Management Control System

“Control tightness and control cost system in

Bellagio Casino Resort”

By:

Jorgi Allen Purnomo 3124028

Rivo Giovanni 3125013

Alvina Andrea 3125020

Faculty of Business and EconomicsUniversity of Surabaya

2013/ 2014

STATEMENT OF AUTHORSHIP

“We as the author of the report who signed below; declared that the report attached is purely

from the result of our own work. There is no work of the others that used by us without

mentioning the source in our reference.

This material is not/ has not been presented/ used as a material for report on the other subjects

unless we clearly state that we use it.

We understand that the report that we submitted could be copied and/or communicated for

the purpose of detecting the presence plagiarism. If it is found that we have done plagiarism,

we will accept any punishment/penalty given by the lecturer who assessed this report.”

Class : Y

Group : 6

Group Members :

No Name Student ID

1 Jorgi Allen Punromo 3124028

2 Rivo Giovanni 3125013

3 Alvina Andrea 3125020

Lecturers : TEAM

Surabaya, 30th of September 2014

Author

CHAPTER 1

INTRODUCTION

1.1 BACKGROUND

Every business, regardless what kind of industry it is in, has its own unique way to be

sustainable. Most of the companies, which have proven to be successful in the business

world, use a system called management control system, collecting information across

divisions, and use it to as a measurement for the performance of various aspects inside the

company, mostly the financial, physical and organizational strategy. Managers tried to

implement the MCS through various control system, including action, result and cultural

controls. As a result, the benefits of using MCS can be seen through the increasing

probability of the organizational obejctives can be achieved.

MCS is very important to be implemented, especially in the businesses that require tight

control in their every day operation, in this case a casino. One of the major important thing in

the business is the control system tightness. Employees are expected to work in a strict

policy, where mistakes are less tolerated since it deals with large sum of money. Therefore, it

is expected that the business will implement the tight result system, which involves the

frequent budget reviews and also performance dependent incentives.

Furthermore, managers should also take into consideration regarding the costs incurred by

the company. When running a big hotel and casino business, it should be noted that the costs

are very high, and managers can’t afford to cover them with the revenues. Thus, they need a

way to control the increasing cost through implementing the monitoring of control system

cost in order to make informed cost-benefit judgement before the decisions are made. In

addition, managers should not only consider about the costs that can be seen, but also some

other side effects that might occur that is invisible.

Therefore, this report will focus on analyzing the implementation of control tightness and

control system costs inside the Bellagio Casino Resort, one of the largest hotel and casino

company in Las Vegas.

1.2 COMPANY PROFILE

Bellagio Casino and Resort isa casino resort where located in Las Vegas Boulevard street,

Las Vegas, in the state of Nevada. Bellagio Casino Resort is known as one of the most

luxirious casino resort in the world. It has the theme of Italian Luxurious decoration which

filled with unique botanical display which changed with the season. In the front of Bellagio

Casino resort there was a famous fountain that can do a ballerina dance following the music.

The lake was inspired by the Lake Como town of belagio in Italy. Inside the resort, there are

an expansive pool, a world class spa, high-end restaurant and luxuriant night clubs also some

bars and lounges, and the fine art galery. Bellagio casino resort also provided with a huge

convention space about 200,000 feet square.

Firstly, belagio was established at October 15, 1998 by the opening speech of the Bellagio

founder titled “O”. In 2000, The Bellagio Casino Resort was merged by the MGM Mirage,

which is one the best company in Hospitality business, which is worked at gaming, hotel,

dining, entertaiment, retail, and other resort amenities segment, but the main concern is for

gaming, hotel, and casino. After the acquisition MGM Mirage, shows its commitment for

Bellagio which to maintain the customer satisfaction in the Bellagio Casino Resort. Since the

acquisition, Bellagio has been renovated for three times, where is in 2004, in 2006, and in

2011.

CHAPTER 2

THEORITICAL FRAMEWORK

CONTROL SYSTEM TIGHTNESS

The benefit of any management control system (MCS) is derived from the increase in the

likelihood that the organizational objectives will be achieved relative to what could be

expected if the MCS were not in place. This benefit can be described in terms of MCS

tightness (or looseness). The tighter MCSs should provide a higher degree of certainty that

employees will act as the organization wishes.

The concept of tight control can certainly be applied to results controls. Tight results control

might involve detailed and frequent budget reviews of performance and significant

performance dependent incentives. Conceptually, effective implementation of tight control

requires that management has detailed and reasonably certain knowledge about how one or

more of the controls objects (results, actions, or personnel/culture) are related to the overall

organizational objectives.

TIGHT RESULT CONTROL:

The results dimensions must be congruent with “true” organizational objectives. The

performance targets must be specific, with feedback in short time increments. The

desired result must be effectively communicated and internalized by those whose

behaviors are being controlled.

There are some measures that must be completed if the results controls are used

exclusively in a given performance area.

o Congruence: Result control system may suffer congruence problems either

because managers do not understand well the organization’s true objectives or

because the performance dimensions on which the managers choose to

measure results do not reflect the true objectives well.

o Specificity and timeliness: Tight result control also depends on having

performance target described in specific terms and in relatively short

increments of time. Specific targets are disaggregated and quantified.

Management setting quantitative targets and measuring performance in

multiple environmental performance areas, such as energy usage, numbers and

size of spills, etc.

o Communication and internalization: For results control to be tight,

performance targets must be communicated and effectively internalized by

those charged with their accomplishment.

o Completeness: Completeness is the final requirement for tight results control.

Completeness means that the results areas defined in the MCS include all the

areas in which the organization desires good performance and for which the

employees involved can have some impact. At managerial levels, where jobs

are complex, results control are almost invariably incomplete.

Performance measurement:

o Tight result control depends on the effectiveness of the measures of

performance that are generated. Results controls rely on measures that are

precise, objective, timely, and understandable.

o A results control system that is used to apply tight control requires excellence

in all of these measurement quantities. If the measurement fails in any of these

areas, the control system cannot be characterized as tight because behavioral

problems are likely.

Incentives:

o Direct link: The accomplishment or results translates automatically into

rewards, with no buffers and no ambiguity.

o Definite link: Between results and rewards means no excuses are tolerated.

TIGHT ACTION CONTROL

Overall, action control systems should be considered tight only if its highly likely that

employees will engage consistently in all of the actions critical to the operation’s

success and will not engage in harmful actions.

Behavioral constrain

o Physical constrains: Come in many forms, ranging from simple locks on to

elaborate software and electronic security systems.

o Administrative constrains: Making to higher organizational levels provides

tighter control.

Preaction reviews: if the reviews are frequent, detailed, and performed by diligent,

knowledgeable reviewers.

Action accountability: Produce tight control in a manner quite similar to tight results

control. The amount of control generated by action accountability controls depends on

characteristics of the definitions of desirable (and undesirable) actions, the

effectiveness of the action-tracking systems, and the reinforcement (rewards or

punishments) provided.

To achieve tight action accountability control, the efinition of action must be

congruent, specific, well communicated, and complete.

o Congruence means that the performance of the actions defined in the control

system will indeed lead to the achievement of the true organizational

objectives.

o Tighter control can also be affected by making the definitions of actions

specific in the from of work rules.

o Understanding and acceptance on the part of those whose behaviors are being

controlled.

o Understanding and acceptance can be improved through developing effective

communication processes and by allowing employees to participate in the rule

defining processes.

o The definitions of desired actions must be complete. Completeness means all

the important, acceptable (and unacceptable) actions are well defined.

Action tracking: Control in an action accountability control system can also be made

tighter by improving the effectiveness of the action-tracking system. Constant direct

supervision is one tight action tracking method

Action reinforcement: Control can be made tighter by making the rewards or

punishments more significant to the employees affected.

TIGHT PERSONNEL/CULTURAL CONTROLS

In general, personnel control effectiveness is a function of the knowledge available to

link the control mechanism with the solution of the existing control problems.

Cultural controls are often powerful and stable. Culture involves a set of shared

beliefs and values that employees use to guide behavior. Some organization cultures

can be termed strong because they include quite a few deeply held and widely shared

beliefs and values.

Except company with strong cultures, tight control probably cannot be affected with the use

of personnel/cultural controls alone.Out of pocket costs

When implementing the MCS, businesses are required to spend some of the money to

both invest and maintain it. In this case, one of the costs are basically out of pocket costs,

which can be defined as the direct, monetary costs of implementing a MCS. Those costs have

significant impact on the decision making process since they reflect the result whether the

benefits can justify the costs for a particular type of control. It should be noted that, managers

should consider the full out-of-pocket costs to get the accurate results. In addition, too much

out-of-pocket costs will negatively impact in the MCS, and even cause it to fail. Therefore,

managers should be careful when dealing with the out-of pocket costs

Behavioral Displacement

When implementing MCS, managers are sometimes faced with not only just benefits, but

also the side effects. One of the common side effects in the behavioral displacement which is

actually the indirect cost of MCS. It happens when MCS produces and encouranges behaviors

that are inconsistent with the strategy selected or even with the company’s goals.

Behavioral displacement and result controls

Sometimes, behavioral displacement can occur within the result controls. For instance,

employees do not focus on the thing with highests value or priority, but they want to do the

easiest one. Therefore, employess are trying to find a way on how to make more money for

themselves, without even trying to fulfill the true company’s goals, and even worse, they do it

on purpose.

There could be several reasons explaining why this happens. First is because of an

incorrect understanding of the desired results, which can be misinterpreted by the employees.

Furthermore, there is also an incomplete specification of the desired results. It is very hard to

measure the performance of the company from all areas, and even worse, some areas can’t

really be measured. Therefore, it is actually possible to achieve maximum performance

without contributing toward fulfilling the company’s objectives. In most cases., managers

who are faced with profit pressure will take any means necessary to secure the profit,

although it may result in negative long-term consequences.

Second reason is the overquantification, which is caused by the tendency to only focus on

the results areas that are quantifiable or can be measured, compared to the intangible and

difficult-to-quantify ones. It might not be totally wrong, but still sometimes, the intagible

results are required since they are helpful in solving problems.

Behavioral displacement and action controls

Behavioral displacement can also impact the action controls. Managers often focus only

on the things the employee do, but fail to notice the things they are trying to achieve. It might

be a good idea to do so, since it limits the employees from doing something unrelated to their

work, as well as to make them more consistent in working. On the other hand, it prevents or

discourages them from thinking on how they can improve the company. Therefore, when

there is a change in the environment, those employees will have difficulties to adapt it, thus

slowing down the company and even risking it in the long-run. Therefore, sometimes, it is

required for the managers to encourage the workers to do their job in different ways, though

still need to be monitored.

Behavioral displacement and personel/culture controls

Lastly, there can also be behavioral displacement in the personnel/cultural controls. This

happens in most of the companies around the world. Company might make a mistake on

recruiting wrong type of employees, or even provide them with trainings that aren’t suitable.

This would later result in the behaviors of the company members deviated from the

organizational objectives. Furthermore, the controls are implemented in the wrong

environment, thus making them less effective and also unpurposely encourage unintended

behaviors. As a result, there would be crash between the employees, or even a drop in

efficiency

GAMESMANSHIP

There are also other negative side effects when the company tries to implement MCS,

such as gamesmanship. It refers to the actions that the workers take in order to improve the

performance indicatiors without providing positive benefits and economic efforts, It can

happen mostly in two kinds of scenario. First is the creation of slack resources, which usually

refers to the consumption of the organizational resources much more than what is actually

required. Managers would look a way which can secure their job, which is by proposing

targets that are highly achievable, in which they are much lower than what the company can

actually do. It has both positive and also negative effects. Managers are more relaxed, and

more resources are available for innovation. On the other hand, it can be an obstacle for the

company to pursue higher growth and efficiency, as well as preventing them from achieving

better overall performance. As a result, the company will be at loss in the long run.

Second form of gamesmanship is is the data manipulation. It basically means the effort

that the employees take to manipulate the control indicators to their liking.This can be done

in two forms : falsification and data management. Falsification refers to the the reporting of

false data, while data management involves the actions that change the reported results.

Managers will either boost, save or smooth the earnings. Furthermore, in some cases,

managers would falsify the financial reports to cover up the worsening financial condition of

the company. Therefore, those data manipulation acts will eventually lead to frauds and other

illegal actions.Moreover, once the company does the data manipulation, it is nearly

impossible to measure their performance level due to inaccuracy of the information.

Negative attitudes

Even when the controls are well implemented in the company, they will cause the

negative attitude, such as job tension, conflict, frustration and also resistance. It is still hard to

determine the cause of negative attitudes since it can be influenced by economic conditions,

organizational structure, etc. Both action and result controls can result negatively to the

employees. Action control makes the employees feel caged and result in discomfort when

doing the activities since there are so many regulations to be obeyed. On the other hand,

result controls might also cause negative attitudes. For instance, it reduces the commitment of

the employees to fulfill the performance targets, since they usually consider the targets to

difficult, unethical or not meaningful. Furthermore, in some cases, managers might be

burdened with the responsibilities that they have to bear, with little to no control of them. The

reward and punishment system might also bring negative attitudes since some of the

employees might not be able to bear the punishments they would get.

CHAPTER 3

ANALYSIS

COMPANY STRATEGY OVERVIEW

Bellagio Casino Resort has perform very confidencely in order to competing with others

casino resort business in Las vegas. The company primary methods of competing succesfully

in the high-end segment consisted of:

The location: located in desireable leisure and business travel markets ad operating

superior within those market

Constructing and maintaining high-quality resort and facilities, including luxorious

hotel guessrooms along with premier dining, entertaiment, and retail amenities.

Recruiting, training, and retaining well-qualified and motivated employees to provide

superior and friendly customer services

Providing unique “must-see” entertainment attraction.

Developing distinctive and memorable marketing and promotional programs

Bellagio also maintained the interaction of its customers by give an easy acess for their

customers for whom who deal want to deal with MGM grand properties, in this case is

Bellagio Casino Resort. It always maintain their website well to give the up to date

information about Bellagio and also give an online acess for the guess to do online

reservation whather hotel reservation and restourant reservation, both of them can be done in

the Bellagio’s website. For the marketing purpose Bellagio also inform their stakeholder with

the newest information, such as offering luxury suites packages that included golf privilage.

For the key sources of revenue, Bellagio focused on there performance indicator.

Gaming Revenue Indicator: such as table game drop and slot machine handle

(volume indicate) win or hold percentages (profitability indicators). These

performance indicators are discused in detail in the later section in this case.

Bellagio Casino also accept payment by credit card, joined with M-Life.

Hotel Revenue Indicator: Such as hotel accupancy (volume indicator), average

dialy rate (ADR price indicator) and revenue per available rate (REPAR – a

summary measure of hotel that combine ADR and occupancy rate).

On the other hand, The MGM Mirage operation policy also support the Bellagio to

become on of the leading company in its business segment. The management prefer to do

lease term in order to facilitate and give high-end amenities for the guesses. Besides branding

reason (to increase its prestige because it has high-end branded from all over the world and

all segment), the MGM Mirage focused on the customer convinience. The reason is by using

the lease term, the Belagio is give the other parties to manage their own entities. Thus, the

customers can directly deal with the staff on those areas and control are the aspect of the

guess’ experiences.

Bellagio Casino Resort, has a unique organizational structure. From its four thousands

employee, the quarter of the total employee are in the finance department. The reason is

because it has responsibilities for cash control and record keeping, both important functions

in the casino and the food and baverage parts of the businesses particulary. Thus the finance

organization included credit operation personel, pit clerk personel, and count room personel.

In addition, to people who were normally part of a finance organization, such as accounting

clerks and Financial analyst.

LAWS AND REGULATION OVER GAMING ACTIVITIES

In this section, is focused on control used in the Casino and how do they deal with

management control. Many of these activity in this business were maintain tightly and highly

regulated. For example, each company should pay for gaming tax and maintaining their

license to be still allowed by the government. For every casino was in the regulated of laws,

rules, and regulation for each ereas in where the casino is operated. Mostly, the restrictions is

concerned by the casinos Financial condition and its character of each owners or managers.

Unobeyying the rules and regulation can leads the company into the banned of the casino

license and the company would receive fine or jurrudictions actions.

There are controls actions that regulated by MGM Mirage in order to tighten its management

control:

Locked cash boxes on the casino flooe

Daily cash and coin counts performed by employee whose not have any job desc in

the Casino

Ongoing observation and supervision for the gaming area.

Maintain all the areas both of gaming and others security by cctv.

Timely analysis of deviations from expected performance

Constant computer monitoring of slot machines.

In addition, bellagio management also implement tight cash control. For its business that

dealing with a huge ammount of fresh money Bellagio must have a right cash management

control to prevent money laundry or others fraudelent activity that may occur on the

company. All of the suspicious activity that content of high risk fraudelent activity. Thus,the

US Internal Revenue Service (IRS) had made regulations in order to regained importance of

subsequent to the signing into law of the US patriot Act of 2001 of the following terorist

attack.

Casino is an unique institution which its cash cannot be easily traced. Nor like other

business entities such as bank, that the cash flow can be easily traced by the sistem because

all of the balance and the account mutation are already record computerize, Casino cash is not

easy to traced because the cash flows are manually and have a big cash flows, whather cash

inflows or outflows. The law required to make an report for every $10,000 excess in the

transactions activities from one or more transactions within 24 hours.

Because the fast and big cash flows, the company required a high standard of employee.

To reach those standard the company also held the extensive training for their employee. This

training is to facilitate the employee to be able and proffesionally handle, aggregate and

reportof the same type or dissimilar cash transaction by single customers on a single or

multiple visits within 24-hours period.

THE GAME OF BLACKJACK AND THE ROLES OF DEALERS

Belagio has provided the guess of the casino with many games. There are slot machines

and table games. Of course for each type of games in the casino has its own management

control. However, in this case we want to discuss more about the control happened inthe

Black Jack table games.

Black jack is a very popular card games where can be played up to 7+1 players. The plus

one means that there is a person comes from the casino itself, act as a dealer on the table. The

game minimum can be played by 2 person exclude the dealer. How to play black jack is the

players and the dealer are get 2 cards at the begining of the game, then the players should

give their bet to play the game. The winner is the one who have the total of the cards receive

by the player is higher than the dealer. The player also can ask the cards for 3 times (The

maximum cards in the player’s hand must not more than 5 cards, but for each additional

cards, the player should bet more). Each blackjack table is run by a dealer.

The functions of the dealer was to sells the token, deal with cards, take lossing wagers, and

pay the winning wagers. By its function, especially with the high standard in Bellagio, the

dealer are required to be a proffesional one and of course had passed some training and

considarable training. Experience also become a very important role in this job. The reason is

by having the experienced dealer, it can deals more games in one hours (for each one hour the

dealer should have a rest for 20 minutes to maintain the dealer’s concentration). Moreover,

the experinced dealer can more sensitive with any gestures of the player that want to cheat.

Dealers are acused to perform with the stability of profesionalism. Considering its

jobdesc – standing up by the dealt,required to concentration for analysing the gesture,

maintain their moods to make a joke or be nicely with the guess, and paying the debt which

not be tolerated if they made a mistake in paying others bets – the dealers are have 20

minutes break for every hours. It means that after 1 hour dealt with the game the dealer will

have 20 minutes break to refresh their mind and physical to perform perfectly again on the

next game. Bellagio also care about their dealer wealthness tih paid 6,15USD per hour and

their total compentation was USD 85,000 – USD 100,000. As mentioned above The belagio

will only hired an experienced dealer with have at least 2 years experience. The dealer

turnover is also very low which only less than 3%

Bill Birmingham, vice president of table games, discribed a good dealer as:

A good dealer makes a minimum number of mistakes and productive in terms of hands per

hour. But we don’t clock our dealers. We believe that customers gravitate towards a dealer

they comfortable with, and that means different things for every customer. Some player

prefer slower pace.

We only hire experienced dealers and so we assume that they have mastered the technical

aspect of dealing. For us, customer satisfaction is a key, meaning that the dealers have to be

welcoming and engaging. They smile, they make eye contact and conversation with the

player and they wish them well. We lso value attendance over a six-month period earn an

extra vacation day.

Regarding speed, you may have noticed as you walked through the casino that some tables

have only one or two customers. You might ask why I dont colse these tables. As a matter of

fact, a low number of customers at a table doesn’t worry me at all. If a good dealer can do

60 hands per hour on a table with, say, five customers, then that same dealer probably can

do nearly 300 hands with just one customers. And as I said, some customers don’t like to join

a busy table and so it all works out in the end.

The illustration below shows how does the Bellagio do the control for the blackjack table:

The blackjack tables at Bellagio were spread into six pits containing 16 to 30

blackjacks tables each. Floor supervisor or flooe persons supervised into three up

to six blackjacks table, depends on the ammount of the dollar in the table. Each

shift was also consist by three to five pit managers as well as five shift managers

and an assistant shift manager. For Instance, on the bussy day shift, pit number 4,

which containt 30 blackjacks table, employee about 30 dealers (depending on the

number of table opened, but the 30 dealers has might be stand by) 10 relief

dealers, up to 10 persons and one pit Manager. In total, the Bellagio employed

about 775 dealers 225 floor supervisor and 16 pit managers. Because they did not

shares in tokes, flooe persons and pit manager earned less than the dealers. The

average is USD 62,000 up to USD 85,000 per year respectively.

There is the illustration of how Bellagio control position:

CONTROLS ON GAMES

There are basically lots of controls that Bellagio Casino Resort employ in order to make

their business sustainable. They put controls on the games and also over the cash and credits.

Having to put controls on the games are very important for Bellagio as one of the leading

casino business in Vegas, possibly around the world. As discussed before, there are only two

types of profit centers in Bellagio, which are table games and slot machines. It is slightly

easier for the managers to control the slot machines since there are procedures and programs

controlling them. However, on the other hand, the table games are quite hard to control since

they involve much more money as the stakes. In this case, there might be irresponsible people

who are tempted with those large sums of money. Therefore, there should be control systems

implemented by the managers to manage the business.

As regulated by the Nevada Gaming Control Board (NGCB), Bellagio implemented

several controls to ensure the cash is safely maintained. There are basically six forms in the

control of games that have been applied by Bellagio. First is the licensing of the casino

personnel. All employees of Bellagio need to be registered with the GCB, in which the

casinos are required to submit the name, social secutiry number, position held and also date

of hire of the employees. For the employees side, they are at least given the registration

packet which includes the gaming employee registration application containing the basic

information of the both employees and employer, the gaming employee questionnair to check

the further information regarding the background of the applicant, and lastly the fingerprint

form which wil be checked against the police department records. If they fail the registration

process, thus the casino cannot employ them and vice versa.

The Bellagio performs their own employee screenings to filter the quality employees,

apart from the registration process. The purpose of it is more like to avoid hiring people who

had been involved in any sort of crimes or who are greedy with the large sums of money.

Furthermore, checks on the key employees would be done, including the executives,

managers or even the employees with enough power to influence the decision made. Overall

all the employees that work at the casino need to be licensed, and their background checked,

including the employment history, personal financial statements and also tax records.

The standardization of actions at tables in Bellagio is considered as tight enough. At gaming

tables, most of the dealers’ physical motions were standardized, for example:

1. All cash and chip exchanges were to be made in the middle of the gaming table in

full public view to make them easier to see by the supervisory personnel and

surveillance camera overhead.

2. Tips were to be accepted by tapping the cash or chips on the table and placing

them in a clear, locked toke box attached to the gaming tables. This was to

distinguish these exchanges from wagers.

3. Before the dealers left their tables, they were required to place their hands in the

middle of the tale and to show both the palm and back of their hands. This was

done to prevent them from palming money or chips in order to take it from the

table as they left. Dealers also required to wear attire that was designed to make it

more difficult for them to pocket cash or chips.

These three action control use action tracking system because there is constant direct

supervision from the supervisory personnel and camera surveillance. However, for the

required attire of the dealers is the physical constrain, because they physically constrained by

cannot pocket the cash or chips.

Dealers were subjected to multiple forms of supervision and surveillance. Direct supervision

was provided by the floor persons and pit bosses. One of their primary functions was to

watch the gaming activity and spot events that were out of ordinary. Because they were

highly experienced gaming people, so they had a keen sense to spotting nonroutine events.

Other surveillance provided through a system of closed-circuit cameras, one fixed above each

gaming table. The cameras had lenses powerful enough to zoom in to view objects as small

as the date on a dime on the table. Bellagio casino focuses more about their supervision and

surveillance actions, because casino business is very susceptible from cheating. In casino

business the flow of cash and chips must have a tight control, so the surveillance in the casino

must be outstanding even every play must be observed. This surveillance control is also can

be used as action tracking system because all the workers know that all of their action will be

observed, so they only can act as what Bellagio wanted.

The mystery shoppers program that Bellagio used is actually a good tool for performance

measurement for dealers, however the Bellagio use this more to keeping the casino’s

customer orientation in check rather than being a performance evaluation tool of dealers. This

because the main objective of Bellagio casino is customer satisfaction.

Bellagio casino result controls came from the reports that they made. The master games

worksheet can provide three key indicators of the results of the gaming activity: drip, win,

and hold percentage. Bellagio’s management watched the total drop and hold numbers

carefully. The drop number was the best available measure of the volume of betting activity.

This can be used as indicator of the success of the company’s marketing strategies and credit

policies. The hold percentage was the best available measure of casino profitability. By

looking this number the company looked for patterns. They knew that each table game should

maintain a certain hold percentage, for example the normal table games win percentage were

about 18%-22% of the table games drop. If the hold percentage was below that percentage for

a periods, then the managers in casino operations, including the vice president of table games,

had a hard look at the operations and control system to found the root cause of the

unfavorable trend in the hold percentage.

The managers in casino operations also looked at the hold generated on each shift in each pit

and at each table, but dealers and floor people were not always assigned to the same tables, so

because of the lack of information to tie them to hold percentages. Thus, Bellagio

management did no analysis result about hold percentage at the table levels. At this condition,

because Bellagio not give a specific location for the dealers some the result control cannot be

evaluated. Bellagio used table-by-table basis before, but they never caught anybody doing

anything. This is become the reason why Bellagio not used table-by-table basis anymore,

because this action can be more time wasting and cause more cost for the company.

Bellagio also have another report to evaluate their performance (result control) like cash drop

variance report that required by GCB (Nevada Game Control Board). If there was a unusual

deviations happen, the shift manager or even the vice president of table games could go back

and ask the pit personnel to explain why the deviation occurred, if there were any doubts

about the explanations, or the deviation couldn’t pinpointed easily, extra surveillance was

needed. Estimated vs. actual data were also aggregated on a daily basis (Table Games

Division), if there is a deviation between the actual and estimated drop exceeding +/- 10%

had to be investigated and explained.

GCB also required the casino controller to investigate on a monthly basis all statistical

fluctuation by game type in excess of +/-5% resulting from the comparison of the previous

calendar year to that current month. Even this was required by the GCB, it’s a good result

control to do, because the company could know their why and how they can get the

fluctuation of their game type. This information can be used by the management to improve

their control system and what strategies they will design in the future.

Bellagio have auditing procedures as final control mechanism. Personnel independent of the

transactions and the accounting thereof were assigned to perform stringent and frequent audit

procedures. The audit involved reconciling each document’s multipart stubs, checking their

proper completion and the propriety of signatures, verifying their sequential numbering, and

tracing their amount to the master games worksheet. If there is something unusual such as

unaccounted slips or there are variances between the source documents and the master games

worksheet, this will be investigated, documented and retained. Because Bellagio has a very

extensive internal audit, the company employed about 63 people. This auditing procedure

that implemented in Bellagio casino is one of result control, this extensive audit is needed in

casino business, because as Trent Walker the casino controller said “there always are, and

will be, people trying to rip us off.” From the control system cost, this audit spent a big

amount of cost because to do these procedures the company must pay a high amount of

auditor salaries.

Bellagio also give bonus to their executives, they received annual bonuses about 30% of

salary based both on the bottom-line performance of the casino and a set of individual

performance objectives. This bonus considered from the result measures. Take an example of

Bill Bingham’s bonus calculation, he got bonus based on growth in volume (drop),

supplemented with other factors depends on the focus in any given year. No bonuses were

based on win, because of the lack of control and as Bob Rudolf (vice president of internal

audit) explained “We obliviously don’t want games where the win is too high, as that might

jeopardize the enjoyment guest derive from gambling and coming into our casino in the first

place.” Even though the standard measures of performance were important indicators success

the company didn’t want to encourage casino managers to sacrifice everything for annual

bottom line in order to avoid managerial myopia

Bonus treatment is a kind of direct link of Incentives, because the accomplishment of results

translates automatically into rewards with no buffers and no ambiguity. From the side of

action control, bonuses can act as action reinforcement, because they offer rewards for their

employees, such as for executives receive bonus, and for other casino personnel will receive a

nonmonetary awards like employee of the month and employee of the year. This rewards in

bonus form, the company needs sacrifice some amount of money, and it will increase the cost

also. However, in employee awards the company will not lose considerable amount of money

but still can give encouragement for the employee to do their best, because it’s a high honor

to win the awards.

CONTROLS ON CASH AND CREDIT

Not only just the games are being controlled, but the cash and credit are also being

carefully and strictly monitored. The reason is because the casino business are mostly

conducted in terms of cash or cash equivalents (such as chips). Therefore there should be a

system regulating the flow of the cash and chips within the casino to prevent losses.

Furthermore, the marker play which actually uses credit takes large portion of the table

games volume at the casino, thus requiring strict controls over issuing credit. In this particular

practice, action controls are required greatly to make sure everything goes well as planned. It

actually consists of behavioral constraints such as locks and keys, preaction review such as

auditing, action accountability including timed process and serial number check, as well as

redundancy which involves back-up people.

The control system for the cash and credit itself includes at least four main principles.

First is the individual accountability of the cash. In this case, the personnel that deal directly

with the cash, such as the cashiers, coin redemption personnels, etc are responsible for the

specific amount of money that was given to them. They are required to turn in the exact

amount of money, otherwise they are given warnings or even dismissal suppose there are

shortages.

Second, Bellagio implements the formal procedures for transfers. At least there are three

types of activities happening during daily operations at Bellagio. There should be strict

procedures needed to be followed when transferring cash and chips, thus should be formally

noted. A system called drop standards needed to transport the cash or chips to and from the

blackjack table. It is better known as 24 hour drop box procedure. It starts with two of the

security guards obtain the count room key, as well as the carts and empty drop boxes and

their keys. Then the guards change the full boxes with empty boxes, then place the full ones

on the carts. Those carts are secured with different kind of padlocks, which the guards and pit

managers can’t open. At least 2 guards and 1 pit manager for each team are required for the

process to transport the boxes. Usually multiple teams are being employed at once for the

efficiency procedure. Then after finishing the counting process, guards will return the keys to

the cage.

Furthermore, for every beginning when employees decided to open the table, there would

also be some procedures to be fulfilled. It begins with the pit managers enter the request into

the computer through the input form. Then the request is sent to the cage, where there would

be 4-page fill slip are printed. In the mean time, the cashier and guard fill the order in the

cage.The cashier and guard would sign the first three slips, while the fourth one goes to the

accounting. Then the guard transports the chips and first two slips to the pit manager, while

the third one stays at the cashier. After that, the dealer counts the chips, as well as with the pit

manager signing the first two slips. Then the second copy and input form are put at the drop

box. Finally, the guard takes the first copy to the cashier, while the third one to the

accounting division.

At the end of the shift, there would also different procedures needed to be done. Both

the incoming and outgoing pit managers count the chips for each table. Then they will record

the findings on the table inventory sheet and sign it. One copy is put on the drop box, while

the other one goes to the cage. Finally, the cage cashier would input the data into the

computer.

Third principle concerns about the credit issuance. Usually, lots of players still want to

gamble, even they already lost their money. They can borrow the money from the casino, in

the form of marker (counter check). In the beginning, the individual credit limits need to be

checked and approved. Then the paperwork will be made and it contains 3 parts : 1) the

original which is kept in the pit until the marker process has been settled, 2) the issuance stub

which is signed by the dealer and floor supervisor, then it is inserted into the drop box at the

time limit of 30 minutes, 3) the payment stub, which differs depending on where it was paid.

If it was paid in pit, the payment needs to be signed by the supervisor, while if it was paid at

the table, the dealer needs to pay it in the public view.

Last is the control on the count room. It is the most important part in the control system

since it needs the tightest security. All counting of the money are being done inside the count

room, needing supervision to ensure the winnings are being tallied accurately and precisely.

The room itself is only accessible for the members of the drop and count teams, authorized

observers as well as the personnel performing the currency transfers, etc. Overall, a minimum

of 3 persons are required to supervise the whole process and a recording of the whole process

needs to be done. It was then finished with the member of the cashier signed the master

games worksheet and check the accountability of the drops.

Therefore, overall in Bellagio, tight control systems are implemented for each of the

process, starting from the game process upto the cash and credit transfer processes. A tight

system is needed since the business deals with large sum amount of money and lots of

customers, where mistakes are least tolerated.

CONTROL SYSTEM COSTS

During the implementation process, it would require the company to pay some direct out-

of-pocket costs, and also indirect costs. The out-of-pocket costs might include the costs of

cash prizes, auditing costs, and also bonuses for the employees. However, sometimes there

would also be indirect costs that the managers fail to notice, which can possibly be harmful

for the sustainability of the company.

First indirect cost that can incur is the behavioral displacement of the employees.

Sometimes the employees are tempted to do things that are incongruent with the company

goals. The dealers can take the money for their own benefits without taking some notes on

the transactions. They might also overlook the customer satisfaction which is one of the main

purposes of the company, other than maximizing profits.

The employees, in some cases, might have incorrect understanding of the results, leading

to them doing their job without knowing what the company tries to achieve. Moreover, the

employees sometimes do overquantification, focusing on the things that can be measured like

profits, while neglecting the non-financial measures, such as customer satisfaction. The top-

level managers sometimes pay attention only on what the employees do since it deals with

large sums of money. As a result, even their actions are more consistent, but they cannot

think creatively on how to improve the casino business as a whole.

In this casino business also, gamesmanship might happen frequently, especially the data

manipulation. When managers are faced with the decent-to-bad performance, they would do

anything to give the shareholders good news. By falsifying the report or changing the

financial statement, it helps them to achieve it, especially considering that casino business is a

very risky one, where the company can either gain alot or lose alot that no one can predict.

Third indirect cost that would happen in the casino business is the operating delays. In

this business, every action is being monitored and controlled so that everything goes as

planned, with little-to-no mistakes are made. There has to be some procedures to be taken in

order to ensure the controlling programs, including while opening the tables or finishing up.

In this case, it might take more time to do all those steps during the operational activities.

Lastly, employees might have negative attitudes as the side effect of all those controls. It

can occur within result controls. Sometimes the employees of the casino thinks that the

targets stated by the managers are too difficult to achieve, as well as sometimes unethical.

The company wants to maximise the profits, yet if the customers win too much money, the

dealers are required to do some kind of cheating to stop the winning streak. In this case, the

employees might feel guilty about their action. Furthermore, the employees working at the

casino might feel pressured, since they are constantly being watched during their working

hours.

CHAPTER 4

CONCLUSION AND RECOMMENDATION

CONCLUSION

In order to be successful and sustainable, companies, regardless their size, or industry

they are in need to implement management control system which collect as much information

and use it to measure their company performance. This report explained well on how

Bellagio Casino Resort, one of leading casino and hotel business in Vegas use the controls on

their daily operation, where there are transactions involving large amount of money and little-

to-no mistakes are tolerated.

Bellagio put tight control systems on their management process, including the control on

the games and also the cash and credit flow. Most of the contols used are basically the action

controls. They started from giving locks for the money boxes and using guards for

transferring the money until hiring the trustworthy employees to make sure everything goes

well.

Overall, it can be said that the action control system that Bellagio implemented is all tight

control systems. It was done since their employees are highly likely to engage consistently in

the actions that bring benefit to the company and not involve in the harmful actions. In other

words, the employees, form the cashier, guards and even the dealers are all carefully selected

when hiring process happened.

However, when implementing the control system, there would also seem some costs

incurred. Not only just out-of-pocket costs or direct costs are involved, but also some indirect

costs. For instance, sometimes the managers are likely to do gamesmanship, such as data

manipulation to get good results. Furthermore, the employees might feel pressured and

uncomfortable since they are being watched or monitored while working. Therefore

managers are required to know the indirect costs and be responsive when dealing with them.

RECOMMENDATION

Based on the analysis done on the third chapter of the report, there are basically some

recommendation that can be used by Bellagio Casino Resort to ensure its sustainability

1 From the general point of view, the customers go to Vegas would not only spend their

time on gambling, but nowadays they are more attracted to go shopping, dining, spas,

watching shows and other kinds of entertainment. Therefore, Bellagio should not only

just focus on the gaming or gambling site ot the business, but they also need to improve

the entertainment side, or even their hospitality service, making sure the customers are

having a good time, in order to attract more customers and maintain its sustainability

2 There are actually still human errors evident during the operational activities, especially

on the dealers’ part. In this case, in order to reduce the probability of such error to occur,

better trainings are required. In this case, the managers should also be more strict in

ensuring the customer-centric culture, maximizing their satisfaction. If the dealers still

perform inconsistently, despite the trainings and warnings, should be subjected to

dismissal

3 The drop and hold percentage of the table to be tracked for each table at the end of each

shift. A new system using the RFID can be implemented, as well as money scanners, in

order to ensure that there aren’t any kinds of cheating apparent during the game, both for

the employees and also the customers.

4 All employees (floor manager, pit bosses) should be entitled to receive the bonus. It is

believed that financial rewards can make the employees be motivated, aside from morale

rewards. Furthermore, the tips that a certain dealer gets should be his privellege and

solely enjoyed by him/her, since it is a proof of doing a good job.

REFERENCES

Merchant & Van Der Stede (2007), Chapter 4 &5

http://prezi.com/dksefdghxbsl/controls-at-the-bellagio-casino-resort/

http://www.slideshare.net/umeshcharki/cost-control-systems

http://en.wikipedia.org/wiki/Bellagio_(resort)

http://www.academia.edu/6137664/Case_2_Ballagio

http://www.docin.com/p-51994894.html