Question

1. What is a decentralized organization? 2. Describe three advantages of a decentralized organization? 3. Describe three disadvantages of a decentralized organization? 4. Describe the each of the following: a. cost center b. profit center c. investment center. 5. Describe the term Return on Investment ("ROI"). 6. What is the formula to determine ROI? 7. Describe the term Residual Income. 8. Describe and provide the formula for the following Operating Performance Measures: a. Throughput (Manufacturing Cycle) Time b. Delivery Cycle Time c. Manufacturing Cycle Efficiency ("MCE") 9. Describe the Common Characteristics of Balance Scorecards. 10. How would you construct a balanced scorecard?

Answer 1

1. Decentralized Organization:- For every organization decision making is very vital. Generally for a smaller organization it is feasible to make decision at all the functions by heads of the company. How ever as the company size increases and the employees strength gets increased and controlling by limited persons with the respect to all the areas is not feasible. Hence the concept of decentralized organization comes into picture. Decentralized organization is something where decision making authority is spread across various hierarchies including middle level and lower level management.

2. Three advantages:- A.Burden reduction- As the decision making burdens are shared with multiple people effective decisions without any pressure will be taken and will facilitate effective and better management of resources available to the company

B. Ease of expansion:- If the company wants to expand, it can instantly open an independent decentralized unit which is not so easy in an centralized unit which involves a lot of activities to be included and adjusted with in the existing centralized organization

C. More effective decision making:- If any part of organization wants to make decisions it is easy and quick since they need not wait for the approval of long chain of higher authorities. Hence the decisions can effectively be implemented

3. Disadvantages A. Loss of control on day to day activities :- Since the control is taken by various managers, the heads of the company should trust their capability and talent. However it does not always be in benefit. Sometimes the trust make be broken.

B. Conflict of goals:- However the heads of the company tries to align the goals of the organization, there will be difference of opinions. For example a mid level manager will focus on increasing the size of the department rather than meeting the quality of the performance.

C. Increase in cost:- In a centralized organization, many activities can be performed at one place giving away many benefits in order to save cost

4. Cost center:- It may be an department, or a function which to operate incurs the cost which may not directly derive benefits. For example a finance function of an organization does not directly generate profits but incurs man power costs to operate

Profit center:- A part of an organization where revenues get generated. For example: a sales go down where revenues are generated can be a profit center

Investment center:- It is a unit of business that uses the certain portion of capital of the company and generates its own revenues and incurs costs. It is measured as how much benefit an each investment center bought to the company. It may also be a subsidiary for a better understanding.

5. Return on Investment:- The amount of return you earn on an investment is called return on investment. It is the revenue after reduction of costs incurred.

6. Formula for ROI is (Revenue-Cost)/Investment*100

7. The income earned over and above the minimum rate of income is called residual income.

8. A. Through put time:- the complete time from the start of the process till end of the process for manufacturing one unit is called through put time. Normally all the time can be classified into these activities

a. Wait time

b Processing time

c. inspection time

d. Move time

e. Queue time. Etc

sum of all times is the formuala

B. Time taken from the time of acceptance of an order till the delivery of the goods/service to the customer. The formula is sum of order processing, arranging the good for delivery which involve the time that is required to get the good ready and then time taken to deliver the product

C. Manufacturing cycle efficiency:- Value added time when it is divided by through put time. Value added time will not include wait time, queue time and non productive time. So after reduction of that the balance time is divided by through put time to arrive at the manufacturing cycle efficiency

9. Characteristic of a balance score card:

a. Financial goals will be kept on mind and to be achieved

b. Making customers recognize the value we are delivering

c.Focus on Learning and growth

d.Focus on Business processes improvement

10. Construction of balanced scorecard

a. Determine the vision of the company along with perspectives and objectives

b. Find out the measures to achieve these objectives

c. Fix tagets

d. Monitor these measures like understanding why we are not able to achieve the targets and suggest improvements