1 management control and the role of management accounting 1.outline of the module organisational...

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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?’

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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

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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

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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

9.9. Organisational structure Organisational structure Organisational context &Organisational context &10.10. Beyond structureBeyond structure implicationsimplications

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

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Seminar topics – term 2

12.12. Guided reading Guided reading No seminarNo seminar

13.13. Multiple performance measuresMultiple performance measures Performance measurementPerformance measurement

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

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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

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Assessment criteria

Well argued essay:Focused on answering the question

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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,

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Inputs withmeasures

Predictivemodel

Objective for the process

Implementchosen action

Generate & evaluate

alternative action

Change:•Inputs•Objective•Predictive model•Process

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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




Inputs withmeasures

Predictivemodel



Generate & evaluate

alternative action


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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

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Cybernetic control




Inputs withmeasures

Predictivemodel



Generate & evaluate

alternative action


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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

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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)

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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

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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

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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”

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Berry, Broadbent and Otley (1995, page 4):“Management control is the process of guiding organisations into

viable patterns of activity in a changing environment”

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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

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5. Ouchi’s control mechanisms

Pure forms:

1. Market controlCompetition, outsourced activities, comparison of pricesReciprocal acceptance of contracts

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Pure forms:


2. Bureaucratic controlRules, hierarchy, comparison (costs, profits, output,

quality etc.) to standards, cybernetic controlLegitimate authority

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Pure forms:


2. Bureaucratic controlRules, hierarchy, comparison (costs, profits, output,

quality etc.) to standards, cybernetic controlLegitimate authority

3. Clan controlShared values, ethos of organisation and professions,

indoctrination into values and traditions, social controlCulture

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Knowledge of transformation process

Perfect Imperfect Bureaucratic control

HighAbility to Market

measurecontrol outputs

Low

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Low

Behaviour or output

measuremente.g. Mars rocket

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Low

Behaviour or output


Behaviourmeasuremente.g. Factory

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Low

Behaviour or output


Outputmeasurement

e.g. Fashion shop


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Low

Behaviour or output


Outputmeasurement

e.g. Fashion shop


Ritual & ceremonyClan control

e.g. Researchlaboratory

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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?

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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

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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

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Student 1 minute reflection on learning

Complete sheet anonymously:

– What was the main point that learnt today?

– What are you least clear about?

Leave sheet in lecture theatre when you leave

1 management control and the role of management accounting 1.outline of the module organisational...

Documents

management control problems

controls management

social implications

discussion of implications

questioncoursework essay

assumptions of certainty

range of theories

ethical performance