Management Control 1&2

8/10/2019 Management Control 1&2

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Instructor: Philippe Levy1

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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Management Control 1&2

Documents

Transcript of Management Control 1&2