Week 1: Introduction Flashcards
What is Management?
Management is an art of knowing what to do, when to do and see that it is done in the best and cheapest way
What is some background information about Frederic Taylor?
Frederic Taylor: Scientific Management
The Midvale Steel Company, Philadelphia, Pennsylvania 1867-1876
•Taylor started to work as a clerk, then a foreman
•Taylor was ‘constantly impressed by the failure of his team members to produce more than about one-third of what he deemed a good day’s work’
•By scientific methods, Taylor determined to discover how long it should take men to perform each given piece of work
•Taylor started to put the first features of scientific management into operation in Autumn 1882
How did Frederic Taylor promote efficiency?
Frederic Taylor…Efficiency!
•‘Principles of Scientific Management’
•Workers are motivated by economic incentives
•‘A fair day’s pay for a fair day’s work’
•‘Time and motion’ study
•By calculating the time needed for the various elements of a task, a “best” way could be developed to complete that task
•Selecting the right people for the job is an important part of efficiency
•Control
•Match workers to their jobs based on capability and motivation with training
•Monitor worker performance, provide instructions and supervision
•Allocate the work between managers and worker
Henri Fayol: What were the five functions of management?
‘General and Industrial Administration’
Planning
Creating a plan of action for the future, determining the stages of the plan and the technology necessary to implement
Organizing
Managers need to provide everything necessary to carry out the plan
Commanding
Managers need to implement the plan
Co-ordinating
High-level managers need to “harmonize” all the activities to facilitate organizational success via communications
Controlling
Evaluation: comparison of the activities of the personnel to the plan of action
How do Luther Gulik and Lyndall Urwick add to this?
Paper on the Science of Administration’ 1937 - POSDCORB
•Planning: see Fayol
•Organizing: see Fayol
•Staffing: selecting candidates, training and facilitating orientation
•Directing: decision making and delegating structured instructions and orders to execute them
•Co-Ordinating: see Fayol
•Reporting: regular updates of progress to supervisors
•Budgeting: monitoring and evaluation tools e.g. accounting, auditing etc.
What’s the role of a manager?
Manager
•A person responsible for ‘managing’ the company
•Oversee a department or group of employees within a specific organisation/company
•Divisional manager e.g. marketing, operating
•Manager for the whole business e.g. restaurant manager, branch manager
What is a managers key responsibilities?
Daily operations: ensure the daily functioning of a department or group of employees
•Staffing: interview, hire, and train new employees
•Set goals: articulate short & long-term goals to ensure a company’s longevity
•Liaising: communicate with superiors and convey the necessary information to the various company parties
•Administration: complete administrative work and correspond with other departments
•Delegation: delegate tasks according to the department’s needs
•Motivate: motivate staff and creates an environment where employees thrive
•Enforcing policy: enforce company policy to cultivate an environment that makes employees hold one another accountable for their actions
•Training: train employees when new technologies/systems are introduced
What makes a good manager?
Coaching: coach employees to help them perform their positions more efficiently
•Organisation: maintain an organised work environment
•Budget development: oversee business financials to make budgets
•Handling pressure: handles competitive and high pressure and thrives in a changing environment
•Adaption: adapt to alternative technologies, management structures, and forms of communication
•Initiative: take the initiative and begin projects when necessary
•Collaboration: work with their employees, other managers, and their bosses
What is decision making?
Decision Making
•A problem-solving activity yielding a solution deemed to be optimal, or at least satisfactory
•A reasoning process based on assumptions of values, preferences and beliefs of the decision-maker
•Rational/irrational?
What is control?
Control of an undertaking consists of seeing that everything is being carried out in accordance with the plan which has been adopted, the orders which have been given, and the principles which have been laid down. Its objective is to point out mistakes in order that they may be rectified and prevented from recurring’ (Henri Fayol)
•‘Management control can be defined as a systematic torture by business management to compare performance to predetermined standards, plans, or objectives in order to determine whether performance is in line with these standards and presumably in order to take any remedial action required to see that human and other corporate resources are being used in the most effective and efficient way possible in achieving corporate objectives’ (Robert Mockler)
How did modern business enterprises develop in the US?
Alfred Chandler, The Visible Hand (1977) → Business changed (1830-60) with managers running companies instead of owners. This led to big businesses and few powerful companies (oligopolies).
• US Armory (1831-42) → First to set daily goals for production and quality.
• Pennsylvania Railroad (1849) → First to have managers in different roles (line-and-staff system) and track money through accounting.
• Andrew Carnegie (1853-1900) → Started as an office boy at PRR, later used PRR’s management system to run Carnegie Steel (1862), which he sold to JP Morgan in 1900.
• Rockefeller (1860s) → Used the same system to manage Standard Oil.
What new shape and structure helped shape modern businesses?
• New Structure → ‘Line and staff’ organization (Managers + specialized staff)
• New Process → Businesses started tracking both machines and workers
• How? → Accounting & statistics helped measure performance
• Chandler (1977): Every unit had its own office, records, and accounts that could be audited separately
What does the line and staff structure do?
The line and staff structure creates the possibility of coordination from the top down
•Plans get based on data re past performance
•Possible futures are extrapolated from the past
•The process innovations make flows visible and controllable from the bottom up
•Lower and Middle managers implement the plans
•Collect the data to inform the next visions of possible futures
•The role of staff office: communication and coordination
•A key outcome of line-and-staff and administrative coordination!
What does the M form line and structure do?
M-form type of ‘line-and-staff’ structure
•M-form as a structural variation on U-form
•The ‘multi-divisional’ form enables
–Divisional managers to run ‘businesses within the business’
–While ‘top managers’ focus purely on strategy
–Via the newly named ‘Planning Office’
•The basis of most oligopoly firms (multinational enterprises) today
What are the outcomes of admin coordination?
Internally within a firm
–Routinises transactions, reduces information costs, enables effective scheduling of flows
–Generates ‘more certain cash flow and…payment for services rendered’ (Chandler, 1977, p6)
•Across groups of firms and market sectors
–‘Permitted greater productivity, lower costs and higher profits than coordination by market mechanisms’
–Producing ‘imperfect competition and misallocation of resources’ at the aggregate level Oligopoly
How does management produce the modern business world?
Management produces the modern business world…
•The Three ‘E’s’
•Economy – optimal costs for inputs
•Efficiency – optimal performance in throughputs
•Effectiveness – optimal outputs and outcomes
–Outputs – what you do/produce (service / product)
–Outcomes – what happens next (success/failure/customer satisfaction, etc)
–Optimal: Best mix of costs and benefits/profit
What happened after managerialism took over?
Big factories grew → Needed trained cost clerks
• 1880s: First training textbooks (e.g., Garck & Fells Factory Accounts)
2. Cost clerks became accountants
• 1917: Institute of Cost & Works Accountants (ICWA) was founded
• Required exams to qualify
• 1970s: ICWA became CIMA (Chartered Institute of Management Accountants)
What is Management Accounting?
Management via Accounting
–Managing by past numbers to shape futures
–Coordinating time, space & action (admin coordination)
–Not just ‘providing information to people within an organization’
–Also measuring human performance
–Shaping action and thinking via ‘accounting numbers’ (financial/non-financial)
–Part of inventing the modern business form
What’s the main purpose of management accounting?
Management accounting (MA)
•‘..is concerned with the provision of information to people within the organisation to help them make better decisions and improve the efficiency and effectiveness of existing operations’
•‘…is an integral part of management.’
•Chartered Institute of Management Accountants (CIMA)
What does Management Accounting require?
What is MA?
It requires the identification, generation, presentation, interpretation and use of relevant information to:
•Inform strategic decisions and formulate business strategy
•Plan long, medium and short-run operations
•Determine capital structure and fund that structure
Why study Management Accounting?
Central feature of ‘management’ - to get things done
•Central and essential to forming and running the ‘modern business enterprise’
•Impossible to generate ‘administrative coordination’ without MA processes distributed across a whole organizational structure
•Structure may be one U-form ‘firm’, or a series of ‘divisions’ in an M-form corporation, other ‘structures’
What does cost mean in accounting and economics?
Cost
•Resource sacrificed or forgone to achieve a specific objective
•In the accounting and economic context…
•Actual cost: monetary expenditure paid to acquire, produce, accomplish or maintain anything
•Opportunity cost: potential benefits an individual, investor, or business misses out on when choosing one alternative over another
What is some cost terminology?
Cost terminology
•Cost Object – Any activity for which a separate measurement of cost is required.
•E.G. a product, a product line, a specific job, a customer, a department, a division, the chief executive
•Cost Unit – a unit of product or service in relation to which costs may be ascertained
•E.G. a bottle of drink, a cup of tea, a box of chocolate etc.
•Cost driver – Any factors that affect the level of total cost of a related cost object
•E.G. no. of labour hour worked, no. of customer contacts made etc
What is required to make a sales figure useful?
Cost classification
•In order to be useful the cost of sales figure of £24,590m at Sainsbury’s would need to be classified.
•Cost classification is the ‘arrangement of elements of cost into logical groups with respect to their nature, function or use in the business of the entity’. (CIMA)
What are ways from Drury to classify costs?
Ways of classifying costs from Drury (2021)
•Direct and indirect costs
•Manufacturing and non-manufacturing costs (production and
What are direct and indirect costs?
Direct and indirect costs
•Direct costs:
•can be specifically and exclusively identified with a particular cost object
•can be traced to it in an economically feasible manner.
•Indirect costs:
•cannot be specifically and exclusively identified with a given cost object
What are some examples of direct and indirect?
Cost,Classification
Rent on the factory,Indirect ✅
Pay of workers assembling computers,Direct ✅
Plastic computer casings,Direct ✅
Factory heating and lighting,Indirect ✅
Custom duties paid on imported raw materials,Direct ✅
Product advertising,Indirect ✅
Glue used to seal computer casing,Indirect ✅
Salesperson’s commission paid per computer,direct ✅
Supervisor’s salary,Indirect ✅
Moulding Machine depreciation Indirect ✅
What are the costs incurred to produce a finishing product?
Manufacturing/Production Costs
•Costs incurred to produce the finished product
•This will include:
• Direct Materials X
• Direct Labour X
• Direct expenses (usually zero) X
Prime Cost X
Manufacturing (production) overhead X
•Total manufacturing (production) cost X
What are the non manufacturing/production costs?
Non-Manufacturing/Production costs
•Non-production costs incurred
•This will include:
•Marketing Costs: For example -
•Sales commissions
•Advertising costs
•Distribution costs
•Administrative Costs: For example -
•Salaries of directors
How is a manufacturing and non manufacturing cost recorded?
Manufacturing Cost
→ Product Cost
→ Unsold
→ Recorded as an asset (inventory) in the balance sheet
→ Sold
→ Recorded as an expense in the profit and loss account
Non-Manufacturing Cost
→ Period Cost
→ Recorded as an expense in the profit and loss account in the current accounting perio
How does cost behave with activity?
Cost behaviour
•This relates to how costs behave as activity is increased or decreased
•Fixed costs:
•Remain constant over wide ranges of activity (over a specified time period)
•Variable costs:
•Vary in direct proportion to the volume of activity (over a specified time period)
