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ACT 4131 Perakaunan Pengurusan III

ACT 4131 Perakaunan Pengurusan III. Centralised vs Decentralised Organisations. Nature of Decentralised Organisations. Large Diverse entities and departments Multiproduct Multilocation Complex environment. Planning and Control.

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ACT 4131 Perakaunan Pengurusan III

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  1. ACT 4131Perakaunan Pengurusan III Centralised vs Decentralised Organisations

  2. Nature of Decentralised Organisations • Large • Diverse entities and departments • Multiproduct • Multilocation • Complex environment

  3. Planning and Control • Entities with diverse and complex activities interact but operate separately • Coordination is required of these entities for planning and control

  4. Should control be centralised or decentralised? • Centralised control and management: relations are vertical and hierarchical • Orders are centrally determined and executed by lower-level managers • Acctg provides information to top mgt

  5. Centralised decision-making • Local mgrs follow detailed operating rules • Decisions are determined centrally • Decisions are implemented locally • Job descriptions and tasks are well specified

  6. Why decentralise? • Complexity and uncertainty of external environment • Local decision-making to promote fast decisions • Information specialization: difficulty of sharing local information with central mgt, relevant information is acquired, stored, accessed and processed at local mgrs

  7. Centralise or decentralise? • Decentralisation – extent of autonomy in decision-making • A continuum from highly decentralized to highly centralized

  8. Large corporation • Decentralised decision-making • Promoting self-interest • Tools for resource allocation: internal communication, contracts, standards, budgeting, reward and reward and punishment systems

  9. Benefits of decentralisation • Training for local mgrs • Motivation for local mgrs • Timely and more quality decisions

  10. Local Decision-making • Timeliness and flexibility of response • Faster response to unexpected conditions • Conservation of central mgt time – for policy and strategic issues • Computational complexity- impossible to centralise all resource and production decisions

  11. How to decentralise? • Responsibility accounting 1. Assigning responsibility: How much responsibility of local mgrs? What are they responsible for? 2. Establishing performance measures or benchmarks: Are outputs measurable? 3. Evaluating performance: what are they evaluated on? What measures are used? 4. Assigning rewards

  12. Responsibility Accounting • Responsibility accounting’ is a system of accounting, ‘that segregates revenues and costs into areas of personal responsibility in order to assess performance attained by persons to whom authority has been assigned’. • Example of decentralised units: std cost centre, revenue centre, expense centre, profit centre, investment

  13. Responsibility Accounting System Responsibility accounting system provides information • Relating to the responsibilities of individual managers. • To evaluate managers on controllable items.

  14. Performance and Controllability • Responsibility center information presents separately the operating results of each business center within an organization. • A responsibility accounting system shows the performance of the center under each manager's control.

  15. Performance measure • Necessary to evaluate and motivate performance of local mgrs • Organisations communicate desired behaviour • Coordinate divisional goals with overall corporate goals

  16. Measures of performance • Can be financial and nonfinancial • Financial measures more popular. Why? • Has direct relationship with objectives of firms, usually financial in nature • Financial measures provide aggregate performance

  17. Financial measure • Financial measures represent economic performance • Financial measures have limitations • Is net income an appropriate measure? • Broad measures overcome some limitations • But measurement is neither neutral and objective

  18. Single financial performance measures • Focus on short-term and ignore long-term impact • Ignore Long-term impact from expenditure on intangibles: tendency to ignore R&D, advertising, HR development • Away from single performance measures but • Difficult to measure quality of products, morale of employees, satisfaction and loyalty of customers

  19. Problems with single measure of performance • Goal congruence: local measure should be consistent between decentralised goals with overall corporate goals • Externalities: conflicts in Transfer Pricing: quality and timeliness of transfer • Overconsumption of perquisites: facilities, empire building

  20. Developing performance measures • Measures should change behaviour • Towards broader measures: on-time delivery, defects units, innovation, quality, cycle time, learning and growth

  21. Challenges of decentralisation • How do you balance the benefits and the costs of decentralisation? • What is needed to balance the two? • Is balanced scorecard the answer?

  22. Control process • Setting target • Measuring performance • Comparing performance: analysis of variance • Taking action to remedy variance: investigation of variance to address what are the causes of variance? How to overcome problems?

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