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ACCA PM知识点：Decentralisation and the need for performance measurement
文章来源：ACCA官网
发布时间：2021-08-26 17:55
阅读：1261次
Decentralisation is essentially the delegation of decision-making responsibility.All organisations decentralise to some degree;some do it more than others.Decentralisation is a necessary response to the increasing complexity of the environment that organisations face and the increasing size of most organisations.Nowadays it would be impossible for one person to make all the decisions involved in the operation of even a small company,hence senior managers delegate decision-making responsibility to subordinates.
One danger of decentralisation is that managers may use their decision-making freedom to make decisions that are not in the best interests of the overall company(so called dysfunctional decisions).To redress this problem,senior managers generally introduce systems of performance measurement to ensure–among other things–that decisions made by junior managers are in the best interests of the company as a whole.Table 1 below details different degrees of decentralisation and typical financial performance measures employed.
TABLE 1
Profit centres and investment centres are often referred to as divisions.Divisionalisation refers to the delegation of profit-making responsibility.
What makes a good performance measure?
A good performance measure should:
provide incentive to the divisional manager to make decisions which are in the best interests of the overall company(goal congruence)【点击免费下载>>>更多ACCA学习相关资料】
only include factors for which the manager(division)can be held accountable
recognise the long-term objectives as well as short-term objectives of the organisation.
Traditional performance indicators
Cost centres
Standard costing variance analysis is commonly used in the measurement of cost centre performance.It gives a detailed explanation of why costs may have departed from the standard.Although commonly used,it is not without its problems.It focuses almost entirely on short-term cost minimisation which may be at odds with other objectives,for example,quality or delivery time.Also,it is important to be clear about who is responsible for which variance–is the production manager or the purchasing manager(or both)responsible for raw material price variances?There is also the problem with setting standards in the first place–variances can only be as good as the standards on which they are based.
Profit centres
Controllable profit statements are commonly used in profit centres.A pro-forma statement is given in Table 2.
TABLE 2
The major issue with such statements is the difficulty in deciding what is controllable or traceable.When assessing the performance of a manager we should only consider costs and revenues under the control of that manager,and hence judge the manager on controllable profit.In assessing the success of the division,our focus should be on costs and revenues that are traceable to the division and hence judge the division on traceable profit.For example,depreciation on divisional machinery would not be included as a controllable cost in a profit centre.This is because the manager has no control over investment in fixed assets.It would,however,be included as a traceable fixed cost in assessing the performance of the division.
Investment centres
In an investment centre,managers have the responsibilities of a profit centre plus responsibility for capital investment.Two measures of divisional performance are commonly used:
Return on investment(ROI)%=controllable(traceable)profit/controllable(traceable)investment.
Residual income=controllable(traceable)profit–an imputed interest charge on controllable(traceable)investment.
Note:Imputed interest is calculated by multiplying the controllable(traceable)investment by the cost of capital.
Example 1 below demonstrates their calculation and some of the drawbacks of return on investment.
Example 1:
Division X is a division of XYZ plc.Its net assets are currently$10m and it earns a profit of$2.2m per annum.Division X's cost of capital is 10%per annum.The division is considering two proposals.
Proposal 1 involves investing a further$1m in fixed assets to earn an annual profit of$0.15m.
Proposal 2 involves the disposal of assets at their net book value of$2.3m.This would lead to a reduction in profits of$0.3m.
Proceeds from the disposal of assets would be credited to head office not to Division X.
Required:
Calculate the current ROI and residual income for Division X and show how they would change under each of the two proposals.
Commentary:
Under the current situation ROI exceeds the cost of capital and residual income is positive.The division is performing well.
In simple terms Proposal 1 is acceptable to the company.It offers a rate of return of 15%($0.15m/$1m)which is greater than the cost of capital.However,divisional ROI falls and this could lead to the divisional manager rejecting Proposal 1.This would be a dysfunctional decision.Residual income increases if Proposal 1 is adopted and this performance measure should lead to goal congruent decisions.
In simple terms Proposal 2 is not acceptable to the company.The existing assets have a rate of return on 13%($0.3m/$2.3m)which is greater than the cost of capital and hence should not be disposed of.However,divisional ROI rises and this could lead to the divisional manager accepting Proposal 2.This would be a dysfunctional decision.Residual income decreases if Proposal 2 is adopted and once again this performance measure should lead to goal congruent decisions.
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