2.3. Management Control Systems and Responsibility Accounting

Question 1

How do Organizational Goals relate to performance measures?

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Answer 1

• goals adress question “what do we want to achieve?”
• goals without performance measures do not motivate managers
• measures of performance set directions and motivate decisions
• performance measures to be consistent with organizational goals
• at least one performance measure related to every goal

Question 2

What is Goal congruence?

Answer 2

• a condition where employees, working on their own perceived best interests, make decisions that help meet the overall goals of the organization, i.e. goals of individual and organization are aligned

Question 3

What is Managerial Effort?

Answer 3

• extent to which a manager attempts to accomplish a goal, incl. all conscious actions (such as supervising, planning, and thinking) that result in more efficiency and effectiveness

Question 4

What are key aspects of Motivating Employees?

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Answer 4

• good management control systems foster goal congurence
• and managerial effort
• management control tools, such as budgets and variances, should positively influence employees´behavior to improve performance

Question 5

What are characeristics of Effective performance measures?

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Answer 5

effective performance measurement requires multiple performance measures, both financial and nonfinancial
1. reflect key actions and activities that relate to the organizations goals
2. be affected by actions of managers and employees
3. be readily understood by employees
4. be reasonably objective and easily measured
5. be used consistently and regularly to evaluate and reward
6. balance long term and short term concerns

Question 6

What is the relation of financial and nonfinancial performance measures?

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Answer 6

• both are relevant “you cannot manage something you cannot measure”
• focus is often on financial measures as accounting system readily produces such measures, e.g. sales, profit or return targets
• financial measures, however, often are lagging indicators that arrive too late to prevent problems and ensure the organizations health
• effects of poor nonfinancial performance often do not show up in the financial measures until considerable ground has been lost
• nonfinancial measures often motivate employees toward achieving important performance goals
• superior financial performance ususally follows from superior nonfinancial performance, such as customer satisfaction, improvement in quality, social responsibility

Question 7

What are the consequences of Measuring Nonfinancial Performance?

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Answer 7

• increases awareness of controlling aspects of nonfinancial performance measures such as:
• quality control, cycle time, productivity
• environmental, social and governance (ESG)

Question 8

What is Quality Control? What is the traditional approach here? What is a recent shift to be observed here?

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Answer 8

• an effort to ensure that products and services perform to customer requirements
• traditional approach to inspect products after completing them and refect or rework those that failed the inspections
• testing is expensive, so companies often inspected only a sample of products
• shifting focus from inspection to prevention of defects using total quality management or Six Sigma

Question 9

What is a qualits control chart?

Answer 9

• statstical plot of measure of various product quality dimensions or attributes

Question 10

What is meant by “Control of Cycle Time”?

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Answer 10

• cycle time, or throughout time, is the time taken to complete a product or service, or any of the compontents of a product or service
• faster cycle times often lead to higher quality and lower defect rates

Question 11

What is meant by control of productivity?

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Answer 11

• productivtiy is a measure of outputs divided by inputs
• productivity measures vary widely according to the type of resource with which management is concerned

Question 12

What is ESG Performance? What is a current trend here? Where is it used?

Answer 12

• increased awareness of ESG performance for successful companies
• for internal decision making as well as external stakeholders
• legal requirements within the EU/ Germany to report on ESG:
  -> EU: non-financial reporting directive (NFRD) // corporate sustainability reporting directive (CSRD) // EU taxonomy
  -> germany (in addition): supply chain due diligence act