Darrell BrownAssociate Professor of Accounting

Portland State University

Managerial Accounting and Control: MBA 512

Agenda

Introduction Problems on cost accounting basics Review the basics Overview of remainder of the quarter

Introduction

Who we are Syllabus Questions about logistics

Exercises in cost accounting

Where do we exist?

Economic Systems

Social Systems

Natural Systems

Balancing organizational tensions

Profit, growth, control Short term results, long term capabilities and

opportunities Performance expectations of different

constituencies Opportunities and attention Motivations of human behavior

Motives of human behavior

People want to contribute—orgs make it difficult for people to understand how

People generally choose to do right—orgs create pressure and temptation

People strive to achieve—orgs limit resources and create competing objectives

People like to innovate—orgs limit resources and punish failures

Levers of control

Beliefs Boundaries Diagnostic systems Interactive systems

Business strategy—focus thru control

Beliefs—what are the values Boundaries—what are risks to be avoided Diagnostic controls—what are critical performance

indicators Interactive controls—what are strategic

uncertainties

Adapted from Simons, 1995. Levers of Control

Relationships between the levers

Opportunity & Attention

Strategy

Expand Opportunity-seeking and learning

Focus Search and Attention

Frame the Strategic Domain

Beliefs Systems

Strategy as Perspective

Commit to grand purpose

Boundary Systems

Strategy as Position

Stake out a territory

Formulate and Implement Business

Strategy

Interactive Systems

Strategy as Patterns in action

Look toward tomorrow

Diagnostic Systems

Strategy as Plan

Do the job today

Adapted from Simons, 1995. Levers of Control

Beliefs system

What: explicit set of beliefs that define basic values, purpose, and direction

Why: provide momentum and guidance to opportunity-seeking behaviors

How: mission/vision statements, credos, statements of purpose When: opportunities change dramatically; management wants to change

strategic direction, energize workforce Who: senior management write substantive drafts; staff facilitate

communication, feedback, awareness

Boundary system

What: formally stated rules, limits and proscriptions tied to credible threat of sanction

Why: allow creativity within defined limits How: codes of conduct, strategic planning systems, asset acquisition

systems When: conduct—when reputation costs are high; strategic—when risk of

dissipating resources of the firm are high Who: senior managers formulate with staff (legal?) assistance and

sanction; staff monitors compliance

Diagnostic systems

What: feedback systems that monitor outcomes and correct deviations (budgets, performance measures)

Why: provide motivation, define goals, establish guidelines for corrective action, evaluate/drive effective resource allocation

How: set standards, measure outputs, link incentives to goal achievement When: prior to operations, at the point of output/results, process or

output is critical to performance Who: senior management sets or negotiates goals, reviews exceptions,

follow-up; staff maintains systems, gathers data, prepares reports

Internal controls

Not part of the levers, very necessary

What: activities, processes that protect and enhance assets, information quality

Why: protect company, assets, information from intentional and accidental losses

How: governance structures, staff competence, system quality When: all the time, all the business Who: staff, some BOD, management

Remainder of the quarter

Levers of control…how do control systems (accounting is a major part) fit into the ability of a business to achieve its goals

Allocation of costs…the bane of accounting measures Meaningful performance measures…what measures really impact a

business Strategic cost accounting…expands the view of managerial accounting

from internal record-keeping to external strategy analysis and support

Interactive control systems

What: systems managers use to involve themselves in the decisions of subordinates—project management systems, intelligence review systems

Why: focus on strategic uncertainties and provoke the emergence of new strategies and initiatives

How: ensure recurring discussions with subordinates; challenge and debate assumptions, data and plans; ensure attention by managers

When: periodic, regular; times of disruptive change Who: senior management use the systems, staff facilitate and emphasize

Week 3

Overhead allocation– ABC– Transfer pricing– Behavioral implications

Week 4

Performance measures– Balanced scorecard– Non-financial measures

Strategy maps

Week 5

Strategic costing– Value chain– Strategic positioning analysis– Cost drivers

Old article…either incorporated or ignored

Finish

Questions Comments Suggestions