Planning and Control Flashcards
What is management control?
The systematic process of higher level managers influencing low level managers to implement the organisation’s strategies.
Types of controls
Action, Social, Cultural, Personnel, Result and Output
Break down some action controls
Behavioural, Preaction and Accountability
Break down some results/output controls
Performance measure, performance targets, reward or punishment
What is feedback?
Feedback is the process by which the actual and predicted results are compared and action is taken for future events.
What is feedforward?
This is when predictive measures are used to anticipate the actual and predicted results and precautionary measures are taken to ensure goals are met.
Issues with feedback
1) Noise which prevents communication of feedback to a regulator.
2) Unrealistic plans
3) Inaccurate information
4) Delayed information
5) Errors are allowed to occur
6) Action is taken after the event
Issues with feedforward
1) Time
2) Cost
3) Opportunity cost
4) Environment uncertainty
5) Inaccurate information
6) Regular forecasting
Evaluation of control systems
The overlap between the behaviour of individual managers, the behaviour controlled by the systems and the behaviour needed to achieve organisational goals is very small.
Action- seen as bureaucratic and time-consuming which can lead to feelings of distrust and discourages creativity.
Personnel, cultural and social- disagreements about values, norms and beliefs.
Results/output- too focused on measurements, data manipulation, disagreement on targets and measures.
Why do management accounting control systems tend to be the primary controls?
1) Monetary measures provide a common base for comparison of dissimilar activities.
2) Profitability and liquidity are essential for a company to survive.
3) Decisions can be taken based on improvements in financial measures.
4) Managers retain autonomy
What is responsibility accounting?
This divides the organisation into responsibility centres each of which has a manager who is responsible for its performance.
What is the strategic business unit responsible for?
Revenue, cost, capital investment and local strategy.
What does responsibility accounting involve?
Distinguishing between controllable and uncontrollable units and determining how much influence managers should have in setting their targets and how difficult their targets should be.
The controllability principle
This principle tries to ensure that managers are only responsible for activities which are under their control.
What are controllable costs?
Costs which can be directly influenced by a given manager, within a given time frame.
Criticisms of traditional budgeting
1) Budgetary slack
2) Short-term
3) Time consuming
4) Inflexible to change
5) Focus on cost reduction not value
6) Past used to predict the future
What is better budgeting?
This type of budgeting encompasses enhanced budgeting tools in order to reduce the problems inherent in traditional budgeting.
What is included in better budgeting?
1) Zero-based budgeting
2) Activity-based budgeting
3) Value-based management
4) Profit planning
How does ZBB work?
1) Creates a decision package of activities and resources to achieve objectives.
2) Rank decision packages and allocate funds
3) Elimination of slack and improved understanding of costs
How does ABB work?
1) Considers activities for each cost object
2) Activities and cost pools combined to calculate cost driver rates
3) Cost driver rates used to allocate cost to objects based on level of activity
How does VBM work?
1) Goal to improve shareholder value
2) Identify and communicate value drivers
3) Budget designed to achieve targets aligned to value drivers
4) Aimed at achieving congruence
How does profit planning work?
1) Focus on desired profit
2) Spending on individual cost items is less important
3) Concerned about the long-run reduction of costs
4) Performance evaluation emphasises the impact on long-term profitability
What is beyond budgeting?
Managers are encouraged to look OUTWARDS at the competitive market and FORWARDS when taking action - this shifts attention from beating each other to beating the competition.
Aspects of beyond budgeting
1) Organise around business rhythm
2) Reward success against competition
3) Ambitious and relative goals
