Darrell Brown Associate Professor of Accounting Portland State University Managerial Accounting and Control: MBA 512

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

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

Where do we exist?

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

Motives of human behavior People want to contribute—orgs make it difficult for people to understand how People generally choose to do right—orgs create pressure and temptation People strive to achieve—orgs limit resources and create competing objectives People like to innovate—orgs limit resources and punish failures

Levers of control Beliefs Boundaries Diagnostic systems Interactive systems

Business strategy—focus thru control Beliefs—what are the values Boundaries—what are risks to be avoided Diagnostic controls—what are critical performance indicators Interactive controls—what are strategic uncertainties

Adapted from Simons, Levers of Control

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, Levers of Control

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

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: conduct—when reputation costs are high; strategic—when risk of dissipating resources of the firm are high Who: senior managers formulate with staff (legal?) assistance and sanction; staff monitors compliance

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

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

Remainder of the quarter Levers of control…how do control systems (accounting is a major part) fit into the ability of a business to achieve its goals Allocation of costs…the bane of accounting measures Meaningful performance measures…what measures really impact a business Strategic cost accounting…expands the view of managerial accounting from internal record-keeping to external strategy analysis and support

Interactive control systems What: systems managers use to involve themselves in the decisions of subordinates—project 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

Week 3 Overhead allocation – ABC – Transfer pricing – Behavioral implications

Week 4 Performance measures – Balanced scorecard – Non-financial measures Strategy maps

Week 5 Strategic costing – Value chain – Strategic positioning analysis – Cost drivers Old article…either incorporated or ignored

Finish Questions Comments Suggestions