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College aantekeningen accounting for performance management (MAN-BCU2004)
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Table of ContentsLecture 2: Organisational Architecture.............................................2
Lecture 3: Responsibility accounting & transfer prices......................4
Lecture 4: Budgeting for Control......................................................6
Lecture 5: Costing in a large organisation: the idea...........................7
Lecture 6: Accounting + and theoretical frameworks.........................8
Lecture 7: Control frameworks.......................................................10
Lecture 8: Guest lecture on budgeting............................................14
Lecture 9: Costing in a Large Organization: practices......................15
Lecture 10: Calculating the cost price of a product..........................18
Lecture 11: Calculating cost prices, some practical issues...............19
Lecture 13: management control and organizational behavior..........22
Lecture 14: Management accounting and ethics; Wrap-up...............23
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,Lecture 2: Organisational Architecture
Economists have certain assumptions:
- Individuals act in their self-interest to maximise utility
- Bounded rationality
- Opportunism: ‘Seeking self-interest’
Utility = Money, working conditions, leisure, etc
There are resource constraints: Limited; time, money, knowledge, etc
Individuals form teams or firms because they:
- Can produce more in a team than acting alone
- Can find more opportunities as a team
Firms are a ‘nexus of contracts’ that voluntarily contact individual team members to
benefit both the individuals and the firm.
Agency problems:
Free-rider problem: Agents have incentives to shirk because their efforts are not
directly observable. Solution: incentive contracts, monitoring, etc.
Horizon Problem: Agents weigh short-term consequences more heavily than long-
term consequences. Solutions: incentive contracts, monitoring, etc
Employee theft: Employees take firm resources for unauthorised purposes. Solutions:
monitoring, inventory control, etc.
Empire-building: Managers seek a larger number of agents to increase their job
security or compensation. Solutions: modify incentives, benchmarking, etc.
Styles of allocating decision rights:
- Centralize (micro-management)
- Decentralize (employee ‘empowerment’)
Knowledge = Power
Markets vs Firms
2
, Firms can obtain goods by:
- Making them themselves
- Buying them in the market (gives financial and transaction costs)
Factors to consider in make-or-buy:
- Search and information costs
- Bargaining and contracting costs
- Policing and enforcement costs
- Monitoring and controlling costs
The higher these costs, the more efficient to do it yourself
Influence costs
- Problem: agents spend time and other resources trying to influence decision-
makers
- Solution: Limit active decision-making by imposing bureaucratic rules
- Example: aeroplanes allocate routes to flight attendants based on seniority –
there is no supervisor deciding who gets which route
Organisational architecture depends on three legs:
- Assign decision rights
- Measure and evaluate performance
- Reward and evaluate performance
Decision management vs decision control
Accounting data is more useful for control than for decision-making.
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