Summary: Management Control And Cost Management

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  • 1 MC: Introduction

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  • What are the two key roles of managerial accounting?

    Decision facilitating role: provision of information to reduce predecision uncertainty. Aim = to improve employees' knowledge so that they can make organizationally desirable judgments

    Decision influencing role (control): use of information to motivate employees and align their interests with those of the firm. Aim = to influence (control) employee behavior
  • What is myopic behavior?

    Focus on short-run actions.
  • What problems arise in teams?

    Free ride problem: individuals form teams because they can produce more in a team compared to doing alone. However, team production can create control problems

    agents are likely to shirk bevause their individual efforts are not directly obervable. The principal only observes the total output

    Solutions: peer monitoring, group competition, cultural contral
  • 2 Control systems

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  • What is Zimmerman's control framework?

    Decision making rights
    Performance measurement
    Reward systems

    Desirable performance should be defined, measured and rewarded
  • What are some preliminary conditions for results control to be effective?

    1) organizations know and can easily communicate what results are desirable. 
    2) employees can significantly influence the results for which they are held accountable: principle of controllability. 
    3) organizations should be able to effectively measure results: precise, objective, timely, cost efficient, understandable
  • How does seperation of duties help?

    If concentrated in one function, then the risk of inappropriate behavior is higher. 

    Seperation is mostly important for management: initiation, ratification, implementation and monitoring should be seperated.
  • What are the preliminary conditions for the effectiveness of action controls?

    1. Knowledge of un deseriable is available
    2. Ability to ensure that desirable actions are taken
  • What are the pros and cons of action control?

    - Accumulation of knowledge and learning: policies and procedures document what works best. They can transfer knowledge to new employees easily and efficiently

    - Action contro may not be feasible. Knowledge of desirable actions exists only in specific situations

    - Action control may focus on easy to observe and probably less important acctions, it may ignore more important actions that are hard to observe or track --> behavioral displacement

    - Action control may make employees sloppy or resistant to change
  • What are potential costs of controlsystems?

    Direct: of desiging and implementing control systems
    Indirect: harmful side effects of control
    Adaptation: adjusting to new situation

    - behavioral displacement: maximise their measured performance in a suboptimal way
    - operating delay: system causes bottleneck / bureaucracy
    - negative attitude: stress, frustration, distrust
    - reducing intrinsic motivation
    - creates bad working atmosphere: competition
    - diffusion of responsibility: bystander effect. More likely to act unethical in group also.
    - gamesmanship
  • What are the potential traps in desiging a control system?

    1: One size fits all
    2: Standpoint: design from managers pov
    3: Easy performance measurement
    4: Narrow focus
    5: Static approach: systems become old, loopholes, changes in environment can affect effectiveness

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