Performance Management Flashcards
Purpose of management accounting
- Planning
- Decision Making
- Control
Planning
- Establishing objectives of an organisation and formulating relevant strategies that can be used to achieve those objectives
- Can either be short term or long term
Decision Making
- Considering information that has been provided and making an informed decision
- First part of decision making is planning and second part is control
Control
- Use information relating to actual results to take control measures and to re-assess and amenet their original budget and plans
- Internally sourced information
- Budget vs actual = variance
what is feedback control
Feedback control is the comparison of actual results against expected results
negative feedback
control action is intended to bring actual performance back into line with the budget
positive feedback
control action would be intended to increase the differences between the budget and actual results
budget constrained style
- Manager is evaluated on ability to achieve budget in the short term and criticised for poor results
- Can result in data manipulation
profit conscious style
- Manager is evaluated on ability to reduce costs and increase profits in the long term, rather than meeting short term targets
- Less manipulation of data and better relation with colleagues
non-accounting style
manager is evaluated mainly on non-accounting performance indicators, such as quality and customer satisfaction
divisional managers
- given the authority to make decisions regarding their division
- the more decisions they are free to make, the more decentralised they are
factors affecting decentralisation
- management style
- size of organisation
- extent of diversification
- communication
- managements ability
- technology
- geographical location
- extent of local knowledge needed
advantages of decentralisation
- senior managers freed up for strategic issues
- better decisions made by local managers
- motivation of managers
- quicker decisions
- good training
disadvantages of decentralisation
- co-ordinating the business
- lack of goal congruence
- loss of control at senior level
- difficult to evaluate managers
- duplication of costs
what is a division structure?
A divisional structure occurs when an organisation is structured in accordance with product lines or divisions or departments.
responsibility accounting
- managers are accountable for the costs/revenues for which they have responsibility. These are controllable costs
- a specific manager takes responsibility for a particular aspect of the budget. Within the budgetary control system, he or she is then accountable for actual performance.
responsibility centres
responsibility centres is an individual part of a business whose manager has personal responsibility for its performance. The main centres are:
- Cost centres
- Revenue centres
- Profit centres
- Investment centres
what is a cost centre
production or service location, activity for which costs are accumulated
profit centres
manager is responsible for revenues as well as costs, the responsibility centre is a profit centre, manager held accountable for the profitability of operations
- there could be several cost centres within a profit centre
revenue centre
part of the organisation that earns sales revenue. Eg sales
investment centres
manager is responsible for investment decisions as well as revenue and costs
- held accountable not only for profits, but also return on investment
- measured by return on capital employed (ROCE)/return on investment