Decision Making for Accountancy Accountancy 302

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Decision Making for AccountancyAccountancy 302

• Marjorie K. Shelley, Ph.D., CPA, CMAAssociate
  Professor

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Introduction

• Course overview
• Syllabus
• Grading
• Discussion Debate
• Writing (group and indiv. memos)
• Exams
• Labs
• Blackboard
• Housekeeping
• Nature of Man

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Selective Perception

• We do not first see, then define,we define
  first and then see. --Walter Lippmann
• Three typical reactions
• Dominance (perceptual denial)
• Compromise
• Disruption
• Recognition
• Problem definition!

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Some course objectives

• Begin developing the skills necessary for you to
  succeed as a professional accountant, either in
  public or corporate accounting.
• How to contribute to and critique ideas
• How to work productively in teams
• How to discuss and debate in large and small
  groups
• How to fit accounting to the needs of
  organizational decision making

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Skill development

• Problem solving (critical thinking)
• Organizing, managing, leading, negotiating,
  persuading
• Writing
• Self learning
• Teamwork

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Overview

• Instructional approach experiential (e.g.,
  cases), emphasizes skills, as well as technical
  accounting knowledge
• Cases are sometimes vague or ambiguous.
• Assignment questions instructions are less so.
• Groups (in class, homework, case presentations)
• Coordination, control and management of
  organizations. The need for control drives the
  demand for accounting.

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Syllabus

• Where can you get one?
• On Blackboard http//blackboard.cites.uiuc.ed
  u
• Click on Course Documents and download
• Read it!
• The syllabus content is important and is part of
  your reading assignment for the day.
• The other reading for today (The Nature of Man)
  is also within Course Documents in a folder
  titled Supplemental Materials.

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Grades

• Exams midterm (10), final (25)
• Group homework (20), Individual homework
  individual (20)
• Case analyses and memos (4 group, 4 individual)
• Assignment questions and memo instructions
• Writing and content grades
• Group exercises (in class are not graded)
• Discussion Debate in class and group (15)
• Lab (10, quizzes and exam)

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Discussion Debate

• Discussion questions in regular classes (group
  and individual)
• Case discussions
• Short group presentations or case discussions.
• Evaluation of small group participation.

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Discussion and Debate

• SEC Director of Enforcement on Waste Management
  Arthur Andersen and its partners failed to stand
  up to company management . . .
• Confrontation
• F. John Reh (in Lessons Learned from Enron) on
  what it takes to be a good employee You and
  everyone of your peers, need to discuss issues
  openly, frankly, and with the best interests of
  your area clearly visible. You need to give the
  boss as much information and as many options as
  possible. . . .

This is hard!!!!
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Writing

• Homework memos (eight of these)
• Communications grade (50)
• Content grade (50)
• Rewriting (return the rewritten memo within a
  week)
• See the Communications TAs for help.

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Lab Policy

• Labs replace the Accy 300 course that was once
  required for professional development
• You will need the labs to learn variances.
• You will need the labs for probability review and
  extended decision trees.

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Major Project

• Polysar Limited
• Requires all we will have done in class to that
  point control, transfer pricing, variances and
  performance evaluation.
• Some industry research try the internet.
• Case analysis and role playing
• Presentation
• Small synthesizing paper with recommendations

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Housekeeping

• Background probe.
• Data sheet.
• Pictures.
• If you are not enrolling in the course, you can
  leave.

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The Nature of Man

• Choosing a model for predicting behavior

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REMM Postulates

• Every individual is an evaluator.
• Has preferences
• Can order his/her preferences
• Makes substitutions (trade-offs) that are
  transitive
• Each individuals wants are unlimited.
• Each individual is a maximizer.
• Each individual is resourceful.

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Links to Predicting Behavior

• Motivate, monitor, and reward achievement based
  on specific goals
• Understand desires and preferences
• Understand self-interest
• Predict responses to a variety of incentives
• Set limits on opportunity-seeking behavior

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Pervasive, Predictable

• What kind of behavior do we see and what kind of
  thinking brings it about?
• Evaluative
• Resourceful
• Maximizing
• Insatiable
• Predictable and realistic

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Other models

• Economic model
• Sociological model
• Psychological model
• Political model

Motivated by more than money
Evaluative
Makes substitutions
Not a perfect agent
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Discussion Question
Define sociological man.
Jensen and Meckling state Inefficient
practices such as discrimination . . . in hiring
provide profit opportunities for smart people
with the vision to perceive and act upon the gap
between current and optimal practice.
If this is true, how could discrimination persist?
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Using the model

• Good managers will understand and use the models
  behavior predictions to achieve their goals.
• Managers use control systems to enforce positive
  human traits and overcome organizational blocks
  (sanctions for errors, group pressures, fear of
  embarrassment)

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Discussion Question

• Define Political Man.
• Organizational trouble spots frequently are
  diagnosed as being caused by the fact that one or
  more managers is a bad guy. The solution is
  then to remove the offender(s) and appoint good
  guy replacements.
• Explain how this approach involves the notion
  that managers behave like Political Man.

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Where are we going with this

• Management control systems Management control
  systems are the formal, information-based
  routines and procedures managers use to maintain
  or alter patterns in organizational activities.
• Task control systems The host of systems used
  lower in the organization to coordinate and
  regulate operating activities (e.g., quality
  control procedures for repetitive operations
  (Accy 304))

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Discussion Question

• John Smith, Chief of Personnel (HR), has been
  instructed to increase minority hiring in ABC
  Company. Each division must have a minimum
  percentage of its total employee positions filled
  by minority workers.
• Why is an unbalanced workforce a problem for the
  company?
• No division currently meets its minimum.
• Smith will be evaluated by the Company president
  on his success or failure in meeting these goals.
• Smith does not evaluate the performance of any of
  the division chiefs and each chief must approve
  all new division employees.
• Do you expect Smith to succeed in this endeavor?
  Why or why not? Explain your reasoning. What
  would you do about it?

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What kinds of systems do managers use for control?

• Belief systems
• Boundary systems
• Diagnostic control systems (used to motivate,
  monitor, and reward achievement based on specific
  goals)
• Interactive control systems (used to stimulate
  organizational learning and the emergence of new
  ideas and strategies)

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What do you need to understand?

• The basic postulates of REMM.
• The comparison models.
• The characteristics of the alternatives that
  renders them useless for our purposes.
• Why understanding the rudiments of
  self-interested behavior is useful for
  organizational control.
• What control has to do with accounting.

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Vocabulary

• Rules of the game
• Preferences
• Transitivity and rationality
• Non-rational behavior
• Perfect agent
• Needs
• Culture

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Vocabulary

• Evaluation
• Substitution (trade-offs)
• Maximization (Optimization)
• Future
• Agency theory (moral hazard and adverse
  selection)
• Principal
• Agent
• Organizational structure
• Incentive systems
• Incentive contract

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Discussion Question

• On a boat trip up Chinas Yangtze River in the
  19th Century, a titled English woman complained
  to her host of the cruelty to the oarsmen. One
  burly coolie stood over the rowers with a whip,
  making sure there were no laggards.
• Her host explained that the boat was jointly
  owned by the oarsmen, and that they hired the man
  responsible for flogging. (Source Stephen
  Chung)
• Explain why such an organizational arrangement
  would arise voluntarily.

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The End!