lecture_8_tab - Divisional performance evaluation Most...

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ECOS3003 Lecture 8 1 Divisional performance evaluation Most organisation have some subunits grants some decision rights and evaluated on performance (note organisational architecture performance evaluation and reward systems are consistent with decision rights granted to unit manager) Each unit can be characterised into 1 of 5 categories based on the decision rights it has been granted and the way its performance is evaluated. 1. Cost centre - cost centres assigned decision rights to produce a stipulated level of output; in achieving this unit’s efficiency measured and rewarded - granted decision rights for determining mix of inputs used to produce output
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ECOS3003 Lecture 8 2 - managers evaluated on their efficiency in applying these inputs to produce output (not judged on selling output, revenue, profit) - output must be measurable - because it retains the decision rights to specify the department’s output or budget, central management must possess the requisite specialised knowledge - quality must be monitored effectively Various objectives are used to evaluate cost centre performance (a) minimise cost (b) max output (a) – set q*, managers need to produce at min cost (choose efficient input mix) (b) – max output for specified budget; same incentives, as need to select cost minimising input mix to produce q*
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ECOS3003 Lecture 8 3 - sometimes min average cost - note, not the same as maximising value (MR = MC is not necessarily the same as ATC minimised) In summary central managers need understanding of unit’s cost structure, determine value-maximising output level, monitoring quality and set up appropriate rewards; cost centre manager needs specific knowledge of optimal input mix
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This note was uploaded on 11/02/2010 for the course ECOS 3003 taught by Professor Andrewwait during the Three '10 term at University of Sydney.

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lecture_8_tab - Divisional performance evaluation Most...

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