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: 2013-2014
Slide 5.3
Chapter 5:
Control System Costs
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 5.4
Cost of control
Benefit of controls
A higher probability that people will both work hard and direct
their energies to serve the organizations interests.
Costs of controls
Direct out-of-pocket costs
Easy to quantify: cost of cash bonuses, internal audit staffs
Difficult to quantify: time spend on planning and budgeting activities,
on pre-action reviews, etc.
Harmful side-effects
Behavioral displacement
Gamesmanship
Operating delays
Negative attitudes
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 5.5
Behavioral displacement
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 5.6
Gamesmanship
Data manipulation
Trying to look good by fudging the control indicators.
Falsification, i.e., reporting erroneous data.
Data management, i.e., any action to change the reported result:
Through accounting methods (e.g. reserves, write-offs);
Through operating methods (e.g. delaying expenses).
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 5.7
Operating delays
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 5.8
Negative attitudes
Results controls
Lack of employee commitment to the performance targets:
targets are too difficult, not meaningful, not controllable.
Performance evaluations are perceived as being unfair.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007
Slide 5.9