When companies reach a certain size, it will become difficult for owners or the top management to give all employees detailed instructions on how to perform certain tasks. Instead there will be economic control mechanisms in place allowing a certain freedom for the managers and employees of the different units in the company. In this course we discuss how management control tools can be used to maximize the value creation. The effects may depend on the management traditions, the organization and the culture of the company, and it is therefore important to understand how the underlying mechanisms work and relate to each other.
Knowledge
After completing the course students:
- Understand how coordination mechanisms and management control tools can affect the activities in different ways in different companies.
- Are able to discuss how rewards can be used as a management tool, based on economic theory, insights from sociology and psychology and practical experience.
- Understand the effects of using different financial and other key performance indicators in the management control system.
- Understand how various planning methods can be used in a company, to set targets and follow up managers; e.g. budgets, rolling forecasts, balanced scorecards and objectives - key results.
- Understand the motives behind transfer pricing and be able to develop transfer pricing principles for a company (also for international transactions).
Skills
After completing the course students can:
- Use linear and stepwise economic models to find optimal incentives in simple settings.
- Calculate the cost of capital of a company and different financial performance measures (e.g. ROCE and EVA), and understand how the measures are affected by depreciation plan and growth.
- Determine the theoretically correct transfer price based on market prices or costs and be able to discuss what the transfer price should be based on its purpose.
General competence
After completing the course students can:
- Reflect on what positive and negative effects a management control system may have in a specific organization.
- Reflect on how management control systems may affect UN sustainability goals (gender equality, decent work and reduced inequalities).