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Management Control 1&2
Transcript of Management Control 1&2
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MANAGEMENT & CONTROL
RESULTS CONTROLS
ADVANCED MANAGEMENT ACCOUNTING
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Why Management Control?
Shareholders own company
Managers run company
Will managers run company in the best interest of
shareholders?
Are managers interests aligned with those of the
shareholders?
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Management
Organizing resources
People
Money
Machines
Information
What does accounting have to do with this?
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Accounting Information System
Financial gathers information about
resources for external users
Managerial gathers information about
resources for internal users
What resources do we need?
What should we do with them?
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Chapter 1 - Management & Control
Strategic Direction
Company objectives
Strategy Formulation
What to do specifically to achieve objectives
Execution and Strategy Implementation
AKA Management Control
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Objective Setting
Identify stakeholders
Who are they?
What do they want?
Mission, objectives, goals
If many stakeholders, may be in conflict
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Strategy
How organizations use resources to meet objectives
SWOT
Strengths and Weaknesses - Competitive advantages
Opportunities and Threats - Environment
Can be different for each department or employee
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Strategic Implementation
Employees implement strategic activities
Emphasis on employees
Control
Do employees behaving properly?
Following strategic objectives
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Identify Proper Behaviour
Clear Objective Determines direction
Example - Profitability
Strategy Determines how
Example - Cost cutting measures
Employee Behaviour
Does employee try to cut costs or not?
If not, why not???
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Employee Control Problems Direction
Understand?
Motivation
Try?
Personal limitations
Capable?
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Lack of Direction/Conflict
If objectives not clear
No direction
If objectives misunderstood
Misdirection
If employee has different objectives
Conflict
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Motivational Conflicting Objectives
Effort aversion
No effort
Lack of interest
Self interested behaviour
Stealing
Taking things
Spending on personal expenses
Perks
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Control Implementation
Cost/benefit
Too costly?
Controllability
Not controllable?
Control problem avoidance
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Control Problem Avoidance
Activity elimination
Automation
Centralization
Risk sharing
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Activity Elimination
Third party contract
Do not have the required resources
Legal or structural limitations
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Automation
Computers, robots
Eliminate human error
Inaccuracy
Inconsistency
Lack of motivation
However
Judgment process cannot be automated
Can be costly to automate
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Centralization
All key decisions made by top management
Top management must have superior knowledge
Top management must be aware of current and
future situations
lower management (on the front line) more
informed?
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Risk Sharing
Insurance
Joint Ventures
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Types of Controls
Result Controls (Chapter 2)
Emphasis on final results
Action Controls (Chapter 3)
Emphasis on doing specific things
Cultural and Personnel Controls (Chapter 3)
Ensuring the right person doing the right job
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Chapter 2 - Results Control
Emphasis on Results achieved
Impact of many undefined initiatives
Not on specific tasks
Measured after Management is done
Consequences?
Reward or Punish
Can the employee impact results?
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Results Control Attributes
Measure final results
No guidance regarding actions
Result of many actions and choices
No feedback until the end
Too late to go back so risky
What characteristics must an employee have for
result controls to work?
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Employee Characteristics
No guidance/final results assessed so must be
1. Self directing/autonomous
2. Confident of success
3. Capable of influencing results
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Elements of Results Control
Defining performance dimension
What you measure is what you get
Which results to measure?
High level Income covers global actions
Low levels operational data specific to tasks
Providing rewards
Extrinsic (salary, promotion, security, training, freedom)
Intrinsic (sense of accomplishment, cultural satisfaction)
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Effectiveness of Results Control
Direction
Motivation
Personal limitations
Controllability
Measured well?
Precise, objective, timely and understandable
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Course - Case Format
Objective of the Company
Strategy(ies)/Desired Behaviours
Management Controls
Are the employees behaving properly?
What is the problem (if any)?
Direction, motivation, limitation
Corrective measures (if any)?
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Why the Case Method?
Develop effective thinking processes
Better retention
Time management
Deal with ambiguity
Simulates real experience
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What am I Expected to do?
Prepare and participate
How do I prepare?
Scan the case get a general idea
Read case carefully
Find the problem
Provide analysis
How do I participate?
Present a case
Discuss the cases in class
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Case Method
Diagnostic cases
Link managerial actions to successes or failures
Why controls worked or not?
Decision cases (none in this course)
What should be done?
Combined cases Analyze and prepare a plan
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