1700sACCT3012:Management Accounting BManagementControl Systems(MCS)History of Control>…

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1700sACCT3012:Management Accounting BManagementControl Systems(MCS)History of Control> Robert-Fran̤ois Damiens and the end of torture Рthebeginning of discipline.> Birth of the prison, mass education, mental science.> Revolutionary spirit was scary for power> Democracy and the manufacturing of consent1800s> Birth of bureaucracies and the institutionalembodiment of scientific reason and rationality1900s> Threat of communism and terror and birth of gameDr Max Baker12Learning Objectives>Merchant & Van der Stede:(MCS) and the role of managementaccounting in it.Management ControlSystems> What is effective control?>Macintosh: The SocialSoftware of Accounting andInformation Systems> What are the types of controls?>What are their features, abilities and limitations.3 > Control tightness> Birth of social control and identity controlReferences> Define the management control system> Package of controltheory and cybernetics.Early 2000s4Features of management controlManagement Control> Communicates organisational objectivesand strategies> Ensure employee congruence withorganisations by> Minimise/correct undesirable behaviour> Maximising likelihood of achieving desired actions/results5The process by which managers use managementaccounting to influence their staff in order toachieve the organisations strategies andobjectives6> Evolution of control:1. Specifying acceptable behaviour2. Monitors performance3. Key targets to be achieved4. Deeper psychological forms ofengagement1Categorizing controlsMan B categories>MerchantAction>Results, Actions and Personnel controlsMerchant>Hopwood>Administrative, social and self-controlsHopwoodActionAdministrative(Process)ResultsSocialResultsPersonnelAdministrative(Output)Social andselfcontrol8Categories of ControlAction Controls> There are three maincategories:> Merchant (Action Controls)setting a prescribed course of actionmajor forms:>Standard procedures>behavioural constraints (e.g. locks)>pre-action review (finding bestway)>action accountability (post-audits,performance supervision)> ACTION CONTROLS> For motivating value creating actions:> RESULTS CONTROLS> For measuring and assessing results9> SOCIAL CONTROLS> For socially facilitating control10Action ControlsEffective Action Control>Key actions how shouldsubordinates behave in order tofulfil our strategy/objective?>Formal rules and procedures usedto regulate behaviour of employees>Identifying critical (valuable)>Enforce desirable behaviour andsteps and then standardise these.predictability of actions11122Action Controls>>Merchant (Continued)>Standardising processes>Predictability of behaviour>Done the right way>Requires knowing what-to-do>Old idea of control- taylorism?13>Suitability for non-standard tasks?>Managerial work vs Frontline work>Creative work vs procedural work>what kind of work is accounting?Who are they good for?14> focus on results accountability> managers must:> define dimensions along which results are desired> set standards of performance> measure performance> provide rewards for the desired results>Ensuring individuals act together and thiscombined effort achieves organizationalgoals.>Ensuring that the desired actions/resultsare communicated and achieved>Increasing probability that what needs tobe done, gets done16Results Control>Focus on a few key measures> Autonomy in decision-making> Flexibility> Creativity and innovationSetting targets and comparingagainst performance (e.g. KPIs)However:> Realistic targets?> Done the right way? I may achieve results that>Keep coming back to strategy: whatdestroys future profitability e.g. bad quality productsor servicekey measures directly indicate we areachieving our strategy?> How to measure? Every time I measure something Iocclude something else.> How do we take into account the different contexts ofdifferent teams and effectively make comparisonsmeasured: what about auditors, lawyers, consultants,engineers, doctors.Examples include:> Budgets (most common results control used in firms)> Sales, costs targets and other KPI etc.> For students: test and assessment marks.Who are they good for?> E.g. Sales people, production managers, traders> Everyone else?Effective Results Control> Strengths and Weaknesses17work>Everyone else?> Merchant (Results controls)> Management Controls aim to achieve this by:> Not everyones performance can be accurately> line workers, the unexperienced, processResults ControlsCombining Results and Action Control15Action ControlsHopwood (he calls them AdministrativeControls)>rules, regulations and procedures>plans and standards>organisational manuals>But also adds>Training the mind and the body>Training can have multiple functionsstay tuned183What isour goal?How do weget there?Whatmust weachieve?Social ControlOrganisationalObjective(s)> Merchant (Personnel/CulturalStrategyKeyresultsdesiredKeyactionsdesiredKeyresultsachieved?Keyactionsachieved?Whatmust wedo?Controls)> Enhanced through screens,Managementcontrols can bedirect as in thecase of resultsand actioncontrols orfacilitate theprocess ofcontrol as in thecase of socialor personnelcontrol19placement, incentives and training.To get the right personality type.> Hiring the right employee, cultivatinga productive work environment20Social Controls> Hopwood (Self Controls)>Culture/ethos Our way of doing21> Internalisation of controls.> Constructing an inner want to do well.> Through carefully administering recognitionmanagers create organizational identity andstatus> Examples in bank, big 4, university, creativeindustries.> Works through the ego or narcissistic22Package of controlscontingent upon a variety of factors:>organisational size>Strategy>Industry>Economic position/health>firm complexity> Action> Results> Social> Managers can utilize various combination of controls togreater and lesser degree of use or tightness.> A package of controls creates a more balanced controlapparatus. Its not all about maximizing a narrow set ofmeasured outcomes, but sometimes about creativity,strategic value creation and quality work (things that areharder to measure).and reinforcing manner (Baker et al., 2012).driven ambitious types.> The best combination of controls are> Managers have a choice of controls:> Research shows that controls operate in a complementarytendencies.> Post modern form of control, powerful forIt all depends on the context> Can an organisation rely one a single set of controls? No.23behave and exert self control.Social controls>Hopwood (social controls)things Рlike a social mandate fordoing things.>informal guidelines, language,attitude adopted by work groups (e.g.laughing in a business meeting)>social relationships>Clan/team control>Social interactions>Shared values and mutualcommitments> Then rely on individual employees to244Control TightnessControl Tightness>Within our package of controls>Choice of control tightness isdifference controls can be used atdifferent levels of intensity ortightness.influenced by:>Benefits/Costs of tightness>Control is tighter if all feasible>Critical areas of performanceforms of controls are used, reliedupon and monitored extensively25>Tighter controls suggest astronger emphasis on achievingdesired results/actionsControl Tightness>What are the benefits of maintainingtightness within the following criticalareas of performance.>Cash-flow (for low profit firms, economicdown-turns)>Context26Control TightnessHowever, consider an example:> IT industry R&D projects whereprofitability is dependent on the successof individual projects.>Tight control on actions (quality of programming anddevelopment) and results (time to market) helpensure projects stay on track.>Quick responsiveness to market changes(sales)>However, excessive controls on actions may become>Inventory management (high turnovermarkets e.g. supermarkets)27>Aircraft seating (sweating your assetsmaximising aircraft capacity)>Time to market (high tech industries)28Do Controls Always Lead to Control?red-tape (curbing innovation and restrict creativityand the ability to develop more risky features andproducts). Tight controls on results shifts responsibilityto the employee stress (short cut quality check andtime hungry services)Do Controls Always Lead to Control?>Control and Controls> Benefits of control>Controls are management tools to helpensure employees behaviours arecongruent with organisational objectivesand strategies> Allows for a high probability that>Lack of controls decreases probability oforganisational objectives andstrategies will be realised; and that>There is no correlation between control> Probability of undesirablesuccess, but existence of controls do notguarantee more success!behaviour is minimisedtightness and performance.29>You must wield control systems like a golfclub.>Wrestling is a great example of control.305Do Controls Always Lead to Control?> Exam Tips and Preparation>?However>?Rules become valuable in their own right weforget the purpose of the control.>?>?Problem solving ability becomes impairedmanagers then seek out easiest way ratherthan most effective way (cutting corners).>?Managerial decision making becomes simplisticand rigid (ticking boxes).Organisations often react by prescribing morecontrols!Managers work to maximize the indicatorsinstead of letting the indicators indicateimprovements to business operations.3132Thank youThanks andSee you next weekSee youNext week!6


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