Books.google.co.th - This book is a collection of selected papers presented at the Annual Meeting of the European Academy of Management and Business Economics (AEDEM), held at the Faculty of Economics and Business of the University of Barcelona, 05 – 07 June, 2012. This edition of the conference has been presented with. Soft Computing in Management and Business Economics.

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13- 1 Goa l cong rue nce me ans a mes hin g of objec tiv es, in whi ch the man age rs thr oug hou t an organization strive to achieve goals that are consistent with the goals set by top manag ement. Goal congr uence is impor tant for organ izati onal succ ess becau se managers often are unaware of the effects of their decisions on the organization's ot he r su bu ni ts. Al so, it is na tu ra l fo r pe op le to be mo re co nc er ne d wi th th e pe rf or ma nc e of th ei r ow n su bu ni t th an wi th th e ef fe ct ive ne ss of th e en ti re org ani zat ion.

In ord er for the org ani zat ion to be eff ect ive, it is imp ort ant tha t everyone in it be striving for the same ultimate objectives. 13 -2 Th e ma na ge ri al ac co un ta nt 's pr im ar y ob je ct iv e in de si gn in g a re sp on si bi li ty - accounting system is to provide incentives for the organization's subunit managers to strive toward achieving the organization's goals. 13- 3 Und er the mana gem ent -by -ob jec tiv es (MBO) phi los oph y, mana ger s parti cip ate in setting goals that they then strive to achieve. These goals may be expressed in financial or other quantitative terms, and the responsibility-accounting system is used to evaluate performance in achieving them. The MBO approach is consistent with an emphasis on obtaining goal congr uence throughout an organization. 13- 4 An inv est men t cente r is a respo nsi bil ity -ac cou nti ng cent er, th e mana ger of whi ch is held accountable not only for the investment center's profit but also for the capital inves ted to earn that profit.

Example s of investme nt cent ers include a divis ion of a man ufa ctu rin g com pan y, a lar ge geo gra phi cal ter rit ory of a hot el cha in, and a geographical territory consisting of several stores in a retail company. 13- 6 A divi sio n's RO I can be imp rov ed by imp rov ing the sa les ma rgi n, by imp rov ing th e capital turnover, or by some combination of the two. The manager of the automobile division of an insurance company could improve the sales margin by increasing the profit margin on each insurance policy sold. As a result, every sales dollar would generate more income. The capital turnover could be improved by increasing sales of insurance policies while keeping invested capital fixed, or by decreasing the invested assets required to generate the same sales revenue.

($800,000) (12%) = $4,000 The imputed interest rate is used in calculating residual income, but it is not used in computing ROI. The imputed interest rate reflects the firm's minimum required rate of return on invested capital. 13- 8 The ch ief di sad van tag e of ROI is th at for an i nve stm ent th at ear ns a rat e of ret urn greater than the company's cost of raising capital, the manager in charge of deciding about that investment may have an incentive to reject it if the investment would result in reducing the manager's ROI. The residual-income measure eliminates this disadvantage by including in the residual-income calculation the imputed interest rate, which reflects the firm's cost of capital. Any project that earns a return greater than the imputed interest rate will show a positive residual income.

13 -9 Th e ri se in ROI or re si du al inc om e ac ro ss tim e re su lt s fr om the fac t th at per io di c depreciation charges reduce the book value of the asset, which is generally used in determining the investment base to use in the ROI or residual-income calculation. This phenomen on can have a seri ous effect on the incentiv es of inve stmen t-cent er managers. Investment centers with old assets will show higher ROIs than investment centers with relatively new assets. This result can discourage investment-center managers from investing in new equipment. If this behavioral tendency persists for a lo ng ti me, a di vi si on 's as se ts ca n be co me ob so le te, ma ki ng th e di vi si on uncompetitive.

13-10 The ec onomic value added (EVA ) is de fined a s foll ows. Tot al ass ets: Incl ude s all div isi ona l ass ets. This me asu re of inv est ed cap ita l is app rop ria te if the div isi on man age r has con sid era ble aut hor ity in mak ing decisions about all of the division's assets, including nonproductive assets.

To ta l pr od uc ti ve as se ts: Ex cl ud es as se ts th at ar e no t in se rv ic e, su ch as construction in progress. This measure is appropriate when a division manager is directed by top management to keep nonproductive assets, such as vacant land or construction in progress. Total ass ets less cur rent liab ilitie s: All divis ional ass ets minus cur rent liab ilitie s. This measure is appropriate when the division manager is allowed to secure short-term bank loans and other short-term credit. This approach encourages in ve st me nt- ce nt er ma na ge rs to mi ni mi ze re so ur ce s ti ed up in as se ts an d maximize the use of short-term credit to finance operations. 13 -1 2 Th e us e of gros s bo ok valu e in st ea d of net bo ok val ue to me as ur e a di vi si on 's invested capital eliminates the problem of an artificially increasing ROI or residual income across time.

Also, the usual methods of computing depreciation, such as straight-line or declining-balance methods, are arbitrary. As a result, some managers prefer not to allow these depreciation charges to affect ROI or residual-income calculations. 13-13 It is impor tant to mak e a distin ction bet ween an inv estme nt cente r and its mana ger, because in evaluating the manager's performance, only revenues and costs that the manager can control or significantly influence should be included in the profit measure. The objective of the manager's performance measure is to provide an incentive for that manager to adhere to goal-congruent behavior.

In evaluating the investment center as a viable economic investment, all revenues and costs that are traceable to the investment center should be considered. Controllability is not an issue in this case.

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13-14 Pay for pe rform ance is a one- time ca sh payme nt to an inves tment -cente r manag er as a reward for meeting a predetermined criterion on a specified performance measure. The objective of pay for performance is to get the manager to strive to achieve the performance target that triggers the payment. 13-15 An alte rnati ve to using RO I or resi dual inc ome to eva luate a di visio n is to look at its income and invested capital separately. Actual divisional profit for a period of time is compared to a flexible budget, and variances are used to analyze performance. The division's major investments are evaluated through a postaudit of the investment decisions.

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This approach avoids the necessity of combining profit and invested capital in a single measure, such as ROI or residual income.