Revision Question for Advanced Performance Management
REVISION QUESTION FOR ADVANCED PERFORMANCE MANAGEMENT
Revision Question 1
A competent management accounting system should endeavour to enhance the performance of a company. It should, in particular, consider the behavioural consequences of the system.
Required:
(a) Explain why it is necessary when designing a management accounting system to consider the behavioural consequences of its application.
(b) Explain the potential behavioural issues that may arise in the application of performance monitoring, budgeting and transfer pricing and suggest how problems may be overcome.
Answer
(a) The role of a management accountant is to provide information which can be used to assist and guide management in the pursuit and achievement of organizational objectives. The management information provided is read, interpreted and responded to by people within the organization, and their responses will determine the quality of the decisions made and the extent to which corporate objectives are achieved. Management accountants should be aware of this relationship and endeavour to ensure that the information that they supply is used in a way that benefits their organization. The design and operation of a management accounting system should anticipate the behavioural consequences that are likely to arise as a result of its activities. A management accountant who fails to consider these repercussions or denies responsibility for them is likely to operate a dysfunctional system. This is most likely to manifest itself in a failure to secure goal congruence between the interest parties. The management accounting system will need to consider the particular culture of the organization, whether it has a hierarchical or democratic structure, its attitude towards employee empowerment and the extent of delegated team decision making.
(b) Performance Monitoring: There is a general acceptance of the idea that an organization that
Revision Question 1
A competent management accounting system should endeavour to enhance the performance of a company. It should, in particular, consider the behavioural consequences of the system.
Required:
(a) Explain why it is necessary when designing a management accounting system to consider the behavioural consequences of its application.
(b) Explain the potential behavioural issues that may arise in the application of performance monitoring, budgeting and transfer pricing and suggest how problems may be overcome.
Answer
(a) The role of a management accountant is to provide information which can be used to assist and guide management in the pursuit and achievement of organizational objectives. The management information provided is read, interpreted and responded to by people within the organization, and their responses will determine the quality of the decisions made and the extent to which corporate objectives are achieved. Management accountants should be aware of this relationship and endeavour to ensure that the information that they supply is used in a way that benefits their organization. The design and operation of a management accounting system should anticipate the behavioural consequences that are likely to arise as a result of its activities. A management accountant who fails to consider these repercussions or denies responsibility for them is likely to operate a dysfunctional system. This is most likely to manifest itself in a failure to secure goal congruence between the interest parties. The management accounting system will need to consider the particular culture of the organization, whether it has a hierarchical or democratic structure, its attitude towards employee empowerment and the extent of delegated team decision making.
(b) Performance Monitoring: There is a general acceptance of the idea that an organization that