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Hi there,
I am a bit confused with the following sentence:
“When a division is classed as an investment centre, the manager is given decision-making
authority not only over costs and revenues, but can also over capital investment decisions”Does it mean that only one managers is responsible for costs, revenues & investments?
or
Separate manager is responsible for each one?
Regards.
Sorry for the confusion.
I can confirm that the division manager of an investment centre will control costs, revenues as well as make their own investment decisions.
One manager has control over all three aspects.
Hope that helps
CathThank you very much Cath for the explanation as it helps a lot.
So say for example there are 2 divisions (A&B),
Division A is a profit centre and division B is an investment centre, does it mean that the manager of each division can only be held accountable for the costs of each division respectively?furthermore, does it mean Division A’s manager can not be held responsible for any of division B costs?
Regards
Hi – thanks for your comment – glad to help.
If Division A is a profit centre then they can only be held accountable for their own costs and revenues (and thus profits). To analyse performance of this division you would use metrics like gross profit margin, cost analysis, variance analysis and so on.
If Division B is an investment centre then they can be held accountable for their own costs, revenues (profits) AND investment decisions.
In which case you can analyse Division B performance using same performance metrics as above – e.g. gross profit margin etc -but also we can also see how their investment decisions have performed by using extra performance measures of ROI and Residual Income.Division A should never be responsible for Division B’s costs -or vice versa. This would be unfair if other costs beyond their remit were included.
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