AUTONOMY & RESPONSIBILITY

Divisional autonomy The variables that influence autonomy in an orgnisation A theory of Decentralised Management (fig) The variables can be grouped into: Management Style and Process Responsibility Structure. Measurement of reward systems.

 Ther are no. of personal variables that influence the level of autonomy that a corporate manager can sanction a subordinate These include The level of involvement of the corporate manager in the business The interactions of the corporate managers with other managers The level of trust and confidence of the manager in the ability of the subordinates.

 Management Policies and Procedures. Diversification Strategy-there is fair relationship between the diversification strategy that the management chooses & the autonomy of the profit centre managers.single business mgmr autonomy is restricted whereas firms grow by acquiring or introducing unrelated business the extent of autonomy is high. Busines strategy The kind of business strategy chosen by the mgmt. influences autonomy in the organisation

 Engineered Expense Centres.

Output O Work u Physical t Amt. p DISCRETIONARY EXPENSE CENTRE u t Optimal relationship cannot be estab. input Output work Amt. physi cal inp ut Optimal relationship Can be established

exam ples

Mfg. Div.

R& D fun.

 Revenue Centres
Input Input not related to output work Amt. Amt-costs Directly incurred Profit Centre Input related to output input costs work Amt. output Busines s unit output Mar.Di v

 Investment centres
inputs costs Amt. profit Profits are related to CE Work outputs Busin ess unit

 Revenue Centres-Outputs are measured in monetary terms,but no formal attempt is made to relate inputs(i.e.expenses or costs) to outputs.Revenue centres therefore are marketing organisations that do not have profit responsibility.Actual sales or orders are booked are measured against budgets or quotas.The primary measurement however is revenue.

 Expense Centres Expense centres are responsible centres for which inputs or expenses are measured in monetary terms but for which outputs are not measured in monetary terms.There are two general types of costs Engineered costs are elements of costs for which the right or properamount of costs that should be incurred can be estimated with a Reasonable degree of reliability.Costs incurred in a factory for direct labour,direct material,components,supplies and utilities are examples. Discretionary costs(also called managed costs) are those for which no such engineered estimate is feasible,the amount of costs incurred depends on managements judgement about the amount that is appropriate under the circumstances.

 Engineered Expenses have following Characteristics(1)Their inputs can be measured in monetary terms(2)Their outputs can be measured in physical terms.(3)The optimal rupee amount of inputs required to produce one unit of output can be established Engineered expenses centres usually are found in manufacturing operations. Warehousing,trucking and distribution and similar units in the marketing organisation also may be engineered expense centres and so many certain responsibility centres within administrative and support departments.e.g.accounts receivables,accounts payableand payroll sections in the controller dept,personnel records and the cafeteria in the human resource dept shareholders records in the corporate secretary dept.and the company motor pool.such units perform repetitive tasks for which standard costs can be developed.

 Moreover ,mangers of engineered expense centres may be responsible for activities such as training that are not related to current production;judgements about their performance should include an appraisal of how well they carry out these responsibilities.Even in highly automated production depts.,the amount of indirect labour and of various services used can vary with management;s discretion .

 Discretionary expense centres The output of discretionary expense centres cannot be measured in monetary terms,they include administrative and support units.,research and development organisations,and most marketing activitied.The term discretionary does not mean that managements judgements are capricious or haphazard.Managements view about the proper level of discretionary costs is subject to change.The difference between budgeted and actual expense is not a measure of efficiency in a discretionary expense centre.It is simply the difference between the budgeted input and actual input living within the budget, we cannot say,is efficient performance.

GENERAL CONTOL CHARACTERISTICS. Budget preparation --In formulating the budget for a discretionary expense centre ,however ,managements principal task is to decide on the magnitude of the job that should be done.These tasks can be divided generally into two types-continuing and special.Continuing tasks are those that continue for year to year-for example financial statement preparation by the controllers office.Special tasks are one shot projects -e.g.developing and installing a profit budgeting system in a newly acquired division. The technique management by objectives is often used in preparing the budget for a discretionary expense centre. MBO is a formal process in which a budgetee proposes to accomplish specific tasks and states a means for measuring whether these tasks have been accomplished.There are two different approaches to planning for the discrtionary expense centres-incremental budgeting and zero base review.

 Incremental budgeting Here the current level of expenses is a discretionary expense centre is taken as a starting point.,this amounts are adjusted for inflation,for anticipated changes in the workload of continuing tasks,for special tasks ,and if the data are readily available ,for the comparable work in similar units. There are two drawbacks to incremental budgeting first, because managers of the centres are typically want to provide more services,they tend to request addiional resources in the budgeting process and, if they make a sufficiently strong case,these requests will be granted.

 Secondly co. faces a crisis or when a new management takes over,overhead costs are sometimes drastically reduced without any adverse consequences. ZERO BASE REVIEW-An alternative approach is to make a thorough analysis of each discretionary expense centre on a schedule that will cover all of them over a period of five years or so.The analysis provides anew base.There is a likelyhood that expenses will creep up gradually over the next five years, and this is tolerated.at the endof five years another new base is established such an analysis is often called zero base review Basic questions are raised(i)Should the function be performed at all?Does it add value from the standpoint of enduse customers?(ii)What should the quality level be?Are we doing too much?(iii)Should the function be performed in this way?9iv)How much should it cost? Zero Base Review suffers from several potential problems. It is time consuming ,it is also likely to be a traumatic experience for The managers whose operations are being reviewed.

 It is difficult.managers will not only do their best to justify their current level of spending but they may also do their best to thwart the entire effort In the later 1980s And early 1990s several well known companies conducted zero base reviews usually as a reaction to a downturn in profitability associated with countrys recession.These efforts were often called downsizing,or rightsizing or restructuring or process reengineering. Another tool that is useful in zero base review is activity based management.

 Cost Variability In discretionary expense centres ,costs tend to vary with volume from one year to the next but they tend not to vary with short run fluctuations in volume within a given year. Although costs of discretionary expense centres are sometimes classified as fixed ,they are in fact fixed only within a year;they tend to change with changes in volume from one year to the next.

 Type of financial Control The financial control excercised in discretionary expense centre is quite different from that in an engineered expense centre.The latter attempts to minimise operating costs by setting a standard and reporting actual costs against this standard.The main purpose of a discretionary expense budget ,on the other hand is to allow manager to control costs by participating in planning.Costs are controlled primarily by deciding what tasks should be undertaken and what level of effort is appropriate for each.In a discretionary expense centre financial control is primarily at the planning stage before the amounts are incurred.

 Measurement of Performance The primary job of the manager of a dicretionary expense centre is to accomplish the desired output.The financial performance report is not a means for evaluating the efficiency of a manger.Total control over discretionary expense centres is achieved primarily by the use of non-financial performance measures.for instance quality of service provided by many discretionary expense centres can be judged based on the opinion of its users.

 Administrative and support centres. Support centres are units that provide services to other responsibility centres. CONTROL PROBLEMS The control of admin expenses is especially difficult because of (1)the near impossibility of measuring output and (2)the frequent lack of congruence between goals of the staff department and goals of the co. (1)If output cannot be measured it is not possible to set cost standards and measure financial performance against these standards.A budget variance ,therefore, cannot be interpreted as representing either efficient or inefficient performance.