Performance Measurement and Business Control

Course Director: Kalle Kraus

Management control system failures can lead to large financial losses, reputation damage and possibly even to organisational failure.

In this course, we adopt an internal perspective on the company and discuss and analyse management control systems. On a general level, the course consists of two interrelated parts: 1) Management control systems: applying organizational architecture, 2) Management control systems: the performance management process. A management control system focus takes the perspective of top management and asks what can be done to ensure the proper behaviours of employees in the organisation. Managers need to put in place mechanisms to ensure that operations proceed according to plan and that strategic objectives are achieved. One such mechanism has to do with organisational structure and how top management assign responsibilities to subordinate managers and employees. Another such mechanism is transfer pricing.

Another important area is the control process as such in terms of performance management and evaluation. What measures are used when evaluating business units? Do we adequately take sustainability, environmental and well-being dimensions into account when we measure performance? How should major investments be evaluated to ensure innovation and sustainability? The course also deals with the well-known model for performance management, the balanced scorecard.

The objective of the course is to give the students knowledge, insights and analytical skills related to the above mentioned areas. It is particularly useful for those aspiring to be managers, management consultants or financial specialists (controller, auditor, financial analyst).

The course proceeds from the accounting and financial management courses given in the first years of the SSE bachelor program.

Contents
The course consists of two modules:

1. Management control systems: applying organizational architecture
   Organisations are led by a hierarchy of managers, with the Chief Executive Officer (CEO) at the top, and the managers of business units, departments and other subunits ranked below in the organisational chart. Today’s organisational thinking is oriented towards decentralisation. In this module, the students will learn about different structural arrangements below the CEO, in the form of various types of responsibility centres in the company. Responsibility centres constitute the structure of a control system and the assignment of responsibility to organisational subunits should reflect the organisation’s mission, goals and strategies. In addition, the implementation of transfer pricing is often vital for an efficient responsibility centre structure. The course will introduce and apply various transfer pricing methods.
2. Management control systems: the performance management process
   Motivation of employees and evaluating performance are key aspects of managing and controlling a decentralised organisation. In this module, the students will learn various dimensions related to performance management. Are financial accounting measures, such as ROCE, useful measures from a management control perspective? How do we take the innovation and sustainability aspects of major investments into account during capital budgeting. How do we measure the well-being dimensions in an organisation? This module also deals with a well-known model for performance management, the Balanced Scorecard, a multidimensional tool for performance management that links mission, goals and strategies to financial and non-financial performance measures. We discuss how the balanced scorecard can be used to take sustainability and environmental perspectives into account when measuring performance.

Pedagogical issues
The teaching consists of a series of lectures and a series of seminars. The lectures and seminars are not compulsory.

• 9 lectures that are common for the whole class.
• 9 seminars with preparation assignments and cases, smaller groups of students. The students are expected to have prepared the seminar assignments before the seminar. The assignments will be found on Canvas a few days before the seminar. When attending the seminars, each student individually are requested to hand in written solutions to the seminar assignments via Canvas and participate in the seminar discussions.
• Exam preparation workshop.
• Written exam.

To complete the specialization, ensure you finalize both BE0352 and BE0353. Any completed course from a discontinued specialization will be counted as a course in addition to the degree and can never be counted as an elective course within the degree. This does not apply to exchange students. For questions email: academic.advisor@hhs.se

Course administrator: jessica.kihlman@hhs.se

The student should after the course succeed to independently

1. Quantitatively and qualitatively evaluate and discuss issues related to management control systems and organizational architecture i.e., responsibility centers and transfer pricing in business situations
2. Quantitatively and qualitatively evaluate and discuss performance management issues – i.e. financial and non-financial measures, capital budgeting, the balanced scorecard and measurement of sustainability and well-being – in business situations.

SSE students: This course can only be taken by students admitted to the specialization in Accounting and Financial Management. To be admitted to the specialization, the student must fulfill the following criteria no later than after the examination period in December/January before the specialization starts.

• Have passed at least 45 ECTS credits out of the mandatory course requirements.
• Have passed the mandatory courses required for the specialization: BE0301 Accounting I and BE0302 Accounting II

Exchange students should have knowledge equivalent to the SSE courses listed above.

The literature in this course consists of:

1. Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, 2020/2021, Management Control Systems, Second European Edition, McGraw Hill ISBN- (13)9781526848314

NOTE: OLD VERSIONS WILL NOT WORK WELL. THIS SECOND EUROPEAN EDITION CONTAINS SIGNIFICANT CHANGES FROM THE FIRST EDITION.

2. A book chapter by Horngren et al.

3. Additional articles, see below.

Lecture 1: Introduction
Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, ch 1-3

Lecture 2 and Seminar 1: Responsibility Centres
Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, ch 4,6

Lecture 3 and Seminars 2-3: Transfer pricing

Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, ch 5.

Eccles, 1983, Control with fairness in transfer pricing, Harvard Business Review, Nov/Dec.

Lecture 4 and Seminars 4-5: Financial performance measures: ROI vs RI vs EVA

Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, ch 9.

Lecture 5 and Seminar 6: Financial performance measures: Capital budgeting, innovation and sustainability

Chapter by Horngren et al.

Christensen et al., 2008, Innovation killers. How financial tools destroy your capacity to do new things, Harvard Business Review, January

Lecture 6 and Seminar 7: Non-financial performance measures: The Balanced Scorecard and sustainability

Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, ch 9

Likierman, A., 2009. The five traps of performance measurement. Harvard Business Review, 87(10), 96-101.

Kaplan & Norton, 2005, The Balanced Scorecard – Measures that drives performance, Harvard Business Review, 83:7/8.

Kaplan, & Norton, 2007, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, 85:7/8.

Ittner & Larcker, 2003, Coming up short on Nonfinancial Measurement, Harvard Business Review, 81:11.

Kraus & Lind, 2010, The impact of the corporate balanced scorecard on corporate control: a research note, Management Accounting Research, Vol 21:4

Länsiluoto & Järvenpää, 2010, Greening the balanced scorecard, Business Horizons, 53.

Pasquini, M., & Van Der Kolk, B. (2019). Because there is no planet B: The case of ECOALF.

Lecture 7 and Seminar 8: Non-financial performance measures: Motivation and well-being

Course book: Hartmann, Kraus, Nilsson, Anthony, Govindarajan, ch 10.

Ryan, R.M. & Deci, E.L., 2000, Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being. American psychologist, 55.

Delfino, G. F., & Van Der Kolk, B. (2021). Remote working, management control changes and employee responses during the COVID-19 crisis. Accounting, Auditing & Accountability Journal, 34(6), 1376-1387.

Buckingham, M., & Goodall, A. (2015). Reinventing performance management. Harvard Business Review, 93(4), 40-50.

PwC Global Annual Report (2022), p. 17

Lecture 8 and Seminar 9: Performance measurement and control from two companies' perspectives

No additional literature

Lecture 9: Summary lecture

No additional literature

1. Written exam (90 % of the grading).
2. Individual written solutions to the seminar assignments. NOTE. Attendance at the seminars and be able to discuss the solutions is required to get the seminar points. (10 % of the course grading).

1. Written exam
The examination consists of a written exam where the demonstrated achievement of the intended learning outcomes (ILO:s 1-2) of the course is evaluated. 90% per cent of the grading is based on the written exam. Calculators approved by the school are allowed during the exam. The written exam covers ILO 1-2 via a number of exam questions that aim to provide an overall evaluation of whether the student has achieved the ILOs. This means that each exam question covers one or more ILOs. The assessment of the student’s accomplishment of the intended learning outcomes, as demonstrated in the answers to questions on the written exam, is first made question-by-question and subsequently as an overall evaluation. In practice, this is done with the aid of a numerical scale when assessing the exam questions. The sum of the points on the written exam constitutes the basis for the grading. The composite evaluation of the ILO:s is motivated by the course’s intention to combine and integrate knowledge of various parts of the course. Accordingly, we believe that a composite evaluation is better than solely making separate assessments with regard to each ILO.

2. Individual written solutions to the seminar assignments and active seminar participation
Before attending the seminars, each student individually is requested to hand in written solutions to the seminar assignments. This written solution needs to be handed via Canvas at the latest 7 am on the day of the seminar. If the hand-in is given a 'pass' the student gets 0.5 points for each hand-in. If the student attends the seminars and is prepared to discuss the solutions, an additional 0.5 points per seminar is given. Thus, the student can earn a maximum of 1 point per seminar. This means a total of 9 points can be earned, because there are 9 seminars. Those students that receive at least 7 points in total get an additional 1 bonus point, which means a total of 10 points can be earned, and 10 % of the course grading is thereby based on this.

The total grading of the course is made on the basis of the sum of points on the written exam and the points from the seminar assignments.

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