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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.
. 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. Ther are no.
Management Policies and Procedures. influences autonomy in the organisation .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. Diversification Strategy-there is fair relationship between the diversification strategy that the management chooses & the autonomy of the profit centre managers.
input Output work Amt. p DISCRETIONARY EXPENSE CENTRE u t Optimal relationship cannot be estab. Output O Work u Physical t Amt. Div. R& D fun. Engineered Expense Centres. . physi cal inp ut Optimal relationship Can be established exam ples Mfg.
Revenue Centres Input Input not related to output work Amt.Di v . Amt-costs Directly incurred Profit Centre Input related to output input costs work Amt. output Busines s unit output Mar.
Investment centres inputs costs Amt. profit Profits are related to CE Work outputs Busin ess unit .
Actual sales or orders are booked are measured against budgets or quotas.Revenue centres therefore are marketing organisations that do not have profit responsibility. Revenue Centres-Outputs are measured in monetary terms.The primary measurement however is revenue.e.expenses or costs) to outputs.but no formal attempt is made to relate inputs(i. .
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.components. Discretionary costs(also called managed costs) are those for which no such engineered estimate is feasible.supplies and utilities are examples.Costs incurred in a factory for direct labour.the amount of costs incurred depends on management¶s judgement about the amount that is appropriate under the circumstances. .There are two general types of costs Engineered costs are elements of costs for which the µright¶ or µproper¶amount of costs that should be incurred can be estimated with a Reasonable degree of reliability.direct material.
e. .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.(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.accounts payableand payroll sections in the controller dept.g. Engineered Expenses have following Characteristics(1)Their inputs can be measured in monetary terms(2)Their outputs can be measured in physical terms.accounts receivables.and the company motor pool.such units perform repetitive tasks for which standard costs can be developed. Warehousing.personnel records and the cafeteria in the human resource dept shareholders records in the corporate secretary dept.
Even in highly automated production depts.the amount of indirect labour and of various services used can vary with management.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. .. Moreover .s discretion .
. we cannot say. Discretionary expense centres ±The output of discretionary expense centres cannot be measured in monetary terms.is efficient performance.The difference between budgeted and actual expense is not a measure of efficiency in a discretionary expense centre.and most marketing activitied.Management¶s view about the proper level of discretionary costs is subject to change.research and development organisations.The term discretionary does not mean that management¶s judgements are capricious or haphazard..they include administrative and support units.It is simply the difference between the budgeted input and actual input living within the budget.
. 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. Budget preparation --In formulating the budget for a discretionary expense centre .GENERAL CONTOL CHARACTERISTICS.developing and installing a profit budgeting system in a newly acquired division.g.There are two different approaches to planning for the discrtionary expense centres-incremental budgeting and zero base review.management¶s 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.Special tasks are ³one shot´ projects -e.Continuing tasks are those that continue for year to year-for example financial statement preparation by the controller¶s office. The technique ³management by objectives´ is often used in preparing the budget for a discretionary expense centre.however .
for anticipated changes in the workload of continuing tasks. There are two drawbacks to incremental budgeting first.for the comparable work in similar units.and if the data are readily available .they tend to request addiional resources in the budgeting process and. because managers of the centres are typically want to provide more services. Incremental budgeting Here the current level of expenses is a discretionary expense centre is taken as a starting point. if they make a sufficiently strong case. ..for special tasks .these requests will be granted.this amounts are adjusted for inflation.
it is also likely to be a traumatic experience for The managers whose operations are being reviewed. . Secondly co.There is a likelyhood that expenses will creep up gradually over the next five years. 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. faces a crisis or when a new management takes over. and this is tolerated.The analysis provides anew base.overhead costs are sometimes drastically reduced without any adverse consequences. It is time consuming .at the endof five years another new base is established such an analysis is often called ³zero 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.
.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 country¶s recession. It is difficult.These efforts were often called downsizing. Another tool that is useful in zero base review is activity based management.or rightsizing or restructuring or process reengineering.
Cost Variability In discretionary expense centres .they tend to change with changes in volume from one year to the next. Although costs of discretionary expense centres are sometimes classified as fixed .they are in fact fixed only within a year.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. .
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. .The main purpose of a discretionary expense budget .on the other hand is to allow manager to control costs by participating in planning. 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.
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.A budget variance . 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.therefore. cannot be interpreted as representing either efficient or inefficient performance. . (1)If output cannot be measured it is not possible to set cost standards and measure financial performance against these standards.
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