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22421: Management Decisions and Control Lecture 1: Introduction
Lecture objectives To establish expectations of about the nature of the subject: • Objectives of MDC • Introduce main content areas: • History and context of management accounting and control • Overview of management control systems • Overview of management decisions • Introduce main structural features: • Subject materials • Assessment • Your strategy in MDC
Objectives of MDC • Apply and critiquedecision and control models of real world business scenarios • Evaluatehow decision and control models impact people in the organisation • Develop communication and teamwork skills • Develop a capacity for independent research and learning • Critically evaluatedata and resources in the context of relevant academic literature • Critically analyzethe core professional obligations, values and operationsof organizations
History of management accounting Themes in management accounting Move from cost systems → holistic management approach Recognition of the social context of management accounting Contingency based approach → one size does not fit all Management accounting development → linked to development of management styles Cottage industries (pre-19th Century) Industrial revolution (early 19th Century) Contingency approach (late part of 20th Century) Sociological approach (late 20th – 21st Century) Human resources approach (early to mid 20th Century) Management science (operations) (mid – late 20th Century) Scientific management movement (mid 19th – early 20th Century)
History of management accounting So why do we need management control and decision systems?
Management control systems The control problem The control problem assumes that organisations and individual are purposeful, goal seeking entities, who’s goals may not be congruent, i.e. conflict in goals may be an inherent characteristic of a social organisation (Flamholtz, Das, Tsui, 1985) How do you get people do you what you want them to do? Employee Organisational objectives Individual interests Organisation Employee Divergent interests Employee Employee Management control systems
Management control systems Control package (Malmi and Brown, 2008; Brown, 2005) In this subject we mainly adopt the control package typology. Each week we look at an individual control system and then we consider how these controls work together as a package. External Environment Strategy and Objectives Organisation Performance Activities
Difficulties in interpreting performance statistics in NFL:http://www.sportsonearth.com/article/53794846
On average, each sack adds approx. $300k to a player’s market value Source: http://www.advancednflstats.com/2013/04/how-much-money-is-sack-worth.html
Management decisions Business decisions Organisations make a range of long and short run decisions that trade-off the various interests of stakeholder groups. • What is involved with making a decision? • What role does management accounting play? • Decision facilitating systems • Behavioural alignment (incentives) • What are the complexities of decision making? • Optimal versus satisficing decisions (Jensen 2001, Simon 1964)
Problems & Decisions Policies & Guidelines Assumption 1 Social context impact Assumption 2 Assumption 3 Budgeting Relevant Costing Pricing Decisions Information Transfer pricing Solution 1 Solution 2 Solution 3 Management decisions Decision facilitating systems What assumptions have you made? What model will you use?
Management decisions Decision facilitating systems The accounting system is the principal “quantitative” information system in business organisations. The system should provide information for 5 broad purposes: • Formulating overall strategies and long range planning • Resource allocation decisions • Cost planning and cost control of operations and activities • Performance measurement and evaluation of people • Meeting external regulatory and legal reporting requirements.
Studying management systems Different approaches, different questions: • Describe, identify, outline, summarise (What?) • Describe the organization’s reward system • Explain (How? Why?) • Explain why the budget is causing employee stress • Explain how the administrative system works • Evaluate, assess, critique • Evaluate the effectiveness of balanced scorecard design • Recommend, design, suggest • How could the budgeting process could be improved? • Argue, justify, provide opinion • “Strong corporate cultures drive strong organisational performance.” Do you agree? Why or why not?
Understanding ‘theory’ ‘There is nothing as practical as a good theory’ (Alfred North Whitehead) Theory explains how and why! • Why have so few firms adopted ABC? • How can firms balance stakeholder objectives? • Why do firms use budgeting? • Why do compensation systems result in certain management choices? Always ask yourself: • How do I know this? • Is there empirical evidence to support this proposition? • Do alternative arguments exist?
Understanding theory Where does knowledge come from? What do we know? what don’t we know? Research questions Data testing Conclusions Theorizing (Whetten 1989, Straw and Sutton, 1995)
Theory in management accounting Management accounting draws on a number of disciplines and theoretical frameworks.
Theory in management accounting Economics Economics is based around the problem of scarce resources. Firm based economics addresses this issue. Finance issues of investment and financing influence the information that is relevant for those types of decisions. Management and science and operations research These disciplines have provided analytic and optimisation models for management accounting. Sociology Due to the fact that management accounting exists in both a group context within organisations and within society more broadly, these theories help us understand how the structures that exist within society impact upon management and the information they use to make decisions and control activities and people in organisations. Behavioral science Business outcomes are the result of decisions and actions of individuals. Therefore issues such as motivation and performance evaluation take on a human behavior perspective. In addition, the firm’s performance is a function of individual performances.
Materials for this subject • The lecture notes provide the structure for topics covered in MDC • Textbook: Langfield-Smith et al 6th edition • Harvard Business School case studies • Available through UTSOnline • Are the basis of for weekly homework and subject assessment • Weekly academic and practitioner journal articles • Available through the library website
How does it all fit together? Weekly lectures – introduce and discuss key concepts Individual research essay Develop independent research skills Mandatory workshops Conduct independent research about what constitutes performance for a Business School Weekly homework – understand and apply key concepts to case study organizations Weekly tutorials – gain feedback on your learning Group research report Develop teamwork and communication skills Group rules and plans Apply academic research to identify and explain problems in the case of Edwards School of Business Final exam Assess students’ learning from the subject Entry ticket homework policy Demonstrate learning by answering questions based on the case of Edwards School of Business
Weekly Homework • Entry ticket homework: • Weekly homework instructions are posted on UTSOnline (under course documents) • Students are required to complete ALL of their weekly homework PRIOR to class • Students that fail to complete the ALL required exercises for the week will NOT be allowed into the tutorial. • Each student is allowed one grace (‘free-rider’) week • Try not to use it up in Tutorial 1!
Individual Assignment • Individual essay (10%) “What constitutes ‘performance’ for a Business School?” • Due: Wednesday 3rd of September- submit to Turn-it-in and hard copy to tutor in tutorials • Completed individually • Assignment brief & marking guide on UTSOnline • Research skills workshop • You must attend one research skills workshop as part of your individual assignment • No workshop = zero marks for your assignment
Individual Assignment • MANDATORY Research skills workshop • Workshops will run at various times during Week 2-4 • Book early to ensure your preferred time – space is limited http://www.lib.uts.edu.au/tag/mdc
Group Assignment • Group research report (30%) Problems in performance measurement • Based on HBS Case Study: Edwards School of Business • Groups of no more than 3 students (no exceptions) • All group members must be enrolled in the same tutorial (no exceptions) • Assignment brief, marking guide & supporting material on UTSOnline
Group Assignment Submitted in several stages (hurdle assessments) SUBMISSION TIMELINE: • Week 7 – Ground rules due in class • Week 8 – Group report plan due in class • Final submission Wednesday 15th of October via Turn-it-in • Week 10 – Remaining meeting minutes, hard copy of report due in class
Final Assessment • Final Exam (60%) MAIN FINAL EXAM HINTS: • Questions based on weekly tutorial homework questions • Based on Edwards School of Business case study (same as your group assignment) • Questions and marking guide for Autumn 2014 exam available on UTSOnline ALTERNATIVE EXAM HINTS: • None provided, all topics assessable
Expected Learning Approach Lectures BEFORE: • Read assigned materials/chapters in text book • print lecture notes AT: Listen, take notes AFTER: • Review notes – identify gaps in your understanding • Listen to recording; ask questions on Discussion Board Tutorials BEFORE: • Read case study/homework material EARLY - give yourself time to THINK • Prepare full written answer to tutorial questions AT: Participate in discussion, ask questions, seek feedback on your homework AFTER: Revise and improve your homework answers, apply questions to assessment case study
Expected Learning Approach Assignments BEFORE: • Find team members, establish a routine • Read brief and marking guide – ask your tutor to clarify expectations; • Attend workshop (MANDATORY) • Prepare drafts – seek feedback EARLY SUBMISSION: Both Turn-it-in and Hard copy AFTER: Read assignment feedback, clarify marking if you don’t understand Final exam BEFORE: • Review homework answers EARLY – identify gaps in your learning • Revise gaps in your learning with your tutor AT: Try your best! AFTER: Seek feedback
Other helpful resources • Learning support at UTS • UTS HELPS Centre – Tower Building – academic help for students/individual appointments & workshops http://www.ssu.uts.edu.au/helps/ • Online self study resources /Business School website / resources for students http://www.business.uts.edu.au/teaching/student/resources/student-learning.html • Business School Guide to Writing Assignments http://www.business.uts.edu.au/teaching/guide/ • UTS library- Study Skills Site http://www.lib.uts.edu.au/help/study-skills • Facebook – UTSBlearningsupport
Reference list Abernethy, M., Chua, W., (Fall 1996) A field study of control system "redesign": the impact of institutional processes on strategic choice, Contemporary Accounting Research, 13 (2), 569-696 Alvesson, M., Karreman., D., (2004) Interfaces of control. Technocratic and socio-ideological control in a global management consultancy firm, Accounting, Organisations and Society, 434-444 Flamholtz, E., Das, T., Tsui, A., (1985) Towards an integrative framework of organisational control, Accounting, Organisations and Society, Vol 10, No. 1, 35-50 Freeman, R. E. (1984) Strategic management : A stakeholder approach. Boston: Pitman. Jensen, M., (2001) Value maximisation, shareholder theory, and the corporate objective function, European Financial Management, 7 (3), 297-317 Langfield-Smith, K., (1997) Management control systems and strategy: a critical review, Accounting, Organisations and Society, 22 (2), 207-232 Macintosh, N., Daft, R., (1987) Management control systems and departmental interdependencies: an empirical study, Accounting, Organisations and Society, Vol 12, No. 1, 49-61 Malmi, T,. Brown, D.A., (2008) Management control systems as a package – Opportunities, challenges and research directions, Management Accounting Research, Vol 19, No. 4, 287-300 Otley, D., (1980) The contingency theory of management accounting: achievements and prognosis, Accounting, Organisations and Society, Vol 5, No. 4, 413-428 Ouchi, W., (1979) A conceptual framework for the design of organisational control mechanisms, Management Science, September, 833-848 Porter, M., (1985) Competitive advantage: creating and sustaining superior performance, The Free Press Simon, H, A., (1964) On the concept of Organisational Goal, Administrative Science Quarterly Simons, R., (1995) Levers of control: how managers use innovative controls systems to drive strategic renewal, Boston, Harvard Business School Press. Sutton, R., Staw., (1995), What theory is not, Administrative Science Quarterly, 40, 371-384 Whetten, D., (1989), What constitutes a theoretical contribution, Academy of Management Review, 14, 490-495