Chapter 1: The Role of Accounting
Information in Ethical Management
QUESTIONS TO CONSIDER IN CHAPTER ONE
1) How do uncertainties and biases affect the quality of decisions?
2) What types of decisions do managers make for an organization?
3) What is the role of accounting information in management decision-making?
4) How can managers make higher-quality decisions?
5) What information is relevant for decision-making?
6) What is ethical decision-making, and why is it important?
Q1: How do uncertaintiesand biasesaffect the quality of decisions?
UNCERTAINTIES, BIASES, AND MANAGEMENT DECISION QUALITY
- Uncertainties are issues and information about which we have doubt. For example: the
exact level of future sales for a product is uncertain. (unable to assume the company’s
future and performance)
- Therefore it is difficult to attain an exact response to the performance of a business, which
hinders one from substantially making the correct decisions
- Personal example: This course seems to be extremely difficult, the chances of me
achieving an overall grade of 75% in the course is uncertain
- Biases are preconceived notions adopted without careful thought. For example: a manager
who dislikes change might automatically reject a proposal that would alter operations and
improve efficiency. (Making decisions based on preference, or past experience which
have ultimately influence your perception on certain situations)
- Thus, biases often lead individuals to make poor decisions, since they base their decisions
on personal preference or past experience, disregarding the ethical decision.
- Biases cause decision makers to ignore weaknesses in their preferred course of action
which prevents them from exploring alternatives.
- Decision Quality refers to the characteristic of a decision that affects the likelihood of
achieving a positive outcome.
- Uncertainty and biases reduce the quality of decisions made
- Ideally, the higher the quality of a decision, the more positive outcomes since they involve
less uncertainty, and decision makers are less biased.
- Although certainties cannot be eliminated, managers can make higher-quality decisions
by acknowledging and more thoroughly addressing uncertainties
Q2: What typesof decisionsdo managersmake for an organization?
www.notesolution.com MANAGEMENT DECISION-MAKING
Organizational Vision Core purpose and ideology of the organization
- An organizations ideal goal for the future to become more successful
- Guides the organization’s overall direction towards its stakeholder groups
- Creates value for stakeholders examples: owners (for profit), donors (not for profit),
constituents (governmental), employees, customers/clients, suppliers, community, society,
- When employees understand the organizational vision and work collectively to achieve it,
that’s when organization’s success increases
- ***A vision statement is a theoretical description of what the organization should
- In addition some managers publish codes of conduct or statements describing the
organization’s social or environment responsibilities
- For instance, Cara the owner of well known restaurants such as Swiss Chalet, Harvey’s,
Kelsey’s, Montana’s, Milestone’s, etc, contains an organizational vision “to be Canada’s
leading branded restaurant and airline Services Company”
On order for Cara to achieve that standard or vision, she lists principles in which describe
her social or environment responsibilities.
Example: Since Jason (owner of Mama’s Pizza Outlet), knows that creating value for
customers is the key to the company’s success, he focuses on customers when he creates
the follow vision statement
Organizational Core Competencies Strengths relative to Competitors
- An organization’s strengths relative to competitors
www.notesolution.com - Relative to organizational vision, in a sense that, in order to create value for stakeholders,
an organization must have strengths relative to competitors
- Vision should build on existing and achievable strengths Example of potential areas of
organizational strength: productivity, skills, knowledge, technologies, physical resources,
customer/supplier relationships etc (refer to page 6)
EXAMPLE: After considering his (Jason) vision, and his ability to compete successfully in
this type of business, Jason identifies the following core competencies for Mama’s Pizza
o His experience as a manager for a pizza restaurant chain
o Sufficient financial resources to support start-up operations for one year
o High-traffic physical location with bargain rent
o Unique family-owned pizza recipe that customer’s like
- Jason must consider if his core competencies result to achieving his vision, in addition,
his vision for the company might change over time and lead to a re-examination of core
Organizational Strategies Guides long term goals, Organizational Structure, Financial
- Are tactics managers use to take advantage of core competencies while working towards
the organizational vision
- Strategies guide long term decisions such as: the proportion of financing through debt
and equity, types of goods and services offered, and investments in property plant, and
- To monitor strategic progress, managers establish and monitor long-term goals such as
market leadership or high-quality customer service
EXAMPLE: Jason must make long-term decisions, such as:
o Whether to purchase or lease restaurant space, pizza ovens, and furnishings
o Type of customer service (e.g., order at counter, table, delivery)
o Long-term staffing (contract with a chef)
o Long-term supplier arrangements
- To monitor success of the company’s strategies, Jason should also establish long-term
goals that he can use to monitor long-term performance
Operating Plans Specific performance objectives (Short-term)
- Involve specific short-term decisions that shape an organization’s day-to-day activities,
such as: drawing cash from a bank line of credit, hiring employees, or ordering materials.
- Often includes specific performance objectives such as: budgeted revenues and costs
EXAMPLE: Jason must make numerous day-to-day and other short term decisions such as:
o Specific orders and deliveries from vendors
o Advertisements placed in a local newspaper
o Procedures for using the cash register and the order entry system
o The weekly employee work schedule
Actual Operations Actions taken and consequences (HR)
- The various actions taken and results achieved over a period of time
- Includes: customer orders received, revenues earned