Divisional Performance Evaluation
Divisional Performance Evaluation
Overview:- Most large Organisations adopt divisionalised structures. The manner in which divisional performance is controlled and measured is, therefore, of particular importance. A central issue of performance reporting is whether divisional managers should be held accountable for items that they cannot influence by their actions. The conventional wisdom of management accounting, as reflected in textbooks, advocates that the evaluation of a manager’s performance should consist of only those factors under a manager’s control. Therefore, divisional managerial performance measures should include only the items controllable by divisional managers. Or, performance measurement should be based on the application of the controllability principle.
A manager is said to have a decision right if the enforcement and disciplinary powers of the top- level executive office will be used to enforce his ability to take an action. In large organizations, decision rights are more complex than the simple phrase suggests. For example, it is common in such organizations for no single individual to have all the decision rights necessary to undertake a major project. Instead, there is a complex process that brings many people into the decision-making function, a process that breaks the simple notion of a decision right into many components that are allocated to various decision agents. The following is a common breakdown:
1. Initiation right—the right to initiate resource allocation proposals.
2. Notification right—the right to be notified of the actions or proposed actions of others in the organization and the right to provide information or recommendations to the decision process regarding those proposals.
3. Ratification right—the right to review and ratify or veto the resource allocation recommendations of others.
4. Implementation right—the
Overview:- Most large Organisations adopt divisionalised structures. The manner in which divisional performance is controlled and measured is, therefore, of particular importance. A central issue of performance reporting is whether divisional managers should be held accountable for items that they cannot influence by their actions. The conventional wisdom of management accounting, as reflected in textbooks, advocates that the evaluation of a manager’s performance should consist of only those factors under a manager’s control. Therefore, divisional managerial performance measures should include only the items controllable by divisional managers. Or, performance measurement should be based on the application of the controllability principle.
A manager is said to have a decision right if the enforcement and disciplinary powers of the top- level executive office will be used to enforce his ability to take an action. In large organizations, decision rights are more complex than the simple phrase suggests. For example, it is common in such organizations for no single individual to have all the decision rights necessary to undertake a major project. Instead, there is a complex process that brings many people into the decision-making function, a process that breaks the simple notion of a decision right into many components that are allocated to various decision agents. The following is a common breakdown:
1. Initiation right—the right to initiate resource allocation proposals.
2. Notification right—the right to be notified of the actions or proposed actions of others in the organization and the right to provide information or recommendations to the decision process regarding those proposals.
3. Ratification right—the right to review and ratify or veto the resource allocation recommendations of others.
4. Implementation right—the