Topic 5 - Performance Evaluation Flashcards
(76 cards)
What is feedback in performance evaluation?
Feedback is used to describe both the process of reporting back control information to management and the control information itself.
What are the steps in the control cycle? 6
- Plans and targets are set.
- Plans are put into operation.
- Measure Outputs. Actual results are recorded and analyzed.
- Information is fed back to management. Feedback of information.
- Management compares actual results with targets.
- Control action
What are the possible management responses after comparing actual and planned results? 3
- Take control action
- Decide to do nothing - if its uncomtrobllable or insignificant
- Alter the plan or target - make it moore acheiveable
What are the key features of effective feedback? 5
- Exception principle (only highlighting significant differences)
- Identifying controllable costs and revenues
- Timely availability of reports
- Concise and sufficiently accurate information
- Communicating reports to responsible managers.
Which ONE of the following statements about management control reports is not correct?
* A Reports should be completely accurate.
* B Reports should be clear and comprehensive.
* C Reports could usefully include information about uncontrollable items.
* D Based on the information contained in reports, managers may decide to do nothing.
A Reports should be completely accurate.
What are the three styles of evaluation for managerial performance? 3
- Budget constrained - Managers’ performance is measured on ability to meet budget.
- Profit conscious - Managers’ focus is on increasing the effectiveness of a unit’s operations. The goal is to generate a positive return to shareholders.
- Non-accounting - Managers’ focus is non-financial. Measures such as feedback from colleagues is how performance is measured.
Managerial performance - Budget Constrained definition
Managers’ performance is measured on ability to meet budget.
Managerial performance - Profit conscious definition
Managers’ focus is on increasing the effectiveness of a unit’s operations. The goal is to generate a positive return to shareholders.
Managerial performance - Non-accounting definition
Managers’ focus is non-financial. Measures such as feedback from colleagues is how performance is measured.
How does a budget-constrained evaluation style affect managers? 4
- High involvement with costs
- High job-related tension
- Extensive manipulation of accounting reports
- Poor relations with supervisors and colleagues.
What are the effects of a profit-conscious evaluation style? 4
- High involvement with costs
- Medium job-related tension
- Little manipulation of accounting reports
- Good relations with supervisors and colleagues.
How does a non-accounting evaluation style impact managerial behavior? 4
- Low involvement with costs
- Medium job-related tension
- Little manipulation of accounting reports
- Good relations with supervisors and colleagues.
What is budget bias?
Budget bias refers to the manipulation of accounting reports to achieve short-term budget targets, often under managerial pressure.
How can budget bias happen in the process of preparing and then meeting budgets? 3
- Manipulating
- Overstated budget, underestimate revenue - are you look good if you are under or over
- Inflate budget to ensure spending is protected e.g. xmas party
How can budget bias affect performance measurement?
Managers may focus on improving their budget performance at the expense of long-term organizational goals.
Which ONE of the following is an example of budget bias?
* A A manager uses his best estimate of likely costs when setting the budget.
* B A manager’s advertising budget is disproportionately large in comparison with the budgeted revenue to be generated.
* C A manager underestimates revenues when setting the budget to ensure that the budget target can be easily exceeded.
* D A manager will consult with his team to try to establish an appropriate sales volume target.
C A manager underestimates revenues when setting the budget to ensure that the budget target can be easily exceeded.
Why is goal congruence important in performance measurement?
Ensures that managerial performance aligns with the overall objectives of the organization rather than individual or departmental goals.
What is budget bias?
Budget bias occurs when managers intentionally underestimate revenues or overestimate costs to ensure budget targets are met easily.
What is divisionalisation?
Divisionalisation is the division of a business into more or less autonomous regional or product-centred units, each with its own revenues, expenditures, and investments.
What are the advantages of decentralisation? 5
- Senior managers can focus on strategic issues
- Improved decision-making quality
- Increased managerial motivation
- Faster decision-making
- Valuable training for future senior managers.
What are the disadvantages of decentralisation? 5
- Difficult to coordinate activities across divisions
- Senior managers have less direct involvement in operations
- Weaker link between operational and senior management
- Performance management is more challenging
- Potential duplication of roles.
What is responsibility accounting?
Responsibility accounting decentralises authority, measuring the performance of different responsibility centres in accounting terms.
What are the four main types of responsibility centres? 4
- Cost centre
- Revenue centre
- Profit centre
- Investment centre.
What is a cost centre?
A responsibility centre where the manager is accountable for controlling costs but not revenues or investments. E.g. legal or HR department. E.g. cost per kg/unit, cost per employee (wage)
