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Responsibility Centers: Chapters 3 & 4, Ed., Anthony and Govindarajan

This document discusses responsibility centers and the types of responsibility centers that can exist within an organization. It defines a responsibility center as an organizational unit with a manager responsible for its activities. The main types of responsibility centers discussed are revenue centers, which measure only outputs; expense/cost centers, which measure only inputs; and profit centers, which measure both inputs and outputs. The document emphasizes that different types of responsibility centers may be used within the same organization depending on their objectives and the manager's degree of control over inputs and outputs. It also cautions that goal congruence between responsibility centers and the overall organization needs to be considered.

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187 views16 pages

Responsibility Centers: Chapters 3 & 4, Ed., Anthony and Govindarajan

This document discusses responsibility centers and the types of responsibility centers that can exist within an organization. It defines a responsibility center as an organizational unit with a manager responsible for its activities. The main types of responsibility centers discussed are revenue centers, which measure only outputs; expense/cost centers, which measure only inputs; and profit centers, which measure both inputs and outputs. The document emphasizes that different types of responsibility centers may be used within the same organization depending on their objectives and the manager's degree of control over inputs and outputs. It also cautions that goal congruence between responsibility centers and the overall organization needs to be considered.

Uploaded by

YadavParamjit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Responsibility Centers

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

Strategy
(From Previous Lecture)
Corporate

Strategy

To maximize

Business

use of resources

Strategy

To compete

in selected markets

Goals and Strategy


(From Chapter 1)
Strategy

Formulation

Goals
How

to attain

Strategy

Implementation (Execution)

Objectives
Management

Control Systems

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)

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

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
Costs,

measurements

revenues

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!

Types of Responsibility Centers


Revenue

centers
Expense centers (cost centers)
Profit centers
Investment centers [Chapter 6]

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

Expense (Cost) Center


Inputs,

and only inputs, are measured


Measurement is normally in monetary terms
Two types
Engineered
Optimal

expense centers

relationship between inputs and outputs

Discretionary
Optimal

expense centers

relationship cannot be established between inputs


and outputs

Conflicts & Goal Congruence


Managers
May

seek excellence at high costs

Many

May

of revenue and expense centers

$$$ for slight improvement in output

seek output rather than quality

Increase

Need

of lesser quality products

special budgetary controls


Must consider goal congruence

Profit Center
Both

inputs and outputs are measured


Measurement is in monetary terms
Inputs are related to outputs

Profit Center
Two

conditions must be met to create a profit


center
Relevant

information must be available


Effectiveness of managers decisions must be
measurable

Business Units
Full

autonomy normally not feasible


Goal congruence risk of loss increases
Capital Budgeting normally limited

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

Remember Two Things


Not

all units within an organization need to be the


same!

Profit

centers do not have to make a profit!

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