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Fundamentals and Concepts

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Managerial Accounting: Tools for Facilitating and Guiding Business Decisions

University of Illinois at Urbana-Champaign

4.7 (312 ratings) | 8.5K Students Enrolled

Kurs 2 von 7 in Value Chain Management Spezialisierung

Lehrplan anzeigen

In this course, you will explore how to use accounting to allocate resources and incentivize manager and employee behaviors in using these resources. You will also learn how financial and non-financial accounting information facilitates strategic performance measurement and how to integrate this information to continuously improve strategy. Upon successful completion of this course, you will be able to: • Understand the role of managerial accounting information in common business decisions • Differentiate relevant and irrelevant information • Avoid common pitfalls in business decisions • Prepare a master budget and its key components • Describe the iterative and interrelated nature of budgeting • Evaluate capital investments via a variety of measures • Understand how upper management uses variance analysis • Calculate, interpret, and investigate variances • Understand decentralization and its advantages and disadvantages • Compute and interpret financial performance measures • Communicate the role of non-financial measures and strategic performance measurement systems • Identify issues associated with performance measurement and incentives • Understand the nature and role of subjective performance evaluation This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

Skills You'll Learn

Accounting, Cost, Investment, Analysis Of Variance (ANOVA)

Bewertungen

4.7 (312 ratings)

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SR

Dec 18, 2016

Great course, I does complement the Managerial Accounting course I took before. A lot of tools to apply in the work place. The videos and the examples are wonderful for the learning pourpose.

BB

Mar 01, 2019

Although seems to be easy going it is actually quote complex subject but professor made it simple for understanding - great work U of I !!

Aus der Unterrichtseinheit

Performance Measurement and Evaluation

Accountants help implement, communicate, and evolve organizational strategy via the information they provide to owners, managers, and employees. Specifically, they help plan, monitor, and control decisions via the performance measurement, evaluation, and compensation system. In this module, you will explore many aspects of this important system, including decentralization, financial and non-financial performance measurement, strategic performance measurement systems, and subjective performance evaluation.

Fundamentals and Concepts9:03

What We've Learned in Lesson 4.10:54

Unterrichtet von

Gary Hecht, Ph.D.
Associate Professor of Accountancy

>> One of my all-time favorite places

in the world is Seaside, Florida.

Seaside is a small beach town on the Panhandle

of Florida in the United States.

There's a main road running right

through Seaside called 30A.

And right across the beach from --

right across the road from the beach is a series

of Airstream trailers that have been retrofitted

to be restaurants.

If you can't find me in my accounting classroom,

you might find me there as a chef in one of those Airstreams.

It's a long-term dream of mine.

It would be great to just live at the beach,

serve up food on a daily basis.

There's really good stuff there: barbecue, ice cream, snow cones,

a lot of different specialties.

I recommend you check it out.

Let's envision us down there as a chef in one

of those small locations.

And let's keep it small and just say

that we have a single location, a single food stand there.

We can talk about it just being us, just me or just you,

as the owner and the only person working there

so no employees working on our behalf.

And we'll have multiple product lines,

perhaps some different specialized food.

So what type of information

in this situation would be important to you?

Well, first off, you just need managerial

accounting information.

You need to understand the profitability

of each of your products.

You need to talk about your variable costs

and your fixed costs, what type of prices to charge,

and so on and so forth.

Now let's say that you enjoy this and are quite successful.

And so now you expand into different locations,

multiple food stands up and down the beach

in the different beach towns along that road,

and they're geographically dispersed.

What that means is you can't be at one place or all those places

at once, so you need multiple employees working

on your behalf.

And you might think of managers and employees working

at each individual location.

So now what changes will be needed?

Well, ultimately, you need a plan.

You need to instruct those managers and employees as far

as what to do, what decisions are they allowed to make,

and when do they need to check with you as the owner

or the ultimate boss in the company?

What we're talking about here is the extent

to which an organization is decentralized.

Decentralization refers to the extent

to which organizational employees

or managers are allowed to make decisions on behalf

of the organization and its owners, so that being me

or you in this setting.

Now, what are the benefits of decentralization?

Well, you can imagine a situation

where suppose a competitor to one of your food stands

down the road introduces a sale

or introduces a competing product.

The manager or employee at that location would be the first

to know this.

They would have local knowledge.

And, if they had decision-making authority,

they could maybe perhaps offer a sale

or compete in some other way.

They can be very responsive to this new threat

in the business environment.

And that ultimately leads to gains or pursuing opportunities

as well as mitigating costs.

If you weren't decentralized, the manager

and employee would have to call you up as the owner and wait

for your decision and then instructions as far

as what they should do.

And you might miss an opportunity,

or things might be too late for that week

against that competitor.

A second benefit of decentralization is

that it motivates managers and employees.

When you provide people with decision-making authority,

you as the owner exhibit trust in your managers and employees.

And this is very motivational for them, makes them feel

like they are part of the organization.

This also leads to their learning and development.

Oftentimes in organizations,

lower-level employees are provided

with some decision-making authority.

They're allowed to make mistakes and pursue other goals,

ultimately allowing them to learn

and become managers themselves.

And, finally, it focuses managers and employees

on their responsibilities.

By telling them what decisions they are allowed to make,

managers and employees focus on their particular area

and the rights that they have in incorporating their judgements,

decisions, and actions so ultimately provides instructions

to these employees regarding what they should

and can and can't do.

Now, like most things, benefits come with costs;

and decentralization is no different.

So, thinking about the cost of decentralization,

one of those is it might be the wrong person making decisions

on behalf of the organization.

Maybe perhaps a manager or an employee isn't informed all

that well or doesn't have the right experience,

and that might lead to poor decisions.

Or perhaps the manager or employee makes decisions

on the their own behalf and not necessarily for the good

of the organization as a whole.

Another cost is potentially too much focus on the business unit

or the department that that manager or employee works for.

Providing them

with decision-making authority focuses them on those types

of decisions, sometimes to the detriment of other areas.

Imagine the manager of one food stand starts

to implement new pricing strategies

or different products, and that can be to the detriment

of your other food stands that are nearby.

Information costs under decentralized --

in decentralized organizations are relatively higher as well.

Managers and employees making decisions have less incentive

or less opportunity to share information with other parties.

They are focused on their one area of the business.

And so collecting that information from those managers

and employees that have decision-making authority

sometimes is very costly in terms of effort and time.

And, finally, there are inefficiencies.

If every manager or employee

at all the different locations are engaged

in the same activities, making decisions that are assigned

to them, then they might be redundant in terms

of the activities that they engage

in to make those best decisions.

Sometimes it's better to centralize certain aspects

of the organization so that it benefits all parties

across the entire firm.

Now, one thing that's very important for firms is

to understand how to trade off benefits

and costs of decentralization.

First off, there is no such thing

as a perfect level of decentralization.

It's very difficult to measure, and it's very difficult

to find just the right balance.

In fact, firms often bounce back and forth between centralized

and decentralized regimes.

We see this over time as a firm evolves.

You can imagine a new manager coming in and saying,

We would like to give more decision-making authority

to the employees and managers throughout the firm.

The reason is we're not being as responsive.

So the problem of lack of responsiveness is solved.

But, over time, people forget about that

that was ever a problem.

And, instead, the costs

of having a decentralized organization start to creep in.

Now perhaps a new management team comes in

and realizes there's problems associated

with being so decentralized.

Information costs are high, or we're being inefficient;

so maybe we should be more centralized.

As you can see, firms oftentimes go through this cycle,

especially over long periods of time

where management regimes are changing.

Now, there's two other components that are related

to the extent to which a firm is decentralized.

They have to accompany the decision rights

that are allocated or assigned to different managers

and employees throughout.

One of those components is performance measure.

When you delegate decision-making rights,

you have to know are the managers

and employees making the decisions that are appropriate?

So you need a way to determine

if the individuals are actually aligned with the organization.

Are they using the decision rights appropriately?

And the story that's told there is performance measures.

We need some sort of measurement system

that tells us here were the judgment and decisions

that the employees implemented, and are those the right ones?

Performance measures gives us that information.

Another component has to do with what we do

with those performance measures.

Now, sometimes you get what you measure.

That is, when you start to measure something, people see it

as though that it's important, and they respond to that

as a measurement mechanism.

But that's not entirely certain all of the time.

Often you need a mechanism to align the managers and employees

with the organizational goals and in comes incentives

and compensation systems.

So, ultimately, to a company,

the fact that you are assigning decision rights throughout the

firm, you need to understand what actually happened.

What did they do with those judgment and decision rights?

Did they make the right ones or not?

Performance measures tell you that story.

And, ultimately, to get them to perform on behalf

of the organization as opposed to solely just

on their own behalf, you need compensation and incentives.

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