Budgeting Basics and Beyond

22.1. Appraising Manager Performance

In appraising manager performance, one must determine which factors were under the manager's control (e.g., advertising budget) and which factors were not (e.g., economic conditions). Comparison should be made of one division in the company to other divisions as well as of a division in the company to a similar division in a competing company. Appraisal also should be made of the risk and earning potential of a division. Graphic presentation shows comparisons of an historical, current, or prognostic nature.

Importance of Measuring Performance of Divisional Manager

• Assists in formulating management incentives and controlling operations to meet corporate goals

• Directs upper management attention to where it would be most productive

• Determines whom to reward for good performance

• Determines who is not doing well so corrective action may be taken

• Provides job satisfaction, because the manager receives feedback

In decentralization, profit responsibility is assigned to subunits. The lower the level where decisions are made, the greater is the decentralization. It is most effective in organizations where cost and profit measurements are necessary and is most successful in organizations where subunits are totally autonomous. Decentralization is in different forms, including functional, geographical, and profit.

Advantages of Decentralization

• Top management has more time for strategic planning.

• Decisions are made by managers with the most knowledge of local ...