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Welcome to EMBA 802

William F. BentzSeptember 22, 1999

Fisher College of Business

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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

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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

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Subject Matter of EMBA 802

To the extent possible, we will explore the interaction of theory, professional practice, and our personal beliefs

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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

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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.

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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)

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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

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Agenda for Today

Answer questions about the syllabus, etc.Reflect on the significance of graduate

schoolDiscuss how we will approach this courseGet started!

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Syllabus

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Questions About the Syllabus?

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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.

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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 raceUsually a life-changing decision!

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Any observations?

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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

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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.

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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

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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

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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 trans- actions or market values, and desired transactions or values

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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 contracts

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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

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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

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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.

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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.

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Comments?Observations?Questions?

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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.

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Schools of Thought

Cost-Benefit

Orientation

Growth

Orientation

Efficiency

(Cost Reduction)

Orientation

Systems

Orientation

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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

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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.

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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

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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)

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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.

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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.

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Prof. Anthony’s Framework

Strategic Planning

Technical (Planning and) Control

Information processing

Management (Planning and) Control

External Reporting

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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.

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Prof. Shank’s Framework

Strategy Formulation

Development and Execution of Tactics

Strategy Communication

Developing and Implementing Controls to Monitor Implementation

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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.

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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.!

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Strategic Planning

1. Basis of competition

a. cost

b. functionality

c. quality

2. Cohesive, guiding sense of purpose

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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

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Behavioral Views

Bureaucratic

Familial

Entrepreneurial