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Chapter 4 - Management concepts. When you''ve finished studying this chapter, and completing the activities at its conclusion, you should be able to: Summarize and explain the importance of COSO''s enterprise risk management - integrated framework; define business process management, including a generalized model of BPM; list and discuss some basic principles of business process management; explain expectancy theory; apply all three topics within the context of accounting information systems.
Chapter Management Concepts Copyrightâ2016McGrawưHillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGrawưHillEducation Outline ã ã ã ã Learning objectives COSO enterprise risk management framework Business process management Expectancy theory 42 Learning objectives Summarize and explain the importance of COSO’s Enterprise Risk Management —Integrated Framework List and discuss some basic principles of business process management Explain expectancy theory Apply all three topics within the context of accounting information systems 43 COSO ERM framework • Definition of enterprise risk management Enterprise risk management is a process, effected by an entity’s board of directors, management and other personnel, applied in What similarities & differences you see between the ERM and internal control definitions? strategy setting and across the enterprise, 44 COSO ERM framework • • Internal environment Objective setting • Event identification • Risk assessment • Risk response • Control activities • • Information and communication Monitoring What similarities & differences you see between the ERM and internal control frameworks? 45 COSO ERM framework • Internal environment Organization’s overall attitude toward managing risk • • Event identification What could happen to interfere with achieving those objectives? Objective setting What the organization is trying to achieve (in general, not just with 46 COSO ERM framework • Risk assessment – How likely is each event to occur? – Inherent and residual risk – Assessed qualitatively • Risk response – Generic response(s) to each risk – Four alternatives • Accept • Reduce • Avoid • Share 47 COSO ERM framework • Control activities Specific ideas for implementing the generic response(s) • Information & communication Similar to the same element of the internal control framework • Monitoring Similar to the same element of the internal control framework 48 COSO ERM framework • Internal environment • Objective setting The Red Cross The Board of wants to increase Directors forms a monetary donations “risk assessment” by 10% in the committee, which coming year includes both directors and 49 COSO ERM framework • Event identification The Red Cross does not adequately identify potential new donors • Risk assessment – Inherent: high – Residual: moderate 410 COSO ERM framework • Control activities – • Information & communication Accept: Acknowledge and discuss the risk A company’s SEC filings and other external – Reduce: Ask each current donor to provide contact communications outline the ERM 411 COSO ERM framework • Monitoring On a quarterly basis, a sample of employees completes a survey about the effectiveness of the ERM plan; the survey results are analyzed by the risk assessment committee 412 Business process management • One definition – A systematic approach to analyzing, redesigning, improving and managing a specific process – Processes can include: • Sales / collection • Acquisition / payment • Conversion • Financing • 413 Business process management Generalized model of BPM 1) Select the process and define its boundaries 2) Observe, document, and map the process steps and flow 3) Collect process- 4) Analyze the collected data 5) Identify and prioritize potential process improvements 6) Optimize the process 7) Implement and monitor process improvements 414 Business process management 1) Capital One wants 2) Capital One to improve its creates an process for ordered list of the requesting steps it currently insurance uses to request 415 Business process management 3) Capital One tracks the length of time and cost involved in its current process It also collects data on employee & customer satisfaction with it 416 Business process management 4) A process improvement team analyzes the data using appropriate tools (e.g., statistical analysis, benchmarking with similar firms) 417 Business process management 5) The process 7) The process improvement improvement team suggests team collects three ways to additional data improve the and analyzes it to 418 Expectancy theory • • Suggested by • So long as Victor Vroom organizations A way to employ people, conceptualize understanding human motivation human motivation 419 Expectancy theory • • • Three elements Motivation is the product of the three If any one of the three is “zero,” then motivation is zero Expectancy If I put in the effort, will I be successful in achieving my goal? Instrumentality If I’m successful, will I be rewarded? Valence Do I value the reward? Motivation = Expectancy X Instrumentality X Valence 420 Expectancy theory • If I work a lot of extra hours, will I complete all my assigned tasks? Here’s an example of Expectancy Instrumentality If I complete all my assigned tasks, will I get a pay raise? each element Valence Do I value getting a pay raise? 421 422 ... Financing • 4? ?13 Business process management Generalized model of BPM 1) Select the process and define its boundaries 2) Observe, document, and map the process steps and flow 3) Collect process- 4) Analyze... management and other personnel, applied in What similarities & differences you see between the ERM and internal control definitions? strategy setting and across the enterprise, 4? ?4 COSO ERM framework... response • Control activities • • Information and communication Monitoring What similarities & differences you see between the ERM and internal control frameworks? 4? ?5 COSO ERM framework • Internal