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Behavioral and Organizational Issues in Management Accounting and Control Systems

1. Management Accounting and Control Systems (MACS) help organizations determine if strategies and objectives are being met and motivate employee behavior through procedures, tools, performance measures, and incentives. 2. A well-designed MACS considers both technical and behavioral factors, including embedding an ethical code, using both qualitative and quantitative short- and long-term measures, empowering employee involvement, and developing appropriate incentive systems. 3. Various models of motivation are considered in MACS design, recognizing that employees value more than just financial compensation, including creativity, responsibility, and effecting organizational change.

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439 views

Behavioral and Organizational Issues in Management Accounting and Control Systems

1. Management Accounting and Control Systems (MACS) help organizations determine if strategies and objectives are being met and motivate employee behavior through procedures, tools, performance measures, and incentives. 2. A well-designed MACS considers both technical and behavioral factors, including embedding an ethical code, using both qualitative and quantitative short- and long-term measures, empowering employee involvement, and developing appropriate incentive systems. 3. Various models of motivation are considered in MACS design, recognizing that employees value more than just financial compensation, including creativity, responsibility, and effecting organizational change.

Uploaded by

Cha Cha
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Chapter 9: Behavioral and Organizational Issues in Management Accounting and Control

Systems

What are Management Accounting and Control Systems?


Management Accounting and Control Systems (MACS) is the core of a larger entity that holds
the central performance system, called cost management system. MACS is used to help decision
makers determine whether organization, business, and operational level strategies and objectives
are met, and to motivate behavior.

Control - In management accounting and control are the set of procedures, tools, performance
measures, systems, and incentives that are used to guide and motivate employees to achieve
organizational objectives.
Process of keeping an organization in control:
1. Plan — develop objectives, choose activities, select measures
2. Do — implement the plan
3. Check — monitor by measuring and evaluating
4. Act — Take appropriate actions to return to in-control state

Characteristics of a Well-Designed MACS


Technical Considerations
Relevance — Accurate, timely, consistent, flexible
Scope — Comprehensive & include all activities across the entire value chain
Behavioral Considerations
Four major behavioral characteristics to be considered when designing MACS:
1. Embed the ethical code of conduct
2. Use mix of short & long-term qualitative & quantitative performance measures
3. Empower employees to be involved in decision making and MACS design
4. Developing appropriate incentive system to reward performance

The Human Resource Management Model of Motivation


Scientific Management School underlying philosophy: most people found work objectionable,
they don’t care about decision making or being creative. Money was the performance driver
Human Relations Movement recognized that people had needs that went well beyond
performing simple repetitive task at work, and that financial compensation was only one of the
worker’s desire. Employee want respect, discretion, and the feeling they contributed something
valuable to the organization. Developed ways to improve morale and job satisfaction and overall
quality of working life
Human Resources Model of Motivation (HRMM) introduce a high level of employee
responsibility and participation in decisions in the work environment. Central assumptions,
organizations operate under a system of beliefs about values, purpose, and direction of their
organization. Individuals are motivated by both financial and nonfinancial compensation. It also
assumes employees have a great knowledge and information about their jobs, hence they can
improve the way they perform tasks and benefit the organization. Employees are assumed to be
highly creative, ethical, and responsible, and desire opportunities to effect change in the
organization.

The Organization’s Ethical Code of Conduct and MACS Design


The ethical framework embedded in MACS will influence the behavior of all users. Ethical
considerations can avoid ethical dilemmas, and deal with ethical conflicts.
Elements of ethical control system
1. Statement of organization’s values and code of ethics
2. Clear statement of employee’s ethical responsibilities
3. Adequate training to identify ethical dilemmas
4. Evidence that senior management expects organization members to adhere to its code of
ethics
5. Evidence that employees can make ethical decisions or report violations
6. Ongoing internal audit of ethical control
Steps in making ethical decision
Formal training. Gather facts —> evaluate alternative courses of action —> eliminate possible
courses of action that are ethically unacceptable
Three dimensions of motivation
1. Direction
2. Intensity
3. Persistence

Goal congruence Alignment of goals


Employee self-control Employees monitor and regulate their own behavior and perform to their
highest levels
Diagnostic control systems Feedback systems that monitor organizational outcomes and correct
any deviations from predetermined performance standards
Interactive control systems Requires a dialogue among all organizational participants about the
data coming out of the system and what action to take

Task control Process of finding ways to control human behavior so that a job is completed in a
prespecified manner
Categories: preventive control (discretion is taken out of performing a task), and monitoring
Results control Focus on measuring employee performance against stated objectives

Using a Mix of Performance Measures: A Balanced Scorecard Approach


The need for multiple measure of performance: non-goal-congruent behavior
Department store managers have discovered that when salespeople are compensated using sales
quota, their attention is focused on selling as much expensive merchandise as possible
Dysfunctional behavior — gaming performance indicator
Employees knowingly manipulating or falsifying performance measures. Data falsification,
smoothing earning management.

Behavioral Aspects of MACS Design: Budgeting


3 Common Methods in Designing the Budget Process
1. Authorative Budgeting — superior informs subordinates what their budget will be without
requesting input
2. Participative Budgeting — uses join decision-making process which all parties agree about
setting the budget targets
3. Consultative Budgeting — managers ask subordinates to discuss their ideas about the budget
but no joint decision making occurs
Influencing the Budget Process — People try to influence or manipulate budget to their own
ends
Budget measure performance and serves ultimately to control and influence behavior.
Participation has provided employees the opportunity to affect their budgets in ways that may not
always be in the best interests of the organization.

Developing Appropriate Incentive Systems to Reward performance


Intrinsic rewards comes from within an individual and reflect satisfaction from doing the job and
from the opportunities for growth the job provides
Extrinsic rewards given to acknowledge a job is well done (incentive)

Issue of choosing between the rewards is still an ongoing debate. However, most organizations
ignore the role of intrinsic rewards in motivation and blindly accept that financial extrinsic rewards
are necessary and sufficient to motivate superior performance

6 attributes of measurement system to motivate desired performance:


1. Employees must understand their jobs & reward system, and believe
2. Careful choice in measuring employee’s inputs & outputs
3. Elements should reflect organization’s critical success factors
4. Clear standards that employees accept
5. Calibrated so it accurately assess performance
6. If activities with other employees is emphasize, reward system should reward group
performance

Types: cash bonus, profit sharing, gain sharing, stock options and other stock-related
compensation plan

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