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Accounting Notes Managerial Accounting Notes

Ac211 Module 4 Performance Measurement (Course Notes) Notes

Updated Ac211 Module 4 Performance Measurement (Course Notes) Notes

Managerial Accounting Notes

Managerial Accounting

Approximately 157 pages

In depth, typed notes covering the Managerial Accounting (AC211) at LSE (London School of Economics). Covers the full content of the 4 modules in the course.

Module 1 - Management Accounting and Strategy
Module 2 - Planning and Control
Module 3 - Management Accounting for Decision Making
Module 4 - Performance Measurement

Over 70 pages of notes in an easy to follow, intuitive format, closely following the structure of the course (2010-2011). Notes are in bullet points of varying length a...

The following is a more accessible plain text extract of the PDF sample above, taken from our Managerial Accounting Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

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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