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AC.F317: Strategic Management Control


Department: Accounting and Finance NCF Level: FHEQ/QCF/NQF6//RQF6
Study Level: Part II (final year) Credit Points: 15.0
Start Date: 15-01-2018 End Date: 27-04-2018
Available for Online Enrolment?: N Enrolment Restriction: Fully available to all students
Module Convenor: Mr BW Miller

Syllabus Rules and Pre-requisites

  • The student must take 1 modules from the following group:

CMod description

  • Designed around a series of case studies, this module introduces the managerial use of accounting information in overall organisational control. Topics covered include the contingency view of management control, budgetary planning and control, measuring investment centre performance, transfer pricing, motivation and rewards, and designing compensation systems.

Curriculum Design: Outline Syllabus

  •  

    Wk 1. Introduction to management control

     

    This lecture introduces the concept of a management control system and highlights its

    importance in determining organisational success. First, the need for effective

    organisational control procedures is reviewed. Second, three generic approaches to

    control are introduced: action controls, results controls, and personal controls. Third,

    the relation between management control and other levels of organisational control is

    then reviewed. Finally, the role of accounting information in the management control

    process is highlighted and discussed.

     

    Wk 2. Understanding strategy

     

    At its most basic level, management control is concerned with implementing and

    supporting strategy. The ability to identify and understand organisational strategy is

    therefore fundamental to effective management control system design. This lecture

    begins by highlighting the need for effective strategic control. Two dimensions of

    business strategy are identified. Corporate strategy involves selecting the set of

    businesses in which the firm will operate and deciding how to deploy resources among

    those businesses. Business unit strategy involves creating and maintaining competitive

    advantage in industries where the firm has chosen to operate. A series of commonly

    used techniques for understanding business unit strategy are introduced including the

    growth-share matrix and the five forces model.

     

    Wk 3. Strategy and the contingency view of management control

     

    This lecture uses strategy to illustrate the ?contingency view' of management control:

    the notion that appropriate control solutions depend (are contingent) on various

    internal and external factors. Strategy is one such factor. To the extent that

    management control deals with implementing and supporting strategy, different

    strategies are expected to require different management control solutions. Examples of

    how different strategies are associated with different task priorities, critical success

    factors and behaviours are discussed. The lecture concludes with examples of how

    different strategies affect key elements of the management control system, including

    strategic planning, budgeting and incentive compensation.

     

    Wk 4. Budgetary planning and control (Part I)

     

    Budgets represent one of the most visible uses of accounting information in MCSs.

    This lecture reviews the way budgets are prepared and used in the organisational

    control process. The interaction between budgeting and strategic planning is

    highlighted. The various roles that budgets play in MCSs are also reviewed. Although

    budgets can serve multiple control functions, these alternative uses often conflict. As a

    result, budgets by themselves are generally insufficient for organisational control

    purposes.

     

    Wk 5. Budgetary planning and control (Part II)

     

    Continuing from week 4, this lecture reviews some of the key issues facing MCS

    designers when implementing a system of budgeting. These include the level of

    budgetary participation, the degree of budgetary target difficulty, whether budgets

    should be revised during the cycle, and how budget variances should be interpreted.

    Significant problems associated with the use of budgets as control tools are identified.

    Proposals on how to improve (or replace) budgets are reviewed.

     

    Wk 6. Measuring investment centre performance

     

    While investment decisions are typically made on the basis of net present value (i.e.,

    discounted cash flows), periodic investment centre performance is generally evaluated

    using accounting numbers. This lecture explores some of the problems associated with

    using accounting numbers to measure investment centre performance. Traditional

    return-on-investment (ROI)-type measures are shown to create serious performance

    measurement problems. Use of residual income can overcome some of these

    problems. However, even residual income does not always yield results consistent

    with the net present value rule.

     

    Wk 7. Implementing strategy through performance measurement

     

    This lecture explores two management control methods designed to create a direct link

    between performance measurement and business strategy. The first system is known

    as the Balanced Scorecard. This approach involves supplementing traditional

    accounting performance measures with key operating metrics that determine future

    financial performance. The second system was developed by management consultants

    Stern Stewart & Co. and is known as Economic Value Added (EVA). This system is

    based on the residual income concept, with two important extensions. First, Stern

    Stewart make adjustments to reported profit and asset figures to overcome the

    perceived weaknesses of accounting numbers produced using GAAP. Second, the

    resulting EVA measure forms part of an innovatively designed compensation plan that

    aims to provide managers with stronger incentives to create value.

     

    Wk 8. Transfer pricing

     

    In most organisations, divisions and departments interact with each other to supply

    products and services. Organisational interdependencies create the demand for a

    system of internal ?prices' at which such goods and services are exchanged. These are

    known as transfer pricing systems. This lecture reviews the various methods used to

    determine transfer prices and highlights the importance of effective transfer pricing in

    the management control process. Particular emphasis is given to understanding the

    role of transfer prices for a firm's strategy and its business model.

     

    Wk 9. Motivation and rewards

     

    Effective motivation is a key consideration for designers of management control

    systems. This lecture explains the reasons why organisations spend so much time and

    resources on ensuring that employees are correctly motivated. Alternative theories on

    how best to motivate individuals are then reviewed. While, financial rewards represent

    an important motivational tool for many organisations, other (equally effective)

    mechanisms for improving employee motivation often exist. The most effective

    management control systems are often those that incorporate a broad range of

    motivational devices.

     

    Wk 10. Designing compensation systems

     

    Performance-related rewards represent a cornerstone of most organisations'

    management control systems. This lecture reviews the theory underpinning

    performance-related pay and examines the mechanisms that organisations typically

    use to link compensation to performance. Key elements of short-term accounting-based

    bonus plans and long-term incentive plans are explored.

  • 75% Exam
  • 25% Coursework

Educational Aims: Subject Specific: Knowledge, Understanding and Skills

  •  

    This is an optional half-unit course designed to introduce students to the managerial use of accounting information to implement strategy and control activities within business organisations. It represents part of the management accounting stream of study and requires prior study of basic management accounting. The purpose of the course is to broaden students' perspectives from viewing management accounting as being a purely technical activity to understanding how it contributes to the design and use of management control systems (MCS). It is intended to develop students' ability to understand the role of accounting (and other) information in helping managers to control the activities they are responsible for.

Learning Outcomes: Subject Specific: Knowledge, Understanding and Skills

  • After completing this course students should:

    Understand the range of literature on MCS
    Understand the links between strategy and MCS
    Be capable of applying management accounting and control theory to practical situations
    Be able to diagnose the likely consequences of operating a particular MCS and make recommendations for change where necessary
    Understand some of the 'new' MCS techniques developed and marketed by management control consultants
    Present a reasoned argument in both a classroom situation and under exam conditions

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