8: Performance Management Flashcards
The main functions that management are involved with?
Planning
Decision-making
Control
What does ‘planning’ involve?
One of the main duties of the management accountant
- establishing the objectives
- formulating relevant strategies to achieve those objectives
- can be short term (tactical) or long term (strategic)
What does ‘decision-making’ involve?
Considering information and making an informed decisions
- making a choice between two or more alternatives
- first part: planning
- second part: control
What does ‘control’ involve?
Second part of decision-making process. Info relating to the actual results is reported to managers
- managers use information relating to results to take control measures
- internally sourced information (feedback)
What is involved in the feedback loop?
Management prepare a plan which is put into action by managers with control over input resources
Output is measured and reported (fed back)
Managers take corrective action
Feedback used to revise plans or prepare the next plan
What are the features of effective feedback?
Clear and comprehensive
Exception basis
Based on controllable costs and revenue
Produced on a regular basis
Timely
Accurate
Communicated
Irrelevant data excluded
What are the behavioural aspects of performance management?
Ways in which behaviour can damage the budgeting process:
Problems include dysfunctional behaviour and budget slack
Dysfunctional: when managers seek their own objectives
Budget slack: deliberate over-estimation of expenditure or under-estimation of revenues
What are the three distinct styles of Hopwood’s research on using budgetary info?!
Budget-constained
- achieve budget in the short term
- manager is criticised for poor results
- job related pressure
- data manipulation
Profit-conscious stule
- ability to reduce costs and increase profits in the long term
- short term info needs to be used with care and in a flexible way
- less job related pressure
- better working reations
- less manipulation
Non-accounting style
- evaluated on non-accounting performance indicators
- like profit-conscious, but less concern for accounting info
What factors affect degrees of centralisation?
Management style
Size of orgs
Extent of diversification
Communication
Management’s ability
Technology
Geographical location
Extent of local knowledge needed
Ads and Dis of decentralisation?
Ads:
- senior managers freed up
- better decisions by local managers
- motivation of managers
- quicker decisions
- good training
Dis:
- co-ordinating the business
- lack of goal congruence
- loss of control at senior level
- difficult to evaluation managers
- duplication of costs
What is a key aspect of responsibility accounting?
Ensuring managers are only accountable for the costs (and/or revenues) for which they have responsibility.
These are CONTROLLABLE COSTS
What is a responsibility centre, and what are the six types?
Individual part of a business whose manager has personal responsibility for performance.
Cost centre
Revenue centre
Profit centre
Investment centre
ALSO:
shared service centre
cloud accounting
What is a cost centre?
Production or service location etc whose costs are identified and recorded for MI
Can be departments, functions, activities, geographical locations, etc
Measured by variance analysis
What is a revenue centre?
Part of org that earns sales revenue
Like cost centre, but only accountable for revenues
Generally associated with selling activities
Measured by variance analysis
What is a profit centre?
Part of the business for which both the costs incurred and the revenues earned are identified
Found in largs orgs with divisionalised structures, where each div is a profit centre
Within each, could be several cost centres and revenue centres
Measured by controllable profit
What is an investment centre?
Profit centre with additional responsibilities for investment and financing, whose performance is measured by return on capital
Managers responsible for investment decisions and performance of capital employed
Measured by:
- ROI
- RI
What is a shared service centre?
Common processes within a business, such as HR and IT
Aim is to significantly reduce costs and improve service levels. Fair transfer pricing policy also key
Ads:
- reduced headcount
- reduction of floor space
- knowledge sharing
- standardisation
Dis:
- loss of business and specific knowlegde
- removed from day to day, can lead to misinformed decisions
- weakened relationships
- cost inefficiencies
What is cloud accounting?
A type of cloud computing, where accounting software is provided by a service provider
Ads:
- flexibility
- cost efficient
- improved security systems
- automatic updates and backup
Dis:
- internet access required
- supplier reliance
- security and privacy breaches
