ADVANCED MANAGEMENT CONTROLS GSM 645

1. ADVANCED MANAGEMENT CONTROLS GSM 645

2. Capstone Course Integrate Core • Managing Exchange • Managing Organizations • Economics & Finance • Budget and control • Quantitative methods and Statistics

3. Case Course • Action Forcing • Historical • Public and not-for-profit • Business • Role playing

4. POSDCORB • Strategic PLANNING • ORGANIZING • STAFFING • Organizational DEVELOPMENT • CONTROLLING • OPERATING • REPORTING • BUDGETING

5. Focus on Lower Level Management Functions Lower Level Functions coordination, performance measurement, and control systems are merely means of implementing product/market strategies Higher Level Functions

6. This course is divided into three sections:Best practiceAligning Strategy and StructureModern Performance Measurement and Control Systems

7. Design of Responsibility Structures • Ongoing • revenue and expense centers • profit centers • investment centers • Finite • projects • Products • teams

8. Linking Responsibility Structures • Mission and support centers • Using transfer prices • Programming and project analysis -- i.e., transforming project budgets(capital budgets) into responsibility budgets • Discretionary expense centers

9. Contemporary Fads • Lean management • Internal pricing (unbalanced transfer prices, multi-part tariffs, and intraorganizational sales of assets) • Overhead management (cycle-time burdening and activity accounting) • Process reengineering

10. TEXTS • Anthony and Govindarajan, Management Control Systems (A&G); • Bower and Christenson, Public Management, Text and Cases [HO];

11. Grading • Case presentations -- 2 (15%) • Sloan Essay (15%) • Exercises 3 (16%) • Class participation (24%) • Case memos -- 3 (30%) • Case writing can be substituted for case memos • Case presentations, class discussion, memos, and the Sloan essay should reflect material contained in the text.

12. Official Syllabus

13. Management • Subject areas • Designing programmatic organizations • Closely related with organizational and cultural aspects of strategy and policy • Executive leadership • Focus is on the strategic apex (top management) of organizational units • Closely related to strategic management • Managing operations • Focus is on the design, maintenance, and strengthening of the operating core as well as on the planning, budgeting, control, execution, and evaluation of performed tasks

14. Schools of Thoughts and Doctrinal Issues in Management What is the role of managers? Strategic Management What should be the design of a programmatic organization? Business Process Management How should operations be managed? Performance Management What management policies should be chosen?

15. Related Discourses? UNDERLAPS? OVERLAPS Value-Added/ Results Orientation Work Redesign & Adhocracy Accouting Information Systems Practices (ABC/ABM) TQM PERFORMANCE MANAGEMENT Management Control Structure and Process BUSINESS PROCESS REDESIGN Outsourcing and Supply Chain Management

16. Related Discourses? Strategy Process Accounting Information Systems Leadership Function PERFORMANCE MANAGEMENT STRATEGIC MANAGEMENT Management Control Structure and Process Political Management

17. Related Discourses? OVERLAPS Results- Orientation Leadership Function Accounting Information Systems Divisionalization Strategy Formulation Strategy Implementation PERFORMANCE MANAGEMENT Management Control Structure and Process STRATEGIC MANAGEMENT Political Management DETAILS? UNDERLAPS?

18. Management Control • Origins (19th c.) • Operational Control and Cost Accounting on the Shop Floor (Wedgewood) • Railroad Management • Military Supply and Logistics • Principal institutional locus • Accounting departments • Business schools • Management consulting industry • Scientific source disciplines • Managerial economics, organizational behavior, cybernetics

19. MAC (1) • Some big names • Herbert Simon (1954) • Robert Anthony (HBS) • Anthony Hopwood (LSE, Oxford) • Robert Kaplan (HBS) • Some informative texts • Hongren (technical approach) • Macintosh (organizational approach) • Simons (strategic management approach) Journals Management Accounting Accounting, Organization, And Society

20. MAC (2) • A Classical View of Management • POSDCORB • Focus on CORB and implementing P • Some interest in O • Not primarily concerned with P,S,D • Some trends in attention and argument • Less attentive to the shop floor (until the rise of BPM) • Sought to be compatible with diverse ideas about strategic management • Unwilling to play second-fiddle to financial accounting • Increasingly boisterous about relevance to all aspects of management (everything except S?)

21. Functional Discipline: Production and Operations Management MAC • Systems Approach • “Holistic perspective” • Bringing together the disparate components of a system into an effective whole • Systems dynamics • Positive and negative feedback • Stock/flow relationships • Functionality thinking • Design hierarchies • Function-feature relationships

22. MAC (3) Basic Mental Models Setting targets Authorizing costs Reviewing indicators ? CO, P CO, B, O R Planning Budgeting Execution Evaluation Corrective Action The Management Process Processes within a cycle are sequentially interdependent

23. MAC (4) Basic Mental Models

24. Decentralized Structure • There is an affinity between the idea of a decentralized structure and responsibility centers • The doctrine is that establishing responsibility centers with targets provides a structural basis for selective decentralization of ‘operational’ decisions from the strategic apex (top management) to the responsibility center manager • Target setting ‘remains’ centralized • The strategic apex, assisted by the technostructure (staff), can ‘control by outputs’ • Responsibility centers and divisions are conceptually distinct

25. MAC (5) Basic Mental Models Inputs Process Outputs Cost $/unit output

26. MAC (6)Basic Mental Models • Here, control is defined in cybernetic terms Target Inputs Process Need a target, a measure, and available corrective actions that affect the performance variable

27. Doctrinal Principles of Control DP1. Control exists when actual events/outcomes equal planned events/outcomes DP2. Responsibility should be clearly assigned (and matched to authority) DP3. Any control process requires standard-setting, monitoring, corrective action, and evaluation DP4. The cost to the organization of collecting information should not exceed the value to the organization of knowing the information

28. Standard Doctrines of Control(Managing Costs) D1. Measure the unit costs of the product D2. Establish a standard for costs D3. Assign responsibility for costs D4. Require responsibility center to report regularly on actual v. planned costs and planned corrective actions D5. Learn from experience in the interest of improvement D6. Evaluate managers, taking into account factors outside their control

29. D1. Measure the unit costs of the product D2. Establish a standard for costs D3. Assign responsibility for costs D4. Require responsibility center to report regularly on actual v. planned costs and planned corrective actions D1* Measure critical performance variables D2* Establish standards for the critical performance variables D4* Report on deviations of critical performance variables relative to standards, and discern whether corrective action is needed Broadening the Doctrines

30. Measure the Critical Performance Variables • Equivalent to saying “develop an accounting information system” • Includes measurement of non-financial indicators • Note distinction between performance measurement and management • What to measure? • ‘Product’ quality • ‘Product’ cost • Product can be mapped on to either output or outcome • How to measure? How often?

31. MACSome Doctrinal Issues • How to ensure that information (especially accounting information) is relevant to “economic” decision-making • How demanding should targets be? • Should managers always be held to account for meeting their targets? • How should internal pricing work? • How to ensure that the management control system is coherent with the strategy?

32. Design Options • Generic types of targets or standards • Based on history -- performance in previous periods • Benchmarked -- based on similar data from similar organizations or work groups • ‘engineered’ work standards

33. Managerial Accounting’s Default Recipe • Develop Accounting Information Systems • Define Outputs • Measure Unit Costs • Develop Non-Financial Indicators • Report Service Efforts and Accomplishments • Develop Management Control Structure and Process • Segment Org’n & Designate Responsibility Centers • Set Targets • Practice Diagnostic Control & Evaluate Performance

34. New Wave MAC

35. MAC and Public Management (1) Setting targets Authorizing costs Reviewing indicators ? CO, P CO, B, O R Planning Budgeting Execution Evaluation Corrective Action Thompson Boyce Notice: no discussion of innovation The Management Process Processes within a cycle are sequentially interdependent

36. MAC and Public Management (2) Core activities (mission centers) = cost centers Utilities and marketplace activities (support Centers) = profit centers

37. Examples • Some Programmatic Embodiments • Financial Management Initiative, Next Steps Initiative, and Citizen’s Charter (UK) • Financial Management Improvement Program (Australia) • Government Results and Performance Act (USA) • Centres de Responsibilité (France)

38. Value for Money Construct Inputs Process Outputs Outcomes

39. Performance Management = NPM • “What NPM is Against” • Administrative Centralization (Aucoin) • Control by Procedure (Mintzberg) • Control by Skills (Mintzberg) • Control by Wishful Thinking

40. Explaining Performance Management’s Centrality in NPM • Managerialism and New Institutional Economics • “Business metaphor” (e.g., outputs) • Precursors (PPBS, Plowden) • Coalition of Professions (Economics, Accounting) • Ferment in management accounting practice • Outsourcing and privatization

41. Conclusion

42. Student Presentations