1. W. BentzA&MIS 5251 Agenda Today Return quiz and other assignments Go over problem 11-20 Go over chapter 13 ideas

2. W. BentzA&MIS 5252 The Organization as a System of Interrelated Elements Remember the Systems View?

3. W. BentzA&MIS 5253 Stakeholders The individuals, groups of individuals, and institutions that define an organization’s success or affect the organization’s ability to achieve its objectives. Stakeholders include customers, employees, suppliers, owners and the “community.”

4. W. BentzA&MIS 5254 Strategy Considerations 1. Identifying the alternative means by which the organization might compete for customers. Where are we going to compete in the golden triangle of cost, quality, and functionality; and in what markets. 2.Evaluating each of these alternative means relative to the capabilities and expectations of the stakeholders.

5. W. BentzA&MIS 5255 Role of Strategy The role of strategic planning is to define the relationship that the organization will develop with each of its stakeholder groups so that all the components fit together.

6. Planning, Decision Making, and Control Mission identifies organization’s stakeholders and broad objectives Objectives specify specific performance goals sought over the next 5 to 10 years Strategies specify the organization’s form, resource allocations, and broad business decisions used to seek objectives Observations and measurement of short-term performance determine whether the organization is on track to achieve its long-term objectives Planning and Decision Making Control 11-23  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

7. W. BentzA&MIS 5257 Process Any integrated group of activities designed to achieve a specific purpose.

8. W. BentzA&MIS 5258 Performance measurement Performance measurement focuses on process results and how those results contribute to the organization’s secondary objectives

9. W. BentzA&MIS 5259 Strategic Objectives Primary Objectives - what the owners expect from their participation in the organization Secondary Objectives - what the organization expects to give to and receive from each stakeholder group other than its owners Do you agree with this statement from your text?

10. W. BentzA&MIS 52510 Secondary Objectives Reflect: What the organization expects from each of its stakeholder groups to help it achieve its primary objectives What the organization must provide to each stakeholder group to secure from that group what the organization needs to achieve its primary objectives.

11. W. BentzA&MIS 52511 The Nature of Control GOAL

12. W. BentzA&MIS 52512 In Control??? A system is in control if it is on a path that will lead it to achieving its objectives. Otherwise, the system is out of control. The key concept here is achieving goals and objectives, not necessarily conformance to plan. Another key concept is that controls are not sufficient to achieve control.

13. Organization Level and Measurement Focus Lower production workers, sales staff, customer relations staff Performance Measurement Type Organization Level Major Responsibility Monitor and improve the operations of existing systems to meet short-term goals in cost containment, quality, and response time Measures of short-term operating performance that include both output and outcome measures such as yield, productivity, and on-time delivery that reflect the operations of a single unit in the organization. 11-29  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

14. Organization Level and Measurement Focus Middle supervisors and managers Performance Measurement Type Organization Level Major Responsibility Coordinate existing systems and develop new ones to achieve intermediate-term performance on critical success factors A mix of operating measures that include both output and outcome measures and reflect how well units are working together to meet stakeholder requirements (system response time, system quality, and rate of new product introduction) and financial measures (cost per unit, productivity, or profit margin) that compare performance to competitors to evaluate the efficacy of the systems the organization has in place 11-30  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

15. Organization Level and Measurement Focus Upper vice presidents, presidents Performance Measurement Type Organization Level Major Responsibility Identify opportunities to develop new markets Aggregated measures of outcome performance, such as return on investment, number of safety incidents, rate of new product introduction that reflects senior level employees’ responsibility for meeting the organization’s commitment to its stakeholders 11-31  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

16. Timing of Control APR JAN FEB MAR MAY JUNJULSEP OCT NOV DEC AUG Event Feedforward or Proactive Control Concurrent Control Feedback or Reactive Control 11-32  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

17. W. BentzA&MIS 52517 Types of Control Systems Task Control - setting rules and ensuring that they are followed Results Control - specifying what is important in the organization and letting workers decide how best to do the job

18. Element Task ControlResults Control Organization environmentStableChanging Control questionWere rules followed?Were objectives achieved? Locus of responsibilityTop downBottom up Employee roleFollow rulesAchieve stated objectives Risk levelHighLow Task and Results Control Summary 11-26  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

19. W. BentzA&MIS 52519 Problems with Results Control Has the causal link between secondary results and primary results been identified? Can organizations measure the right thing? (Measure is a strong standard.) Is it possible to associate a given result with a given person or decision? Results are influenced by the environment, which is uncontrollable.

20. W. BentzA&MIS 52520 Managing Causes, Not Results Managing the performance of the primary objective requires understanding the causes of that performance and managing those causes effectively. Managers must manage the secondary performance measures which are drivers of performance on primary objectives.

21. W. BentzA&MIS 52521 Performance Measures Entity measures –Stock returns (dividends + appreciation) –Return on total investment (ROI) –Return on equity (ROE) –Residual income (including EVA) –Income from operations –Income from continuing activities –Net income

22. W. BentzA&MIS 52522 Performance Measures Segment measures –Contribution margin –Short-run performance margin –Segment margin –Variances from plan

23. W. BentzA&MIS 52523 Performance measures Short-run performance margin Definition: contribution margin less separable, discretionary fixed costs (a.k.a. performance margin). Segment margin Definition: Performance margin less separable, committed fixed costs

24. W. BentzA&MIS 52524 Control versus Responsibility Spheres of responsibility are primary, control less achievable. The opportunity to influence is a consideration in constructing performance reports.

25. W. BentzA&MIS 52525 Accounting Methods Accounting performance measures are frequently modified to reflect the level of control, or lack of control, that individuals may have in specific situations. Modify a budget to reflect the actual activity volumes experienced (flexible budgeting) Adapt a plan to reflect the operating environment actually experienced.

26. W. BentzA&MIS 52526 Accounting Methods Adopt a relative performance standard against which to evaluate individuals. For example, a purchasing agent’s ability to get good prices can be measured against a price index or some simple trading rule that constitutes an external, relative standard. Limit reporting to key success factors

27. W. BentzA&MIS 52527 Accounting Methods Emphasize more controllable factors, and de-emphasize less controllable factors as in segment reports Isolate one factor at a time in variance systems to focus on areas of responsibility related to single performance factors Use of reporting entities consistent with responsibility levels

28. W. BentzA&MIS 52528 An overriding issue Strategic alignment of incentives –Individual vis-a-vis organization –Function vis-a-vis function –Entity vis-a-vis entity Incentives do work!

29. W. BentzA&MIS 52529 Accounting entities cost center revenue center profit center investment center administered center support center division (business unit)

30. W. BentzA&MIS 52530 Balanced Scorecard A set of performance targets and an approach to performance measurement that stresses meeting all the organization’s objectives relating to both its primary and secondary objectives - hence the balance. Obviously, this leaves open the question of trade-offs.

31. Balanced Business Scorecard Business Processes What business processes are the value drivers? Organization Learning Are we able to sustain innovation, change and improvement Customer Perspective How do we look to our customers? Financial Perspective How do we look to our shareholders? Vision & Strategy 11-41  1996 Prentice Hall Business Publishing Management Accounting, 2nd ed., Atkinson, Banker, Kaplan, and Young

32. W. BentzA&MIS 52532 Implementing a Balanced Scorecard Management must define the organization’s primary objectives 1.

33. W. BentzA&MIS 52533 Implementing a Balanced Scorecard The organization must understand how stakeholders and processes contribute to its primary objectives 2.

34. W. BentzA&MIS 52534 Implementing a Balanced Scorecard The organization must develop a set of secondary objectives that are the drivers of performance on primary objectives 3.

35. W. BentzA&MIS 52535 Implementing a Balanced Scorecard The organization must develop a set of measures to monitor performance on both primary and secondary objectives 4.

36. W. BentzA&MIS 52536 Implementing a Balanced Scorecard The organization must develop a set of processes, along with their attendant implicit and explicit contracts with stakeholders, to achieve those primary objectives 5.

37. W. BentzA&MIS 52537 Implementing a Balanced Scorecard The organization must make specific and, therefore, public statements about its beliefs concerning how processes create results 6.

38. W. BentzA&MIS 52538 A Balanced Scorecard Provides: A method for the organization to systematically consider what it should do to develop an internally consistent and comprehensive system of planning and control and...

39. W. BentzA&MIS 52539 A Balanced Scorecard Provides: a basis for understanding the difference between successful and unsuccessful organizations

40. W. BentzA&MIS 52540