Darrell Brown Associate Professor of Accounting Portland State University

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Darrell BrownAssociate Professor of
AccountingPortland State University
Managerial Accounting and Control MBA 512
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Agenda

• Introduction
• Problems on cost accounting basics
• Review the basics
• Overview of remainder of the quarter

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Introduction

• Who we are
• Syllabus
• Questions about logistics
• Exercises in cost accounting

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Where do we exist?
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Balancing organizational tensions

• Profit, growth, control
• Short term results, long term capabilities and
  opportunities
• Performance expectations of different
  constituencies
• Opportunities and attention
• Motivations of human behavior

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Motives of human behavior

• People want to contributeorgs make it difficult
  for people to understand how
• People generally choose to do rightorgs create
  pressure and temptation
• People strive to achieveorgs limit resources and
  create competing objectives
• People like to innovateorgs limit resources and
  punish failures

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Levers of control

• Beliefs
• Boundaries
• Diagnostic systems
• Interactive systems

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Business strategyfocus thru control

• Beliefswhat are the values
• Boundarieswhat are risks to be avoided
• Diagnostic controlswhat are critical performance
  indicators
• Interactive controlswhat are strategic
  uncertainties

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Adapted from Simons, 1995. Levers of Control
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Relationships between the levers
Opportunity Attention Strategy Expand Opportunity-seeking and learning Focus Search and Attention
Frame the Strategic Domain Beliefs Systems Strategy as Perspective Commit to grand purpose Boundary Systems Strategy as Position Stake out a territory
Formulate and Implement Business Strategy Interactive Systems Strategy as Patterns in action Look toward tomorrow Diagnostic Systems Strategy as Plan Do the job today
Adapted from Simons, 1995. Levers of Control
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Beliefs system

• What explicit set of beliefs that define basic
  values, purpose, and direction
• Why provide momentum and guidance to
  opportunity-seeking behaviors
• How mission/vision statements, credos,
  statements of purpose
• When opportunities change dramatically
  management wants to change strategic direction,
  energize workforce
• Who senior management write substantive drafts
  staff facilitate communication, feedback,
  awareness

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Boundary system

• What formally stated rules, limits and
  proscriptions tied to credible threat of sanction
• Why allow creativity within defined limits
• How codes of conduct, strategic planning
  systems, asset acquisition systems
• When conductwhen reputation costs are high
  strategicwhen risk of dissipating resources of
  the firm are high
• Who senior managers formulate with staff
  (legal?) assistance and sanction staff monitors
  compliance

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Diagnostic systems

• What feedback systems that monitor outcomes and
  correct deviations (budgets, performance
  measures)
• Why provide motivation, define goals, establish
  guidelines for corrective action, evaluate/drive
  effective resource allocation
• How set standards, measure outputs, link
  incentives to goal achievement
• When prior to operations, at the point of
  output/results, process or output is critical to
  performance
• Who senior management sets or negotiates goals,
  reviews exceptions, follow-up staff maintains
  systems, gathers data, prepares reports

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Internal controls

• Not part of the levers, very necessary
• What activities, processes that protect and
  enhance assets, information quality
• Why protect company, assets, information from
  intentional and accidental losses
• How governance structures, staff competence,
  system quality
• When all the time, all the business
• Who staff, some BOD, management

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Remainder of the quarter

• Levers of controlhow do control systems
  (accounting is a major part) fit into the ability
  of a business to achieve its goals
• Allocation of coststhe bane of accounting
  measures
• Meaningful performance measureswhat measures
  really impact a business
• Strategic cost accountingexpands the view of
  managerial accounting from internal
  record-keeping to external strategy analysis and
  support

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Interactive control systems

• What systems managers use to involve themselves
  in the decisions of subordinatesproject
  management systems, intelligence review systems
• Why focus on strategic uncertainties and provoke
  the emergence of new strategies and initiatives
• How ensure recurring discussions with
  subordinates challenge and debate assumptions,
  data and plans ensure attention by managers
• When periodic, regular times of disruptive
  change
• Who senior management use the systems, staff
  facilitate and emphasize

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Week 3

• Overhead allocation
• ABC
• Transfer pricing
• Behavioral implications

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Week 4

• Performance measures
• Balanced scorecard
• Non-financial measures
• Strategy maps

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Week 5

• Strategic costing
• Value chain
• Strategic positioning analysis
• Cost drivers
• Old articleeither incorporated or ignored

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Finish

• Questions
• Comments
• Suggestions