Advanced Managerial Accounting and Real Investment Theory

Introduction

The course is analytically oriented and develops the participants skills to take decisions according to the partner's interest. The purpose of the interplay between economic theory, economic models and data from the market and the accounting system, is to ensure that the students gets the necessary knowledge to be strong- minded persons regarding problems of business management. The specialisation is practically oriented, and the intention is to make sure that the student is familiar with the most common economic problems, from both the private sector and public sector. The specialisation intends to give the participants a background that will enable them, after acquiring the necessary knowledge of the relevant trade, to become business partners

Course content

Business Economic consist of four topics:

1. Cost analysis
2. Incentive contracts modelling
3. Linear programming
4. Multi-period business financial assessments
   • General development of participants' knowledge related to the use of the net present value method, for example "timing problems"
   • Valuation
   • Practical use of resale value, the value of flexibility
   • About the relationship between “accretive economy” (Sustainability) and business optimization.

Module 1: Cost analysis

Cost analysis addresses various aspects of resource management, including issues related to determining optimal resource allocation, optimal resource flow and how to motivate the company's employees to work with resource management. Central to the course is to give the participants an understanding that "numbers are alive" and that the cost figures that must be used as the basis for a decision, decision-relevant costs, must be tailored in each case, depending on the purpose of the decision. Theory and methods that enable participants to calculate decision-relevant costs for decisions related to products, customers, efficiency and competitive exposure are emphasized.

• Introduction to cost analysis
• Cost Management
• Activity analysis, internal and external perspective
• Activity-based cost analysis and activity-based management, capacity management issues, driver selection
• Profitability analysis and the need for tailoring depending on purpose and cost object, including customer profitability and preparation of the Stobachoff curve.
• Treatment of joint costs
• Lifecycle Costs
• Time-driven activity-based cost understanding (TD-ABC)
• Lean Costing
• Relevant articles related to:
  • Stall points
  • Management systems
  • Shared Services
  • Lean Costing
  • Time Driven Activity Based Costing

Topic 2: Incentive contracts modelling
The students shall understand a simple principal agent model, the advantages and disadvantages, and be able to analyse and develop incentive contracts in practice. The students shall know the essential results from international studies.

• Introduction to Incentive contracts modelling
• A framework for incentive modelling, a simple Principal - Agent model with a risk neutral agent
• Motivation and behavioural economics
• Screening
• Formal models in incentive contracts
• Executive contracts and bonus plans
• Incentives in team
• Options
• Empirical studies: How effective are economics incentives?

Topic 3: Linear programming
The students shall understand the need for Linear Programming (LP), for instance in connection with staff allocations, capital rationalisation, production planning and deciding the product mix. They shall also be able to formulate different business problems, use the solver function in Excel, interpret data and reflect on the Excel solution, and finally, outline improving amendments.

• Introduction to LP:
• Structuring LP-problems
• LP as a method improve activity analyses, iterative budgeting and capital rationalisation problems.
• Slack variables, shadow prices, decision variables, base solutions, variables in and outside base solutions, other LP notions.
• Fundamental understanding of the Simplex algorithm function.
• Transformation of the constraints to a specific problem, to be able to evaluate whether the solution is optimal or amendments should be taken into concern.
• Different solution presentation; graphic, analytical, Excel and the connections between those presentation formats.

Topic 4: Multi period firm valuation and project valuation

Multi-periodic valuation deals with business economic analysis of various real investment challenges as well as financial valuation of all, or part of, businesses.

The course will cover:

• General development of participants' knowledge related to the use of the net present value method, including the use of
  • Value creation model
  • "Timing"
  • Project Score Card and application of net present value index
• Valuation with emphasis on fundamental analysis and issues related to the determination of return requirements (risk discussions) cash flow forecasts.
• Practical Reaction Option Theory, the value of flexibility. The calculation of the value of correction opportunities during project execution, under different risk assumptions, is emphasized, for example the use of «risk neutral method».
• "Accretive economy", about the links between environmental economics and business logic.