Literature week 4 – Financial Management
Young, D. (2014) Management accounting in health care
organizations.
Chapter 12 – implementing a new responsibility accounting system
Criteria for a good RAS
- Structural criteria: the RAS must be well-designed (managers are held responsible
only for the factors over which they have reasonable degree of control, i.e. fairness
criterion; and a managerial decision is good for the RC as well as the organization,
i.e. goal congruence criterion) and fit with the authority structure.
- Process criteria: the management control process should follow 4 phases –
programming, budgeting, measuring and reporting.
o Programming: should ensure that new programs and product lines fit with
the org’s overall strategy and that the objectives for each product line or
program are clearly defined.
o Budgeting: should identify the relationship between each RC and org’s
product lines/programs, as well as the financial and non financial
expectations for each RC. Each manager is then held accountable for both
achieving financial and nonfinancial results.
o Measuring: the accounting staff should collect data relating to revenues,
expenses and nonfinancial objectives. Should be organized differently for
different phases/purposes. When appropriate, flexible budgets and variances
should be calculated.
o Reporting: both financial and nonfinancial results should be made available
to managers. Information should be timely, accurate and relevant to the RC,
distinguish between controllable and noncontrollable items and contain info
on varying levels of detail appropriate to the managers.
- Behavioral criteria: it should be taken seriously by senior and line managers. Also, if a
RAS is missing fairness and congruence criteria, senior management must commit to
make adjustments to make these criteria reality. Finally, the participation of
managers in the process of RAS should be recognized, which will increase their
commitment and serve the organization’s needs.
Key characteristics of a good RAS
A hc organization which adheres to the abovementioned criteria have the following
characteristics:
- It has a strong governing body.
- The governing body is careful not to infringe on the prerogatives of management.
The chief executive has full authority to execute policies and is properly
compensated for this.
- Line managers have the authority to use their judgment (within certain limits) in
running their RC and accomplishing budgeted results.
- The RAS contains 2 principal account classifications: one in terms of programs, the
other in terms of functions. Often has a matrix-like structure.
1
Young, D. (2014) Management accounting in health care
organizations.
Chapter 12 – implementing a new responsibility accounting system
Criteria for a good RAS
- Structural criteria: the RAS must be well-designed (managers are held responsible
only for the factors over which they have reasonable degree of control, i.e. fairness
criterion; and a managerial decision is good for the RC as well as the organization,
i.e. goal congruence criterion) and fit with the authority structure.
- Process criteria: the management control process should follow 4 phases –
programming, budgeting, measuring and reporting.
o Programming: should ensure that new programs and product lines fit with
the org’s overall strategy and that the objectives for each product line or
program are clearly defined.
o Budgeting: should identify the relationship between each RC and org’s
product lines/programs, as well as the financial and non financial
expectations for each RC. Each manager is then held accountable for both
achieving financial and nonfinancial results.
o Measuring: the accounting staff should collect data relating to revenues,
expenses and nonfinancial objectives. Should be organized differently for
different phases/purposes. When appropriate, flexible budgets and variances
should be calculated.
o Reporting: both financial and nonfinancial results should be made available
to managers. Information should be timely, accurate and relevant to the RC,
distinguish between controllable and noncontrollable items and contain info
on varying levels of detail appropriate to the managers.
- Behavioral criteria: it should be taken seriously by senior and line managers. Also, if a
RAS is missing fairness and congruence criteria, senior management must commit to
make adjustments to make these criteria reality. Finally, the participation of
managers in the process of RAS should be recognized, which will increase their
commitment and serve the organization’s needs.
Key characteristics of a good RAS
A hc organization which adheres to the abovementioned criteria have the following
characteristics:
- It has a strong governing body.
- The governing body is careful not to infringe on the prerogatives of management.
The chief executive has full authority to execute policies and is properly
compensated for this.
- Line managers have the authority to use their judgment (within certain limits) in
running their RC and accomplishing budgeted results.
- The RAS contains 2 principal account classifications: one in terms of programs, the
other in terms of functions. Often has a matrix-like structure.
1
