Comments

The general principle in an organization is to allow people with knowledge about a topic to make decisions related to the

topic. However, the knowledge might $(1)$ be used in ways consistent with organizational goals or $(2)$ not used in ways

consistent with organizational goals. The chapter describes the authority to make decisions as a decision right and

decisions that are consistent with organizational goals are goal congruent.

Internal control means pointing decisions in directions that advance the interests of the organization or at least point the

decision away from directions that are adverse to the organization's interests. The process of control can be either before

the decision or after the decision.

$(1)$ before the decision; your text calls this allocating decision rights. The employee has limits on the kinds of

decisions the employee can make. Decisions that create opportunities to hurt the organization are split up to

different employees, or require review or ratification before the decision.

$($a$)$ We almost never allow an employee to make decisions that create too much temptation to make decisions

incongruent with organizational goals. When an organization separates decisions, accountants term this

segregation of duties. Two examples from the text:

$($i$)$ A sales person might not have the right to negotiate prices with a customer, even though the sales

person might be knowledgeable about the customer's demand curve. Separating the pricing decision

from the sales person's knowledge perhaps reduces the likelihood that the salesperson will offer a low

price and receive a kickback from the customer.

$($ii$)$ Supervisors of flight attendants might not have the right to allocate routes to flight attendants. Flight

attendants probably have preferences for some routes and the supervisor knows the preferences. The

supervisor might allocate preferred routes to friend$-$colleagues. We might install a bureaucratic rule that

allocates routes based on seniority which would prevent allocation based on favoritism. The rule

separates the decision from the knowledge.

$($b$)$ We can also allow a single employee to have decision$-$making authority where the choice might be goal

incongruent, but require a review $($ratified$)$ before the decision is implemented.

$($i$)$ An office employee might select office supplies, and a manager reviews the list before the purchase is

made as a check that the supplies are legitimate purchases.

$($ii$)$ A new project that requires funds above a certain level might need to be vetted $($ratified$)$ by a capital

budgeting committee.

$(2)$ after the decision; your text calls this monitoring or review. After the decision is made, the decisions and results

are recorded for evaluation.

$($a$)$ If the project is agreed$-$to by the capital budgeting committee, the project is will be subject to continuous

reports $($monitored$)$ during the course of development and then reports on its profitability after it begins

operations.

$($b$)$ A purchasing agent might make purchases within the scope of the project and the costs are recorded and

added to the project and reviewed later. The review does not stop or slow down the purchases, but it will

probably be audited $($reviewed$)$ later, including being a part of the employee evaluation process.

Internal control is not perfect. Errors and irregularities can happen whether it is an activity that $(1)$ slips through the cracks

or $(2)$ management overrides the system.

Problem statement

Read the article related to Disney's proposed change in decision rights. Centralizing project decisions were argued to

provide these benefits.

$1.$ Improve forecasting results from more data $($forecasts of profits from releasing a project on various platforms$).$ The

article suggests that some Disney executives believed that the centralized unit access to performance data put the

centralized unit in a better position than the creative units to determine which movies and television series were likely

to draw large audiences on various platforms and how much to spend to market each project.

$2.$ Wield leverage with advertising vendors. Centralized decision making could negotiate advertising rates for multiple

entertainment units and projects.

$3.$ Reduce personnel. A single centralized staff reduces redundant activities at each creative unit.

Required

$1.$ Some resource allocation decisions were decentralized before Mr$.$ Daniels and Disney Media and Entertainment

Distribution began the centralization process. What were those decentralized decisions?

$2.$ Mr$.$ Daniel had already accumulated significant influence or final say or some decisions? What decisions does the

article suggest had already been centralized?

$3.$ What remaining decisions were intended to be centralized?

$4.$ What did the creative executives stand to lose, exactly? I$\text{'}$m asking you to put yourself in their shoes and speculate

about what their personal and professional loss is$.$ Their losses seemed to lead to a sort of