mod7_Management control systems

单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,MA2 Chen Yuanhong,*,*,Management control systems,LESSON,7,Chen Yuanhong,MA2 Chen Yuanhong,1,Introduction of lesson 7,looks at the impact of control systems on decision making and costs within an organization.,learn how management control systems help organizations achieve overall goals.,focuses on management control systems from the perspective of levels in a company, and,describes types of controls.,MA2 Chen Yuanhong,2,Contents of the MA2,Strategy, management accounting, and decision making,Variance and customer profitability analysis,Quality and time,Inventory management,Kaizen, activity-based, and capital budgeting,Transfer pricing,Management control systems,Performance measurement and compensation,Balanced Scorecard,Emerging issues and integration,MA2 Chen Yuanhong,3,Lesson 7 Topics outline,Management control systems: Introduction,Agency theory and control,Management control and strategy,Corporate-level strategies,Business-unit strategies,Management control and goal congruence,Types of controls,Evaluating design and use of MCS,MA2 Chen Yuanhong,4,Topic 1:,Management controlsystems: Introduction,LEARNING OBJECTIVE,Describe how management control systems help in achieving organizational goals. (Level 2),Required reading,Chapter 22, pages 797-798,MA2 Chen Yuanhong,5,Management controlsystems: Introduction,Management control systems guide management decision making and behaviour by coordinating the processes of planning and control.,Control systems are often used in conjunction with performance measurement systems.,A good system uses information from both inside and outside the organization.,Topic,1:,Management control systems: Introduction,MA2 Chen Yuanhong,6,Management Control Systems,Many management control systems contain some or all of the balanced scorecard perspectives:,Financial,Customer,Internal Business Process,Learning and Growth,Topic,1:,Management control systems: Introduction,MA2 Chen Yuanhong,7,Management Control Systems,Most (if not all) companies will have the formal management control systems and the informal systems.,Formal systems include explicit rules, procedures, performance measures, and incentive plans that guide the behavior of its managers and other employees,Informal systems include shared values, loyalties, and mutual commitments among members of the company, corporate culture, and unwritten norms about acceptable behavior,Topic,1:,Management control systems: Introduction,MA2 Chen Yuanhong,8,Evaluating Management Control Systems,Effective management control systems should be,closely aligned with organizational strategy and goals,designed to fit the organizational structure and decision-making format,designed to motivate managers and promote goal congruence,Topic,1:,Management control systems: Introduction,MA2 Chen Yuanhong,9,Two Aspects of Motivation,Motivation is the desire to attain a selected goal (goal-congruence) combined with the resulting pursuit of that goal (effort),Goal Congruence exists when individuals and groups work toward achieving the organizations goals,managers working in their own best interest take actions that align with the overall goals of top management,Effort is exertions toward reaching a goal, including both physical and mental actions,Topic,1:,Management control systems: Introduction,MA2 Chen Yuanhong,10,Topic 2:,Agency theory and control,LEARNING OBJECTIVES,Describe the fundamental concepts of agency theory, and,explain how they are used to control operations. (Level 2),No Required reading,MA2 Chen Yuanhong,11,Agency theory: definition,Agency theory presents a model of the relationship between an agent and principal, and can usually be expressed in the form of a contract.,The principals roles are to supply capital, bear risk, and construct incentives.,The roles of the agent are to make decisions on the principals behalf and also to bear risk.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,12,Agency theory: definition,Agency theory suggests that the firm can be viewed as a nexus of contracts ( loosely defined) between resource holders.,Examples of agency contracts:,Contract between managers and owners, or,between a firm and its creditors.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,13,Agency theory assumptions,Simplifying assumptions,Rational,Self-interest,Utility maximization and wealth maximization,Goal congruence,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,14,Assumption: rational,Assumes people are rational,As a term, it is related to the idea of reason.,Rationality is the state of having good sense and sound judgment. It is the quality of being consistent with or based on logic (Gibbons 1992).,Economists usually assume that people are rational. Rational people systematically and purposely do the best they can to achieve their objective, given the available opportunities (Sugden 1991).,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,15,Assumption: rational,Assumes people are rational (continued),In rational choice theory all decisions, mad or sane, are arrived at by a rational process of weighing costs against benefits.,Assuming humans make decisions in a rational process implies that their behavior can be modeled and thus, predictions can be made about future actions (Cooter 1998).,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,16,Assumption: self-interest,Assumes people are self-interest,Evidence of self-interested managerial behavior :,the consumption of some corporate resources in the form of perquisites and,the avoidance of optimal risk positions, whereby risk-averse managers bypass profitable opportunities in which the firms shareholders would prefer they invest.,Outside investors recognize that the firm will make decisions contrary to their best interests. Accordingly, investors will discount the prices they are willing to pay for the firms securities.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,17,Assumption: utility maximization and wealth maximization,Tend to equate utility maximization to wealth maximization,If a firm is a sole proprietorship managed by the owner, the owner-manager will undertake actions to maximize his or her own welfare.,The owner-manager will probably measure utility by personal wealth, but may trade off other considerations, such as leisure and perquisites, against personal wealth.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,18,Assumption: utility maximization and wealth maximization,In the majority of large publicly traded corporations, agency conflicts are potentially quite significant because the firms managers generally own only a small percentage of the common stock.,Therefore, shareholder wealth maximization could be subordinated to an assortment of other managerial goals.,managers may have a fundamental objective of maximizing the size of the firm.,By creating a large, rapidly growing firm, executives increase their own status, create more opportunities for lower- and middle-level managers and salaries, and enhance their job security because an unfriendly takeover is less likely.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,19,Assumption: Goal congruence,Promotes goal congruence,A corporations managers may have personal goals that compete with the owners goal of maximization of shareholder wealth.,Since the shareholders authorize managers to administer the firms assets, a potential conflict of interest exists between the two groups.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,20,agency problem,Agency theory is concerned with resolving two problems that can occur in agency relationships.,The first is the agency problem that arises when,(a) the desires or goals of the principal and agent conflict and,(b) it is difficult or expensive for the principal to verify that the agent has behaved appropriately.,The second is the problem of risk sharing that arises when the principal and agent have different attitudes towards risk.,the principle and the agent may prefer different actions because of the different risk preferences.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,21,agency problem and control,Managers can be encouraged to act in the stockholders best interests through incentives, constraints, and punishments. These methods, however, are effective only if shareholders can observe all of the actions taken by managers.,A moral hazard problem, whereby agents take unobserved actions in their own self-interests, originates because it is infeasible for shareholders to monitor all managerial actions.,To reduce the moral hazard problem, stockholders must incur,agency costs,.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,22,categories of agency costs,Topic,2:,Agency theory and control,Control cost,monitoring,Incentive,compensation,bonding,Cost that cannot be,reasonably reduced,to zero,Examples:,Supervision,Accounting,information,Examples:,includes payments for risk assumed by agents,may be based on accounting information,Residual loss of the agency,Examples:,employee theft,consumption of perquisites (“perks”) by agents,shirking,Lower profits resulting from poor decisions,MA2 Chen Yuanhong,23,Risk aversion:,Example 7-1,According to Head office is planning, your expected compensation,= (1/3) x 35000 + (1/3) x 45000 + (1/3) x 55000,= 45,000,You negotiate to have the penalty reduced to 5,000, the certain equivalent of this alternative bonus,= (1/3) x 40000 + (1/3) x 45000 + (1/3) x 55000,= 46,667,Risk premium = 46,667 - 45,000 = 1,667,Topic,2:,Agency theory and control,Assume each of these three outcomes is equally probable,MA2 Chen Yuanhong,24,Risk aversion,Risk aversion,describes the attitude of most people toward their employment compensation,Principals,(head office) are assumed to be risk neutral,Compensation for risk is an agency cost or not?,Go to example 7-2,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,25,Decision rights and rights systems,Agency theory views a firm as a,nexus of contracts,that determines where,decision rights,lie in the organization.,The parties to these contracts are all individual decision makers, with their own interests to promote.,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,26,Organizational architecture,Organizational architecture,refers to the following three administrative systems:,Performance measurement,Performance reward and punishment,Decision rights partitioning,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,27,Models of firms,Topic,2:,Agency theory and control,In the conventional model, the entity known as the firm is well defined by boundaries. Classes of participants exist within the firm owners, managers,and employees and are set apart from one another as a group and from external parties, the,suppliers and customers.,In the nexus-of-contracts model, everyone is an,individual, and contracts individually with other participants. Each contract involves,monetary compensation, and may or may not include a delegation of decision rights from a,principal to an agent.,MA2 Chen Yuanhong,28,Contracts: Between principals and agents,Topic,2:,Agency theory and control,The owner is designated as a principal who contracts with three experts, each having unique,specialized knowledge of some value to the firm. Experts 1 and 2 are given decision rights,over some area of their expertise; Expert 3 does not receive decision rights from the owner.,MA2 Chen Yuanhong,29,Contracts: Between experts,Topic,2:,Agency theory and control,The experts also contract with each other, distributing decision rights in a variety of ways. In,each of these contracts, one expert will act as a principal and the other will assume the role of,an agent. Each expert performs many tasks, so there is no limit to the number of contracts you,might observe.,MA2 Chen Yuanhong,30,Outsourcing and agency theory,Reasons to outsource,Reduce and control operating costs,do not need to incur costs of motivating employees to perform as desired by principals.,sharing risk with external service providers,Drawbacks of outsourcing,Less flexible,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,31,Decision management and decision control,Agents can engage in two forms of opportunism:,Adverse-Selection and,Moral-Hazard,decision management (or decision making) is normally separated from decision control (monitoring).,Topic,2:,Agency theory and control,MA2 Chen Yuanhong,32,Decision management and decision control,Topic,2:,Agency theory and control,Exhibit 7-3,MA2 Chen Yuanhong,33,Topic 3:,Management control andstrategy,LEARNING OBJECTIVE,Explain the connection between management control and strategy. (Level 1),No required reading,MA2 Chen Yuanhong,34,Strategy formulation and management controls,Strategy formulation,is the process of deciding which corporate- and business-level strategies to pursue,Management control,is the process of implementing and evaluating the implementation of the strategy,Task control,is the process of ensuring the implementation is carried out effectively and efficiently. Task controls are more process and transaction oriented.,Topic,3:,Management control and strategy,MA2 Chen Yuanhong,35,Management control and strategy,MCS focuses on both long-term (strategic) and short-term (task) control.,An MCS should help an organization develop, implement, and evaluate both corporate and business-level strategies,and provide information for both financial and nonfinancial performance measures,Topic,3:,Management control and strategy,MA2 Chen Yuanhong,36,Management control,The components of MCS are as follows:,Management,A group of people working together to achieve certain common goals,Control,Systems used to manage operations,System,A prescribed and usually repetitious way of carrying out an activity or set of activities,Topic,3:,Management control and strategy,MA2 Chen Yuanhong,37,Management control,In organizations that are decentralized, where management decision making is allocated to lower levels of the organization, a properly implemented MCS is especially important to control operations and focus management attention on attaining overall organizational goals.,Topic,3:,Management control and strategy,MA2 Chen Yuanhong,38,Types of control devices,Detector,to measure what actually happened (B/S,I/S),Assessor,to determine the significance of what has happened by comparing to a standard or expectation (variance analysis),Effector,a device or feedback system that alters behaviour (root-cause analysis),Communication network,to transmit information,Topic,3:,Management control and strategy,MA2 Chen Yuanhong,39,Topic 4:,Corporate-level strategies,LEARNING OBJECTIVE,Describe corporate-level strategies. (Level 2),No Required reading,MA2 Chen Yuanhong,40,Corporate-level strategies,Strategies are developed at two levels: corporate and business.,All organizations, including not-for-profits, must have overall long-term goals and objectives.,Corporate-level strategy development asks the question: What business do we want to be in?,Topic 4: Corporate-level strategies,MA2 Chen Yuanhong,41,Corporate-level strategies,To decide on what type of business will provide a suitable return for shareholders, management must look at both the external and internal environments of the organization through:,PEST analysis,SWOT analysis,Topic 4: Corporate-level strategies,MA2 Chen Yuanhong,42,Corporate-level strategies,Developing corporate-level strategies also includes making decisions about the,companys mix of businesses and allocation of resources between and among businesses.,The MCS should help managers make decisions about diversification and outsourcing parts of the business or entire processes.,Topic 4: Corporate-level strategies,MA2 Chen Yuanhong,43,Topic 5:,Business-unit strategies,LEARNING OBJECTIVE,Describe business-unit strategies. (Level 2),No Required reading,MA2 Chen Yuanhong,44,Business-unit strategies,A companys business-level strategy is one step down from the corporate-level strategy.,Once the company decides on which business(es) to operate within, principals must decide how the company will provide shareholder value within the business.,Generally, the business-level decision is a choice between two strategies cost leadership and differentiation.,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,45,Business-unit strategies,Cost leadership,a cost leadership strategy is intended to generate competitive advantage by achieving costs that are lower than all competitors.,Based on operational efficiency,Differentiation,Based on the ability to distinguish your product or service from competitors.,focused,or,niche strategy,This is either a cost-leadership or differentiated strategy that focuses on a small subsection of the overall market or niche.,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,46,Business-unit strategies,An analysis of Porters 5 Forces is required to determine the best business-level strategy,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,47,Business-unit strategies,The Five Forces Analysis allows determining the attractiveness of an industry.,It provides insights on profitability.,It supports decisions about entry to or exit from and industry or a market segment.,It can be used to compare the impact of competitive forces on the own organization with their impact on competitors.,Competitors may have different options to react to changes in competitive forces from their different resources and competences. This may influence the structure of the whole industry.,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,48,Business Unit Mission,The nature of a business is often expressed in terms of its,Mission,which indicates the purpose and activities of the business,for example, to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas.,A statement along these lines indicates what the business is about and is infinitely clearer than saying,for instance, were in electronics or worse still, we are in business to make money (assuming that the business is not a mint !).,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,49,BCGs growth-share matrix,The,BCG matrix,(or B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix,Boston Consulting Group,analysis, portfolio diagram),is a chart that had been created by Bruce Henderson for the,Boston Consulting Group,in 1968,to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management,strategic management, and portfolio analysis.,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,50,BCGs growth-share matrix,Topic 5: Business-unit strategies,hold,build,harvest,dirvest,MA2 Chen Yuanhong,51,BCGs growth-share matrix,The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell.,Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use money generated by the,cash cows,to fund the,stars,and, possibly, the,question marks,.,Topic 5: Business-unit strategies,MA2 Chen Yuanhong,52,BCGs growth-share matrix,Topic 5: Business-unit strategies,To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.,MA2 Chen Yuanhong,53,Experience curve,BCG model supports having a stable, high market share with some operations