Decentralized Operations separates a business into different center with different responsibility that does the operational work and delegating this responsibility to the center managers. It allows managers to focus on doing the work efficiently with complete dedication and to bring expertise in their areas of responsibility. Decentralization helps the managers to create good customer relationship by responding quickly to customersâ€™ needs and the managers of the centers often become more creative in suggesting operating and product improvement.
Responsibility accounting plays a very important role in the evaluation of decentralized operations. It helps the managers to evaluate and control their respective areas with the help of the responsibility centers. There are three types of responsibility centers. Those are:
Cost Center – The responsibility center that produces no direct revenue from the sales of goods and services are known as cost centers. The cost centers are directly related to the cost of producing goods and incurring expenses. The related official of a cost center is only responsible for keeping costs in line with the budget.
Profit Center – A part of business, within the organization which is expected to make contribution to the organizationâ€™s profits is known as the Profit center. That segment of organization generates revenue and incurs cost. Profits/losses of this section are calculated separately treating this segment as a separate business in itself.
Investment Center â€“ A business unit in the company that uses the capital investment made in the company to maximize the companyâ€™s profits is known as the investment center. It is also known as the investment division of the company. The evaluation of the investment center is done according to its potentials of bringing incomes in the business through investments; the managers of investment centers make capital assets in comparisons with the other expenses.
Operational decisions â€“ Decentralization helps in taking timely decisions as the power is in the hands of the managers of different segments of the business. The managers are given decision-making authority which allows them to work with dedication and motivates them to contribute more towards the attainment of organization’s goals.
Training opportunity â€“ In decentralized operations when the authority is delegated to the managers of the sub-units of the business, it provides a good opportunity and training ground for newly recruited managers so that they can learn the basic tactics. They get an opportunity to polish their talents and managerial skills, so that they can come with senior positions in the management in the near future.
Conflicts with other business units â€“ Performance evaluation for decentralized operations as the name suggests is the delegation of the responsibility of all the major decisions in the hands of the managers of the respective business units. But when the managers of each business unit are given responsibilities there are chances of conflicts that may arise between them in the name of leadership. These conflicts affect the overall profit and efficiency of business.
Duplication of expenses â€“ Decentralized operations may result in the duplication of assets and expenses as the manager of one business unit does not know what all operational activities are performed by the managers of other business units.
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