performance measurement in
decentralized organizations chapter 11
questions with answers.
decentralized organization ANS -an organization in which decision-making authority is not confined to a
few top executives but rather is spread throughout the organization
benefits of decentralization ANS -- lower-level decisions often based on better info
- lower-level mangers gain experience in decision-making
- top management free to concentrate on strategy
- lower level managers can respond quickly to customers
- decision-making authority leads to job satisfaction
disadvantages of decentralization ANS --lower-level managers may make decisions without seeing the
"big picture"
- may be difficult to spread innovation ideas in the organization
- may be a lack of coordination among autonomous managers
- lower-level managers objectives may not be those of the organization
responsibility center ANS --Any business segment whose manager has control over costs, revenues, or
investments in operating assets
- cost center, profit center, investment center
cost center ANS -a segment whose manager has control over costs, but not over revenues or
investment funds
profit center ANS -a segment whose manager has control over both costs and revenues but no control
over investment funds
, investment center ANS -a segment whose manager has control over costs, revenues, and investments in
operating assets
return on investment (ROI) formula ANS -- measure net operating income earned relative to the
investment in average operating assets
- if ROI is higher than the required rate of return you want to accept the project/investment
- higher the ROI the better
ROI = margin x turnover
ROI = (net operating income/sales) x (sales/average operating assets)
ROI = net operating income/avg operating assets
net book value verse gross cost ANS -most companies use the net book value of depreciable assets to
calculate average operating assets (acquisition cost less accumulated depreciation)
Profit Margin Ratio ANS -
asset turnover ANS -sales/average operating assets
criticism of ROI ANS -- in the absence of the balanced scorecard, management may not know how to
increase ROI
- managers often inherit many committed costs over which they have no control
- managers evaluated on ROI may reject profitable investment opportunities
residual income ANS -- a measure of performance
- net operating income above some minimum required return on operating assets
- measures net operating income earned less the minimum required return on avg operating assets
decentralized organizations chapter 11
questions with answers.
decentralized organization ANS -an organization in which decision-making authority is not confined to a
few top executives but rather is spread throughout the organization
benefits of decentralization ANS -- lower-level decisions often based on better info
- lower-level mangers gain experience in decision-making
- top management free to concentrate on strategy
- lower level managers can respond quickly to customers
- decision-making authority leads to job satisfaction
disadvantages of decentralization ANS --lower-level managers may make decisions without seeing the
"big picture"
- may be difficult to spread innovation ideas in the organization
- may be a lack of coordination among autonomous managers
- lower-level managers objectives may not be those of the organization
responsibility center ANS --Any business segment whose manager has control over costs, revenues, or
investments in operating assets
- cost center, profit center, investment center
cost center ANS -a segment whose manager has control over costs, but not over revenues or
investment funds
profit center ANS -a segment whose manager has control over both costs and revenues but no control
over investment funds
, investment center ANS -a segment whose manager has control over costs, revenues, and investments in
operating assets
return on investment (ROI) formula ANS -- measure net operating income earned relative to the
investment in average operating assets
- if ROI is higher than the required rate of return you want to accept the project/investment
- higher the ROI the better
ROI = margin x turnover
ROI = (net operating income/sales) x (sales/average operating assets)
ROI = net operating income/avg operating assets
net book value verse gross cost ANS -most companies use the net book value of depreciable assets to
calculate average operating assets (acquisition cost less accumulated depreciation)
Profit Margin Ratio ANS -
asset turnover ANS -sales/average operating assets
criticism of ROI ANS -- in the absence of the balanced scorecard, management may not know how to
increase ROI
- managers often inherit many committed costs over which they have no control
- managers evaluated on ROI may reject profitable investment opportunities
residual income ANS -- a measure of performance
- net operating income above some minimum required return on operating assets
- measures net operating income earned less the minimum required return on avg operating assets
