MOS 1023 Chapter 4 Notes.docx

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Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

Custom Select Accounting: Information for Decision Making The Four-Step Framework for Decision Making 1) Specify the decision problem, including the decision makers goals 2) Identify options 3) Measure benefits (advantages) and costs (disadvantages) to determine the value (benefits reaped less costs incurred) of each option  Value: Its benefit less its costs o Measure value relative to status quo (which is doing nothing at all) o Decision with highest value is only one where value exceeds its opportunity cost  Opportunity Cost: The value to the decision maker of the next best option (highest valued alternative forgone) 4) Make the decision (choosing the option with highest value) Decision Making Organizational Goals  Organization: a group of individuals engaged in collectively beneficial mission (can be for profit, or not for profit)  For a family owned venture, goal is to increase family wealth  For publicly held businesses, goal is to maximize shareholder value (maximize returns to shareholders)  Use policies and procedures, monitoring systerms, performance evaluation, and incentives to align individual goals with organizational goals Aligning Individual Goals with Organizational Goals  Employees want business to do well so they get paid, not so owners profit  Policies and Procedures: to define acceptable behavior o Attendance, safe driving practices for UPS  Monitoring: To enforce policies and procedures o Walk around to see if employees are doing jobs, random drug tests, mystery shopper  Incentive Schemes and Performance Evaluation: To motivate employees to consider organizational goals o Commission, performance evaluations Main difference between individual and business decision relates to step 1: organizations need to ensure that the goals of individual employees mesh with the goals of the organization. The Planning and Control Cycle Planning Decision: relate to choice about acquiring and using resources to deliver products and services to customers (deciding which products to offer, price, a blue print that specifies actions required to achieve goal) Control Decisions: Motivating, monitoring, and evaluating performance  Example: compare GPA with expected GPA, might make a control decision to spend more time on homework PIER cycle: used for both planning and control  Planning: which products to offer, where to sell etc  Implementing: how and when to use resources, performance standards to motivate employees (has elements of both planning and control)  Evaluate: Measuring actual performance, understanding reasons for deviations between actual and planned results  Revise: Correct beliefs about the best products and services to offer, appropriate types and amounts of resources, feasibility of performance targets. This updated information then feeds into future planning and control decisions  Planning and control cycle could happen within minutes or take months Accounting and Decision Making Primary role of accounting is to help measure the costs and benefits of decision options. Financial Accounting Information Financial Accounting: Aims to satisfy the information needs of decision makers outside the firm, such as shareholders, creditors, and taxing authorities.  Shareholders and potential investors: Determine whether to buy or sell shares of common stock  Banks: to determine whether to lend money and at what terms  Board of directors: determine amount of dividends to pay out  Internal Revenue Service (IRS): determine amount of taxes due  Need for comparability across companies financial records lead to GAAP (in the US) as defined by the Financial Accounting Standards Board (FASB), International Accounting Standards Board (European and Chinese firms)  Governed by GAAP, and issued with fixed periodicity, and focuses on verifiable monetary values Managerial Accounting Information Managerial Accounting: Aims to satisfy the information
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