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Chapter Three: Assessing External Environments

The external environment consists of the forces and conditions outside of the organisation that could potentially influence its performance. The task environment consist of those forces that have a high potential for affecting the organisation on an immediate basis. The general environment consists of those forces which typically influence the organisation's external task environment and thus the organisation itself and the internal environment is key factors and forces inside the organisation that affect its operations.

Chapter Two: Managing Change

The first evidence that change is a subject worthy of particular focus is how often it fails. Another factor is the rate of change (real or perceived) and the relative predictability. Finally the management competency for leading change.

Chapter One: Introduction

The three most important management issues in a contemporary environment are change, technology and globalism. The four perspectives of management are the organisational context, the human factor, managing paradoxes and the entrepreneurial mind-set.

Performance Measurement and the Balanced Scorecard

Responsibility accounting occurs when an entity is structured into strategic business units and the performance of these units is measured in terms of accounting results. Managers are then held accountable and rewarded on the basis of the results of their department. Assign responsibility; establish performance measures; evaluate performance; assign rewards. A cost centre is a business unit; it can be a function, activity or an item of equipment. When identified, a manager can be assigned responsibility for it.

Budgets

A budget encourages planning, coordinates functions within an organisation, acts as a form of communication, provides a basis for responsibility accounting (where an entity is structured into strategic units and the performance is measured in terms of accounting results), provides a control mechanism, authorises expenditure and motivates employees. The budget process is the sequence of operation necessary to produce a budget for a particular organisation with the sequence depending on the perceived requirements for planning and control.

Accounting for Decision Making: With and Without Resource Constraints

Decisions are (a) where there are no resource constraints (i.e., an action does not affect other opportunities), (b) there are resource constraints (an action limits the possibility of other choices, requiring a ranking system) and (c) mutually exclusive decisions (one choice means others will be rejected).

Sunk costs are those costs which are already paid or a firm is committeed to. They are irrelevant for future decision making.

Cost Behaviour and Cost-Volume-Profit Analysis

A cost is fixed if it does not change in response to change in the level of activity and variable if the total cost changes per unit of activity. Total variable costs increase or decrease in direct proportion to the activity level. The total costs of production are made up of fixed and variable costs.

The linear cost function is a straight-line cost function that can be shown as y = a + bx

y is the total cost to be predicted, a is a constant (fixed cost) and b is the cost that will be the same for eact unit of activity and x is the number of units of actibity.

Basic Cost Management Concepts

Multi-product firms have to account for costs that can be tied to a product, direct costs. They also have to account for indirect costs not directly measurable (e.g., electricity). A 'cost object' can be a product, service, process or any items which management requires cost information. The way that costs are assigned depends on their nature. A direct costs is easily traceable with a high degree of accuracy and indirect, or overhead, cost cannot be easily identifiable with a particular object.

Capital Investment Decisions

The Accounting Rate of Return (ARR) is a simple method of calculation based on net profit or book value. It is little used now as it does not take into account the time value of money.

ARR = average net profit / average book value of investment * 100
or
ARR = average net profit / total initial investment value * 100

The average book value, method alpha, will give a higher result.

Internal Users, Internal Information, and Planning and Control

Annual reports provide an overview of an entities financial performance in the past year. They are of little use to managers who require frequent, up-to-date information tailored to their needs for decision and control.

External users may have access to internal information through statutory right (e.g., the tax office) or those who are able to exert influence (e.g., a lender or banker).

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