Decentralization and Performance Evaluation.ppt

Decentralization and Performance Evaluation Decentralization and Performance Evaluation Responsibility Centers Costs and benefits of decentralization Return on Investment Residual Income Decentralization and Performance Evaluation Responsibility Centers Costs and benefits of decentralization Return on Investment Residual Income Responsibility Centers Cost Centers Revenue Centers Profit Centers Investment Centers Responsibility Centers Cost Centers A cost center is a segment whose manager is responsible for costs but not for revenues. Revenue Centers Profit Centers Investment Centers Responsibility Centers Cost Centers Revenue Centers Revenue center managers are mostly responsible for generating sales, not for the cost of goods sold. Profit Centers Investment Centers Responsibility Centers Cost Centers Revenue Centers Profit Centers Profit center managers are responsible for revenues as well as costs. These costs may include indirect costs. Investment Centers Responsibility Centers Cost Centers Revenue Centers Profit Centers Investment Centers Investment center managers are responsible not only for revenues and costs, but also for the investment required to generate profits. Responsibility Centers Responsibility Centers Cost Centers report of costs Revenue Centers report of sales Profit Centers Divisional income statement Investment Centers Return on Investment Decentralization and Performance Evaluation Responsibility Centers Costs and benefits of decentralization Return on Investment Residual Income Responsibility Centers Takes advantage of knowledge and expertise within the organization. Autonomy can be an intrinsic reward. Places fewer demands on top management. Responsibility Centers Loss of Control. Goal Congruence. Decentralization and Performance Evaluation Responsibility Centers Costs and benefits of decentralization Return on Investment Residual Income ROI and Residual Income Return on Investment (ROI) Return On Investment (ROI) Return On