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Management Control > Lecture questions > Flashcards

Lecture questions Flashcards

1
Q

Define management control

A

the process by which management ensures that people in the organisation carry out organisational objectives

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2
Q

Name the three basic classes of control issues

A
  • lack of direction
  • lack of motivation
  • lack of abilities
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3
Q

Why is behavioural orientation important in management control

A

management control is about encouraging people to take desirable actions, so focus should be on behaviour

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4
Q

What does good control aim at (2)

A
  • high probability of achieving firm’s objectives
  • low probability of major unpleasant surprises
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5
Q

How does management control relate to management accounting

A

management accounting provides the tools and measures used by management in their managment control systems

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6
Q

name the three levels of controls

A
  • action conrols
  • results controls
  • people controls
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7
Q

what do action controls clearly define

A

desired behaviour

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8
Q

which level of control is generally most easy to measure

A

result controls

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9
Q

which level of control is most vaguely defined

A

people controls

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10
Q

what is responsibility accounting

A

a management control system that involves identifyin and reporting financial information by areas of responsibility

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11
Q

incentive systems form the link between ….

A

results and various incentives

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12
Q

performance measurement is done for two things, namely:

A
  • for motivating behaviour (i.e. the incentive system)
  • for interactive learning (i.e. radar screen)
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13
Q

Name three benefits of decentrelisation

A
  • lower level managers have the best knowledge to react to market demands
  • promotes managment skills which helps to ensure leadership continuity
  • managers enjoy higher status from being independent and thus are better motivated
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14
Q

Name three disadvantages of decentralisation

A
  • managers may make decisions that are not in the organisation’s best interest
  • managers tend to duplicate services that might be less expensive if centralised
  • cost of accumulating and processing information frequently rises
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15
Q

Define a responsibility centre

A

an organisational unit headed by a manger responsible for its activities

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16
Q

define a financial responsibility centre

A

a responsibility centre in which the manager’s responsibilities are defined primarily in financial terms

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17
Q

give an example of a revenue centre

A

sales department

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18
Q

which two types of expense centres are distinguished?

A

standard / engineered expense centres (EECs) and mangaged / discretionary expense centress (DECs)

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19
Q

what makes EECs and DECs differ from each other?

A

EECs inputs and ouputs can be measured in monetary terms and a causal relationship can be made between them, while both are not the case for DECs

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20
Q

give two examples of DECs

A

HR and R&D departments

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21
Q

Which component of the financial statement is the investment centre responsible for, but not the profit centre?

A

the balance sheet

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22
Q

what problem arises from using historical data for target setting

A

the ratchet effect: higher performance results in higher targets

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23
Q

benchmark targets can be either … or …

A

internal or external

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24
Q

For planning purposes, target should be …. and …

A

accurate and realistic

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25
Q

For motivation purposes, targets should be …. …

A

slightly stretched

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26
Q

Performance targets should be … but …

A

challenging but achievable

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27
Q

What is the most important disadvantage of involving budgetees in budget setting?

A

slack building: revenues budgeted too low while expenses budgeted too high

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28
Q

Name the three categories of uncontrollables

A
  • economic and competitive factors
  • force majeure (overmacht)
  • interdependencies (due to desicions made in other parts of the organisation)
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29
Q

name 4 methods of eliminating uncontrollables

A
  • variance analysis
  • flexible performance standard
  • relative performance evaluation
  • subjective performance evaluation
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30
Q

Name the parts of the budget cycle:

A
  1. budget preperation
  2. periodic evaluations against actuals
  3. budget revisions or ‘revised forecasts’
  4. result evaluation (after the budget period)
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31
Q

Name three examples of non-monetary rewards

A

Promotion
Titles
Autonomy
Recognition
Participation in decisions
Office assignments
Preferred parking places

32
Q

What are long-term incentive plans often related to?

A

company’s stock price

33
Q

Name the three options for market based performance

A
  • stock options
  • restricted stock
  • stock appreciation rights
34
Q

Name the charateristics of the ideal performance measure

A

objective, complete, responsive to individual influence

35
Q

What is important if performance measures are subjective?

A

trust should be high

36
Q

what is an important risk of an incomplete measure

A

may lead to dysfunctional behaviour

37
Q

what are the two negative cognitive effects of having many targets for performance

A

dilution: individual measure’s importance decreases
overload: cognitive biases or information overload frequently causes evaluators to overemphasise common measures

38
Q

in a multi-task environment, it is important that bonuses…

A

are only paid when all measured tasks are performed at a certain threshold

39
Q

why should there be an upper bound in the bonus curve

A

to prevent undeserved bonuses through dysfunctional behaviour or unforeseen good luck

40
Q

Name four advantages of performance based pay

A
  • direction of effort
  • inducing of effort
  • attraction and retention of employees
  • risk spreading
41
Q

name four disadvantages of performance based pay

A
  • excessive rewards and bonus culture
  • too materialistic
  • you get what you pay for
  • cheaters prosper
42
Q

name the three forms of subjective performance measurement

A
  • flexibile weighting of objective performance measures ex-post
  • ex-post discretion in using additional performance criteria
  • the use of subjective performance measures
43
Q

name four advantages of subjectivity in performance measurement

A
  • risk reduction
  • mitigation of incentive distortion
  • limitation of vulnerability to manipulation
  • more flexibility to adapt to changing conditions
44
Q

Name the five biases leading to inaccurate assessment in subjective performance measurement

A
  • leniency bias (being nice)
  • centrality bias (giving everyone mediocre grade)
  • favouritism
  • spillover effect (translating excellence in one part to the rest)
  • recency effect
45
Q

describe the myopia problem

A

financial measures often create pressures for short-term performance potnetially at the expense of long-term value creation

46
Q

Name three solutions for the myopia problem

A
  • selection and retention management
  • extensions of the measurement window
  • alternatives to traditional measures of accounting performance
47
Q

What is meant by selection and retention management

A

Selecting people and holding people that plan to stay at the company for a long time and therefore focus on long-term succes

48
Q

why is myopia inherent

A

mental discount rate exceeds time value of money

49
Q

How does EVA differ from RI?

A

accounting adjustments

50
Q

EVA = …

A

adjusted NOPAT - (WACC * adj. assets employed)

51
Q

why does EVA help in overcoming myopia?

A

involves capitalisation of expenditures that managers might otherwise try to cut if they were pressured for performance

52
Q

Name two objections to using EVA

A
  • may still lead to evasion of EVA negative projects that are profitable in the long run
  • can be biassed by managers (–> use in conj with bonus bank)
53
Q

which operational measures are incorperated in the balanced scorecard?

A
  • customer satisfaction
  • internal processes
  • firm innovation and improvement activities
54
Q

Give three reasons why the balanced score card can be considered to be broader

A
  • systematises the various measures into a number of perspectives
  • emphasises the link between strategy and performance measurement
  • establishes cause-effect relationships among measures
55
Q

Why does the BSC help to overcome myopia?

A

leadint indicators are included that shift the balance toward long-term concerns through incentivising and cognitive effects

56
Q

which type of inter-organisational relationship is supplemented by equity investments by one or both partner(s) into the other partner?

A

equity alliances

57
Q

what is paradoxical about corporate alliances?

A

growing in number despite high failure rate

58
Q

what are the six steps toward a successful supply chain collaboration

A
  1. develop a cross-functional team
  2. preliminary supplier screaning
  3. in-depth supplier screening and qualification
  4. supplier selection
  5. contract development
  6. ongoing measurement and management
59
Q

what are examples of social controls in a inter-organisational management control system

A

frequent interaction and team building approaches

60
Q

What is the use of sustainable supply chain management?

A

looking at the entire supply chain to identify social and environmental externalitites prevents outsourcing as an avoidance strategy

61
Q

how is being out of control defined

A

high probability of low performance despite having a sound strategy in place

62
Q

How does one get from business strategy to performace goals and objectives

A

via designing an organisational structure and allocating decision rights

63
Q

In standard expense centres, costs depend on ….

A

activities that are necessary for the final product

64
Q

in discretionary expense centres, costs depend on …

A

managerial discretion

65
Q

RI =

A

profit - capital charge
(capital charge = cost of capital * assets employed)

66
Q

end of year evaluation may concern:

A
  • managerial performance evaluation and compensation
  • eliminating uncontrollables
67
Q

as the contollability principle is all but a water tight system, what alternative is proposed in this course?

A

influenceability principle: hold employees accountable for what they can sufficiently influence

68
Q

Despite cognitive effects, having many targets can be disadventageous due to …

A

being too costly / unfeasible

69
Q

the slope of the reward line should depend on… and specificies the … of the …

A

controllability, intensity, incentive

70
Q

To prevent myopia, one may use alternatives to traditional measures. these can be either ………………… or ………………….

A

improved accounting measures or complement measures(BSC)

71
Q

why is managing the employment time horizon difficult

A

because there is always uncertainty about how long employees will stay: temporary contracts can be renewed on the one hand and youn managers can be planning to quit on the other hand

72
Q

Bonus banks prevent myopia by …

A

reducing management’s incentives to focus on current period performance at the expense of future performance

73
Q

Besides the incentivising effect through the use of leading indicators when using the BSC, it also overcomes myopia through…

A

cognitive effects: causal effects become more salient

74
Q

When an alliance is not supplemented by any equity investments, it is a …

A

non-equity alliance

75
Q

Name three specific types of interorganisational management control tools

A
  • value chain analysis
  • integrated information systems
  • open book accounting

Management Control (4 decks)

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