1 / 16

Responsibility Centers

Responsibility Centers. Chapters 3 & 4, Management Control Systems , 12 th Ed., Anthony and Govindarajan. Strategy (From Previous Lecture). Corporate Strategy To maximize use of resources Business Strategy To compete in selected markets. Goals and Strategy (From Chapter 1).

mcavender
Download Presentation

Responsibility Centers

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Responsibility Centers Chapters 3 & 4, Management Control Systems, 12th Ed., Anthony and Govindarajan

  2. Strategy(From Previous Lecture) • Corporate Strategy • To maximize use of resources • Business Strategy • To compete in selected markets

  3. Goals and Strategy(From Chapter 1) • Strategy Formulation • Goals • How to attain • Strategy Implementation (Execution) • Objectives • Management Control Systems

  4. Where Are We Going??? • Develop a Strategy • Develop Goals (to support the strategy) • Develop Objectives (to achieve the goals) • Refine Organizational Structure (in support of the objectives) • Develop Evaluation Items (in support of achieving the objectives) • Assign Responsibility Centers (within the organizational structure)

  5. Responsibility Center • An organizational unit with a manager responsible for its activities • Usually refers to a unit within the organization • Exists to accomplish an objective

  6. Inputs & Outputs • Optimum relationship between inputs and outputs • Within management control system, must be measurable • Unit measurements • Hours of labor, quantities of materials, etc. • Monetary measurements • Costs, revenues

  7. Efficiency & Effectiveness • Not mutually exclusive • Two criteria used to judge responsibility centers • Efficiency: • Ratio of outputs to inputs • Higher is better! • Effectiveness: • Relationship of output to predetermined objectives • Again, higher is better!

  8. Types of Responsibility Centers • Revenue centers • Expense centers (cost centers) • Profit centers • Investment centers [Chapter 6]

  9. Revenue Center • Output, and only output, is measured • Measurement is normally in monetary terms • Typically, sales/marketing • Cannot set price • Have no control over costs

  10. Expense (Cost) Center • Inputs, and only inputs, are measured • Measurement is normally in monetary terms • Two types • Engineered expense centers • Optimal relationship between inputs and outputs • Discretionary expense centers • Optimal relationship cannot be established between inputs and outputs

  11. Conflicts & Goal Congruence • Managers of revenue and expense centers • May seek excellence at high costs • Many $$$ for slight improvement in output • May seek output rather than quality • Increase of lesser quality products • Need special budgetary controls • Must consider goal congruence

  12. Profit Center • Both inputs and outputs are measured • Measurement is in monetary terms • Inputs are related to outputs

  13. Profit Center • Two conditions must be met to create a profit center • Relevant information must be available • Effectiveness of managers decisions must be measurable

  14. Business Units • Full autonomy – normally not feasible • Goal congruence – risk of loss increases • Capital Budgeting – normally limited

  15. Selection of Measurement Items • If manager can influence an item, it could/should be used as a measurement of performance • Total control is not necessary • Degree of control is relevant

  16. Remember Two Things • Not all units within an organization need to be the same! • Profit centers do not have to make a profit!

More Related