Management accounting
(season 1)
Supply-side question: What are the costs of producing a drug?
- Production costs
- R&D costs
- Spillover of knowledge to other drug development
- How to allocate costs (succesfull and unsuccesfull trials)
Cost accounting (CA)
Manager then acts on CA information
CA input for (internal) management and (external) financial accounting information
Role of strategy & competition
Modern role of management accountant and controller
,Multiple functions
Managers as customers
Ensuring ‘rationality’ in decision-making
Budgeting and the roles of MA
Management accounting has two roles.
Decision-facilitating: meaningful & actionable information.
Decision-influencing: exert high effort, direct effort in the ‘right’ direction.
(season 2)
Decision-facilitating (example): start-ups
36% of businesses fail within the first two years of operation.
Among most common reasons:
- Poorly thought-out business plan
- Running out of cash
- Pricing or cost issues
Management accountants can play a vital role to bridge the gap between strategy and
financial control.
Scenario planning, strategic options, and evidence-based decision-making are among
the areas where management accountants can provide expertise.
P-A relationships
Controlling and coordinating actions: How to motivate (incentivize) employees to
provide effort and make decisions in the interest of the principal?
- Salaries dependent on company success or target achievements
- Checks, monitoring and punishment
, - Promotion and firing decisions
- Coordination between departments
Selection: How to attract the employees that are most likely that they act in the interest
of the principal?
- Screening and referrals
- (personality) tests
- Contracts with certain features (high variable parts)
Decentralization
Organizational structure to achieve more decentralization: responsibility centers
Decentralized decisions important
- Localized information, specialized skills
- Decentralized decisions need to be aligned with headquarters’ interests
Need to evaluate (performance of) decentralized units
Tools to manage decentralized units
Targets and budgets
- Targets should be challenging but attainable
- Budget provides specific targets (no ‘do your best’ goals)
- Role of fairness
Analysis of variances
Transfer prices (profit centers with internal customers)
Responsibility accounting
Evaluating the performance of managers based on activities under their supervision
Feedback function of responsibility centers
Budgets coupled with responsibility centers provide valuable feedback
Variances can suggest questions and direct attention
Variances can be analyzed and used:
- Early warning
- Performance evaluation
, - Strategy evaluation
- Communication of the goals of the organization
Feedback can be used to make necessary adjustments
Pursuing a strategy
Possible tool: balanced scorecard
Identify, measure and incentivize appropriate performance measures
Performance measures
Criteria of performance measures
- Goal congruence/alignment: Compensate so that your employees share your
goals.
- Controllability: Only hold employees accountable for what they can influence
Quantitative - Qualitative
Sales margin vs. customer satisfaction
Internal - external
ROA vs. stock price
Employees training vs. market share
Financial - nonfinancial
Inventory turnover vs. store automation
Challenges of incentivized measures
Incentives matter!
(season 1)
Supply-side question: What are the costs of producing a drug?
- Production costs
- R&D costs
- Spillover of knowledge to other drug development
- How to allocate costs (succesfull and unsuccesfull trials)
Cost accounting (CA)
Manager then acts on CA information
CA input for (internal) management and (external) financial accounting information
Role of strategy & competition
Modern role of management accountant and controller
,Multiple functions
Managers as customers
Ensuring ‘rationality’ in decision-making
Budgeting and the roles of MA
Management accounting has two roles.
Decision-facilitating: meaningful & actionable information.
Decision-influencing: exert high effort, direct effort in the ‘right’ direction.
(season 2)
Decision-facilitating (example): start-ups
36% of businesses fail within the first two years of operation.
Among most common reasons:
- Poorly thought-out business plan
- Running out of cash
- Pricing or cost issues
Management accountants can play a vital role to bridge the gap between strategy and
financial control.
Scenario planning, strategic options, and evidence-based decision-making are among
the areas where management accountants can provide expertise.
P-A relationships
Controlling and coordinating actions: How to motivate (incentivize) employees to
provide effort and make decisions in the interest of the principal?
- Salaries dependent on company success or target achievements
- Checks, monitoring and punishment
, - Promotion and firing decisions
- Coordination between departments
Selection: How to attract the employees that are most likely that they act in the interest
of the principal?
- Screening and referrals
- (personality) tests
- Contracts with certain features (high variable parts)
Decentralization
Organizational structure to achieve more decentralization: responsibility centers
Decentralized decisions important
- Localized information, specialized skills
- Decentralized decisions need to be aligned with headquarters’ interests
Need to evaluate (performance of) decentralized units
Tools to manage decentralized units
Targets and budgets
- Targets should be challenging but attainable
- Budget provides specific targets (no ‘do your best’ goals)
- Role of fairness
Analysis of variances
Transfer prices (profit centers with internal customers)
Responsibility accounting
Evaluating the performance of managers based on activities under their supervision
Feedback function of responsibility centers
Budgets coupled with responsibility centers provide valuable feedback
Variances can suggest questions and direct attention
Variances can be analyzed and used:
- Early warning
- Performance evaluation
, - Strategy evaluation
- Communication of the goals of the organization
Feedback can be used to make necessary adjustments
Pursuing a strategy
Possible tool: balanced scorecard
Identify, measure and incentivize appropriate performance measures
Performance measures
Criteria of performance measures
- Goal congruence/alignment: Compensate so that your employees share your
goals.
- Controllability: Only hold employees accountable for what they can influence
Quantitative - Qualitative
Sales margin vs. customer satisfaction
Internal - external
ROA vs. stock price
Employees training vs. market share
Financial - nonfinancial
Inventory turnover vs. store automation
Challenges of incentivized measures
Incentives matter!
