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Prepared by Diane Tanner University of North Florida

Chapter 24. Evaluation of Investment Centers. Prepared by Diane Tanner University of North Florida. Decentralization The process of ‘pushing’ decision-making down to those closer to the actual work as they are in the best position to do it Centralization

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Prepared by Diane Tanner University of North Florida

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  1. Chapter 24 Evaluation of Investment Centers Prepared by Diane Tanner University of North Florida

  2. Decentralization The process of ‘pushing’ decision-making down to those closer to the actual work as they are in the best position to do it Centralization A few individuals at the top of an organization retain decision-making authority Delegation to lower-level managers gives little control to lower levels Forms of Control

  3. Segments • A designated operating areas of a company • Can be any part or activity of an organization about which upper level managers want to track costs, revenue, or profit data • Each segment manager is given responsibilities to control the segment

  4. Responsibility Centers • A segment is a responsibility center • Can be a geographical area, product or service line, specific store, or major division A Product line A geographical region A Store or Service Area

  5. Upper level management must evaluate lower level managers who have been given authority to make decisions Reasons to evaluate Identify successes Identify problems Influence manager behavior Controlling under Decentralization

  6. Better decisions can be made by those who do the work Faster decisions can be made by those who do the work Managers are motivated Great training to enable lower level managers to move up the ladder more quickly Advantages of Decentralization

  7. Some work is duplicated creating additional costs Lack of goal congruence I.e., the goals of the manager differ from the goals of the company Disadvantages of Decentralization

  8. Evaluation of Responsibility Centers Cost Revenues Sales Interest Other Cost Cost Costs Salaries Rent Each center has a different performance evaluation focus because respective managers are responsible for different components of the business Cost Center A segment whose manager has control over costs, but not over revenues or investments. Profit Center A segment whose manager has control over bothcosts and revenues, but no control over investments. Investment Center A segment whose manager has control over costs, revenues, and investments in operating assets.

  9. Must evaluate segments/ divisions and their managers Tools to evaluate Return on investment Residual income EVA/Residual income Balanced scorecard Performance Evaluationof Investment Centers

  10. The End

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