Reeve, J. M. 1989. The impact of variation on operating system performance. Proceedings of the Third Annual Management Accounting Symposium. Sarasota: American Accounting Association: 75-89.

Summarized by Nicole Sackedis
Master of Accountancy Program
University of South Florida, Fall 2000

Control/Controllership Main Page | SPC Main Page

• NOT TIMELY
• Ability of operating managers to control their process is limited severely by reporting frequency.
• Losses are a signal for corrective action. However, losses occur before correction is implemented. 
  This is an example of retrospective management.
   
• FAILS TO PROMOTE IMPROVEMENT
• Influence organization toward lesser objective-just meets standards
• Harmful if it builds waste into standard.
• Engineering departments don’t have system designed to update standards on a frequent basis. 
  Resulting in accounting systems lagging engineering reality.
• Any ideas about a solution to this problem
   
• END MEASURES
• This is the information that comes from the standard cost system; it only serves as a control function, not a corrective tool.
   
• PRODUCTION ORIENTED ONLY
• Assumption made by using engineered costs. These cause some problems.
• Performance of systems is multidimension - so achieving the most for the least, which can 
  lead to dangerous conflicts on dimensions of quality, deliverability and service
• An assumption that summed sub-factor efficiencies will lead to global efficiency is under question.
   
• DATA AGGREGATION
• Serious shortcoming-aggregation of time order data into an accumulated variance of performance overtime. Data behavior overtime gives important evidence about causes of process behavior.
   
• TOP DOWN/NARROW CONTROL
• Worked well in repetitive and process focused manufacturing. However, work is being organized in cross-functional teams, resulting in the definition of responsibility centers expanding.
• A top down approach does not provide for employee improvement.
• Consequences:
• Fear
• Improper tracing of responsibility
   
• PERFORMANCE LEVELS
• Measured against standard levels, this ignores issues of variation.

• STATE OF CONTROL

• Original use was to improve output of manufacturing system.
• Control chart preserves the time order in data and provides the audit trail for improvement work.
• Important for 2 reasons to accountants: processes that are not in control are not predictable and the performance appraisal system should recognize the distinction between in and out of control.

• RELATIONSHIP BETWEEN COST AND VARIATION
• Two types of variation—process and product variation.

SUMMARY COMPARISON OF TRADITIONAL CONTROL VS. SPC