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Performance measurement Summary
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- Stellenbosch University (SUN)
A summary of manacc378, Performance measurement
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Performance measurement:NB!! Know:
Theory
Classification
Definitions
What is the objective of performance measurement?
Evaluation:
Outstanding
Good
Average
Fair
Poor
Of:
Manager
Division
Company
Etc
Organisational structure:
The two types of organisational structures generally used for performance evaluation are:
Functional organisational structure, where all operations of a similar nature/
function within an entity are grouped together in a department and then placed under
the control of a departmental manager (often run as cost centres), and
Divisionalised organisational structure, where the organisation is divided into
departments on the basis of for e.g. the different types of products manufactured.
, Functional organisational structure
4 TYPES OF CLASSIFICATIONS:
4 TYPES OF CLASSIFICATIONS/ Responsibility centre:
Cost (or expense) centre: manager held responsible for costs
Income centre: manager held responsible for income (and for selling expenses only)
Profit centre: manager held responsible for profit (income and cost controllable)
Investment centre: manager held responsible for profit and investments made in
order to earn the profit. Measures such as ROI (return on investment), RI (residual
income) and EVA (economic value added) are specifically applicable here
[NB!! Can only evaluate the manager on what he has control over/ what he is responsible for]
In a functional structure only the organisation as a whole is operated as an
investment centre, and all lower levels follow the functional sub-division
Therefore, normally a more centralised structure, however the responsibility centre status
(e.g. cost or investment centre) is not necessarily an indication of a unit’s level of
decentralisation
Divisionalised organisational structure:
In a divisional structure the organisation is sub-divided into several profit or
investment centres, and the functional sub-division is applied to the lower
levels of each unit
The divisional manager 4 types of classifications
is responsible for all of the operations relating to his or her
particular product
Units are often operated as profit or investment centres. A decentralised structure is in
place and managers
OFTENareCOST
more autonomous.
CENTRES
Investment centre is where managers have the responsibility of making capital
investment decisions
Alternatively, where a manager cannot control the investment, and is responsible only
for profits, the segment is referred to as a profit centre.
Differences between functional and divisionalised organisational structure:
In the functional structure, only the organisation as a whole is an investment centre
and below this level, a functional structure applies throughout.
In a divisionalised structure, the organisation is divided into separate investment or
profit centres and a functional structure applies below this level.
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