Performance Management

Question 1

What are some advantages and disadvantages of decentralisation (divisionalisation)

Answer 1

Advantages:
* Frees up senior managements time
* Local managers may be able to make higher quality decisions due to local knowledge
* Increased responsibility should motivate managers
* Increased responsibility increases training of middle management

Disadvantages:
* Lack of goal congruence
* Senior management may loose control of day-to-day operations
* Need specific performance measures for different dividions

Question 2

What is a cost centre?

Answer 2

Any part of the organisation that incurs costs

Question 3

What is a revenue centre?

Answer 3

Any part of the organisation that creates revenuem but has no responsibility for production

E.g. Sales dept

Question 4

What is a profit centre?

Answer 4

Any section of an organisaiton that earns revenue and incurs costs - so profit can be measured

Question 5

What is an investment centre?

Answer 5

A section of an organisation (division) whose manager is responsibly for costs, revenue and investment policy