Summary Management Control & Cost Management | KU Leuven | 14/20

Summary Management control & Cost
Management

,Contents
PART 1: MANAGEMENT CONTROL ........................................................................................... 9
Module 1: Introduc2on to management control ...................................................................... 9
Management Control ............................................................................................................ 9
Control problems ................................................................................................................ 10
Agency theory ................................................................................................................. 10
Problems within teams ................................................................................................... 12
Examples of control failure ............................................................................................. 12
Designing control systems................................................................................................... 12
Module 2: Introduc2on to accoun2ng and cos2ng ................................................................. 13
The design of internal accoun2ng systems ......................................................................... 14
Module 3: Control frameworks & alterna2ves........................................................................ 15
Introduc2on ........................................................................................................................ 15
Zimmerman’s framework .................................................................................................... 15
Merchant & Van der Stede’s framework (based on Ouchi’s framework) ............................ 16
Results control ................................................................................................................ 16
Ac2on control.................................................................................................................. 18
Personnel control ............................................................................................................ 20
Cultural control ............................................................................................................... 21
Simon’s levers of control ..................................................................................................... 22
Module 4: Control System Cost............................................................................................... 23
Different costs ..................................................................................................................... 23
Direct cost ....................................................................................................................... 23
Indirect Costs (Side Effects / Unintended Consequences) .............................................. 23
Adapta2on Costs ............................................................................................................. 24
Module 5: Maintaining effec2ve control................................................................................. 25
Enabling vs. Coercive Controls ............................................................................................ 25
Five Traps in Control System Design.................................................................................... 25
Trap 1: One Size Fits All ................................................................................................... 25
Trap 2: Standpoint Bias ................................................................................................... 25
Trap 3: Easy Performance Measures ............................................................................... 25
Trap 4: Narrow Focus ...................................................................................................... 25

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, Trap 5: Sta2c Approach ................................................................................................... 26
Module 6: Incen2ve systems .................................................................................................. 27
Types of Incen2ves – Pyramid of Maslow ....................................................................... 27
Three Purposes of Incen2ve Systems.............................................................................. 27
Good Incen2ve System Design ........................................................................................ 27
Long-term vs. Short-term Incen2ves ............................................................................... 27
Varia2ons Across Hierarchical Levels .............................................................................. 28
Why Pay-for-Performance Does Not Always Work.......................................................... 28
Module 7: Performance measurement ................................................................................... 30
Introduc2on to performance measurement ................................................................... 30
What is a good performance measure? .......................................................................... 30
Challenges of performance measurement...................................................................... 31
Mul2ple performance measures..................................................................................... 32
Overcoming the shortcomings of incomplete performance measures ........................... 32
Summary ......................................................................................................................... 33
Module 8: Financial performance measures .......................................................................... 34
Classifica2on of financial performance measures............................................................... 34
Ra2o measures ................................................................................................................... 35
Economic measures ............................................................................................................ 38
Module 9: Balanced Scorecard ............................................................................................... 39
Introduc2on ........................................................................................................................ 39
The Four BSC Perspec2ves .............................................................................................. 40
Four Func2ons of the BSC ............................................................................................... 40
Case Tesco: Steering wheel ................................................................................................. 40
Case: Global Oil M&R Division ............................................................................................ 41
Case: Fiedler Interna2onal (Lush Takeover Target) ............................................................. 41
Biases in BSC-Based Performance Evalua2on ................................................................. 42
Module 10: Financial responsibility centers ........................................................................... 43
Responsibility Accoun2ng ................................................................................................... 43
What is a reasonability center?....................................................................................... 43
The Four Types of Financial Responsibility Centers ............................................................ 43
Key considera2ons in selec2ng responsibility center...................................................... 45

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, Module 11: Introduc2on to budge2ng ................................................................................... 46
Introduc2on ........................................................................................................................ 46
How does budge2ng help organiza2ons? ........................................................................... 46
Why is budge2ng being cri2cized?...................................................................................... 47
Compensa2on systems ....................................................................................................... 48
Should budge2ng be abandoned? ...................................................................................... 49
Module 12: Characteris2cs of budge2ng systems .................................................................. 50
Who should set the budget? ............................................................................................... 50
How to set a target? ............................................................................................................ 50
Budget types/characteris2cs ............................................................................................... 52
Incremental and Zero-based budge2ng .......................................................................... 52
Line-item budge2ng ........................................................................................................ 53
Con2nuous/Rolling budge2ng ........................................................................................ 53
Budget lapsing................................................................................................................. 54
Flexible vs. Sta2c budgets ............................................................................................... 54
Module 13: Introduc2on to transfer pricing ........................................................................... 55
Why is transfer pricing important? ..................................................................................... 55
Transfer pricing and tax avoidance.................................................................................. 56
What is a good transfer price? ............................................................................................ 56
Module 14: Methods of transfer pricing ................................................................................. 57
Market-based transfer pricing............................................................................................. 57
Variable-cost transfer pricing .............................................................................................. 57
Full-cost transfer pricing ..................................................................................................... 57
Full-cost or variable-cost plus mark-up ............................................................................... 58
Nego2ated transfer pricing ................................................................................................. 58
Dual-rate transfer pricing .................................................................................................... 58
Exam example: MXV Inc. (variable vs full cost across tax regimes) ..................................... 58
Exam example: Cogen (variable vs full cost with excess capacity) ...................................... 58
Module 15: Case study (Prochim) and the Death Spiral ......................................................... 59
Case Prochim ...................................................................................................................... 59
Method of transfer pricing .............................................................................................. 59
Problems raised .............................................................................................................. 59

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