Chapter 10 Notes

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University of Toronto Scarborough
Financial Accounting
Prof.Jan Klakurka

Chapter 10 Using Diagnostic and Interactive Control Systems - To achieve financial and nonfinancial goals, managers must rely on the efforts and initiatives of employees. Employees must understand the businesss strategy and their role in achieving strategically important goals. Using performance measurement and control systems effectively becomes critical to success - Success is determined by the ability to effectively communicate strategy to employees and control strategy implementations, To communicate and control strategy effectively, there are two different types of control systems: o Diagnostic control systems o Interactive control systems - The difference between diagnostic and interactive control systems is not in their technical design features, but in the way the managers use these systems DIAGNOSTIC CONTROL SYSTEMS - Defined as the formal information systems that managers use to monitor organizational outcomes and correct deviations from preset standards of performance - Used as levers to communicate critical performance variables and monitor the implementation of intended strategies - Any formal information system can be used diagnostically if it is possible to (1) set a goal in advance, (2) measure outputs, (3) compute or calculate performance variances, and (4) use that variance information as feedback to alter inputs and or processes to bring performance back in line with preset goals and standards - Managers use control systems diagnostically to implement strategy effectively and conserve scarce management attention Implementing Strategy - Managers are interested in monitoring diagnostic control systems that report variance information about critical performance variables (factors that must be achieved or implemented successfully for the intended strategy of the business to succeed) - It is a top down monitoring tool for implementing strategy as plan - They link strategy with critical performance goals and targets and monitor their successful implementation - Managers must insure that (1) critical performance variables have been analyzed and identified, (2) appropriate goals have been set, and (3) feedback systems are adequate to track performance Conserving Attention -
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