Accounting for Performance Management (MANBCU2004)
Summary
Summary of 'Accounting for Performance Management'
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Module
Accounting for Performance Management (MANBCU2004)
Institution
Radboud Universiteit Nijmegen (RU)
Summary of the course 'Accounting for performance management', until this year called 'Management Accounting and Control'.
Contains all lectures of this course.
MAN-BCU2004
Accounting for Performance Management (MANBCU2004)
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Accounting For Performance Management
Summary of all Lectures
Radboud University Nijmegen
Yoël Guijt
,Lecture 1 — Introduction
Accounting:
> The name for all calculative practices used to manage organization/optimize performance
> Within organizations: Management accounting.
> Large extent about money, but more about other aspects within organization and societies
> Good administration is key for organization to function well!
Management:
> Optimizing performance:
> Financial vs Non- nancial performance // Sustainability in short and long run //
Performance for shareholders and stakeholders
Why care about accounting for performance management?
> Economic theories about organizations are crucial; important to link these theories to practice
> Role of culture/leadership/learning/motivation is crucial; only e ective if organization is healthy
> Often based on nancial information; using this without thinking will hurt culture/learning
Accounting can support performance management, so you would better understand it:
> Many organizations lack nancial literacy and cost consciousness
> Results in no attention for (hidden) costs + no accurate analysis for actual failings
Financial vs Management Accounting:
> Financial accounting:
> Prepare reports on past performance; External reporting + Past performance
> Produce Financial Information for other departments in the business
> Management accounting:
> Collate information (revenue, costs, debts) to produce timely reports for day-to-day
management and decisions: Internal Reporting + Forward-looking
> Combine nancial statements with non- nancial info to paint complete picture of the
business: Financial & Non-Financial Information
Tasks of management accountants:
> Report to CFO // Administer internal and external accounting // Budget-planning // Internal
consultant or business analyst
>>> Balance between providing info to other managers for decision making against providing
monitoring information used to control behavior of lower-leveled managers
> They constantly make decisions about which option is best from other alternatives
> Special orders, outsourcing, keep or drop, capacity expansion/contraction, pricing, etc
> Relevant, accurate, and timely accounting information is crucial to assist those decisions
Management Accounting / Controlling Profession in NL:
> RC Title: Financial controller or Business controller
> Connector between di erent departments // Advising role // Digitalization //Role in sustainability
> Cooperating together with a lot of departments within or outside the organization (ICT, HRM)
Role of Digitalization for Controllers:
> Digitalization of the primary processes, administration, nancial processes
> Collecting data to support decision-making
Role of Sustainability for Controllers:
> Demand for sustainability and function is a ected by this
> Part of strategy // Procurement // Investment criterion // Measured and reported external
> Less important in SMEs than other organizations
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, Role of Uncertainty for Controllers:
> Current global circumstances are a ecting controllers (not speci cally nancially)
> Rather practically: Suppliers can’t always deliver // Much competition for personnel
> Targets are being met, but less often than ve years
Lecture 2 — Organizational Architecture
1. Self-interested behavior:
> Fundamental assumption of economics:
> Individuals act on their own self-interest to maximize their utility + Opportunism (seeking
self-interest with guile) + Bounded rationality, not fully rational
> Utility: Preferences for money, working conditions, leisure, etc
> Resource constraints: Time, Money, Knowledge, etc
> Opportunity set: Work for other employer, work on other projects, relaxing, etc
Team production:
> Individuals form teams because:
> They can produce more in teams + Generate larger opportunity set
> Firm is de ned as a ‘nexus of contracts’ among resource owners who contract with individual
team members to bene t both the rm and the individuals
> Firms in an economic sense include pro t corporations, divisions within a corporation, non-
pro t corporation, and other entities
Firm as a ‘nexus of contracts’:
> Firm is a legal entity contracting with many parties and enforce these contracts in courts of law:
> Labor contracts // Supply contracts // Customer contracts // Finance contracts
> Some contracts are explicitly written, others implicitly oral agreements supported by reputation
Principal-Agent theory:
> Economic model of relations in a rm // Principals are owners/managers // Agents are
employees or independent contractors // Agent performs for principal // Multiple relations exist
> Agency costs: Reductions in rm value when agent pursues own interest (goal incongruence)
Agency problems:
1 Free-rider: Agents have incentive to shirk because individual e orts aren’t directly observable
> Solution: Incentive contracts, monitoring, etc
2 Horizon problem: Agents weigh short term consequences more heavily than long term
> Solution: Incentive contracts, monitoring, etc
3 Employee-theft: Employees take rm resources for unauthorized purposes
> Solution: Monitoring, Inventory control, etc
4 Empire-building: Managers seek larger number of agents to increase their own job security
> Solution: Modify incentives, benchmarking, etc
Information Asymmetry Problems:
> Adverse selection = Prior to contracting (more info than principal); solution = pre-
contract investigations, post-contract penalties
> Moral Hazard = After contracting (principal cannot observe deviations) hidden
action or hidden information; solution = inspecting/monitoring
2. Decision rights and Rights system:
> Decision rights are restrictions on how economic assets of a rm can(not) be used
> Management determines how decision rights are to be assigned to various agent in the rm
> Centralizing: Top management has a say in everything (micro-management)
> Decentralizing: Employee empowerment / or Lower-level managers
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