Instructor's Manual Management Control Systems Third Edition Kenneth A. Merchant Wim A. Van der Stede For further instructor material please visit. Management Control Systems: Performance Measurement, Evaluation and Incentives (4th edition). Wim A Van der Stede · Kenneth Merchant · Wim A Van der. Management control systems: performance measurement, by Kenneth A 3rd ed. Harlow, [etc.]: Financial Times/Prentice Hall an imprint of Pearson .
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Management Control Systems PDF eBook. Performance Measurement, Evaluation and Incentives 3rd Edition. Kenneth Merchant, Wim Van der Stede. Feb Author(s) Title Ed. Year Experts Total. 1st rank 2nd rank 3rd rank Points Rank. Merchant and. Van der Stede. Management Control. Systems. Management control systems: performance measurement, evaluation and 3rd ed. Harlow, England ; New York: Financial Times/Prentice Hall, 1 online.
Accounting measures of performance Investment and operating myopia Return-on-investment measures of performance Residual income measures as a possible solution to the ROI measurement problems Remedies to the myopia problem Reduce pressures for short-term profit Control investments with preaction reviews Extend the measurement horizon Measure changes in value directly Improve the accounting measures Measure a set of value drivers Using financial results controls in the presence of uncontrollable factors Types of uncontrollable factors Controlling for the distorting effects of uncontrollables Other uncontrollable factor issues Corporate governance and boards of directors The Sarbanes-Oxley Act of Boards of directors Controllers and auditors Management control-related ethical issues The importance of good ethical analyses Why do people behave unethically?
Please create a new list with a new name; move some items to a new or existing list; or delete some items. Management control systems: Management control systems. Management control systems performance measurement, evaluation and incentives.
Did KCC top management go too far in decentralizing the corporation? Did they not go far enough? Or did they get it just right? Assuming that KCC will retain its new divisionalized organization structure, what changes would you recommend, if any? If so, which and why? If not, why not? The vast majority of corporations are decentralized to a considerable degree.
What kinds of organizations are best run in a largely centralized manner, and why? Session 4 Topic: How challenging should these targets be, and how should achievement of the targets be linked to various forms of rewards, such as incentive compensation and job retention? MV, Chapter 8 Prepare for Class: Should HCC managers have expected that the MPS target-setting philosophy would be equally effective in all four operating divisions described?
If not, what explains the differences? What should Andy Goldfarb do now? Mike Pelta, general manager of Hermetic Seal, is quoted in the case as saying he has not missed a budget in his 33 years as a manager. How do you think he did that? Is he to be congratulated for his budget-achievement record? Session 5 Topic: What do they do instead? MV, Chapters 10 and 11 Prepare for Class: Assignment Question: Evaluate the CSI performance measurement and compensation systems.
What changes would you suggest be made, if any? Fast-forward 10 years. Assume that CSI has been successful. It is now a much larger, public company. It has three operating divisions investment centers that focus on different markets. Would you expect the CSI measurement and compensation system to be different at that time? If so, how and why? Session 6 Topic: Performance Evaluations In this class, we will continue our discussion of performance evaluations.
MV, Chapter 12 Prepare for Class: Case 1: Olympic Car Wash Assignment Question: How large should the bonus pool be for the Aalst location? Prepare for Class: Case 2: To what extent, if at all, should Mr. Zhou provide incentive compensation for his employees when his company is losing money? What factors did you take into consideration in making your judgment? Some companies make performance evaluation and bonus adjustments to protect managers from the harmful effects of many uncontrollable factors.
Other companies make no such adjustments. Enterprise Risk Management Our focus in this session is on enterprise risk management, a newly developing tool aimed at helping companies address all the various kinds of risks they might face.
MV, Chapter 13 Prepare for Class: Assignment Questions: Why did Entropic implement a formal enterprise risk management ERM process?
Why or why not? What changes would you suggest for making the ERM process at Entropic more effective? ERM is currently one of the hottest topics being written about in management, accounting, and corporate governance practitioner journals. Virtually every company is looking at the technique and deciding whether and how to use it. Do you think the ERM technique is a fad that will soon disappear or an improvement that will provide enduring benefits to a broad range of companies?
Session 8 Topic: Was that process as effective and efficient as it could have been? Another way to phrase this question might be: PacSun executives seem convinced that the costs of complying with SOX were greater than the benefits to the company. Why did PacSun not benefit from the compliance process to the same extent as some other companies?
Or were their compliance costs just too high? Judging now with some benefits of hindsight, was SOX a good law? Earnings Management and the Roles of Controllers and CFOs In this session, we will examine some of the important roles that controllers and CFOs play in their organizations, particularly in times of stress. MV, Chapter 14 Prepare for Class: Does Don have the power to force ETI top management to make a correcting accounting entry?
If not, what should he do? If so, should he force the entry to be made, and how large should it be? Are they ethical?
Does Don Russell have an obligation greater than that of other employees to try to ensure that his corporation acts ethically? Session 10 Topic: Financial Reporting Problems and Corporate Governance In this class, we will focus on the roles of various parties when financial reporting problems are discovered. MV, Chapter 15 Prepare for Class: What was the financial reporting problem at Molex? If you were a member of the board, would you agree with their concerns?
If Molex changes auditors, would you expect that event to have a significant negative effect on the stock price?
If so, why? Session 11 Topic: Industry Application: MV, Chapter 2 Prepare for Class: Why are Houston Fearless 76, Inc. Evaluate the new incentive plan being contemplated. What modifications would you make to the proposed new plan, if any?
How would you address the unresolved issues? Are there any significant impediments to the successful implementation of the new incentive plan? If so, which? Would you make any changes to the system providing bonuses to sales assistants? If so, what?
If not, is this element of performance worth paying out more money? Session 12 Topic: MV, Chapter 6 Prepare for Class: Evaluate the billing improvement effort and each of the elements of the system that emerged.
Comment specifically on the billing scorecard, detention meetings, P-CARs, and any other system elements that you believe are relevant. In considering the scorecard, be sure to address the following questions: What are the scorecard and each of its measures trying to accomplish? Are these the right measures? Does each measure add unique value? Are the measures weighted appropriately in importance? Are the business unit grades generally consistent across measures? Can any of the measures be distorted or gamed?
Do you have any suggestions to improve the billing process? What other alternatives might have been used to solve the problem?
If so, why has it apparently not received much attention from management up until now? If not, why all the concern now? Session 13 Topic: MV, Chapter 10 Prepare for Class: Haengbok Bancorp Assignment Questions: In your answer, comment specifically on the merits and demerits of the control philosophy and each of the significant individual control system elements, such as the use of mini profit centers and the associated performance measures and incentives.
Does this example illustrate a problem that needs to be fixed? If so, how would you fix it?
Are any of the issues in this case or their preferred solutions affected in any way by the fact that the bank and its managers are Korean, rather than, say, American, French, or Chinese? Session 14 Topic: A Hedge Fund In this class, we will discuss issues related to performance evaluation and incentive compensation in a hedge fund.
Our primary focus will be on the role of the hedge fund analysts. MV, Chapter 9 Prepare for Class: Assume the role of a Raven portfolio manager who has to allocate a bonus pool to the four analysts working primarily for him. How would you allocate bonuses to these four analysts? What alternatives did you consider? Why did you make the choices you did? Is there any other information you would like to have had available before making your decisions? Should the proportions of the bonuses allocated vary depending on the size of the bonus pool available?
Evaluate the Raven performance evaluation and incentive compensation system.
Should they make these changes? After we discuss this case, I will provide a brief review of the major themes of the course and will hand out the final exam. It will be a take-home exam that is due in my mailbox, in the lobby of the Accounting building, by 5: You can work on the exam only in the group to which we agree you have been assigned. Van der Stede w. Our focus will be on the measurement and evaluation of the performances of organizational entities and their managers.
In other words, the module is designed to be useful particularly for those who aspire to be managers, management consultants, or specialists in staff functions such as controllers, financial analysts, auditors, and human resource specialists. The case studies permit the exploration of management control issues in a broad range of settings e. Moreover, the foundational theories for the topics in this module have been introduced in AC An important objective of this module is, therefore, 1 to expand that knowledge through further study and 2 to apply that knowledge to cases.
The case method of instruction, however, requires good advance preparation by the students. For the cases that we discuss in class settings, I expect every student to actively participate in the case analysis and discussion. Although during lectures not every student will have an opportunity to contribute to the discussion, I still expect active participation when I pose questions or solicit input from the students.
Course Materials Merchant, Kenneth A. Referred to as MCS in the schedule below. Some additional materials are distributed separately in the course pack. An essay that is handed in after the case has been discussed in class will not be marked.
Assessment Assessment will be based wholly upon a three-hour written examination during the Summer Term covering exam questions from across all four modules of this course.
MCS Chapters Class 1: Have any other factors been more important? What recommendations would you make to Mr.
Essay Question for written work: What are potential barriers to adopting the Lincoln approach abroad? Week 2 — Results Accountability Lecture 2: MCS Chapter 7 Class 2: Kranworth Chair Corporation Case Questions for advance preparation: Identify the most important key recurring decisions that must be made effectively for Kranworth Chair Corporation KCC to be successful.
Week 3 — Planning and Budgeting Lecture 3: Van der Stede Recent Developments in Budgeting: An Overview and Research Perspective. Journal of Management Accounting Research 15, Analyze the budgeting process at Citibank and how the budget is used for performance evaluation of managers. Are managers at Citibank committed to achieving budget targets? If so, are the budget targets too challenging? Is there any evidence of budget gaming?
What should Mr. Mehli Mistri do about the budget issue described on the first page of the case study? Class 3: Case Question for advance preparation , or Essay Question for written work: Week 4 — Performance Measurement Lecture 4: Ittner, Christopher D.
Class 4: Case Questions for advance preparation 1. Evaluate the composition of the compensation package at CSI. What are the advantages and disadvantages of awarding stock options? What are the advantages and disadvantages of awarding bonuses? Was the relative importance placed on salaries, stock options, and bonus awards reason- able?
Evaluate the specific features of the annual bonus plan in and Comment on: The relative proportions of financial vs. The decision to base rewards on company-wide, rather than individual, performance; d.
The amount of subjectivity allowed in determining the bonus awards; e. The calibration target difficulty of the bonus plans.
What would you expect the CSI measurement and compensation systems to look like at that time? Week 5 — Incentive Systems Lecture 5: Van der Stede Wim A. Class 5: Case Questions for advance preparation: Honor Code Students are expected to adhere to, and will be bound by, the University and School policies governing academic integrity.
Course Objectives This graduate course is designed to broaden and deepen your conceptual and technical understanding of management control systems MCS. But the emphasis in the course is on financial controls, which dominate in importance at managerial levels in all but the smallest organizations. Business Expert Press. Some additional materials also will be distributed on Blackboard. The focus of most of the classes will be on discussions of cases. For each case assignment, I will provide some Discussion Questions.
Grading Quizzes 50 points Project 1 50 points Project 2 50 points Class participation 50 points Final exam points Total points Quizzes and Exams The quizzes and the final exam will test individual not group work. The quizzes will focus on specific issues in the case being discussed that day in class. The final exam, will be a take-home exam in lieu of an exam during the final exam period. It will involve a case analysis. No make- up exams will be given see LSOA policy on incompletes.
Projects The projects will involve group analyses of cases that are supported by data provided on Excel spreadsheets. The second involves comparative performance evaluations of a large number of bank branches.