ACCAspace ACCA P5. Provided by. Advanced Performance management (APM) 高级业绩管理第十四讲 ACCA Lecturer: Jerry Lin

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1 ACCAspace Provided by ACCA Research ACCA Institute Research ACCA 课程研究学院 Institute ACCA P5 Advanced Performance management (APM) 高级业绩管理第十四讲 ACCA Lecturer: Jerry Lin

2 Syllabus Relational diagram of main capabilities Strategic planning and control (A) Economic fiscal, market and environmental factors (B) Performance measurement systems and design (C) Strategic performance measurement (D) Performance evaluation and corporate failure (E) Current developments and emerging issues in performance management (F) 2

3 Syllabus Part C. Performance measurement systems and design 1 Accounting information needs 2 Management accounting systems 4 Sources of information 5 Security and output reports 3

4 Review: Management accounting systems 1.1. Enterprise Resource Planning Systems (ERPS) 1.2. Lean management information systems The philosophy of lean management The aspects of lean management Implementing lean principles the 5 'S's 1.3. Open and closed systems 4

5 1.1. A contingent approach to management accounts 1.2. Human behavior and management accounting Learning curves Limitations of learning curve theory 1.3. Information and responsibility accounting Definitions Different categories Basic theories 5

6 1.1. A contingent approach to management accounts The contingency approach to management accounting is based on the premise that there is no universally appropriate accounting system applicable to all organizations in all circumstances. Efficient systems depend on awareness of the system designer of the specific environmental factors which influence their creation. 6

7 1.1. A contingent approach to management accounts The major factors that have been identified by Emmanuel, Otley and Merchant in Accounting for Management Control are classified as follows. (a) The environment (i) Its degree of predictability (ii) The degree of competition faced (iii) The number of different product markets faced (iv) The degree of hostility exhibited by competing organisations 7

8 1.1. A contingent approach to management accounts (b) Organizational structure (i) Size (ii) Interdependence of parts (iii) Degree of decentralization (iv) Availability of resources (c) Technology (the way in which an organization organizes its production processes, such as mass production or batch production) (i) The nature of the production process (ii) The routineness/complexity of the production process (iii) How well the relationship between ends (finished output) and means (production process) is understood 8

9 1.2. Human behavior and management accounting Management accounting systems have to develop ways of overcoming the problems of human behavior by allocating responsibility, encouraging participation in decision making, devising ways of measuring and rewarding behavior that contribute to organizational objectives, and so on. Much has been written on this subject, and we shall return to it in later parts of the Text. 8.1 Learning curves 9

10 1.2. Human behavior and management accounting Learning curves Learning curve theory applies to situations where the workforce as a whole improves in efficiency with experience. The learning effect or learning curve effect describes the speeding up of a job with repeated performance. Made largely by labor effort (rather than by a highly mechanized process) Fairly repetitive in nature Brand new or relatively short-lived (learning process does not continue indefinitely) 10

11 1.2. Human behavior and management accounting Limitations of learning curve theory (a) The learning curve phenomenon is not always present. (b) It assumes stable conditions at work which will enable learning to take place because of labour turnover. (c) It also assumes a certain degree of motivation among employees (d) Breaks between repeating production of an item must not be too long, or workers will 'forget'. (e) It might be difficult to obtain accurate data. (f) Workers might not agree to a gradual reduction in production times per unit. (g) Production techniques might change. 11

12 1.3. Information and responsibility accounting Definitions Responsibility accounting is a system of accounting that segregates revenues and costs into areas of personal responsibility in order to monitor and assess the performance of each part of an organization. A responsibility center is any part of an organization which is headed by a manager who has direct responsibility for its performance. 12

13 1.3. Information and responsibility accounting Different categories It is to this end that responsibility centers are usually divided into four different categories. Cost centers where managers are normally accountable for the costs that are under their control. Cost center managers are not accountable for sales revenues. (However, it is important to note that cost centers can still affect the amount of sales revenues generated if quality standards are not met, or if goods are not produced on time.) 13

14 1.3. Information and responsibility accounting Different categories Revenue centers where managers are only accountable for sales revenues, and possibly directly related selling expenses (eg salesperson salaries). However, revenue center managers are not accountable for the cost of the goods or services they sell. Profit centers managers are given responsibility for both revenues and costs. Investment centers managers are responsible not only for revenues and costs, but also for working capital and capital investment decisions, production and sales. 14

15 1.3. Information and responsibility accounting Basic theories When measuring the performance of a responsibility centre, one of the key issues is distinguishing which items the manager of that center can control (and therefore they should be held accountable for) and those items over which they have no control. Based on the principle of Controllability: This dictates that managers should only be made accountable for those aspects of performance they can control. In practice, the controllability principle can be very difficult to apply, because many areas do not fit neatly into controllable and uncontrollable categories. 15

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