Welcome to EMBA 802

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Welcome to EMBA 802

• William F. Bentz
• September 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 school
• Discuss how we will approach this course
• Get 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 race
• Usually 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 (ATT)

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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. Anthonys Framework
Strategic Planning
Information processing
Management (Planning and) Control
Technical (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.
• Anthonys 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. Shanks Framework
Strategy Formulation
Strategy Communication
Development and Execution of Tactics
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 SG 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
Familial
Bureaucratic

• Entrepreneurial