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Chapter 1

Chapter 1

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ACC 410
Maurizio Di Maio

Chapter 1: The Role of Accounting Information in Ethical Management Decision-Making 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, others - 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 become*** - 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. 1) Quality 2) Responsibility 3) Integrity 4) Efficiency 5) Independence 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 Outlet: 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 competencies Organizational Strategies Guides long term goals, Organizational Structure, Financial Structure etc. - 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 equipment. - 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
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