高级管理会计学课件：Lesson 6 control mechanisms

1、1Control mechanisms Lesson 62Introduction of lesson 6Focus on controls, including results, action, personnel, and cultural controls.Study quality and inventory controlsDiscuss economic order quantity (EOQ), and just-in-time (JIT) inventory and material requirement planning. 3Lesson 6 Topics outlineO

2、bjectives of controlsControl system designVariations in control systemsCommon controlsAssessing the effectiveness of controlsInventory management and EOQQuality controlsInventory control techniques.4Topic 1: Objectives of controlsLearning Objective Explain how controls enable management to implement

3、 strategy. (Level 1)Required readingEthics readings handbook, unit A4: “why morality matters” (Read the introduction and accompanying article)Management controlControl is about encouraging people to take desirable actions.Management control is the process by which management ensures that people in t

4、he organization carry out organizational objectives and strategies;The main purpose for a management control system is to promote goal congruence and to avoid dysfunctional behaviour.Agency problemsAsymmetric InformationMotivation, Performance, and RewardsGoal CongruenceActionsFeedbackMotivational c

5、riteriaFeedbackChoice of Responsibility Centers and Incentives Management control systemA MCS is a set of interrelated communication structures that facilitates the processing of information for the purpose of assisting managers in coordinating the parts and attaining the purpose of an organization

6、on a continuous basis.Management control systems involve a number of activities in an organization, including:Planning the future course of action;Coordinating and communicating the various activities of the organization to different departments;Evaluating information and deciding the various activi

7、ties; and finally,Influencing people to work in accordance with the goals of the organization.Managementcontrolsystemframework Balanced organizational controlsStrategic controls address the long-term integrative aspects of an organization. They are aimed at enabling the organization to achieve objec

8、tives that are in line with its strategy.Financial controls are narrower in scope, and are focused on the financial aspects of an organization, such as cost control and higher financial returns on investments. These controls are typically short-term and risk-averse orientation.11Topic 2: Control sys

9、tem designLearning Objective Explain the factors related to designing a management control system. (Level 1)Required readingAppendix 6-1: “Feedback, planning and control-a dynamic relationship”Control systemsA control system is a set of formal and informal systems to assist the management in steerin

10、g the organization towards its goals. Controls help in guiding employees effectively towards the accomplishment of the organizations goals.Control system14Goal congruenceThe central control process is to induce managers to act in pursuit of their personal goals in ways that will help attain the orga

11、nizations goals as well.Goal congruence means that as far as feasible, the goals of an organizations individual members should be consistent with the goals of the organization itself. The management control system should be designed and operated with the principles of goal congruence in mind.15Forma

12、l and Informal systemsFormal control systems are written, management-initiated mechanisms that influence the behavior of employees in achieving the organizations goals. Such as plans, budgets, regulations and quotas.Informal control systems are unwritten, typically worker-initiated mechanisms that i

13、nfluence the behavior of individuals or groups in business units. Including group norms and organizational culture16Management style17A living mechanism“why good companies go bad” (1999) , Firestone became trapped by what is described as the four condition of active inertia:1. Strategic frames becom

14、e blinders.2. Processes harden into routines.3. Relationships become shackles.4. Values harden into dogmas.Management control systems must be flexible enough to adjust and adapt.MCS frameworkA 1995 article by Robert Simons proposed what he called “four control levers” to help managers in achieving t

15、he balance between employee empowerment and effective control.Four levels of management control systemsDiagnostic Control SystemsBoundary SystemsBelief SystemsInteractive Control SystemsEach type is important and needs to be monitoredSystems should be interdependent and collectively represent a livi

16、ng system of business conductBusinessstrategyMission & core valueRisks to be avoidedCritical performancemeasuresStrategic uncertaintiesperspectivepositionplanpatterns Beliefs systemsDIAGNOSTIC CONTROL systemsINTERACTIVE CONTROL systems BOUNDARY systemsMCS 图 罗伯特西蒙斯的四种管理控制系统Four types of management co

17、ntrol systemsDiagnostic systemsFocuses on “ getting the job done”, evaluate whether a firm is performing to expectations by monitoring and evaluating critical performance metrics, including:ROI, RI, EVACustomer SatisfactionEmployee SatisfactionMUST be balanced by the other lever of control2. Boundar

18、y systemsFocuses on risks to be avoided, describe standards of behavior and codes of conduct expected of all employeesHighlights actions that are “off-limits”A code of conduct describe appropriate and inappropriate individual behaviorsThe Sarbanes-Oxley Act set boundaries on the behaviour of senior

19、managers. The Sullivan Principlessocial responsibility in enterprises25KD公司的边界控制KD公司在年末根据经营环境分析、员工意见征询之后等，高级管理层明确战略目标，制定长期和短期计划，由董事长批准实施，并将结果及时通报员工。控制的关键点有两个，一是长期和短期战略目标规划，二是战略规划要经董事长签字同意。 Belief systemsArticulated by the companys mission, purpose, and vision statements.represent the core values of

20、the company; They describe the accepted norms and patterns of behavior expected of all managers and employees with respect to each other, shareholders, customers, and communities.27强生公司的信念控制【节选】我们相信我们首先要对医生、护士和病人， 对父母亲以及所有使用我们的产品和接受我们服务的人负责。 为了满足他们的需求，我们所做的一切都必须是高质量的。 我们必须不断地致力于降低成本，以保持合理的价格。 客户的订货必

21、须迅速而准确地供应。 我们的供应商和经销商应该有机会获得合理的利润。 他们的行为必须公正并符合道德。 我们要对全体股东负责。 企业经营必须获得可靠的利润。 我们必须尝试新的构想。 承担错误的代价并加以改正。 必须购置新设备，提供新设施，推出新产品。必须设立储备金，以备不时之需。 如果我们依照这些原则进行经营， 股东们就会获得合理的回报。4. Interactive systemsare formal information systems that managers use to focus organizational attention and learning on key strate

22、gic issuesTracks strategic uncertainties that businesses faceSubordinates and supervisors maintain regular, face-to-face contact to focus on communication and implementing the organizations strategy.to create ongoing discussion and debate on emerging political, technological, economic, and social is

23、sues.29百事可乐公司的交互控制：在我的钱包里装着一些小图表，上面有最新的、最重要的数字，运用数据来查找公司的弱项，分析公司为什么会在竞争中失利；通过分析数字，为公司的每个人确定竞争的基本原则。我最不愿意看到的事情就是CEO打电话让我解释某项业务疲软的原因，而我还没有看到这些数据。Each system is appropriate under different circumstances and within different organizational units.Diagnostic and boundary systems tend to work well with tas

24、k- or process-oriented strategies, and in a well-established, stable organization.belief and interactive control systems work well at the strategic levels where there is more uncertainty, and in an entrepreneurial organization.Another frame of MCSManagement control systems tend to fall into two cate

25、gories, depending on how the firms business strategy operates.Diagnostic control systemA diagnostic control system has five key aspects: 1. Setting and negotiating goals: 2. Aligning performance measures by means of an accountability relationship. 3. Designing incentives to encourage goal congruence

26、/attainment 4. Reviewing exception reports to ensure that strategy implementation is on track. 5. Following up significant exceptions with quick action to eliminate deviations and return the plan.Diagnostic control systemMechanistic organizationsDiagnostic control systems are best suited for mechani

27、stic organizations.Amechanisticorganizationorbureaucracyis a structure that is high in complexity, formalization, and centralization. Mechanistic organizations have clear, well-defined, centralized, vertical hierarchies of command, authority, and control. Efficiency and predictability are emphasized

28、 through specialization, standardization, and formalization. This results in rigidly defined jobs, technologies ,and processes.The weakness of a diagnostic control system1. Because of its rigidity, it is not designed for quick response to exceptions or externalities.2. it can induce employees to beh

29、ave unethically in order to meet some kind of pre-set goal.Interactive control systemAn interactive control system is a formal information system in which top management is personally involved in the decision activities.The focus is on strategic uncertainties: emerging threats and opportunity; criti

30、cal analysis; and discussions and recommendations.Interactive control systemOrganic organizationsInteractive control systems are best suited for organic organizations.Anorganic organizationoradhocracyis a structure that is low in complexity, formalization, and centralization. Organic organizations w

31、ere appropriate for unstable or unpredictable environments and non-routine tasks and technologies. For organic organizations coping with uncertainty, finding appropriate, effective, and timely responses to environmental challenges is of critical importance.Mechanistic designOrganic designHigh specia

32、lisationRigid departmentalisationHigh chain of commandNarrow spans of controlHigh formalisationCentralisedCross functional teamsCross hierarchical teamsFree flow of informationWide spans of controlLow formalisationDecentralisedMechanistic v organic organization42Topic 3: Variations in control system

33、sLearning Objective Identify the factors that lead to differences in the way control systems are designed and implementted. (Level 1) No required readingContingency theoryContingency theory : is a class of behavioral theory that claims that there is no best way to organize a corporation, to lead a c

34、ompany, or to make decisions. Instead, the optimal course of action is contingent (dependent) upon the internal and external situation. Contingency theory claims that there is no single best way to design organizational structures.It argues that the best way of organizing a company, is, however, con

35、tingent upon the internal and external situation of the company.The factors on which controls are contingent1. Diversification Diversification leads to more decentralization and, therefore, to weaker direct control of management behaviour.2. Organizational structure The more decentralized an organiz

36、ation is, the greater the chance for management to act in ways that are not congruent with the companys overall strategy.The factors on which controls are contingent3. Strategy A company using a cost leadership strategy promotes cost reduction and efficiency measures, while a company using different

37、iation strategies focuses more on quality measures.4. Business unit life cycle A business unit in the early stages of development will have different goals and objectives than one in its mature phase. Accordingly, the MCS will have to be able to grow along with the organization. BCG model46Topic 4:

38、Common controlsLearning Objective Compare and contrast results, action, personnel, and cultural controls. (Level 1)Required readingTextbook: Chapters 2 and 3Common controlControl systems should answer the follow questions (behavior orientation) : 1. Do they understand what we expect of them? lack of

39、 direction 2. Will they work consistently hard and try to do what is expected of them lack of motivation 3. Are they capable of doing what is expected of them? personal limitationsACTIONCONTROLACTION &RESULTCONTROLPERSONNELCONTROLRESULT CONTROLLOWHIGHPOOREXCELLENTAbility To Measure Performance Knowl

40、edgy of direction action Four types of controlsResults controlsResults controls: Involves rewarding individuals for generating good results (or punishing them for poor results)Results controls influence actions because they cause employees to be concerned about the consequences of the actions they (

41、dont) take.However, employees actions are not constrained.Rather, employees are empowered to take whatever actions they believe will best produce the desired results.Result controlResults control comprises four components or elements: 1. Defining the performance dimensions; 2. Measuring performance

42、on these dimensions; 3. Setting performance targets; and 4. Providing rewards (or punishments).Result controlsResults controls work best only when all of these three conditions are present: 1. Superiors/managers must know what results are desired in the areas being controlled. 2. The individuals who

43、se behaviour is being controlled must have significant influence on the results in the desired performance dimensions (controllability). 3. Superiors/managers must be able to measure the results effectively.Behavior can be influencedwhile allowing significant autonomyThey yield greater employee comm

44、itment and motivationThey are often “inexpensive”For example, performance measures are often already collected for reasons not directly related to managementcontrol (e.g., financial reporting)Often less-than-perfect indicatorsof whether good actions have been takenThey shift risk to employees (due t

45、o uncontrollable factors); hence, they often require a risk premium for risk averse employeesSometimes conflicting functions:Motivation to achieve targets should be “challenging”Communication among entities targets should be slightly conservativePros and cons of results controlsPROCONAction controls

46、Action controls are intended to ensure that employees undertake (or do not undertake) actions known to be beneficial (or harmful) to the organization.Most action controls are aimed primarily at preventing undesirable behavior, although they also are used to detect undesirable actions.Action controls

47、Action controls are usable and effective only when managers know what actions are (un) desirable and/or have the ability to make sure that the desirable actions occur.This is a challenge in highly complex and uncertain task environments (e.g. top-level managers) or when there is doubt regarding the

48、effectiveness of organizational procedures.Action controlsEssentially, action controls hold employees accountable for the actions they take.To do so requires four factors: 1. Defining what actions are (un) acceptable; 2. Communicating this to employees; 3. Observing or otherwise tracking what happen

49、s; and 4. Rewarding good actions, and/or punishing actions that deviate.Action controlsIf action controls are to be effective, they must also address controllability:A controllable cost is any cost that is influenced by a managers decisions and actions.An uncontrollable cost is any cost that cannot

50、be affected by the manager within a given time span.The most direct form of controlTend to lead to documentationof the accumulation of knowledge as to what works bestOrganizational memoryAn efficient way of coordinationThat is, they increase the predictability of actions and reduce the amount of int

51、er-organizational information flows to achieve a coordinated effortOnly for routine jobsMay discourage creativity, innovation and adaptationMay cause sloppinessMay cause negative attitudesFor example, little opportunity for creativity and self-actualizationSometimes very costlyPros and cons of actio

52、n controlsPROCONPersonnel controlsPersonnel controls build on employees natural tendencies to control themselves, because most people:Are ethical and have a conscience that leads them to do what is right; and Find self-satisfaction when they do a good job and see their organization succeed.Labels .S

53、elf-controlIntrinsic motivationEthics and moralityTrust and atmosphereLoyaltypersonnel controlsGenerally, it is about “ finding the right people, giving them a good work environment and the necessary resources”Three steps: Selection and placementFinding the right people to do a particular jobTrainin

54、gGive employees a greater sense of professionalismCreate interest in the job by helping employees to understand their job betterJob design + provision of necessary resourcesSo that motivated and qualified employees have a high probability of success (e.g., equipment, staff support, freedom from inte

55、rruption)Cultural controlsCultural controls or mutual monitoring tap intosocial pressure and group norms and valuesCultural controls are effective because membersof a group have emotional ties and a sense of responsibility to one anotherCultures are built on shared .traditionsnormsbeliefsideologiesa

56、ttitudesways of behavingStart with people controlsPeople controls Must always be relied on to a certain extentHave relatively few harmful side-effectsInvolve relatively low out-of-pocket costsHowever, it is rare that people controls will be sufficient; hence, in most cases, it is necessary to supple

57、ment them with Action controlsResults controlsCommon ControlsBenefits and costs of controlControl benefitsA higher probability that people will both work hard and direct their energies to serve the organizations interestsControl costsDirect out-of-pocket costsHarmful side-effectsBehavioral displacem

58、entGamesmanshipOperating delaysNegative attitudesBehavioral displacementBehavioral displacement occurs when the control system encourages behaviors that are not consistent with the organizations objectivesWith results controls, it occurs when the results measures are incongruent with the organizatio

59、ns true objectives, often due to:Poor understanding of the desired resultsAn over-emphasis on “measured” resultsWith action controls, it can be manifested by:Means-ends inversionEmployees are induced to pay more attention to whatthey do and lose sight of what they try to accomplishRigid, non-adaptiv

60、e, bureaucratic behaviorGamesmanshipRefers to the actions managers take to improve their performance indicators without producing any positive economic effectsData manipulationTrying to “look good” by fudging the control indicatorsData management: affecting the reported results through accounting me