Management and Performance Controllable Essay

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ACTG 5P31

Advanced Management
Accounting
Hemantha Herath
12-1

Decentralization

Prepared
Preparedby
by
Hemantha
HemanthaHerath
Herath
Brock
BrockUniversity
University

6
12-2

Why
Why Decentralize?
Decentralize?
Decentralization
 The delegation of decision making authority to managers throughout the organization Centralization
Minimum freedom








Decentralization
Maximum freedom

Complexity of Firm’s Environment
Information Specialization
Timeliness of Response
Conservation of Central Management Time
Computational Complexity
Training for Local Managers
Motivation for local managers

Costs of Decentralization
 Managers may make goal incongruent decisions
 Duplication of services (accounting and advertising)
 Increased cost of accumulating and processing information
 Managers may waste time arguing about shared services
12-3

Decentralization
Decentralization
 Most companies adopt a blend of decentralized and centralized functions

(decentralize marketing but centralize tax planning)
 Decentralization is most successful when organization's segments are relatively independent Diversified
Product Line
No Problems

Single Industry
Multi-Product

Single
Product
Common Problems

 Decentralization cannot work unless top management is willing to abide by its

managers' decisions

 Stepping in and overriding managers' decisions will quickly result in

motivational problems

Profit Centres and Decentralization
 Be careful to separate these two ideas
 Profit centres hold a manager accountable for revenues & expenses
 Decentralized manager has the freedom to make decisions
 Cost centre may be more decentralized than a profit centre if the cost centre manager has more authority
12-4

Management
Management Control
Control Systems
Systems
An orderly, logical plan to coordinate and evaluate all activities
1.

Begin by specifying the organization's goals, sub-goals and objectives


Goals are what the organization hopes to achieve in the long run



Sub-goals or key success factors are more specific and provide more focus to guide daily actions



Objectives are specific benchmarks which management would like to see achieved



Important to keep all three in balance to avoid concentrating solely on short-run achievements at the expense of long run goals

2.

Establish responsibility centers

3.

Develop performance measures

4.

Measure and report on financial performance

5.

Measure and report on non-financial performance
12-5

Management
Management Control
Control Systems
Systems
Set Goals,
Measures,
Targets

Plan and Execute

Feedback and Learning

Evaluate,
Reward

Monitor,
Report
12-6

Responsibility
Responsibility Centers
Centers
 Set of activities assigned to a manager or a group of managers/employees
 Based on principle of responsibility accounting which holds that managers

should be evaluated on the activities which they can influence or control
Standard Cost Centre
 Area for which cost data is accumulated such as an assembly department
Discretionary Expense Centre
 Area dominated by discretionary expenses such as legal or accounting
Revenue Centre
 Area primarily responsible for generating sales such as a sales office
Profit Centre
 Area responsible for controlling costs and generating revenues
Investment Centre
 Area responsible for income (revenues - expenses) in relation to its invested capital

12-7

Developing
Developing Performance
Performance Measures
Measures
Good performance measures will
1. Relate to the
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