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Management Control Systems III
management Control systems
33
Accounting
Graduate
03/09/2011

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Term
Behavior in Organizations
Definition
  • Management Control Systems influence behavior
  • Good systems influence vehavior in a goal congruent manner, ensures that individual action is taken to achieve personal goals and also help achieve the organization's goals.
Term
Goal Congruence
Definition
  • Senior Management wants the organization to attain the organization's goals
  • Individuals have their own personal goals that aren't necessarily consistent with the organization's goals
  • In a goal congruent process, actions people are led to take in accordance with their perceived self interest are also in the best interest of the organization
  • adequate control system will at least not encourage individuals to at against the best interests of the organization
Term
Two Important Questions
Definition
  1. What actions does it motivate people to take in their own self-interest?
  2. Are these actions in the best interest of the organization?
Term
Formal Control Systems
Definition
  • Plans
  • Budgets
  • Reports
Term
Informal Control System
Definition
  • Work Ethic
  • Management Style
  • Culture
Term
External Factors
Definition
  • Norms of desirable behavior that exist in the society where the organization is situated
  • some attitudes are local, others are industry-specific, some are national
Term
Norms
Definition

set of attitutdes collectively referred to as work ethic:

  • loyalty to the organization
  • dilligence
  • spirit
  • pride in doing a good job
Term
Internal Factors
Definition
  • Culture
  • Management Style
  • Informal Organization
  • Perception and Communication
Term
Culture
Definition
  • Most important internal factor
  • includes common beliefs, shared values, norms of behavior and assumptions that are implicitly accepted and explicitly manifested throughout organization
  • explain why two organizations wtih indentical formal MCS may vary in terms of actual control
  • usually exists unchanged for many years; certain practices become rituals carried on automatically
Term
Management Style
Definition
  • Strongest impact on management control
  • subordinate's attitudes reflect what they perceive their superior's attitudes to be (which ultimately stems from the CEO)
Term
The Informal Organization
Definition
  • formal relationships may show a production manager reporting to a general manager
  • informally production manager will report to many other managers, support staff, etc.
Term
Perception and Communication
Definition
  • Managers must know what goals and actions they are supposed to take to achieve goals of the organization
  • they receive information through formal (budgets and other official documents) and informal channels (conversations)
  • messages received from different sources may conflict with one another
  • Example: budget mechanism may convey the impression that managers are supposed to aim for highest profits possible, but seniro management doesn't want to skimpt on maintenance or employee training
Term
Two Types of Formal control Systems
Definition
  1. management control system itself
  2. rules
Term
Rules
Definition

Formal instructions and controls

  • standing instructions
  • job descriptions
  • standard operating procedures
  • manuals and ethical guidelines
  1. Range from trivial to important
  2. enforced indefinitely (exist until modified)
  3. act as guides, prohibitions, positive requirements, rules that shouldn't be broken
Term
Physical Controls
Definition
  • Security Guards
  • Locked storerooms
  • Vaults
  • Computer passwords
  • Television Surveilance
Term
Manuals
Definition
  • manuals in a bureaucratic organiztion are much more detailed than those in other organizations
  • large organizations have more manuals than small ones
  • centralized organizations have more manuals than decentralized ones (student handbook)
  • organizations with geographically dispersed functions (fast food chains) have more than do single-site organizations
  • Some rules become outdated over time; manuals should be examined periodically to ensure they are consistent.
Term
System Safeguards
Definition
  • Safeguards are built into the information processing system to ensure that information flowing through the system is accurate and prevent (minimize) fraud
  • example: passwords
  • activities include: cross-checking totals with details, requiring signaturess and other evidence that a transaction has been authorized, separating duties, counting cash, and system checks by internal and external auditors
Term
Task Control Systems
Definition
  • process of ensuring that specific tasks are cacrried out effectively and efficiently
  • many tasks are controlled by rules
  • if tasksa re automated, the automated system provides control
  • task control systems are beyond the scope of the book
Term
Formal Control Process
Definition
  • strategic plan implements the organization's goals and strategies
  • all available information is used to make that plan
  • plan is converted to an annual budget that focuses on planned revenues and expenses for individual responsibility centers
  • centers carry out operations assigned to them and outcomes are measured and reported
  • actual results are compare with those in the budget to determine if performance was satisfactory (variances)
  • budges are planning and control tools
Term
Types of Organizations
Definition
Strategy has a major influence on structure and structure influences design
Term
Structures are grouped into 3 categories
Definition
  • Functional structure - manger is responsible for a specified funciton such as only production or only marketing
  • Business unit structure (division) - business unit managers are responsible for most activities in their unit, an business unit functions are semi-independent part of the company (in charge of production, marketing, for that one business unit)
  • matrix structure - functional units have dual responsibilities: works on projects/progrms and business units
Term
Functional Organizations
Definition
  • rationale is manager who brings specialized knowledge to bear on decisions related to a specific function as contrasted with general pupose manager who lacks specialized knowledge
  • functional organizations are supposed to be more efficient
  • example: skilled marketing manager and skilled production manager are likely to make better decisions in respective fields than a manger responsible for both functions
Term
Disadvantages
Definition
  • No unambiguous way to determine effectiveness of separate functional managers bcause each function contributes jointly to the organization's final output (harder to assign costs)
  • at lower levels, there is no way to determine how much profit was earned respectively by several production departments
  • if org consists of managers in one function who reprot to higher-level managers, a dispute can only be resolved at the top even though it originated at a lower level
  • functional structures are inadequate for a firm with diversified prodcuts and markets
  • tend to create silos for each function preventing cross-functional coordination in areas such as new product development
Term
Business Units
Definition
  • designed to solve problems in the functional structure
  • responsible for all functions involved in producing and marketing a specified product line
  • BU managers actt as if their units were seperate companies
  • responsible for planning and coordinating the work of the separate functions
  • performance is measured by profitability of business unit
  • management is responsible for obtaining funds for company as whole and allocating funds "best use"
  • headquarters approves budgets and judges performance of BU managers, sets compensation and removes them
  • establishes charter (sets parameters)
  • sets company policies
Term
Advantages of Business Units
Definition
  • provides a training ground in general management
  • closer to the market for its products than headquarters
  • can react to threats and opportunities quicker
Term
Disadvantages of Business Units
Definition
  • duplicate work
  • Business unit manager is generalist, and they must deal with many of the same problems addressed by specialists
  • disputes between specialists in a functional organization may be replaced by disputes between business units in a business unit organization
Term
Implications for System Design
Definition
  • allow for ease of control
  • functional organizations may be more efficient because larger functional units provide benefits of economies of scale
  • requires broader type of manager than the specialists who manages a specific function
  • fit the control system to the organization, not the organiztion around the control system
Term
Functions of the Controller
Definition
  • designing and operating information and control systems
  • preparing financial statements and financial reports (including tax returns) for shareholders and other parties
  • preparing and analyzing performance reports, interpreting reports for managers, and analyzing program and buget proposals
  • supervising internal audit and accounting control procedures to ensure validity of information, establishing adequate safeguards against thefts and fraud and performing operational audits
Term
Relation to Line organization
Definition
  • controllership is staff function
  • use of information that the controller designs and operates is line function
  • controller doesn't make or enforce management decisions
  • controller makes decisions on implementing policies decided on by line management
  • play important role in preparation of strategic plans and budgets
  • act like line managers but differnece is the decisions can be overruled by line managers to whom subordinate manager is responsible
Term
Business Unit Controller
Definition
Two types of relationships: dotted line and solid line
Term
Dotted Line
Definition

business unit general manager is the controller's immediate boss and his ultimate authority in hiring, training, transferrable, compensation, promotion, and firing of controllers within the business unit (rarely made without corporate controllers consent)

 

Term
Solid Line
Definition
business unit controllers report directly to the corporate controller (corporate controller is their boss)
Term
Problems with "solid line" and "dotted line"
Definition
  • business unit controller works with business manager there is a possibility that they won't provide completely objective reports on business unit budgets and performance to senior management
  • if business unit controller works for corporate controller, business unit manager may treat them as a "spy from the front office" rather than a trusted aide.
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