Advanced management accounting
Lecture 1
Case: identify problem. How to solve this problem?
Exam: little bit theory, 3 cases.
3 main questions
Management control system: should an organization decentralize in order to achieve its
goals and implement its strategies? ( 1+2)
Top management has targets for the lower management. The lower management can decide
on their own how to implement that.
Management control structure: if organization decentralizes, which responsibilities and
competences should be delegated to lower level managers?
how should we decentralize ( 3+4)
Management control process: chosen a responsibility structure, then how is the planning
and control cycle organized and how is performance measured and rewarded? ( 5+6)
Management control= everybody in the organization is putting his effort in realizing the
organizational goals by bearing some responsibilities.
Difference between budget and realization= variance analyses.
Should we decentralize: what do we want to achieve + which strategy do we implement to
realize these goals. Looking at the environment and strategy: this must be translated to the
organization its self.
How should we decentralize: management control structure. How: responsibility centers,
business units.
After choosing: initializing and realizing (question 3).
Triangles: responsibility point of view. People point of view.
1
,Advanced management accounting
Informal management control
What can an organization implement and decide in the field of management control in
defining responsibilities and competences in rewarding people. All things that can be agreed
upon between people.
Informal management control system: talking to each other in the break. You (an
organization) can’t influence this.
Formal management control instrument: know someone’s opinion to improve the products.
Management control
Management control: managers try to influence employees to put their effort in realizing
the organization goals and organization strategies.
Convince people to do what good is for the company.
Why do companies decentralize?
Decentralizing is the most important reason why we need management control. You need to
make sure that the decisions are good for the whole organization.
Lower level want to realize their own goals or of that of the department. This may harm the
company. You need management control systems so you know that the decisions that have
been made are for the good of the company.
decentralization
Advantages
- Improvement of quality of decision making of higher level managers
- Improvement of quality of decision making of lower level managers Lower level
managers know more about their department than higher lever managers.
- Increased economies of scale and specialization Specialize on one market/ product.
This gives you competitive advantage.
- Management development
Forms of decentralization
one level
four level
- Delegate decision making power/ authority to lower level: make sure that the people
have money and resources to realize the goals were they are responsible for.
2
,Advanced management accounting
- Delegate decision power: top management wants to ensure that they make the right
decisions and realize the goals that you agreed upon. Top management wants realizing
this goal to contribute to the realization of the whole company.
- Provision of sufficient material and formal resources to execute that authority
- Assignment of accountability and responsibility for the quality of decision making.
Types of organizing decentralized organizations
functional structure: each manager is
responsible for a specified function such as
production or marketing.
Initial organization have a structure like
this: production sales or Purchase
production sales.
Business unit structure: managers are responsible for most of the activities of their
particular unit, and the business unit functions
as semi-independent part of the company.
Matrix
structure: managers have dual
Responsibilities.
Need for control
Why should you decentralize? Why don’t you trust the people. Trust isn’t enough.
- Decentralized managers may not understand everything, the goals and strategies,
developed by higher level managers, nor how the can contribute to these goals and
strategies.
- Managers do not automatically agree with organizational goals and strategies developed
by higher level managers.
- Managers do not automatically have the resources needed to act with organizational and
strategies developed by higher-level managers you cant be responsible for something
what you cant influence. For influence you need resources.
3
, Advanced management accounting
Functions of management control
Management and control
Management control can be understood as a part of the overall managerial function:
planning, organizing, staffing, leading and controlling.
Accounting and control
Management control can be understood as an activity that uses management accounting
information: scorecard keeping, attention directing and problem solving.
The information about the performance is a direct relation between management control
and management accounting.
Management control: influencing people.
Management accounting: Provides information about the people at which you decentralized
some decision power.
Common denominator: money ( measure of organizational performance).
Human behavior
Management control is about eliciting desired behaviors by decentralized managers. This
requires having some understanding of the behavior of people in organizations
Working with robots no management control.
Management control problems are directly related to human behavior. Human behavior is
not always predictable.
- Human behavior is related to the goals that a company achieves.
- Managers are motivated by rewards that they may get from their efforts.
- Managers are motivated by the social context in which they work.
Motivation by goals
Goals may have a positive effect on effect:
- When goals are clear and directional
- When goals are not too distant
- When achievement is valued positively
Attention points
4
Lecture 1
Case: identify problem. How to solve this problem?
Exam: little bit theory, 3 cases.
3 main questions
Management control system: should an organization decentralize in order to achieve its
goals and implement its strategies? ( 1+2)
Top management has targets for the lower management. The lower management can decide
on their own how to implement that.
Management control structure: if organization decentralizes, which responsibilities and
competences should be delegated to lower level managers?
how should we decentralize ( 3+4)
Management control process: chosen a responsibility structure, then how is the planning
and control cycle organized and how is performance measured and rewarded? ( 5+6)
Management control= everybody in the organization is putting his effort in realizing the
organizational goals by bearing some responsibilities.
Difference between budget and realization= variance analyses.
Should we decentralize: what do we want to achieve + which strategy do we implement to
realize these goals. Looking at the environment and strategy: this must be translated to the
organization its self.
How should we decentralize: management control structure. How: responsibility centers,
business units.
After choosing: initializing and realizing (question 3).
Triangles: responsibility point of view. People point of view.
1
,Advanced management accounting
Informal management control
What can an organization implement and decide in the field of management control in
defining responsibilities and competences in rewarding people. All things that can be agreed
upon between people.
Informal management control system: talking to each other in the break. You (an
organization) can’t influence this.
Formal management control instrument: know someone’s opinion to improve the products.
Management control
Management control: managers try to influence employees to put their effort in realizing
the organization goals and organization strategies.
Convince people to do what good is for the company.
Why do companies decentralize?
Decentralizing is the most important reason why we need management control. You need to
make sure that the decisions are good for the whole organization.
Lower level want to realize their own goals or of that of the department. This may harm the
company. You need management control systems so you know that the decisions that have
been made are for the good of the company.
decentralization
Advantages
- Improvement of quality of decision making of higher level managers
- Improvement of quality of decision making of lower level managers Lower level
managers know more about their department than higher lever managers.
- Increased economies of scale and specialization Specialize on one market/ product.
This gives you competitive advantage.
- Management development
Forms of decentralization
one level
four level
- Delegate decision making power/ authority to lower level: make sure that the people
have money and resources to realize the goals were they are responsible for.
2
,Advanced management accounting
- Delegate decision power: top management wants to ensure that they make the right
decisions and realize the goals that you agreed upon. Top management wants realizing
this goal to contribute to the realization of the whole company.
- Provision of sufficient material and formal resources to execute that authority
- Assignment of accountability and responsibility for the quality of decision making.
Types of organizing decentralized organizations
functional structure: each manager is
responsible for a specified function such as
production or marketing.
Initial organization have a structure like
this: production sales or Purchase
production sales.
Business unit structure: managers are responsible for most of the activities of their
particular unit, and the business unit functions
as semi-independent part of the company.
Matrix
structure: managers have dual
Responsibilities.
Need for control
Why should you decentralize? Why don’t you trust the people. Trust isn’t enough.
- Decentralized managers may not understand everything, the goals and strategies,
developed by higher level managers, nor how the can contribute to these goals and
strategies.
- Managers do not automatically agree with organizational goals and strategies developed
by higher level managers.
- Managers do not automatically have the resources needed to act with organizational and
strategies developed by higher-level managers you cant be responsible for something
what you cant influence. For influence you need resources.
3
, Advanced management accounting
Functions of management control
Management and control
Management control can be understood as a part of the overall managerial function:
planning, organizing, staffing, leading and controlling.
Accounting and control
Management control can be understood as an activity that uses management accounting
information: scorecard keeping, attention directing and problem solving.
The information about the performance is a direct relation between management control
and management accounting.
Management control: influencing people.
Management accounting: Provides information about the people at which you decentralized
some decision power.
Common denominator: money ( measure of organizational performance).
Human behavior
Management control is about eliciting desired behaviors by decentralized managers. This
requires having some understanding of the behavior of people in organizations
Working with robots no management control.
Management control problems are directly related to human behavior. Human behavior is
not always predictable.
- Human behavior is related to the goals that a company achieves.
- Managers are motivated by rewards that they may get from their efforts.
- Managers are motivated by the social context in which they work.
Motivation by goals
Goals may have a positive effect on effect:
- When goals are clear and directional
- When goals are not too distant
- When achievement is valued positively
Attention points
4
