Behavioral and Organizational Issues in Management

By: Achmad Faizal Azmi (361160)

Broadly speaking, a management accounting and control system (MACS) generates and
uses information that helps decision makers assess whether an organization is achieving its
objectives. The term control in management accounting and control refers to the set of
procedures, tools, performance measures, systems, and incentives that organizations use to
guide and motivate all employees to achieve organizational objectives. A system is in control
if it is on the path to achieving its strategic objectives, and deemed out of control otherwise.
the process of keeping an organization in control consists of the following four stages:1. Plan
Develop an organizations objectives, choose activities to accomplish the objectives, and
select measures to determine how well the objectives were met. 2. DoImplement the plan.
3. CheckMonitor by measuring and evaluating the systems current level of performance;
compare feedback about the systems current level of performance to the planned level in
order to identify discrepancies and prescribe corrective action. 4. Act Take appropriate
actions to return the system to an in-control state.
Characteristics of Well Designed MACS Technical Consideration
Technical factors fall into two categories: (1) the relevance of the information generated
and (2) the scope of the system. The relevance of information is measured by four
characteristics:
1. Accurate
2. Timely
3. Consistent
4. Flexible
Characteristics of Well Designed MACS Behavioral Consideration
1. Embedding the organizations ethical code of conduct into MACS design
2. Using a mix of short- and long-term qualitative and quantitative performance
measures
3. Empowering employees to be involved in decision making and MACS design
4. Developing an appropriate incentive system to reward performance
The Human Resource Management Model of Motivation
The most contemporary management view of motivation is the human resources model of
motivation (HRMM). Based on initiatives to improve the qualityof working life and the
strong influence of Japanese management practices, HRMM introduces a high level of
employee responsibility for and participation in decisions in the work environment. The
central assumptions of HRMM are that organizations operate under a system of beliefs about
the values, purpose, and direction of their organization; that people find work enjoyable; and
that people desire to participate in developing objectives, making decisions, and attaining
goals in their work environment.
The Organizations Ethical Code of Conduct and MACS Design
Decision model for resolving ethical issues are:
1. Determine the FactsWhat, Who, Where, When, How
2. Define the Ethical Issue
3. Identify Major Principles, Rules, Values
4. Specify the Alternatives
5. Compare Values and Alternatives
6. Assess the Consequences
7. Make Your Decision
Task and Results Control Method
Task control is the process of finding ways to control human behavior so that a job is
completed in a prespecified manner. Task control can be separated into two categories:
preventive control and monitoring. In preventive control, much, if not all, of the discretion is
taken out of performing a task because of the precision required or the nature of the materials
involved. Monitoring refers to inspecting the work or behavior of employees while they are
performing a task. For results controlto be effective, the organization must have clearly
defined its objectives, communicated them to appropriate organization members, and
designed performance measures consistent with the objectives.
Using a Mix of Performance Measures: A Balanced Scorecard Approach
Even in the best control systems, employees often attempt to engage in nongoal-congruent
behavior and we illustrated this within a budgeting context. With respect to performance
measurement, dysfunctional behavior refers to employees knowingly manipulating or
falsifying performance measures. Another form of dysfunctional behavior is smoothing, a
form of earnings management that occurs when individuals accelerate or delay the
preplanned flow of data without altering the organizations activities. Development and use of
the right kinds of performance measures are tied directly into the second behavioral
characteristic, which involves using a mix of short- and long-term qualitative and quantitative
performance measures. This is the Balanced Scorecard approach.
Empowering Employees to be Involved in MACS Design
Empowering employees in MACS design requires two essential elements: allowing
employees to participate in decision making and ensuring that employees understand the
information they are using and generating.
Behavioral Aspects of MACS Design
Whether developing a family budget, a budget for a small company, or a budget
for a major multinational company, it is important to be aware that the ways in which
people interact with budgets are essentially the same. This section presents two
related behavioral issues in budgeting:
1. Designing the budget processHow should budgets be determined, who
should be involved in the budgeting process, and at what level of difficulty
should the budget be set to have the greatest positive influence on peoples
motivation and performance?
2. Influencing the budget processHow do people try to influence or manipulate
the budget to their own ends?
Developing Appropriate Incentive Systems to Reward Performance
Organizations use both intrinsic and extrinsic rewards to motivate employees. Intrinsic
rewards are those that come from within an individual and reflect satisfaction from doing the
job and from the opportunities for growth that the job provides. Based on assessed
performance, extrinsic rewards are any rewards that one person provides to another to
recognize a job well done. Both intrinsic and extrinsic rewards are used by organizations to
motivate employees. However, intrinsic rewards come from inside an individual and may
simply be the result of an employee liking a specific job.. However, even if intrinsic
motivation exists, many organizations still rely on extrinsic rewards, such as financial
incentives, for motivational purposes. The most common incentive compensation plans are
cash bonuses, profit sharing, gain sharing, stock options, performance shares stock, stock
appreciation rights, participation units, and employee stock ownership plans. These different
plans pose varying challenges for the management accounting system.

Source: A.A. Atkinson, R.S. Kaplan, E.M. Matsumura, and S.M. Young. 2012. Management
Accounting: Information for Decision-Making and Strategy Execution. Upper Saddle River: Pearson
Prentice Hall