Week 1
What are three causes of management control problems?
1. Lack of direction,
2. Motivational problems,
3. Personal limitations
What are direct and indirect costs?
The direct costs of a MCS include all the out-of-pocket, monetary costs required to design and implement the MCS.
Indirect are costs caused by any of a number of harmful side effects, including behavioral displacement, gamesmanship, operating delays, and negative attitudes.
Reducing pressures for short-term profit, Control investment with preaction reviews and improving the accounting measures are approaches to reduce …?
Myopic behavior.
What are the four main purposes of planning and budgeting systems?
1. Planning,
2. Coordination,
3. Facilitating top management oversight,
4. Motivation.
What are four control problem avoidance strategies?
1. Activity elimination,
2. Automation,
3. Centralization,
4. Risk sharing
What is gamesmanship?
We use the term gamesmanship to refer generally to the actions that employees take to improve their performance indicators without producing any positive effects for the organization.
What is the ultimate goal for profit-organizations?
To maximize shareholder value.
What are the three hierarchical, sequential planning cycles that organizations use?
1. Strategic planning,
2. Capital budgeting,
3. Operational budgeting.
Explain what Action, Personnel and cultural controls are.
Action controls involve ensuring that employees perform (do not perform) certain actions known to be beneficial (harmful) to the organization.
Personnel controls are designed to make it more likely that employees will perform the desired tasks satisfactorily on their own because the employees are experienced, honest, and hard-working and derive a sense of self-realization and satisfaction from performing tasks well.
Cultural controls exist to shape organizational behavioral norms and to encourage employees to monitor and influence each other ’s behaviors.
What are four basic types of financial responsibility centers?
1. Investment centers,
2. Profit centers,
3. Revenue centers,
4. Cost centers
What are four common mistakes companies make when trying to measure non-financial performance?
1. Not linking measures to strategy,
2. Not validating the links,
3. Not setting the right performance targets,
4. Measuring incorrectly.
What are 3 types of financial performance targets?
1. Model-based,
2. Historical or negotiated,
3. Ffixed or flexible,
4. Internal or external
There are 5 things related to the tightness of result control, can you give them all?
1. Congruence,
2. Specificity,
3. Communication and Internalization,
4. Completeness,
5. Incentives
What can you tell about financial measures and delegation?
If financial performance measures are good incentive measures, i.e., have relatively high sensitivity, precision, and verifiability, then using these measures for incentive purposes can complement the delegation choice, which results in increased delegation.
What are the two broad characteristics that typically involve a trade-ff and explain them.
Congruence refers to the extent to which a performance measure captures the firm’s objective, whatever that objective might be.
Controllability, on the other hand, refers to the extent to which a performance measure can be influenced by the employee, which is a mixture of sensitivity and precision.
What is the primary risk organizations face by setting highly achievable budget targets?
Managers aspirations, and hence motivation and performance, might be lower than they should be, thereby causing the managers not to perform at their best.
What does congruence means?
Congruence means that the performance of the actions defined in the control system will indeed lead to the achievement of the intended organizational objectives.
What is the result of being tightly monitored in a business unit?
Employees face incentives to experiment less in their decisions, leaving them fewer opportunities to learn.
What was the main finding of the article “on testing business models”
Managers are more likely to benefit from tests of their business models when their confidence in the company’s business model is weak and when the power of the statistical tests conducted is high. When managers’ confidence in the validity of their business model is high, as it was at the company we studied, it is doubtful that the statistical tests that can be conducted in a single-business-unit firm, even over an extended longitudinal period in a relatively stable operating environment, can be powerful enough to change the managers’ beliefs.
What are the main findings of the target ratcheting article?
Reductions in sales performance can only be achieved through reductions in sales effort, which suggests that the ratchet effect has a strong and adverse impact on the firm’s incentive system.
Store managers who engage in sales reduction have an advantage over other store managers in terms of achieving their next-period targets. That is, these managers are more likely to achieve their next-period target than are managers who did not engage in sales reduction.