operatives controlling 1236 vorlesung – wintersemester ... · 3.2 budgets and targets . 3.3...
TRANSCRIPT
Operative Controlling Lecture – Winter term 2012/13
Prof. Dr. Carsten Homburg
Prof. Dr. Carsten Homburg
2 Lecture Operative Controlling - Winter term 2012/13 Prof. Dr. Carsten Homburg
Organizational – Schedule
Lecture: Tuesday, 8:00 - 9:30 a.m. in Lecture hall XXIII Wednesday, 8:00 - 9:30 a.m. in Lecture hall XXIII Start: 09.10.2012 Ending: expected 27.11.2012 Exercise: Thursday 4:00 - 5:30 p.m. in Lecture hall XXV Start: 11.10.2012 Ending: expected 29.11.2012 Exam: Thursday, 20.12.2012, 12:15 – 13:15, in Aula 1
3 Prof. Dr. Carsten Homburg
Outline (I)
1. Fundamentals of Controlling
1.1 Controlling in practice
1.2 Controlling – Theoretical concepts
1.3 Interdependencies as the starting point of Controlling
1.4 Summary
2. Theory, concepts and methods for the foundation of Controlling
2.1 Cost accounting
2.2 Variance analysis and cost control
2.3 Investment analysis
2.4 Linear programming using the example of production planning
Lecture Operative Controlling - Winter term 2012/13
4 Prof. Dr. Carsten Homburg
Outline (II)
2.5 Dynamic programming (decision tree analysis)
2.6 The concept of information value
2.7 Agency – Theory
3. Controlling instruments
3.1 Key Performance Indicators
3.2 Budgets and targets
3.3 Transfer pricing
3.4 Overhead cost allocation
3.5 Incentives
4. Conclusion
Lecture Operative Controlling - Winter term 2012/13
5 Prof. Dr. Carsten Homburg
1.1 Controlling in practice
The Controller-model (formulated by the International Group of Controlling (IGC))
Controllers design and guide the management process of defining goals, planning and steering and therefore share responsibility with the management for achieving the goals. That means: Controllers ensure the transparency of business results, finance,
processes and strategy and thus contribute to higher economic effectiveness.
Controller co-ordinate sub-targets and the related plans in a holistic way
and organize a reporting-system which is future-oriented and covers the enterprise as a whole.
Lecture Operative Controlling - Winter term 2012/13
6 Prof. Dr. Carsten Homburg
Controllers moderate and design the management process of defining goals, planning and steering so that every decision maker can act in accordance with agreed goals. Controllers provide the necessary service of business-oriented data and information support. Controllers develop and maintain controlling systems.
The IGC ( International Group of Controlling ) is a forum for sharing expertise and the coordination and development of controlling concepts and terminology. The IGC developed for example the Basis for the certification of controllers. Source: International Group of Controlling URL :http://www.igc-controlling.org/DE/_leitbild/leitbild.php
Lecture Operative Controlling - Winter term 2012/13
1.1 Controlling in practice
7 Prof. Dr. Carsten Homburg
Controllers – Working hand in hand with the management
MANAGER CONTROLLER
Responsible for results as
• Cost Center • Profit Center
and for
Strategic success positions
Responsible for transparency
• Information-, • Decision-making-, • and coordination service
as well as Planning Moderator
C o
n t
r o l
l i n
g
Lecture Operative Controlling - Winter term 2012/13
1.1 Controlling in practice
8 Prof. Dr. Carsten Homburg
1.1 Controlling in practice
Controlling and Controller
The entrepreneur is the responsible captain of the company, who sets the destination. The controller is the navigator, who has to assure that these goals will be certainly reached and that a company is now and in future efficient and profitable.
Source: Focus online (translated from German)
Lecture Operative Controlling - Winter term 2012/13
9 Prof. Dr. Carsten Homburg
Command and control
As a first navigator– below the command bridge – the controller is always eager, that all operations within the company can be measured and can be checked. A system of Key Performance Indicators (KPI) supports the Controller to keep in track and make processes more transparent to outsiders. If deviations exist, the Controller has to counteract or present alternatives, how desired results still can be achieved.
Source: o.V. (2000): „Der Controller: Vom Lotsen zum internen Berater“, in WISU 4/00, S.426-427 (translated from German)
Lecture Operative Controlling - Winter term 2012/13
1.1 Controlling in practice
10 Prof. Dr. Carsten Homburg
Planning and decision preparation
On the basis of his precise knowledge of internal accounting, the controller makes proposals to the management, e.g. how costs can be reduced or processes can be optimized. Thus, he is also an important guide at upcoming acquisitions of new business units which have to be evaluated. In practice, the controller usually works closely with the management. The more the planning element of his work prevails, the more he will be involved in the functions of the management.
Source: o.V. (2000): „Der Controller: Vom Lotsen zum internen Berater“, in WISU 4/00, S.426-427 (translated from German)
Lecture Operative Controlling - Winter term 2012/13
1.1 Controlling in practice
11 Prof. Dr. Carsten Homburg
Planning and decision preparation
Senior controllers often deal with issues such as : • Which key performance indicators should be used in accounting? • Should a full cost or contribution margin analysis be made? • Which portfolio method should be used for strategic planning? • Which objectives should guide the division manager: e.g. operating income, cash flow or shareholder value?
Source: o.V. (2000): „Der Controller: Vom Lotsen zum internen Berater“, in WISU 4/00, S.426-427 (translated from German)
Lecture Operative Controlling - Winter term 2012/13
1.1 Controlling in practice
12 Prof. Dr. Carsten Homburg
Profession in transition – from a navigator to an internal consultant
The prophecy is, that the Controller of the future has to orient himself more on soft features of his surroundings than on hard facts. His traditional function, the planning and monitoring of operational processes with the help of indicators, moves more and more into the background and is replaced by a more general control of the enterprise. The Controller of the future has to turn to a greater degree to service and consulting activities, where it matters to impart his existing knowledge. This converts the „Lord of the numbers“ into an internal consultant, who understands the need to satisfy to his customers.
Source: o.V. (2000): „Der Controller: Vom Lotsen zum internen Berater“, in WISU 4/00, S.426-427 (translated from German)
Lecture Operative Controlling - Winter term 2012/13
1.1 Controlling in practice
13 Prof. Dr. Carsten Homburg
1.2 Controlling – Conceptions of theory
1.2.1 Definition approaches • Ensuring adequate rationality of the management (Weber, Koblenz) • Result-oriented coordination between planning, control and information provision (Horváth, Stuttgart) • Coordination of the overall management system (Küpper, Munich)
Coordination- oriented approaches
Lecture Operative Controlling - Winter term 2012/13
14 Prof. Dr. Carsten Homburg
1.2.2 The approach of Küpper
Management system
HR management
Organi- zation
Information system Planning Control
operational system
Procurement Production Sales
goal-oriented steering securing
Coor- dination
by Con-
trolling
Dis- positive factor
(Guten- berg)
Lecture Operative Controlling - Winter term 2012/13
1.2 Controlling – Conceptions of theory
15 Prof. Dr. Carsten Homburg Lecture Operative Controlling - Winter term 2012/13
1.2 Controlling – Conceptions of theory
The approach of Küpper • Controlling to supply information to single management functions (1) • Controlling has interface function within the management process (2) • Example to (1):
- Target/actual comparison within control - Provision of marginal cost within planning
• Example to (2): - Connection of a target/actual comparison (control) with incentive
payments (HR management) - Connection of a decentralization decision (organization) with transfer
pricing (planning, HR management)
16 Prof. Dr. Carsten Homburg
1.2.3 Perspective in Major / Minor Controlling
• Criticism of Küpper’s view: too comprehensive, almost general business administration character
• Alternative: Providing mainly monetary information for internal coordination of a company with respect to a comprehensive, mostly monetary overall objective
Lecture Operative Controlling - Winter term 2012/13
1.2 Controlling – Conceptions of theory
17 Prof. Dr. Carsten Homburg
Perspective in Major / Minor Controlling
• Controlling ≈ (Modern) internal accounting (Ewert/Wagenhofer) ≈ Management accounting (Managerial accounting vs. financial accounting) ⇒ Controlling as the internal financial steering tool of the company
Lecture Operative Controlling - Winter term 2012/13
1.2 Controlling – Conceptions of theory
18 Prof. Dr. Carsten Homburg
Perspective in Major / Minor Controlling “....management accounting information ... enhances decision making, guides strategy development and evaluates existing strategies, and focuses efforts related to improving organizational performance and to evaluate the contribution and performance of organizational units and members” (Kaplan/Atkinson (1998), p. 12.)
Lecture Operative Controlling - Winter term 2012/13
1.2 Controlling – Conceptions of theory
19 Prof. Dr. Carsten Homburg
Perspective in Major / Minor Controlling
• Controlling ≠ Control
• However: Control is an important part of controlling
Lecture Operative Controlling - Winter term 2012/13
1.2 Controlling – Conceptions of theory
20 Prof. Dr. Carsten Homburg
1.3 Interdependencies as the starting point of Controlling
Interdependencies
Hard interdependencies Soft interdependencies
independent from decision maker dependent on decision maker (cannot be analyzed independent of the people who take over tasks)
Lecture Operative Controlling - Winter term 2012/13
21 Prof. Dr. Carsten Homburg
1.3.1 Hard interdependencies
1.3.1.1 Composite restriction
• Decision space of an area depends on decisions of other areas Example 1: Purchasing department only buys a certain quantity of a scarce resource Optimal production program of the production area is in general influenced
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
22 Prof. Dr. Carsten Homburg
Composite restriction Example 1 (formal): x=(x1,...,xJ)T : Production program
d=(d1,...,dJ) : Contribution margins per unit V = ( V1,...,VI )T : Available resources besides raw material
V=(vij) : Matrix of consumption coefficients
RL : Available quantity of raw material in stock (before purchasing)
RE : Purchased quantity of raw material
r=(r1,...,rJ) : Consumption coefficients regarding raw material
x = ( x1,...,xJ )T : Sales limits
_ _ _
_ _ _
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
23 Prof. Dr. Carsten Homburg
Decision model:
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
24 Prof. Dr. Carsten Homburg
Composite restriction Example 2: Two production areas have common resources Partly optimal production programs are in general not feasible or not overall optimal
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
25 Prof. Dr. Carsten Homburg
Area 1 Area 2
Example 2 (formal):
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling T
1 K K+1 Jx = (x ,..., x , x ,..., x ) : P1-PK to area 1P(K+1) - PJ to area 2 (J > K)
26 Prof. Dr. Carsten Homburg
Example 2 (continued): Overall model:
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
27 Prof. Dr. Carsten Homburg
1.3.1.2 Composite success
The effects of actions of an area on the overall success depend on the actions of another area.
Example 1: Manufacturing process that is to optimize over several areas
Overall success requires successful improvement in all three production areas
MP 1 MP 2 MP 3
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
28 Prof. Dr. Carsten Homburg
Composite success Example 2: Factor costs, if factor is needed in several areas and cost curve is not linear
⇒ Marginal resource costs of an area can only be given according of factor inputs of other areas
Procure- ment costs
Factor amount
Overhead costs
Direct costs
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
29 Prof. Dr. Carsten Homburg
Composite success Example 3: Substitutive or complementary relationship between products from two areas xi : Sales volumes pi : Unit prices Ki(xi) = Fi + kixi : Full costs xj = xj(pi,pj) or xj = xj(pj,xi) for i,j = 1,2 and i j Þ P1, P2 substitutive or complementary products
≠
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
30 Prof. Dr. Carsten Homburg
Composite success Isolated optimization:
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
31 Prof. Dr. Carsten Homburg
Overall optimization with correct coverage of the composite success
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
32 Prof. Dr. Carsten Homburg Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
>2 2 2 2 2i.e. p * K '(x *) covers the (isolated) marginal cost K '(x *)
( )∂ ∂∂= + ∆ = ∆ = − ⋅
∂ ∂ ∂
− >
!1 2
2 2 21 1 1
2 2 2
G xGConsider 0, with p K '(x )p p p
Let p * K '(x *) 0
33 Prof. Dr. Carsten Homburg
Case 1)
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
34 Prof. Dr. Carsten Homburg Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
Case 2)
35 Prof. Dr. Carsten Homburg Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
Simultaneously optimizing:
36 Prof. Dr. Carsten Homburg
M
p2
p1
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
37 Prof. Dr. Carsten Homburg
Isolated optimization:(Substitution effect was only partly accounted for)
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
38 Prof. Dr. Carsten Homburg
Extension of the numerical exampleComplete neglection of substitution effects
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
39 Prof. Dr. Carsten Homburg
Example continued:
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
40 Prof. Dr. Carsten Homburg
1.3.1.3 Composite Evaluation The actions of areas cannot be evaluated independently, although the results of actions are independent. Example 1: Area A may perform investment (mA, sA) Area B may perform investment (mB, sB) mA, mB: Expected capital values sA, sB: Standard deviations Capital values are statistically independent
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
41 Prof. Dr. Carsten Homburg
s2
m
2Aσ
AµB
B'2Aσ
Aµ
Source: Laux/ Liermann, 2005, p. 193
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
42 Prof. Dr. Carsten Homburg
Composite Evalution: Example 2: As above, but other overall utility function
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
43 Prof. Dr. Carsten Homburg
1.3.1.4 Composite risk Stochastic dependencies between the results of areas, for example: I1, I2, I3 : three investment alternatives in three different areas s1, s2, s3 : three possible equally likely environmental states in t=1
Investment Alternatives Payout in t=0
Cash flows in t=1
s1 (1/3) s2 (1/3) s3 (1/3)
I1 50 100 300 -100
I2 30 50 20 50
I3 14 30 30 0
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
44 Prof. Dr. Carsten Homburg
• A proportionate implementation of individual projects is possible.
Liquidity constraint: There must be no negative payment in t=1.
• Note, it applies e.g.: Also could I2 in connection with I1 ensure liquidity in case of s3.
2 3 2 31 2 1 2P(I 50 I 0) P(I 50) P(I 0)3 3 3 9
= ∧ = = > = ⋅ = = ⋅ =
Determine the optimal allocation of an investment budget in the amount of 1100 MU, by maximizing the expected payoff in t=1.
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
45 Prof. Dr. Carsten Homburg
Solution:
• xi = Number of executions of investment alternative i
• Ai = Payout for xi in time t=0
• A risk-neutral decision maker chooses the alternative with the highest expected return
Investment alternative Ii
Expected value (EWi) for the returns of investment alternative Payout for xi=1 in t=0
Expected returns (EVi) per invested MU
I1
I2
I3
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
46 Prof. Dr. Carsten Homburg
Solution continued: • All investment options are profitable (EVi>1) • Without liquidity restriction, overall investment budget would be invested in I1 (100% expected returns), note in state s3 negative payment for I1
• Because of the liquidity restriction one gets two investment alternatives: Mix of investment 1 and 2 (investment 2 has a positive return on investment and is therefore preferable to cash management) or invest in investment 3 • Optimal mix is achieved, if the investment program in s3 has a backflow of 0, i.e. x2=2x1 or A2/30 = 2·A1/50 Û A2=6/5 · A1
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
47 Prof. Dr. Carsten Homburg
Solution continued:
• The budget will be fully used in the optimum, thus applies:
• Thus for the (provisional) optimal investment program x1=500/50=10 and x2=600/30=20 • Expected returns through the investment program
EV = 10·EV1 + 20·EV2 = 10·100 + 20·40 = 1,800 per invested MU: EV = 1.800/1.100 = 18/11 = 1.6364
+ =
⇔ + ⋅ =
⇔ ⋅ =
⇔ = ⇒ = ⋅ =
1 2
1 1
1
1 2 1
A A 1,1006A A 1,1005
11 A 1,1005
6A 500 A A 6005
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
48 Prof. Dr. Carsten Homburg
Solution continued:
• Also check if I3 is not more attractive than the existing investment program of I1 and I2 : EV = 1.6364 > 1.4286 = EV3
thus, the investment program I1 and I2 is preferable compared to the exclusive investment
in I3.
• Solved LP: ⋅ + ⋅ + ⋅
⋅ + ⋅ + ⋅ ≤
≥ ⋅
≥
1 2 3
1 2 3
2 1
1,2,3
max100 x 40 x 20 xsubject to50 x 30 x 14 x 1,100x 2 xx 0
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
49 Prof. Dr. Carsten Homburg
1.3.2 Soft interdependencies Soft interdependencies: Superposition of hard interdependencies with problems of behavioral control.
Interdependencies
Soft interdependencies Information asymmetry Bounded rationality Opportunistic behavior Discretionary behavior
Hard interdependencies Composite restriction Composite success Composite evalution Composite risk
- - - - - - - -
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
50 Prof. Dr. Carsten Homburg
1.3.2.1 Information asymmetry Problem: Decision makers have different, possibly conflicting, information. Example 1: In case of a composite evaluation of two divisions (areas) because of substitution effects (see example 3 in 1.3.1.2) the division managers expect different sales functions.
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
51 Prof. Dr. Carsten Homburg
Information asymmetry Example 2: Different assumptions about the capacity of a shared resource (see example 2: Composite restriction in 1.3.1.1) Example 3: Different (subjective) probabilities with respect to future environmental states (see example 1: Composite risk in 1.3.1.4)
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
52 Prof. Dr. Carsten Homburg
1.3.2.2 Bounded rationality Problem: Decision makers have only a limited capacity for information acquisition and processing Even in case of cooperative behavior information asymmetry can (in general) not be eliminated without (communication) costs. In general, not all uncertainties can be reduced due to prohibitive costs.
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
53 Prof. Dr. Carsten Homburg
1.3.2.3 Opportunistic and discretionary behavior Problem: Decision makers pursue (in certain circumstances) selfish goals and use non-controllable decisions (because of information costs) for individual utility maximization. Example 1: Division manager biases (deliberately) his costs Example 2: Unnecessarily high use of indirect areas at the expense of third party Exapmle 3: Biased forecasts in the budgeting process Example 4: Low labor input (effort)
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
54 Prof. Dr. Carsten Homburg
1.3.3 Intertemporal interdependencies Problem: Both hard as well as soft interdependencies can relate across several points in time. Example: Behavior in t=1,2, ... affects optimal decision in t=0. Decision in t=0 affects possible decisions in t=1,2,...
Selecting and purchasing a manufacturing facility
Utilization of the manufacturing facility by other decision maker
End of useful life: the sale of manufacturing facility
t=0 t=1 t=2 T - - - - -
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
55 Prof. Dr. Carsten Homburg
Note: information level improves (in general) over time
Information
Time
Lecture Operative Controlling - Winter term 2012/13
1.3 Interdependencies as the starting point of Controlling
56 Prof. Dr. Carsten Homburg
1.4 Summary
• Coordination-oriented perspective (broad agreement with the practical point of view) • Usually controlling provides monetary information • Underline overall objective • Interdependencies require coordination
(Types of interdependencies are in general not clear-cut)
Lecture Operative Controlling - Winter term 2012/13