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Ac211 Module 4 Performance Measurement (Course Notes) Notes

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Lecture 1: The Behavioural Effects of Performance Measurement Topics

* Examples of behaviour

* Theoretical perspectives

* Research insights

* Key principles

Key Points

* Examples of behaviour

* Study of incentives and tasks at MIT (Do rewards work?)

* Autonomy, mastery and purpose

* Atlasian (Australian software company) example

Objective

* Evaluate the effects of performance measurement systems on individual and organizational behaviour Examples of Behaviour

* Managers delay essential maintenance work to meet monthly profit targets

* BT measured the time it took operators to answer phones

* A channel-ferry operator measured the portion of complaints dealt with within 5 days

* NHS measured the time it takes to see a doctor RSA Animate - Drive: The surprising truth about what motivates us
* http://www.youtube.com/watch?v=u6XAPnuFjJc

1. If you reward something, do you get more of the behaviour you want?

2. If you punish something, do you get less of the behaviour you want?
* Study of incentives and tasks at MIT (do rewards work?):
? Yes in the case of mechanical skill:
# Higher pay = better performance
? But once cognitive skill was required:
# Higher pay = lower performance
? i.e. similar to socialist theory
? Defies the laws of behavioural physics
? But also replicated in studies in India
* [?] it isn't an anomaly
* Sociologists
* Psychologists
* Economists
? If you don't pay enough, people won't be motivated
# Pay people enough to take issue of money off the table
? So people think about the work and not the money
* 3 factors lead to better performance and personal satisfaction:
? Autonomy = The desire to be self directed
# Traditional management opposes this
? But engagement and self directed is better!
# Atlasian (Australian software company)
? Dedicated one day each quarter to allow employees to work on whatever they want with whom ever they want
* Led to new software fixes and new ideas
? An alternative to innovation bonuses
? Mastery = People like to get better at stuff
# It's satisfying to master something
# Do sophistically technical things for free outside of employment
? Purpose = People want a purpose Organisations [?] need to give purpose to their employees
* Want profit motive < purpose motive
? Companies that excel are those that highlight their purpose
* i.e. Apple, Skype etc.
* [?] we are purpose maximizers as well as profit maximizers Theoretical Perspectives Economic Theories
* Individuals have economic needs:
? Money, rewards, bonuses, salaries
* Economic theories help us think about how people might react to performance measures
? Individuals are utility maximisers
# What does this mean for performance measurement?
Psychological Theories
* Individuals have psychological needs:
? Clarity, fairness, autonomy
* Psychological theories help us to think about how people might react to performance measures
? Intrinsic motivation
? Cognition
? What does this mean for performance measurement?
Research Insights

* How can research help us to understand the effects of economic and psychological theories on performance measurement?
Hopwood, 1974

Course Notes Page 1

* Economic theories

* Psychological theories

* Hopwood (effects of performance evaluation)

* Argyris (effects of performance standards)

* How can we improve performance measurement?
Definitions

* Autonomy = The desire to be self directed

* Mastery = People like to get better at stuff

* Purpose = People want a purpose

*

Argyris, 1952 (Effects of performance standards)

*

Hopwood, 1972 (Effects of performance evaluation)

*

Webb, 2004 (Effect of cause-effect linkages on managers' goal commitment)

*

Hall, 2008 (Effect of comprehensive performance measurement systems on role clarity, empowerment and managerial performance)

*

Key Principles

* Otley, 2003:
* "The designers of measurement schemes do not generally appear to predict the likely outcomes of their implementation. It seems to be assumed that the introduction of a measurement scheme will not affect the behaviour of participants, other than in the intended manner!"

* What you measure, matters
* Measurement can make things worse
* There is a seduction that measurement is "the" solution

* How can we improve performance measurement?

* Characteristics of performance measures are important
* Single or multiple measures
* Linkages among performance measures
* Performance standards
* Evaluation styles

Course Notes Page 2

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