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Chapter 13

COMM-2016EL Chapter Notes - Chapter 13: Quality Costs, Balanced Scorecard, Relate

Commerce and Administration
Course Code
Kayla Levesque

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Chapter 13 Management Control
Systems, Balanced Scorecard, &
Responsibility Accounting
Management Control Systems
Management Control System – a logical integration of management accounting tools to gather and report data
and to evaluate performance
The purposes of a management control system are to:
1. Clearly communicate the organization’s goals
2. Ensure that all managers and employees understand the
actions required of them to achieve organizational goals
3. Communicate results of actions across the organization
4. Ensure that the management control system adjusts to
changes in
the environment
Management Control is defined as the process by which managers influence members of the organization to
implement the organization’s strategies efficiently and effectively
The first and most important component in a management control
system is the organization’s goals
A well-designed control system aids and coordinates the
process of making decisions and motivates individuals
throughout the organization to work toward the same goals
Organization-wide goals, performance measures, and targets
are set by top management and are reviewed on a periodic
Performance measures give managers a more specific idea of
how to achieve a better goal
Goals and performance measures are very broad, as a result, managers also identify:
Critical Processes – a series of related activities that directly impact the achievement of org. goals
(ex. the goal is to “exceed guest expectations” would have “produce and deliver services” as a critical process)
Critical Success Factors – activities that must be managed well for an organization to meet its goals
(ex. the process “produce and delivery services” would have a critical success factor of “timeliness” …
performance measures for timeliness would include check in time, check out time, response time, etc.)
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Design, Plan, and Execute Management Control Systems
To create a management control system that meets the organization’s needs, designers need to recognize
existing constraints, identify responsibility centres, weigh costs and benefits, provide motivations to achieve
goal congruence, and install internal controls…
Specifying how the organization will be structured is a crucial part of the planning process & control system, as
the fundamental design must fit the organizations structure
The 3 forms of organizational structure can be divided by:
Function - such as production, finance, marketing, and HR
Division - bearing profit responsibility along product or geographic lines
Hybrid Arrangements - such as matrix structures
Responsibility Centre – a set of activities assigned to a manager, a group of managers, or a group of
employees to create “ownership of management” decisions
An effective management control system gives each lower-level manager responsibility for a group of activities
and objectives and then reports on (1) the results of the activities, (2) the manager’s influence on those results,
and (3) effects of uncontrollable events
Responsibility Accounting – identifying what parts of the organization have primary responsibility for each
objective, developing measures of achievement of the objectives, and creating reports of these measures by
organization subunit or responsibility centre
1. Cost Centres
Cost Centre – a manager is accountable only for costs; its financial responsibilities are to control & report costs
An entire department may be considered a single cost centre, or a department may contain several cost centres
based on activity
Within an activity, separate faculties, projects, or equipment may be regarded as separate cost centres
The determination of the # of cost centres depends on the cost-benefit considerations
2. Expense Centres
Expense Centre (Discretionary Cost Centre)manager is accountable for expenses only; the objective is to
spend the budget but maximize the specific service objective of the centre
3. Revenue Centres
Revenue Centre – manager is responsible for revenues only (outputs); the objective is to maximize the
revenues generated
This is done maximizing factors such as volume, price, and market share
4. Profit Centres
Profit Centre – manager is accountable for revenues and costs; the objective is to control revenues as well as
costs/expenses (in other words, control profitability)
Each profit centre resembles a miniature business, the income statement is directly affected & used as a basic
management control doc, performance is measured by profit, & it promotes the spirit of freedom & competition
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find more resources at oneclass.com
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