110718-FA-503-V1

POST GRADUATE DIPLOMA IN FINANCIAL SERVICES 2010 - 1012

Course Outline Management Control System & Cost Management

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Sector Service & Manufacturing Sector IT, Accounting Firms, Banking, Hospitality, Healthcare, Financial and Insurance Services Brokerage firms,financial consulting firms, private banks, mutual fund companies , financial research companies.

Job Profiles Cost controller -(Trainee) strategic business unit in MNCs and public sector organizations; cost analyst / Research Analyst / Assistant Manager in IT, health care and hospitality sector; Quality cost audit trainee.

Introduction to the Module and Module Objective Management Control Systems and Cost Management stress the need for strategic thinking in management and for management accountants to be aware of competitors, potential competitors and opportunities in the competitive environment. This course explores the developing area of strategic cost management with its emphasis on cost drivers, the value chain, and strategic use of activity-based management as control systems. The course aims at examining the changing nature of cost management in organizations, as well as the changing nature of management accounting practices more generally. Major changes in management accounting and control systems have occurred as a result of changes in business processes, technologies and organizational structures in response to increased global and domestic competition. This course will focus on the measurement and evaluation of the performances of organizational entities and their managers. Performance measurement and control is an essential function of management to ensure that the organizations objectives and strategies are carried out effectively. This course deals with the role of accounting in an organizations planning and control system through analytical and advanced management accounting tools. The effects of new forms of operations management such as strategic management accounting, application of Japanese methods of cost management, ABC/ABM, performance measurement and rewards, in decentralized organizations on control systems are discussed in this course. The lectures will emphasize more on management control aspects.

110718-FA-503-V1 Introduction to the Tutors Area Chair Name: Prof. F.M.A. Khan Phone Number: +91 120 6670616 Email ID: feroz.khan@iilmgsm.ac.in Cabin Location: 305 Facilitator
Prof. Pushpendra Singh: A Post Graduate in Management & Commerce (PGDM & M.Com) with a Doctoral Research (At the stage of completion) in the area of Financial Derivatives Trading. Has a total of more than 13 years of experience in Teaching, Research, Consultancy, Corporate Training and working in a multinational bank. Published one text book and two research papers.

Phone Number: +91 120 6670673 Email ID: pushpendra.singh@iilmgsm.ac.in Cabin Location: 308 Module Pre-Requisites It is essential that students have a thorough understanding of the concepts relating to cost behavior, which is covered in the core course of Management Accounting. Module Overview Session 1 2 3 4 5 6 7 8 9 10 11 12 13 Topic Introduction to management control systems Designing Management Control Systems Concept of responsibility centers Management Control Process Profit centre Process Evaluation of Profit centre Investment Centre Evaluation of Investment Centre Transfer Pricing Pricing Corporate Services Setting Transfer Prices Applications of MCS in Service Organizations Strategic Cost Management Page 3 of 19

Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture

110718-FA-503-V1 14 15 16 17 18 19 20 21 22 Value Chain Concept & Analysis Life-cycle cost management, role of target costing Just-in-time manufacturing and purchasing Activity Based Costing ABC System Concepts Activity Based Management Environmental Costing Accounting for Quality The Balanced Scorecard Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture Lecture

Module Readings Main Texts Management Control Systems, Anthony, Govindrajan (Tata McGraw Hill)

Cost Accounting - A Managerial Emphasis by Charles T Horngren, Srikant M. Datar and George Foster, Pearson Education, Thirteenth Edition (2009 edition)

References Management and Cost Accounting, Drury (Thomson) Cost Management, Hansen, Mowen (Thomson) Readings and Issues in Cost Management by James Reeve, Thompson Learning 5.3 Journals The Management Accountant - Journal of the ICWAI

110718-FA-503-V1 Session Plans Session 1: Introduction to Management Control System This session will cover the Introduction to management control system, organizational control, management control, operational control, characteristics of management control systems and the boundaries of management control. Learning Outcome understand the elements of a control process understand management control process understand what a management control system is relationships between planning and control functions Required Readings Anthony, Ch 1: The Nature of Management Control Systems Session 2: Designing MCS In this session, we will discuss the general issues in consideration in designing a management control systems. We discuss goal congruence and the formal control system, the relationship between responsibility accounting and management control systems Learning Outcome factors influencing goal congruence how rules, guidelines and procedures affects the control process Required Readings

Anthony, Ch 3: Behavior in Organizations

Session 3: Concept of Responsibility Centers Responsibility centers constitute the structure of a control system and the assignment of responsibility to organizational subunits which reflect on the organization's strategy. In this session we will discuss the concept of responsibility centers, types of responsibility centers, establishing responsibility centers, performance evaluation of responsibility centers. We discuss the concept of responsibility accounting. Learning Outcome To understand the nature of the management planning and control process and responsibility centers the nature of responsibility accounting systems and how they differ from financial accounting and cost accounting systems the role responsibility accounting systems and their output play in the management planning and control process Required Readings Anthony, Ch. 4 Responsibility Centres: Revenue and Expense Centres

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110718-FA-503-V1 Session 4: Management Control Process In this session, we will discuss the management control process which includes expense centre, engineered expense centre, discretionary expense centers, types of discretionary centers, viz., administrative and support centers, R&D centers and marketing centers. Learning Outcome able to prepare cost information in appropriate format for cost center managers, taking controllable/non controllable costs into considerations Required Readings Anthony, Ch. 4 Responsibility Centres: Revenue and Expense Centres Session 5: Profit Center A profit center is an organization unit in which both revenues and expenses are measured in monetary terms. In setting up a profit center a company devolves decision making powers to those lower levels that possess relevant information for making expense / revenue tradeoffs. In this session, we will discuss profit centers, the conditions for creating a profit centre and the relevance of a profit centre utility. Learning Outcome considerations involved in deciding whether to establish a profit center describe how production and marketing functions can be constituted as profit centers alternative ways to measure a profit centers profitability Required Readings Anthony, Ch. 5 Profit Centres

Session 6: Profit Center In this session, we will discuss advantages and constraints of profit centers, how business units work as profit centers. Measurement of profitability of profit centers is also discussed. Learning Outcome Prepare revenue and cost information in appropriate formats for profit center managers, taking into account the cost variability, attributes costs, controllable cost and identification of appropriate measures of profit center contribution. Required Readings Anthony, Ch. 5 Profit Centres

Session 7: Investment Center In few business units, profit is compared with the assets employed in earning it. These groups of responsibility centers are referred to as 'investment centers'. In this session, we will discuss investment centers, how we measure assets employed, the difference between economic value added and return on investment. Learning Outcome calculate and apply measures of performance for investment centers students understand how to use financial information to evaluate performance

110718-FA-503-V1 the different problems of measuring the economic value of an investment center vs evaluating the manager in charge of the investment center Required Readings Anthony, Ch. 7 Measuring and Controlling Assets Employed Session 8: Investment Center In this session, we will discuss alternative approaches in evaluating managers. We also discuss how to evaluate the economic performance of the entity. Learning Outcome able to explain the typical consequences of a divisional structure for performance measurement as divisions compete or trade with each other the likely behavioral consequences of the use of performance metrics in managing cost, profit and investment centers Required Readings Anthony, Ch. 7 Measuring and Controlling Assets Employed Session 9: Transfer Pricing Transfer pricing is the mechanism for distributing the revenue generated when two or more profit centers are jointly responsible for product development, manufacturing or marketing the goods or services. In this session, we will discuss the objectives of Transfer Pricing and the various transfer pricing methods Learning Outcome explain transfer prices & what it intends to achieve the alternate methods of setting transfer prices ideal situations for market price based transfer pricing how to define cost and calculate the profit mark-up in cost based transfer pricing

Required Readings Anthony, Ch. 6 Transfer Pricing Session 10: Pricing Corporate Services In this session, we will discuss the pricing of Corporate Services and the administration of transfer pricing. Learning Outcome describe the problems associated with charging business units for services furnished by corporate staff situations where business unit manager cannot control the efficiency of activities performed by corporate staff, but can control the amount of service received cases when business units may procure services from outside How the selected transfer policy is implemented specially degree of negotiation allowed, resolving conflicts and classification of products according to the appropriate method.

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110718-FA-503-V1 Required Readings Anthony, Ch. 6 Transfer Pricing

Session 11: Setting Transfer Pricing In this session, we will discuss the setting of transfer prices. We discuss the various types of transfer prices market price, negotiated transfer prices, cost-based transfer prices. Learning Outcome students can determine the transfer prices that would maximize profits illustrate how market conditions can affect Pricing Policy explain transfer pricing as an opportunity cost Describe the range over which two divisions negotiate the transfer price when there is unused capacity. understand how to avoid making suboptimal decisions when transfer prices are based on full cost plus a markup Required Readings Anthony, Ch .6 Transfer Pricing Session 12: Applications of MCS in Service Organizations MCS in service organizations is different from that in manufacturing organizations. In this session, we will discuss the Management control in Service organizations in general with specific reference to professional service organization, financial service organization, Healthcare organization, Non-profit organizations and the ethical dimensions of management Learning Outcome identify the various forms and special characteristics of service organizations able to distinguish MCS in service organization from manufacturing organization

Required Readings Anthony, Ch. 14 Service Organizations

Session 13: Strategic Cost Management Cost management focuses on cost reduction and continuous improvement and change rather than cost containment. In this session, we will discuss the strategy and accounting for management, regaining lost relevance contemporary issues scope for strategic cost management Learning Outcome Distinguish between the features of a traditional management accounting system and cost management Required Readings Drury, Ch. 22 Cost Management

110718-FA-503-V1 Session 14: Value Chain Concept A value chain identifies activities, functions and business processes that have to be performed in designing, producing, marketing, delivering and supporting a product or service. In this session we will discuss the value chain concept assessing performance over the entire value chain Learning Outcome identify the primary and support activities understand how value chain activities are performed & how they interact with each other identify the linkages between the activities Required Readings Drury, Ch. 22 Cost Management

Session 15: Value Chain Analysis & Concepts Value chain analysis can assist a manager in making the right decision for his/her organization. It is a great tool to improve a company's performance to meet the ever demanding environment. In this session we will discuss the cost analysis considerations and management applications of value chain, Life-cycle cost management and the role of target costing. Learning Outcome how cost behavior and cost drivers impacts firms cost position major controllable and non-controllable cost drivers identify the two major ways to gain cost advantage describe how value chain analysis can be used to increase customer satisfaction and manage costs more effectively explain life cycle costing and describe the typical pattern of cost commitment and cost incurred during the three stages of a product's life cycle describe the target costing approach to cost management distinguish between target costing and kaizen costing Required Readings Drury, Ch. 22 Cost Management Session 16: Just-In-Time Manufacturing & Purchasing In this session we will discuss Just-in-time manufacturing and purchasing, JIT and its effect on the cost management system Learning Outcome understand the main features of a just-in-time philosophy distinguish materials requirement planning systems from JIT manufacturing system identify the features of a JIT production system impact of JIT on cost management system Required Readings Drury, Ch. 22 Cost Management

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110718-FA-503-V1 Session 17: Activity Based Costing In this session we will discuss unit-level product costing, activity-based costing system, homogeneous pools of activities Learning Outcome understand different types of cost systems comparison of traditional and ABC system explain why traditional costing system can provide misleading information for decision making identify volume based and non-volume based cost drivers how to cost products or services using activity-based costing Required Readings Drury, Ch. 10 Activity-based costing Session 18: ABC System Concepts In this session we will discuss ABC system concepts, process value analysis, financial measures of activity efficiency. Learning Outcome describe the ABC cost hierarchy describe ABC profitability analysis present guidelines for refining a costing system how ABC is implemented in service organizations Required Readings Drury, Ch. 10 Activity-based costing Session 19: Activity-based management In this session we discuss implementing activity-based management, activity based budgets, the behavioral dimension of budgets Learning Outcome explain how activity-based costing systems are used in activity-based management To show how managers are using activity-based management to make better decisions about improving activity and process efficiency. Required Readings Drury, Ch. 10 Activity-based costing

Session 20: Environmental Cost Management Environmental cost management has become increasingly important in many organizations. In this session we discuss defining, measuring and controlling environmental costs. We also discuss environmental cost reduction Learning Outcome describe the importance of environmental cost management identify the relationship between environmental costs and the responsible products financial & non financial measures to control environmental costs

110718-FA-503-V1 explain environmental consequences should be managed at the planning and design stage Required Readings Drury, Ch. 22 Cost management

Session 21: Accounting for Quality In this session we discuss defining quality costs, quality cost measurement, quality cost reports, distribution of quality costs. We also discuss quality cost information and decision making, controlling quality costs Learning Outcome know what is cost of quality and how they are changing over times contents of a cost of quality report how eliminating inferior quality can result in substantial savings and higher revenues tools used to control quality Required Readings Drury, Ch. 22 Cost management

Session 22: The Balanced Scorecard In this session we discuss the Balanced Scorecard, basic concepts of the balanced scorecard, financial perspective, customer perspective, process perspective, learning and growth perspective, linking measures to strategy and strategic alignment Learning Outcome describe the features of a good performance management system benefits of the balanced scorecard approach describe the various perspective's of a balanced scorecard how to align the balance score card to strategy pitfalls to avoid while implementing a balance scorecard Required Readings Drury, Ch. 23 Strategic management accounting

Assessment Plan Assessment method 1 2 3 Weight age (%)

Case Analysis - written submission and group presentation 20% Individual/ group assignment written submission Written assessment (Closed book) 20% 60%

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110718-FA-503-V1 Details of Assessment Component 1: Case Analysis written submission and group presentation (20%) Case analysis is tool to develop students abilities to select, evaluate and apply concepts, models and theories covered in the course. It is mandatory for all students to read and analyze the case mentioned before the scheduled day of presentation. This is imperative in order to gain analytical skills as well as to be more interactive. The business situations presented in the cases may be complex and frequently involve a series of interrelated problems. Therefore, student is required to work on the following guidelines: Read the case twice Identify the key problem facing the company; Do a situation analysis and highlight strength & weaknesses of the company Identify the various alternative solutions that the company could potentially pursue Analyze and interpret the information in the case using concepts and frameworks Propose your solution to the problem In proposing a solution, keep the following points in mind: Use the information given in the case. Do not extrapolate or use your information on present scenario Clearly state your assumptions Give a possible solution Consider both the pros and cons of your solution; Choose a specific course of action and spell out constraints. Warning: Plagiarism of any kind shall be dealt severely and can lead to be dismissal of submitted work. Please refer the detailed Plagiarism Policy for detailed information. Component 2: Individual/ group assignment written submission (20%) Assignments (20%) Assignments count for 20% of your final grade. Late or electronic assignment submissions will not be accepted and will receive a grade of zero. You are expected to submit your printed or written evidence of preparation for each of the assignments. Each class/take home assignment will comprise either a mini- case or a comprehensive problem assigned from a textbook. In preparing your responses to the assignments, you will likely find it useful to first read the assigned chapter, attempt the practice problems assigned from the textbook and then attempt the assignment. These assignments will be graded more for effort than for content. The purpose of the submissions is to show evidence of your learning endeavors, which may not necessarily correspond with perfect answers. Evidence that you have

110718-FA-503-V1 attempted each question in the assignment will score marks. If you do not submit a response, or if you were absent for the class assignment, then you will receive zero marks for that assignment. No compensatory assignments of any form will be entertained. Your final grade for this component of your assessment will be determined by the following formula: (Marks secured in assignments submitted / Total marks assigned for all assignments administered) X 20. Submission of your assignment will be announced at the end of each class. An outline of suggested solution will be shared with the class. Component 3: Written assessment (60%) This would be two-hour closed book/notes written assessment held at the conclusion of the course. The purposed of the assessment is to test students' theoretical understanding through questions and their ability to apply various concepts to situation based problems. Feedback on students' performance will be provided when answer scripts are shown to students. Assessment Map: Managerial Control Systems and Cost Management Methods of Assessment Module MCS A1A2A3A4A5A1 * A2 * A3 A4 * A5 *

Individual assignment/case study Group assignment/ project/business plan Open book examinations/ case study Closed book examinations Group Presentations

Teaching Map Teaching Map Module MCS T1 * T2 T3 T4 * T5 T6

T1- Lectures T2- Seminars/Tutorials T3- Live projects/presentations Page 13 of 19

110718-FA-503-V1 T4- Case study T5- Guest Lectures T6- Industrial Visits Curriculum Map Programmed Learning Outcomes Module MCS L1 * L2 * L3 * L4 * L5 * L6 * L7 L8 * L9 *

L1- An understanding of organizations, their external context and their management L2- An awareness of current issues in business and management which is informed by research and practice in the field. L3- An understanding of appropriate techniques sufficient to allow investigation into relevant business and management issues. L4- The ability to acquire and analyze data and information. L5- The ability to apply relevant knowledge to practical situations. L6- The ability to work and lead effectively in a team based environment. L7- An improvement in both oral and written communication. L8- Be cognizant of the impact of their individual and corporate actions on society and recognize ethical business practices. L9- Be sensitive to the social, economic and environmental responsibilities of business.

Annexure Case Analysis and Group Presentation Guidance document to students

This document is divided in to 3 parts:

Guidelines to students on Case Analysis Guidelines to students on written submission of case analysis Guidelines to students on Case Analysis presentation Guidelines to students on Participation in Case Analysis presentation

Guidelines to students on Case Analysis

When writing a case study analysis, you must first have a good understanding of the case study. Before you begin the steps below, read the case carefully, taking notes all the while. It may be necessary to read the case several times to fully grasp the issues facing the

110718-FA-503-V1 company or industry.

Once you are comfortable with the information, begin the step-by-step instructions offered below to write a case study analysis.

Investigate and Analyze the Companys History and Growth. A companys past
can greatly affect the present and future state of the organization. To begin your case study analysis, investigate the companys founding, critical incidents, structure, and growth.

Identify Strengths and Weaknesses Within the Company. Using the information
you gathered in step one, continue your case study analysis by examining and making a list of the value creation functions of the company. For example, the company may be weak in product development, but strong in marketing.

Gather Information on the External Environment. The third step in a case study
analysis involves identifying opportunities and threats within the companys external environment. Special items to note include competition within the industry, bargaining powers, and the threat of substitute products.

Analyze Your Findings. Using the information in steps two and three, you will need
to create an evaluation for this portion of your case study analysis. Compare the strengths and weaknesses within the company to the external threats and opportunities. Determine if the company is in a strong competitive position and decide if it can continue at its current pace successfully.

Identify Corporate Level Strategy. To identify a companys corporate level strategy

for your case study analysis, you will need to identify and evaluate the companys mission, goals, and corporate strategy. Analyze the companys line of business and its subsidiaries and acquisitions. You will also want to debate the pros and cons of the company strategy.

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Identify Business Level Strategy. Thus far, your case study analysis has identified
the companys corporate level strategy. To perform a complete analysis, you will need to identify the companys business level strategy. (Note: if it is a single business, the corporate strategy and the business level strategy will be the same.) For this part of the case study analysis, you should identify and analyze each companys competitive strategy, marketing strategy, costs, and general focus.

Analyze Implementations. This portion of the case study analysis requires that you
identify and analyze the structure and control systems that the company is using to implement its business strategies. Evaluate organizational change, levels of hierarchy, employee rewards, conflicts, and other issues that are important to the company you are analyzing.

Make Recommendations. The final part of your case study analysis should include
your recommendations for the company. Every recommendation you make should be based on and supported by the context of your case study analysis.

Tips:
Know the case backward and forward before you begin your case study analysis. Give yourself enough time to write the case study analysis. You don't want to rush
through it.

Be honest in your evaluations. Don't let personal issues and opinions cloud your
judgement.

Be analytical, not descriptive. Proofread your work!

What You Need: A case study

Instructions from your professor Writing tools Quiet time

2. Guidelines to students on written submission of case analysis

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You are required to submit a written submission of Case Analysis . Guidelines for the same are given below: A brief overview and facts about the sector must necessarily be provided up to a minimum of 200 words in this submission. Following points must be strictly kept in mind: Your submission must NOT be a direct download or a copy from text or reference book or site. Plagiarism of any form will be viewed seriously, that would render you ineligible to appear for any further assessment of any form for this course. Proper referencing must be strictly followed. Number of words should be in the range of 1500 - 2000 words (in addition to the 200 words of Sectoral overview as mentioned above), in Times New Roman font size 10 for text, size 14 for main heading and subheading font size 12, 1.5 line spacing, one inch margin on all sides. Cover page must contain - Your name as it appears in our official records with PGP Exam roll no along with your signature. Name should be written in Alphabetical order. Case study will be evaluated in 2 clear working days from the date of submission and the results will be made available to you.

For any further doubts or clarification/ doubt you can contact me - 9312940394.

3. Guidelines to students on Case Analysis presentation

Following are the presentation guidelines: Tools for presentation - PPTs, blackboard workings (ready for discussion), Chart papers are permitted.

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110718-FA-503-V1 You must have eye contact with all participants. Do not address only the teacher. Teacher acts as a catalyst in the presentation. Do not look into blank space while presenting. Your presentation must be restricted for 5 minutes only. Be your own time keeper and manager. If you exceed the time limit for the presentation a gentle knock on the table will be prompted by the teacher. Failing to wind up the presentation immediately, will attract negative marking. While presenting do not read from the slides. Do not read from the photocopies of PPTs in your hand. Be well prepared and rehearse your time of presentation before hand. Your answers to questions from participants will have to be sharp, concise and precise. If you are absent for the presentation, then you will not be assessed for the presentation. No fresh presentation will be scheduled. You will be assessed on the basis of confidence, clarity, how well you could relate the concepts to case situations, sharp analysis and your reasoning ability while handling questions. Marks will be communicated to students who present the case at the end of the presentation.

4. Guidelines to students on Participation in Case Analysis presentation

Following are guidelines for participants in case presentation:

The floor is open for participants only at the end of the presentation.

Participants are requested to take note of the slide number (for reference), for possible discussion during question and answer session.

110718-FA-503-V1 Those who wish to be a discussant will raise their hand. The teacher will give an opportunity for participants to discuss in the question answer session.

On getting the permission from the teacher, the participant must announce his or her full name along with their exam roll no. to the audience, then proceed to the relevant discussion question.

Participants will be assessed on the basis of relevant, meaningful and pertinent questions adding value to the case discussion. Participation marks will be made available to the students at the end of the same session.

All the best in all your endeavors!! W ishing you all a wonderful learning experience at IILM!! End of Document

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