . . . . . . . . . . . . . . 93
5.3.2 ReshapingtheFramework’sDraft:Results
andDiscussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
5.4 IntegratingPerformanceandRiskManagementinPractice:
EvidencesfromSMEs. . . . .. . . . . . .. . . . . . .. . . . . .. . . . . . .. 106
5.4.1 Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5.4.2 ExtendingtheProposedFramework:Results
andDiscussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
6 Conclusions,Implications,andLimitationsoftheStudy. . . . . . . . . . 117
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
AppendixA:Interviews. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
AppendixB:Survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Chapter 1
Introduction to the Book
Thismanuscriptanalyzestheintegrationbetweenperformancemanagementandrisk
managementinthecontextoforganizations’managementcontrolsystem,whichis
hereconsideredastheidealcontextinwhichthisconvergencecanberealized.Such
an integration can help overcome one of the main limitations of today’s risk
managementpractices:theproblemofthedisconnectionbetweenriskmanagement
andthedecision-makingprocess.
Organizations often develop performance management systems and risk man-
agement systems that have a unique structure, different owners, and different
objectives each, thereby losing the benefits arising from an integrated system. In
order to obtain a wide-ranging understanding of the total organizational risk expo-
sure, and to improve business results, an increasing debate on how to realize the
integrationbetweenriskmanagementandperformancemanagementhasdeveloped
betweenacademicsandpractitioners(Beasleyetal.,2005;Palermo,2011;Vander
Stede,2009;Woods,2009).
Thisintegrationcansupportmanagersindealingwithtwosidesofthesamevalue
coin:riskandperformance(Collier&Berry, 2002;Ferreira&Otley,2009;Posch,
2020, p. 1). An approach that integrates performance management and risk man-
agementcanhelptheinnovationofthemanagementcontrolsystem(vanderStede,
2011),takingintoaccountthatmanagingrisksmeansalsoincreasingtheprobability
to achieve long-term sustainability (Woods, 2009) such that this system can help
companies develop an integrated view between performance and risk. Such an
integration could fulfill the important task of guaranteeing both the protection of
the internal stakeholders and the defense of the external interests expressed by
investors,suppliers,clients,andthesocialcommunity.
This book analyzes the integration between performance management and risk
managementinthecontextoforganizations’managementcontrolsystem,whichis
considered as the ideal context in which the convergence can be realized. Such an
integration can help overcome the problem of the disconnection between risk
©TheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerlandAG2021 1
C.Presti,IntegratingPerformanceandRiskinaManagementControlSystem,
SIDREASeriesinAccountingandBusinessAdministration,
https://doi.org/10.1007/978-3-030-87082-9_1