Welcome to EMBA 802
William F. Bentz
September 22, 1999
Fisher College of Business
1
Subject Matter of EMBA 802
Learn, evaluate, and implement the
concepts, terminology, and basic methods
needed to analyze the impact of decision
options on revenues, costs, investment,
and cash flows
Learn, evaluate and implement the key
design issues associated with
management planning and control
systems
2
Subject Matter of EMBA 802
Learn the critical issues involved in the
costing of activities, products, and
services for strategic management
purposes
Consider some ethical issues inherent in
the balance between compliance
reporting requirements and the
information needs of management
3
Subject Matter of EMBA 802
To the extent possible, we will explore the
interaction of theory, professional practice,
and our personal beliefs
4
IMPLICATIONS
Working problems and solving cases is
key to understanding the issues
Critical analysis and evaluation, using the
appropriate terminology, is the objective of
your learning
Class discussions and participation are
the key to an enjoyable quarter
5
Self Introduction
Education - B.A. (Economics-Cincinnati),
MAcc., Ph.D. (OSU)
Employed by Hopewell Dairy, Inc., The
Austin Co., Ralston Purina Co.,
Pickerington Creamery, Inc., General
Motors Corp., Ernst & Ernst, University of
Kansas, University of Oklahoma, and The
Ohio State University.
6
Self Introduction Continued
Research in linear planning and control
system models
Active in the American Accounting
Association, Financial Executives
Institute, Institute of Management
Accountants, and other professional
committees.
Certified Public Accountant (Inactive)
7
Some Current Activities
Active in Columbus Chapter of Financial
Executives Institute (On Board 1992-00)
Chair of State Board of Accountancy
Scholarship Advisory Committee
Board of Directors of Management
Accounting Section of the American
Accounting Association and Editor of
Newsletter
8
Agenda for Today
Answer questions about the syllabus, etc.
Reflect on the significance of graduate
school
Discuss how we will approach this course
Get started!
9
Syllabus
10
Questions About the Syllabus?
11
Graduate (Professional) School
The diversity of backgrounds means we
do not have a common starting point.
Our objective is to learn together as a
group and to contribute to the learning
process overall--a shared responsibility.
We need to find a way to leverage your
strengths while improving your
weaknesses.
12
Graduate (Professional) School
At best we only begin to peel the giant
onion; we never finish
Hopefully, in addition to learning a great
deal, you will become more aware of the
size of the onion
More like a triathlon than a hurdle race
Usually a life-changing decision!
13
Any observations?
14
Managerial vs. Financial Accounting
1. Unit of reporting or analysis (entity)
a. Financial - legal entities or
combinations of legal entities
b. Managerial - any identifiable unit with
which revenues, costs or cash flows
can be identified meaningfully.
Examples include cost centers, sales
territories, factories, and divisions
15
Managerial vs. Financial Accounting
2. Recipients (users) of the information
a. Financial - current and potential
owners, lenders, customers,
managers, associates, suppliers,
and regulators.
b. Managerial - current and future
known and unknown associates,
managers, and owners of the firm.
16
Managerial vs. Financial Accounting
3. Time period involved
a. Financial - past quarters & years
b. Managerial - calendar periods,
product life-cycles, asset lives,
planning periods, etc., both past and
future
17
Managerial vs. Financial Accounting
4. Timeliness
a. Financial reporting is constrained by
the need for audits, possible SEC
reviews, and reporting standards
b. Managerial reporting is relatively
unconstrained by external forces, so
the timeliness and quality trade-off
is decided internally
18
Managerial vs. Financial Accounting
5. Data elements
a. Financial - entity transactions,
current market values, accruals,
deferrals, and allocations
b. Managerial - entity transactions,
market values, accruals, deferrals,
allocations, forecasts of transactions or market values, and
desired transactions or values
19
Managerial vs. Financial Accounting
6. Role of reporting standards
a. Financial - SEC is the ultimate judge
of generally accepted accounting
principles in USA, but standards are
becoming international
b. Managerial - Influenced by
(1) Financial reporting requirements
(2) Cost Accounting Standards Board
(3) Joint venture and other contracts20
Managerial vs. Financial Accounting
7. Decision usefulness
a. Relevance
(1) Timeliness
(2) Feedback value
(3) Predictive value
b. Reliability
(1) Verifiability (reviewable basis)
(2) Representational validity
21
Managerial vs. Financial Accounting
7. Decision usefulness (continued)
(3) Neutrality (redundant?)
c. Comparability
(1) Standards observed
(2) In MA, information modified
d. Consistency over time
22
Some Implications
1. Generally accepted accounting principles
inform, but not constrain what we do for
managerial accounting purposes.
2. In managerial accounting, we need to
know how information is to be used if we
are to better support the users of that
information. Increasingly, this implies
teaching other members of a team.
23
Some Implications
3. Being knowledgeable about financial
reporting standards and transactions
processing systems may not make one
a good managerial accountant. Some
would go so far as to argue that different
skills and abilities are needed for
managerial accounting, particularly in
the context of planning activities.
24
Comments?
Observations?
Questions?
25
Moving On...
Next, let us consider some conceptual
frameworks that have significantly
influenced business and management
accounting over the post World War II
period. They were the frameworks
studied in school by your senior managers
and their influence is very much with us
today.
26
Schools of Thought
Cost-Benefit
Orientation
Efficiency
Growth
(Cost Reduction)
Orientation
Orientation
Systems
Orientation
27
The Efficiency View
1. Emphasis on reducing the use of
resources, and thus cost control
a. Resource trade-offs important
b. Focus on resource utilization
c. Idle capacity
d. Acquisition costs
e. Waste and spoilage
28
The Efficiency View
2. Promoted and developed by the
“scientific management” and devotees of
Frederick Taylor
3. Engineering orientation and very much
top-down, expert driven
4. Standard cost systems were born and
flourished in this era.
29
Cost-Benefit Orientation
1. Exercise in balancing costs and benefits
in both for-profit and not-for-profit activities
2. Revenues and cost-reduction are the
usual benefits, but quality, product
functionality, safety, and environmental
responsibility are benefits as well.
3. Contributions from economics for public
policy issues
30
Growth and Size Orientation
1. The Ohio State and Texas models!
2. Worked for armies and monopolies
3. Practiced in Japan and other societies in
which growth was financed by banks
4. Emphasis on size and market share, not
shareholder value
5. Managers rewarded by size of their
organizations, not profitability (AT&T)
31
Systems Theory
1. With the large organizations of WW 2 and
later, came an interest in a more
comprehensive view of scientific
management. There were some
important successes, particularly by the
British, using management science
methods in the war. Systems theory was
supposed to be an answer to bigness.
32
Systems Theory--II
2. Useful insights about learning the multiple
objectives of a system, about defining the
scope of a system, learning from
employees, working with suppliers and
customers, and aligning resources with
objectives.
3. Less emphasis on strategy and adaptive
behaviors than current thinking.
33
Prof. Anthony’s Framework
Management (Planning and)
Control
Technical (Planning and)
Control
Information processing
Strategic Planning
External Reporting
34
Perspective
Anthony provides detailed lists of activities
and characteristics that distinguish one
category of activities from another.
Anthony’s framework has stood the test of
time and use. It defined control for
generations.
The distinction between management
control and technical or operational control
is still very useful.
35
Prof. Shank’s Framework
Strategy Formulation
Strategy Communication
Development and
Execution of Tactics
Developing and
Implementing Controls to
Monitor Implementation
36
Perspective
I like the emphasis on the communication
of strategy as an ongoing activity.
There are few definitions and
explanations, so we are are forced to read
the papers and books cited to infer how
some of the terms are being used in his
book with Govindarajan.
37
Our Model
Our model is going to be the S&G model,
with the added distinction among strategic
control, management control and
operational control. Of course,
improvement is our objective.!
38
Strategic Planning
1. Basis of competition
a. cost
b. functionality
c. quality
2. Cohesive, guiding sense of purpose
39
Presumed Organizational Setting
1. For-profit organization perspective
2. Primarily a medium or large firm view,
but not exclusively
3. Adaptable internationally
4. Manufacturing and service organizations
alike
40
41
Behavioral Views
Familial
Entrepreneurial
Bureaucratic
42