AcF 213 - Lecture 14 (1).pdf accounting

sisi

1. Department of Accounting and Finance
Lancaster University Management School
AcF213 Management AccountingforBusiness Decisions
Lecture14:
BehaviouralAspects
of Accounting Systems

2. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 2
Lectures 14 & 15: Reading & EQL
Required reading:
•Drury chapter 10 (esp. pp. 273-275 and 283-286)
Supplementary reading:
•A&M chapter 6 (pp. 209-210) and chapter 7 (pp. 250-253)
•* Peters, R. and Gillon, P. (1999) “Why Did the Chicken Cross
the Road?” Accountancy, February 1999, p.104-105
•
$
http://www.telegraph.co.uk/news/uknews/1562303/Scrap-
crime-targets-says-senior-policeman.html (2007)
BPP:
•3. Budgeting –1: Section: 4

3. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 3
Today
•Determinants of individual’s performance
•Theories of motivation
•Adverse consequences of using controls
•Behaviouralaspects of budgeting and control systems
•Contingency theory

4. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 4
Determinants of individual’s performance
What factors will influence an individual’s performance?
1.Amount of effort expended
2.Ability of individual
3.Uncontrollable factors

5. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 5
Determinants of individual’s performance
Environmental
stimuli
•Assigned goals
•Monetary
incentives
•Feedback
•Participation
•Work group
norms etc.
Cognitive
activities
Outcome
Performance
level
Development
of plans and
personal
goals
(Based upon Fatseas& Hirst, ABR, 1992)

6. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 6
Determinants of individual’s performance
Workforce in business (Source FT.com 15/05/14)
•Are there business benefits to having a diverse workforce?
•EU directives: Anti-discrimination (gender, race, disability,
sexual orientation, religion/belief, age)
•CTI study :”Homogeneity stifles innovation”
•As Deloitte’s “Only skin deep?” 2011 report says, “it is not
enough to create a corporate version of Noah’s Ark bringing in
‘two of each kind’

7. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 7
Theories of motivation
•What is motivation?
•Why does X work so hard?
•Why do they work when they do?
•Why do they work at all?
•“Different people have different needs and therefore before you
can motivate them, you need to identify what drives them”
(Peters & Gillion1999, p. 104)
•There are four main theories of motivation

8. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 8
Theories of motivation
Theory 1: We are all lazy
Fred Taylor’s study of steelworkers (scientific management)
•Time and motion study –“Science of work”
•Workers perceived as lazy
•Objectives:
(i) Increase efficiency
(ii) Greater standardisation
(iii) Increase discipline
•Proposals to achieve objectives incl. managers do planning,
detailed task analysis “one best way”

9. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 9
Theories of motivation
Theory 1: We are all lazy
Fred Taylor’s study of steelworkers (scientific management)
•“Taylorism” appealed to business –management hierarchy
seen as efficient
•Workers’ rewards: Financial “machine fuelled by money”.
This neglects psychological and social variables which affect
behaviour
•Implemented in car industry but gave rise to inefficiency and
lack of creativity

10. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 10
Theories of motivation
Theory 2: Poles apart
McGregor’s theory X and theory Y (two extremes)
•Theory X: Lazy, motivate by pay rewards
•Theory Y: Ambitious, not motivated solely by cash
•Failure to identify Y’s needs will be demotivational

11. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 11
Theories of motivation
Theory 3: Satisfaction & motivation
•Herzberg’s two factor theory
•Distinguish between factors that dissatisfy and those which
satisfy
•Hygiene factors (dissatisfy): Necessary conditions of
successful motivation
•Motivating factors (satisfy): Achievement, recognition,
promotion. These will differ from individual to individual

12. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 12
Theories of motivation
Theory 4: Maslow’s hierarchy of needs
•Suggests all behaviouris need driven
•Implications:
•Money –secondary motivator
•Employers must be aware of
employees’ goals
Self fulfilment
Ego
Social
Safety/
security
Basic

13. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 13
Theories of motivation
Motivation of the workforce
•These theories do not recognisewe are all individuals
•Motivation is contingent on many factors

14. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 14
Adverse consequences of using controls
Control systems
•Control systems encourage/motivate employees
•Many targets will be financial/derived from accounting system
•Various types of controls (see earlier notes)
•Action or behaviouralcontrols
•Personnel, cultural and social controls
•Results or output controls

15. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 15
Adverse consequences of using controls
Control systems
•Controls may or may not encourage goal congruence
•Example: Results controls (focus on “measured” item)
•Idealperformance measures –possible?
•Negative attitude towards control systems
•Unachievable targets
•Held accountable for items outside of their control

16. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 16
Behaviouralaspects of budgeting and control
systems
1. Amount of challenge: The importance of targets
2. Level of participation
3. System of performance appraisal and rewards

17. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 17
Behaviouralaspects of budgeting and control
systems
1.Amount of challenge –Financial performance targets
•Engineered targets:
•Clearly defined and stable input-output relationship
•Historical targets:
•No input-output relation
•Problem: May include past inefficiencies/encourage under-
performance
•Negotiated targets:
•Reduce information asymmetry between subordinate and
superior

18. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 18
Behaviouralaspects of budgeting and control
systems
Effect of budget difficulty on performance
•How challenging is the target?
•Clearly defined quantitative goal is likely to motivate higher
levels of performance
•Level of budget difficulty should be related to task uncertainty
•Targets must be accepted to motivate
•Budget level that motivates best performance is unlikely to be
achieved most of the time

19. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 19
Behaviouralaspects of budgeting and control
systems
The effect of budget difficulty on performance (Otley, 1987)
Expectations
budget
Optimal
performance budget
Budget
level
Actual performance
Adverse budget
variance
Easy Budget difficulty Difficult
Performance

20. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 20
Behaviouralaspects of budgeting and control
systems
Arguments in favourof setting highly achievable budgets
•“Tight” budgets to maximisemotivation but…
•Conflict between planning and motivational purposes
•Most companies use the same budgets for planning +
motivation
•Psychological benefits
•Alleviates harmful side-effects of controls (bias in budgets)

21. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 21
Behaviouralaspects of budgeting and control
systems
2.Level of participation in budget setting
•Advantages:
•Motivation
•Specialist knowledge
•Communication
•Limitations:
•Time
•Conflicting objectives
•Pseudo-participation
•Company culture

22. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 22
Behaviouralaspects of budgeting and control
systems
3.System of performance appraisal and rewards
•Reward system motivates behaviour
•Problem: Measuring behaviour
•Monitor and reward results
•Impact of controls on behaviourand motivation. ‘What you
measure is what you get!’
•How employees are treated is important for motivation
•Rewards: Equity & perceived equity

23. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 23
Behaviouralaspects of budgeting and control
systems
3.System of performance appraisal and rewards
•How budgets are used in performance appraisal –styles of
management
•Budget constrained style
•Profit conscious style
•Non-accounting styles
•Performance appraisal style may vary by hierarchical level in
organisations

24. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 24
Behaviouralaspects of budgeting and control
systems
3.System of performance appraisal and rewards
•Ururuka(2007) reports lower level employees (support staff,
executive assistant) had more budget constrained appraisers
than directors or senior managers
•Potential impact of this style of performance assessment:
•Cutting corners
•Mis-recording information

25. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 25
Behaviouralaspects of budgeting and control
systems
3.System of performance appraisal and rewards
•Performance reports should not be used to pinpoint blame
•Adverse variance may imply manager needs help
•Monitor activities
•Financial and non-financial information

26. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 26
Contingencytheory
When to use what?
•Control systems –huge impact on behaviour
•Contingency theory –management control systems need to be
appropriate to conditions
•It will depend upon the organisation’s...
•Culture (shared values and beliefs)
•External environment
•Organisationstructure (size, decentralisation)
•Technology

27. AcF213 Management AccountingforBusiness Decisions
Lecture 14 -Slide 27
Summary
•Motivation is very important if the business is to achieve it’s
objectives. However in order to motivate, we must know what
drives people.
•Motivation and budget setting go hand-in-hand
•Important to remember that the best approach to use will
depend upon the particular business under analysis