BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS-SLP4
Don-Don
MOD3PP.pptxTrident University International
Donica Jordan-Andrade
Module 3 SLP: Transfer Pricing and Responsibility Centers
ACC501: Accounting for Decision Making
Professor: Dr. Ron Spicer
November 1, 2020
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Business Decentralization
Responsibility of Centers and Cost of Management
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DECENTRALIZATION
As businesses grow, the need for delegation of decision-making and operations becomes necessary
The delegation shifts authority from the central executive
The process of delegation of operations and decision-making is termed as decentralization.
Decentralization involves creation of smaller departments, which are self managed, but under the umbrella of the overall executive.
The amount of decentralized power and operations depends on the organization
In a decentralized organization, decision-making authority is spread among many decision makers rather than lying exclusively with the executives at the top of the business.
The decentralization into smaller corporate units is dependent on different things such as geographic areas, distribution channels, product lines, customer base, or business function
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DECENTRALIZATION TYPE
The company can decentralize on either one of the following premises, which are primarily defined by the authority
In support of these, the information technology and accounting department will be developed for each of the decentralized departments as cost centres.
In the first diagram, the decentralization is based on the regions of operations. Each location will have its own corporate unit.
In the second plan, decentralization is defined by the type of customer, where the customers of Morrlum Waterproof flooring materials are categorized. Each category of customer ha its own corporate unit.
In all the cases
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UPPER MANAGEMNET
MANAGER IN LOCATION ONE
MANAGER IN LOCATION TWO
MANAGER IN LOCATION THREE
UPPER MANAGEMENT
SALES DEPARTMENT ONE
SALES DEPARTMENT TWO
SALES DEPARTMENT TWO
RESPONSIBILITY OF DEPARTMENTS
The products of Morrlum Waterproofing materials are categorized into either Artistic, Official and Customized.
The different corporate centres will handle orders of the products depending on the category selected by the customer
The different departments will process orders all through to the delivery of the products, and hence the need for the cost centres.
The upper management will be primarily involved directly with the production of the flooring materials and hence the need for the quality control cost centre
Corporate units are therefore responsible for all the sales of the products within their categories
Every organization made up of more than one person will need some form of organizational structure. An organizational chart shows the way in which the chain of command works within the organization.
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COST CENTRES
Cost centers are not as big as departments, but rather sub departments that support the operation of the department.
Cost centers therefore generate expenses to the business
Busines analytics are increasingly being incorporated as the central point of cost centers in decentralized business
Image sourced from Data Science Project Management: https://www.datascience-pm.com/wp-content/uploads/2019/10/centralized-team.png
A cost center may be any defined group in which management finds benefit in segregating the cost of the group. For instance the quality control cost center which manages the information on quality
A downside to having this fine level of detail is the heavy requirements of information tracking that potentially outweigh the benefits of the knowledge obtained.
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BENEFITS OF ANALYTICS IN DECENTRALIZED BUSINESS
centralized data analytics in decentralized business facilitates communication between the different departments
As well, it facilitates talent management where all departments can centrally be involved, each in where they are most competent in the field of data science
The systems of the company can be managed centrally through business analytics, conquering the limitation of decentralization of other business operations
Organizational strategy can be managed even in decentralization of all other business operations
A centralized data science unit contains nearly all the organization’s data scientists in a single organizational structure. This group might have multiple teams with multiple managers, all reporting to a Chief Data Scientist
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CONT’D…
While centralized analytics delay decision making, decentralized analytics facilitates making decisions that are fast, responsive and relative to the respective department
Decentralized analytics reduce the disconnect between data science and the corporate units.
Morrlum Waterproofing should integrate both a centralized and a decentralized business analytics strategy.
This will reduce the limitations of each, and capture the benefits of both strategies
In decentralized analytics, each department delivers its own projects and functions, with opportunities for analytics expertise within each.
Data analysis is not limited to the responsibility of a single data team. Instead, it is done by those in other positions who have a desire to build their analytical skill-set or by data-focused individuals assigned to that specific department.
Example of integrating both strategies:
it may be more strategic to have a centralized team for areas such as data engineering and deploying solutions that data scientists, analysts, and others with that expertise can best manage. Organizations can then decentralize the remaining facets, such as data visualization, analysis, and real-time reporting that affects the work each department must deliver on.
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References:
Kaplan, R. S. (2006). The demise of cost and profit centers. Division of Research, Harvard Business School.
OKTARIANI, S. S., Fuadah, L. L., & Abukosim, A. (2018). THE ROLE OF RESPONSIBILITY ACCOUNTING IN EVALUATING THE PERFORMANCE OF COST CENTER (CASE STUDY IN PT. BANK MEGA TBK, PALEMBANG) (Doctoral dissertation, Sriwijaya University).
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