Question

Explain decentralization as it pertains to managerial decision making.

Answer 1

Decentralisation is when managers in the company are given autonomy to make decisions for their subunits. To obtain goal congruence the managerial accountant’s objective is to design a responsibility accounting system in such a way that provides incentives so that goal congruence is achieved. It's advantages and disadvatges in managerial decision making are discussed as below:

Advantages of Decentralisation:

1. Distribution of burden of top executive—Decentralisation enables to its top executive level to share work burden with employees at lower levels as the authority can be delegated. The top executive managers are relieved of some burden, thus can utilize the time and energy to concentrates his activities to think for the future of the organisation.

2. Increased motivation and morale — The morality of the employees are increased since they have more responsibility as delegation of authority prevails. Decentralisation helps to increase employees morale since it involves delegation.

3. Greater efficiency and output—Decentralisation lays emphasis on care, caution and enthusiastic approach to the work, consequently results in increased efficiency and output. This is again possible due to delegation of authority and responsibility.

4. Diversification of Activities—Decentralisation helps in diversification of activities. It crests more employment opportunities because new managers are to be entrusted with new assignments.

5. Better Co-ordination—With the decentralised set up there is an improvement in coordination among various operations and activities.

6. Maintenance of Secrecy — Decentralisation enables to maintain secrecy in the organisation without additional cost and unnecessary trouble.

7. Facilitate effective control and quick decision-Decentralisation facilitate to measure the work of employees according to standard easily and quickly which in turn helps in taking up quick decision.

Disadvantages of Decentralisation:

A decentralised organisation suffers from the following disadvantages:

1. More cost—Decentralisation is costly since it encourages duplication of functions and equipments in the organisation. It cannot be adopted by small organisations because of the cost concern.

2. No specialisation — Specialisation suffers in decentralisation since all employees becomes jack-of-all-trades but master of none. In this way the specialisation is affected.

3. Need more specialists-In decentralisation more specialists are required. As they are large in numbers, therefore the services of specialists are not utilised effectively and efficiently,

4. No uniform action — In decentralisation it becomes difficult to maintain uniformity in action since routine and methods differ from an organisation to organisation, department to department, etc

5. No equitable distribution of work — It is hard to distribute workload equitably among different employees.