ADVANCED MANAGEMENT CONTROLS GSM 645

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ADVANCED MANAGEMENT CONTROLS GSM 645
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Capstone Course

• Integrate Core
• Managing Exchange
• Managing Organizations
• Economics Finance
• Budget and control
• Quantitative methods and Statistics

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Case Course

• Action Forcing
• Historical
• Public and not-for-profit
• Business
• Role playing

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POSDCORB

• Strategic PLANNING
• ORGANIZING
• STAFFING
• Organizational DEVELOPMENT
• CONTROLLING
• OPERATING
• REPORTING
• BUDGETING

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Focus on Lower Level Management Functions

• Lower Level Functions coordination, performance
  measurement, and control systems are merely means
  of implementing product/market strategies
• Higher Level Functions

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This course is divided into three sections Best
practiceAligning Strategy and StructureModern
Performance Measurement and Control Systems
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Design of Responsibility Structures

• Ongoing
• revenue and expense centers
• profit centers
• investment centers
• Finite
• projects
• Products
• teams

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Linking Responsibility Structures

• Mission and support centers
• Using transfer prices
• Programming and project analysis -- i.e.,
  transforming project budgets(capital budgets)
  into responsibility budgets
• Discretionary expense centers

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Contemporary Fads

• Lean management
• Internal pricing (unbalanced transfer prices,
  multi-part tariffs, and intraorganizational sales
  of assets)
• Overhead management (cycle-time burdening and
  activity accounting)
• Process reengineering

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TEXTS

• Anthony and Govindarajan, Management Control
  Systems (AG)
• Bower and Christenson, Public Management, Text
  and Cases HO

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Grading

• Case presentations -- 2 (15)
• Sloan Essay (15)
• Exercises 3 (16)
• Class participation (24)
• Case memos -- 3 (30)
• Case writing can be substituted for case memos
• Case presentations, class discussion, memos, and
  the Sloan essay should reflect material contained
  in the text.

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Official Syllabus
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Management

• Subject areas
• Designing programmatic organizations
• Closely related with organizational and cultural
  aspects of strategy and policy
• Executive leadership
• Focus is on the strategic apex (top management)
  of organizational units
• Closely related to strategic management
• Managing operations
• Focus is on the design, maintenance, and
  strengthening of the operating core as well as on
  the planning, budgeting, control, execution, and
  evaluation of performed tasks

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Schools of Thoughts and Doctrinal Issues in
Management
What is the role of managers?
Strategic Management
What should be the design of a programmatic organi
zation?
Business Process Management
How should operations be managed?
Performance Management
What management policies should be chosen?
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Related Discourses?
UNDERLAPS?
OVERLAPS
Value-Added/ Results Orientation
Work Redesign Adhocracy
Accouting Information Systems
Practices (ABC/ABM)
TQM
PERFORMANCE MANAGEMENT
Management Control Structure and
Process
BUSINESS PROCESS REDESIGN
Outsourcing and Supply Chain Management
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Related Discourses?
Strategy Process

Accounting Information Systems
Leadership Function
PERFORMANCE MANAGEMENT
STRATEGIC MANAGEMENT
Management Control Structure and
Process
Political Management
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Related Discourses?
OVERLAPS
Leadership Function
Results- Orientation
Accounting Information Systems
Divisionalization
Strategy Formulation
Strategy Implementation
PERFORMANCE MANAGEMENT
STRATEGIC MANAGEMENT
Management Control Structure and
Process
Political Management
DETAILS?
UNDERLAPS?
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Management Control

• Origins (19th c.)
• Operational Control and Cost Accounting on the
  Shop Floor (Wedgewood)
• Railroad Management
• Military Supply and Logistics
• Principal institutional locus
• Accounting departments
• Business schools
• Management consulting industry
• Scientific source disciplines
• Managerial economics, organizational behavior,
  cybernetics

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MAC (1)

• Some big names
• Herbert Simon (1954)
• Robert Anthony (HBS)
• Anthony Hopwood (LSE, Oxford)
• Robert Kaplan (HBS)
• Some informative texts
• Hongren (technical approach)
• Macintosh (organizational approach)
• Simons (strategic management approach)

Journals Management Accounting Accounting,
Organization, And Society
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MAC (2)

• A Classical View of Management
• POSDCORB
• Focus on CORB and implementing P
• Some interest in O
• Not primarily concerned with P,S,D
• Some trends in attention and argument
• Less attentive to the shop floor (until the rise
  of BPM)
• Sought to be compatible with diverse ideas about
  strategic management
• Unwilling to play second-fiddle to financial
  accounting
• Increasingly boisterous about relevance to all
  aspects of management (everything except S?)

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Functional Discipline Production and Operations
Management
MAC

• Systems Approach
• Holistic perspective
• Bringing together the disparate components of a
  system into an effective whole
• Systems dynamics
• Positive and negative feedback
• Stock/flow relationships
• Functionality thinking
• Design hierarchies
• Function-feature relationships

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MAC (3) Basic Mental Models
Setting targets Authorizing costs
Reviewing indicators
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CO, B, O
CO, P
R
Planning
Budgeting
Execution
Evaluation
Corrective Action
The Management Process
Processes within a cycle are sequentially
interdependent
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MAC (4) Basic Mental Models
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Decentralized Structure

• There is an affinity between the idea of a
  decentralized structure and responsibility
  centers
• The doctrine is that establishing responsibility
  centers with targets provides a structural basis
  for selective decentralization of operational
  decisions from the strategic apex (top
  management) to the responsibility center manager
• Target setting remains centralized
• The strategic apex, assisted by the
  technostructure (staff), can control by outputs
  
• Responsibility centers and divisions are
  conceptually distinct

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MAC (5) Basic Mental Models
Inputs
Process
Outputs
Cost /unit output
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MAC (6) Basic Mental Models

• Here, control is defined in cybernetic terms

Target
Inputs
Process
Need a target, a measure, and available
corrective actions that affect the performance
variable
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Doctrinal Principles of Control

• DP1. Control exists when actual events/outcomes
  equal planned events/outcomes
• DP2. Responsibility should be clearly assigned
  (and matched to authority)
• DP3. Any control process requires
  standard-setting, monitoring, corrective action,
  and evaluation
• DP4. The cost to the organization of collecting
  information should not exceed the value to the
  organization of knowing the information

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Standard Doctrines of Control(Managing Costs)

• D1. Measure the unit costs of the product
• D2. Establish a standard for costs
• D3. Assign responsibility for costs
• D4. Require responsibility center to report
  regularly on actual v. planned costs and planned
  corrective actions
• D5. Learn from experience in the interest of
  improvement
• D6. Evaluate managers, taking into account
  factors outside their control

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Broadening the Doctrines

• D1. Measure the unit costs of the product
• D2. Establish a standard for costs
• D3. Assign responsibility for costs
• D4. Require responsibility center to report
  regularly on actual v. planned costs and planned
  corrective actions

• D1 Measure critical performance variables
• D2 Establish standards for the critical
  performance variables
• D4 Report on deviations of critical performance
  variables relative to standards, and discern
  whether corrective action is needed

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Measure the Critical Performance Variables

• Equivalent to saying develop an accounting
  information system
• Includes measurement of non-financial indicators
• Note distinction between performance measurement
  and management
• What to measure?
• Product quality
• Product cost
• Product can be mapped on to either output or
  outcome
• How to measure? How often?

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MACSome Doctrinal Issues

• How to ensure that information (especially
  accounting information) is relevant to economic
  decision-making
• How demanding should targets be?
• Should managers always be held to account for
  meeting their targets?
• How should internal pricing work?
• How to ensure that the management control system
  is coherent with the strategy?

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Design Options

• Generic types of targets or standards
• Based on history -- performance in previous
  periods
• Benchmarked -- based on similar data from similar
  organizations or work groups
• engineered work standards

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Managerial Accountings Default Recipe

• Develop Accounting Information Systems
• Define Outputs
• Measure Unit Costs
• Develop Non-Financial Indicators
• Report Service Efforts and Accomplishments
• Develop Management Control Structure and Process
• Segment Orgn Designate Responsibility Centers
• Set Targets
• Practice Diagnostic Control Evaluate Performance

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New Wave MAC
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MAC and Public Management (1)
Setting targets Authorizing costs
Reviewing indicators
?
CO, B, O
CO, P
R
Planning
Budgeting
Execution
Evaluation
Corrective Action
Thompson Boyce
Notice no discussion of innovation
The Management Process
Processes within a cycle are sequentially
interdependent
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MAC and Public Management (2)
Core activities (mission centers) cost centers
Utilities and marketplace activities (support
Centers) profit centers
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Examples

• Some Programmatic Embodiments
• Financial Management Initiative, Next Steps
  Initiative, and Citizens Charter (UK)
• Financial Management Improvement Program
  (Australia)
• Government Results and Performance Act (USA)
• Centres de Responsibilité (France)

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Value for Money Construct
Inputs
Process
Outputs
Outcomes
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Performance Management NPM

• What NPM is Against
• Administrative Centralization (Aucoin)
• Control by Procedure (Mintzberg)
• Control by Skills (Mintzberg)
• Control by Wishful Thinking

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Explaining Performance Managements Centrality in
NPM

• Managerialism and New Institutional Economics
• Business metaphor (e.g., outputs)
• Precursors (PPBS, Plowden)
• Coalition of Professions (Economics, Accounting)
• Ferment in management accounting practice
• Outsourcing and privatization

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Conclusion
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Student Presentations