AIM 6202

Introduction

Managing Resources, Activities, and

People
An organization . . .

Acquires Resources

Hires People

Directing

Decision
Making

Organized
Organized set
set
of
of activities
activities

Controlling
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Planning

Four-step framework for decision

making
Specify the decision problem.
Identify options.
Measure benefits and costs so that
the net benefit (or value)of each
option can be estimated.
Choose the option with the highest
net benefit.

Opportunity Cost
The potential benefit that is
given up when one
alternative is selected over
another.
Example: If you were
not attending college,
you could be earning
$20,000 per year.
Your opportunity cost
of attending college for one year
is $20,000.

In general, the opportunity

cost of any decision option is
the value to the decision
maker of the next best option.

Decision making in
organizations
Distinguish between decision making
by individuals and decision making in
organizations.
Need to align incentives between
individuals and organizations.
Policies and procedures
Monitoring
Incentive schemes and performance
evaluation
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Planning and control

Planning decisions
What activities should the organization
engage in?
How to do them? How to deliver them to
customers?
What inputs do we need?

Control decisions
Evaluate past activities
Attempt to improve future activities
Set performance targets
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Role of accounting
Helps decision makers to measure
costs and benefits of decision
options.
Two types of decision makers
External decision makers
Investors
Bankers
Government authorities

Internal decision makers

Managers
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A Conceptual View of
Accounting
Suppliers

Acquire
Resources

Auditors

GAAP

Financial
Statement
s
Financial
Accounting

Customers

Process
resources
Financial & nonfinancial data

Estimate,
validate,
predict
Decision
useful
Information

Shareholders, Lenders, Government

Deliver
Product

Plan

Contr
ol

Management
Accounting

Managers

Distinction between financial and

managerial accounting
Characteristic

Financial
accounting

Managerial
accounting

Primary users

External parties

Internal parties

Regulation /
Requirements

Regulated by GAAP.
Subject to auditing

No such requirement

Unit of analysis

Entire firm; may be at

the level of business
or geographic
segments

Depends on the
decision context.
Often at a very micro
level.

Emphasis

Reliability and
verifiability

Relevance

Frequency of reports

Quarterly; Annual

Depends on the need.

The frequency can be
as high as daily or
hourly.

Type of information
considered

Past financial data

Both financial and

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non-financial;
past

Ethics and decision making

Ethics relate to every aspect of the
decision framework.
Sarbanes-Oxley act of 2002

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