1 Management control and the role of management accounting 1. Outline of the module ‘ Organisational Context of Management Accounting’ Organisational Context of Management Accounting’ 2. Management accounting and management control Exercise 3. Cybernetic control Case Break 4. Organisational context, strategy & control 5. Ouchi’s control mechanisms Discussion Question for the week: ‘What controls management control, and for whose purposes?’
41
Embed
1 Management control and the role of management accounting 1.Outline of the module Organisational Context of Management Accounting’ ‘ Organisational Context.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
Management control and the role of management accounting
1. Outline of the module ‘Organisational Context of Management Accounting’Organisational Context of Management Accounting’
2. Management accounting and management controlExercise
3. Cybernetic control Case
Break
4. Organisational context, strategy & control
5. Ouchi’s control mechanismsDiscussion
Question for the week:‘What controls management control, and for whose purposes?’
2
Learning outcomes
The module The module criticallycritically examines examines assumptions assumptions underlying theory and underlying theory and practice of practice of management accounting and controlmanagement accounting and control, , using a range of theoretical perspectives, using a range of theoretical perspectives, which put this theory and practice into their which put this theory and practice into their behavioural, organisational, political, cultural and social contextbehavioural, organisational, political, cultural and social context
3
Learning outcomes
The module The module criticallycritically examines examines assumptions assumptions underlying theory and underlying theory and practice of practice of management accounting and controlmanagement accounting and control, , using a range of theoretical perspectives, using a range of theoretical perspectives, which put this theory and practice into their which put this theory and practice into their behavioural, organisational, political, cultural and social contextbehavioural, organisational, political, cultural and social context
Upon successful completion of the course, you will be able to:Upon successful completion of the course, you will be able to:1.1. Explain Explain the implications of relaxing key assumptions, including the implications of relaxing key assumptions, including
assumptions of certaintyassumptions of certainty
2.2. Demonstrate Demonstrate the behavioural, organisational, political, cultural and the behavioural, organisational, political, cultural and social implicationssocial implications
3.3. AnalyseAnalyse cases, using several paradigms and a variety of theories cases, using several paradigms and a variety of theories
4.4. Critically Critically evaluateevaluate solutions to management control problems solutions to management control problems
5.5. Formulate a Formulate a coherent argumentcoherent argument, drawing on a range of theories and , drawing on a range of theories and weighing up evidence, and communicate this argument in essays weighing up evidence, and communicate this argument in essays
4
Seminar topics – term 1
1.1. Management control and management accountingManagement control and management accounting IntroductionIntroduction
2.2. Alternative paradigms Alternative paradigms
3.3. Interpretive paradigm and organisational cultureInterpretive paradigm and organisational culture Alternative paradigmsAlternative paradigms
4.4. Radical paradigms and postmodern views Radical paradigms and postmodern views
5.5. Systems theory Systems theory
6.6. Management control for strategy and learning Management control for strategy and learning Alternative theoriesAlternative theories7.7. Agency theory Agency theory 8.8. Transaction cost economics Transaction cost economics
11.11. EVAEVA and value based management and value based management Recent developmentsRecent developments
There will be some flexibility so that the focus can be more on discussion of implications than on There will be some flexibility so that the focus can be more on discussion of implications than on covering all listed topicscovering all listed topics
5
Seminar topics – term 2
12.12. Guided reading Guided reading No seminarNo seminar
14.14. The ‘Risk Society’ The ‘Risk Society’ 15.15. Risk assessment in face of uncertainty Risk assessment in face of uncertainty Risk & uncertaintyRisk & uncertainty16.16. Psychology of riskPsychology of risk
17.17. Capital budgeting Capital budgeting 18.18. Culture & institutions as response to uncertainty Culture & institutions as response to uncertainty Managing risk & uncertaintyManaging risk & uncertainty19.19. Enterprise risk management Enterprise risk management
20.20. Economic, social and ethical performance Economic, social and ethical performance Competing demandsCompeting demands
21.21. RevisionRevision
There will be some flexibility so that the focus can be more on discussion of implications than on There will be some flexibility so that the focus can be more on discussion of implications than on covering all listed topicscovering all listed topics
6
Assessment
• Essay due Friday week 8, up to 2,500 words on material from weeks 1 – 5 25%
• Essay due Friday week 14, up to 2,500 words on material from First term 25%
• Exam, Summer 2005 50%– Section A: compulsory seen case, unseen question– Section B: choice of 1 from 3 essays– Section C: choice of 1 from 3 essaysEach section worth 1/3 of marks for the exam
7
Assessment criteria
Well argued essay:Focused on answering the question
8
Answer the question
Coursework essay February 2004:Evaluate the formal management control systems of Restaurant Division and the informal processes within the Division as control towards objectives.
20% of students did not answer the question,
9
Answer the question
Coursework essay February 2004:Evaluate the formal management control systems of Restaurant Division and the informal processes within the Division as control towards objectives.
20% of students did not answer the question,
Comment on a coursework essay last year:You give an excellent analysis of management control theory, using the case to compare the radical structuralist, functionalist and interpretive paradigms. You support your argument well with a wide range of literature. However, you do not reach a conclusion, and have not evaluated the strengths and weaknesses of Restaurant Division’s MCS and informal processes. Therefore you have not answered the question. I have reduced marks for what otherwise was a very good essay.
10
Assessment criteria
Well argued essay:Focused on answering the questionFor a case, relate to the facts described in the caseUse a range of theories and research paradigmsCite references, where relevant to your argument
to literature that you have READ:Give author and year, e.g. Otley & Berry (1980)As explained in Student Handbook CD
to real life cases, e.g. EnronWhen asked to ‘evaluate’, reach a conclusion
drawing on arguments that you have made for and against
11
Learning methods
Seminars: Several lecture slots in weekly seminar 9am – 12 noonExercise on unprepared material Several examPrepared case or issue questions may beDiscussion of implications based on these
Generally focuses on ‘Question for the week’Reflection on learning – 1 minute student review
12
Learning methods
Seminars: Several lecture slotsExercise on unprepared material Several examPrepared case or issue questions may beDiscussion of implications based on theseGenerally focuses on ‘Question for the week’Reflection on learning – 1 minute student review
Reading:** Required – essential knowledge needed to pass course* Recommended – for more depth of understanding,
for higher grade Suggested – alternative perspectives & explanations
Seminar material & reading lists on Blackboard
13
Learning methods
Seminars: Several lecture slotsExercise on unprepared material Several examPrepared case or issue questions may beDiscussion of implications based on these
Generally focuses on ‘Question for the week’Reflection on learning – 1 minute student review
Reading:** Required – essential knowledge needed to pass course* Recommended – for more depth of understanding,
for higher grade Suggested – alternative perspectives & explanations
Seminar material & reading lists on Blackboard
Preparation BEFORE each seminar:Print seminar material from BlackboardPrepare your solution to the case ready for student discussionRead at least two of the readings for the seminar
AFTER each seminar:Review updated material on blackboardRead further to develop understanding of key areas
14
Reading for week 1
Anthony, R. N., & Govindarajan, V. (2001) Management Control Systems, Chapter 1
* Berry, A., Broadbent, J. and Otley, D. (1995) 'The Domain of Organisational Control. Chapter 1', Management Control: theories, issues and practices, London. UK: Macmillan Press Ltd.
* Otley, D. (1994) 'Management control in contemporary organizations: towards a wider framework', Management Accounting Research, 5: 289 – 299
** Otley, D. and Berry, A. (1980) 'Control, Organisation and Accounting', Accounting, Organizations and Society, 5: 231-244. and EOM readings
** Ouchi, W. (1979) 'A Conceptual Foundation for the Design of Organizational Control Mechanisms', Management Science, 25: 833-848
The reading list will be put on Blackboard before each week
15
2. Management accounting & management control
Management control:
•Towards objectives
•Aligning behaviour
•Survival & adaptingto changingenvironment
•Managinguncertainty
Management accounting financial information for:
•Planning,•Decision-making•Control•Performance
measurement•Attention directing
16
Exercise
Identify:
• key roles for management accountants within organisations and society in 2004, and
• what challenges management accountants face in fulfilling these roles
Individually list your ideas
Compare and discuss in groups of 4 or 5
17
Roles and challenges for management accountants today
Roles:Performance measurementPreparation of internal accountsPlanning, budgeting & variance analysis to cut costsControl, e.g. supplier selection, authorising paymentsPricing decisionsDisaster recovery
And a few more not raise in the seminar:
Focus on creating shareholder value and communicating with shareholdersEnsuring financial viability of strategyRisk management, delivering dependable performance
Challenges:Uncertainty, e.g. September 11th
Fostering simultaneous control, knowledge management and creativityIntegrating business and financial strategyBalancing competing demands
18
3. Cybernetic control
Process withmeasures
Outputs withmeasures
Inputs withmeasures
(Otley and Berry 1980)
Input Behaviour Output control control control
Role of accounting:Measure inputs and outputsIdentify appropriate measures for objectives, inputs and outputsAnalyse, summarise & communicate
Role of control:Provide reasonable assurance that objectives will be achieved
19
3. Cybernetic control
(Otley and Berry 1980)
Process withmeasures
Outputs withmeasures
Inputs withmeasures
Predictivemodel
Objective for the process
Implementchosen action
Generate & evaluate
alternative action
Change:•Inputs•Objective•Predictive model•Process
20
3. Cybernetic control
Assumptions:• There is an objective for the control system which is known• Output and at least either input or process can be measured• The predictive model is known• There are alternative relevant actions
(Otley and Berry 1980)
Process withmeasures
Outputs withmeasures
Inputs withmeasures
Predictivemodel
Objective for the process
Implementchosen action
Generate & evaluate
alternative action
Change:•Inputs•Objective•Predictive model•Process
21
Case: St. Augustine School
Read and discuss the case in groups
Each group give their evaluation of the WICHE system for St. Augustine School
In your evaluation consider: – the objectives and uncertainties that the system
may help the school and its staff (faculty)to address, and
– how well it may help them address these
22
Cybernetic control
(Otley and Berry 1980)
Process withmeasures
Outputs withmeasures
Inputs withmeasures
Predictivemodel
Objective for the process
Implementchosen action
Generate & evaluate
alternative action
Change:•Inputs•Objective•Predictive model•Process
23
Uncertainty that limits cybernetic control of organisations
• Objectives often vague, multiple and conflicting, priorities uncertain and subject to change
• Measures often subjective, incomplete or unavailable
• Predictive model is incomplete concerning people, markets, and effects of external environment
• Alternative actions usually constrained
24
Uncertainty that limits cybernetic control of organisations
• Objectives often vague, multiple and conflicting, priorities uncertain and subject to change
• Measures often subjective, incomplete or unavailable
• Predictive model is incomplete concerning people, markets, and effects of external environment
• Alternative actions usually constrained
Management control systems (MCS) cannot match the complexity of organisations
“Control in the full cybernetic sense will never be achieved in the context of a human organisation”
(Otley and Berry, 1990, page 242)
25
4. Organisational context, strategy & control
Anthony & Govindarajan :“management control is the process by which managers
influence other members of the organisation to implement the organization’s strategies”
Management Control Systems (1998, page 6)
Strategyformulation
Managementcontrol
Taskcontrol
26
4. Organisational context, strategy & control
Anthony & Govindarajan :“management control is the process by which managers
influence other members of the organisation to implement the organization’s strategies”
Management Control Systems (1998, page 6)
Strategyformulation
Managementcontrol
Taskcontrol
Systematic implementation of strategies, including behavioural implications
Goals, strategies and policies
Efficient and effective performanceof individual tasks
27
Organisational context, strategy & control
Otley (1994, page 298):“Management control … intimately bound up with both strategic
decisions about positioning and operating decisions that ensure the effective implementation of such strategies”
28
Organisational context, strategy & control
Otley (1994, page 298):“Management control … intimately bound up with both strategic
decisions about positioning and operating decisions that ensure the effective implementation of such strategies”
Berry, Broadbent and Otley (1995, page 4):“Management control is the process of guiding organisations into
viable patterns of activity in a changing environment”
29
Organisational context, strategy & control
Otley (1994, page 298):“Management control … intimately bound up with both strategic
decisions about positioning and operating decisions that ensure the effective implementation of such strategies”
Berry, Broadbent and Otley (1995, page 4):“Management control is the process of guiding organisations into
viable patterns of activity in a changing environment”
They see management control as concerned with:– Survival within changing uncertain environment– Strategy formulation and implementation– Complexities of:
• Behaviour, cultures and institutions• Competing objectives• Politics and competing interests
– Control of operations, dependent upon particular contingencies of markets, technologies, products, structure & size of organisation
30
5. Ouchi’s control mechanisms
Pure forms:
1. Market controlCompetition, outsourced activities, comparison of pricesReciprocal acceptance of contracts
31
5. Ouchi’s control mechanisms
Pure forms:
1. Market controlCompetition, outsourced activities, comparison of pricesReciprocal acceptance of contracts
quality etc.) to standards, cybernetic controlLegitimate authority
3. Clan controlShared values, ethos of organisation and professions,
indoctrination into values and traditions, social controlCulture
33
5. Ouchi’s control mechanisms
Knowledge of transformation process
Perfect Imperfect Bureaucratic control
HighAbility to Market
measurecontrol outputs
Low
34
5. Ouchi’s control mechanisms
Knowledge of transformation process
Perfect Imperfect Bureaucratic control
HighAbility to Market
measurecontrol outputs
Low
Behaviour or output
measuremente.g. Mars rocket
35
5. Ouchi’s control mechanisms
Knowledge of transformation process
Perfect Imperfect Bureaucratic control
HighAbility to Market
measurecontrol outputs
Low
Behaviour or output
measuremente.g. Mars rocket
Behaviourmeasuremente.g. Factory
36
5. Ouchi’s control mechanisms
Knowledge of transformation process
Perfect Imperfect Bureaucratic control
HighAbility to Market
measurecontrol outputs
Low
Behaviour or output
measuremente.g. Mars rocket
Outputmeasurement
e.g. Fashion shop
Behaviourmeasuremente.g. Factory
37
5. Ouchi’s control mechanisms
Knowledge of transformation process
Perfect Imperfect Bureaucratic control
HighAbility to Market
measurecontrol outputs
Low
Behaviour or output
measuremente.g. Mars rocket
Outputmeasurement
e.g. Fashion shop
Behaviourmeasuremente.g. Factory
Ritual & ceremonyClan control
e.g. Researchlaboratory
38
Discussion
‘What controls management control, and for whose purposes?’
• Are objectives ‘correct’?
• By what standards should performance towards these objectives be measured?
• How can we know if a control system is effective?
39
Discussion of Aston University’smanagement control system
Objectives:TeachingResearchPosition on league tables for teaching and researchReputationGenerating the skills that the country needsJobs for lecturersWhat would students do without universities?
Controls:Input control: grade requirements for studentsMonitoring student numbersControls over allocation of resourcesControls over funds for teaching and for researchControls over staff recruitment and development of their skills
40
Discussion of Aston University’smanagement control system
Are the objectives correct?Need to have objectives and goalsNeed to choose priorities, as ALL the objectives may be ‘correct’
By what standards should performance be measured?Completion rates by students (of modules & degrees)Employment of graduates, in the right jobStudent evaluation formsLeague tables comparing universities
But not mentioned in the seminar:
Is performance towards the objectives being measured, i.e. do the key performance indicators (KPIs) measure progress towards objectives or only what is easy to measure?
How can we know if the control system is effective?Benchmark the control system against other universitiesIncidence of controllable surprisesAre we achieving our objectives