Performance Measurement and Decentralization †MyAssignmenthelp.com

Question: Discuss about the Performance Measurement and Decentralization. Answer: Introduction Decentralization essentially refers to the process of delegating the authority mostly related to decision making processes that are not possible by a single individual to execute. This means that in a large scale organization the complexity of the operations performed and the diversity of the projects undertaken demand effective decision making in the processes associated with them. These decisions can be categorized into certain domains like strategic decisions, decisions related to management and decisions regarding control. Now it is not possible for a single individual to take accurate decision in regards to such a vast area of operations, therefore the senior level management delegates the decision making process to his subordinates, this is known as decentralization. A particular official who is positioned at the higher level of the hierarchy of authority may not be always available to take decisions therefore the task may be delegated to the employees at the middle or lower le vel. However in order to ensure that the employees do take decisions that are in the interests of the company and not in accordance to their own personal interests, suitable and apt performance measures should be established in the organization (https://www.accaglobal.com, 2017). Literature review:Measuring performance in managerial accounting level Decentralization is carried out in all organizations irrespective of the size of the organization. But in order to measure the effectiveness of the decentralization carried out in the organization, performance measures have been introduced. Performance measures can be of two types namely financial measures and non financial measures. Financial measures are those which produce results that can be measured quantifiably like financial performance. Non financial measures are the measures that deal with the qualitative results of the firm like innovation and resource utilization of the firm. In this particular study the discussion focuses upon the techniques of measuring performance inmanagerial accounting level that is financial performance measures ("Measure your financial performance", 2017). The financial performance measures are utilized for gauging the performance of the organization. Specific measures for evaluating the performance in managerialaccounting are: Quality Cost the extent to which the cost of quality to be utilized in the organization, is measured by comparing the actual cost with the budgeted cost. Variances variances are another effective measure of performance that is calculated by comparing the standard absorbed cost with the actual expenses incurred by the organization. Cashflow cashflows are the perfect performance measurement tool in respect to managerial accounting. A particular cashflow aims to measure the cash flowing in and out of the business. Cashflows are a mandatory component of the financial statements prepared by an entity and tend to provide accurate forecasts regarding the business. Working Capital the amount of working capital that is undertaken by the company also acts as an efficient performance measurement tool. There are several other tools that aim to measure the performance at the managerialaccounting level but individually these tools do not prove to be effective therefore certain systems have been developed in order to simplify the task of performance measurement (Franco-Santos, Lucianetti, Bourne, 2012). The first performance management tool is the balanced scorecard system. The balanced scorecard system that constitute of certain methods of design and automation tools, which are essentially used the senior level management in order to keep track of the activities or decisions executed by employees and the subsequent results from such actions (Wu, 2012). Another popular performance measurement system is the Action-profit Linkage Model that aims to cover the four main components of performance that are the actions or operations undertaken by the company, delivered services or products, action by the customers and the economic impacts. Managers with the help of such a system are able to measure the performance and profitability of each and every action that is undertaken by the company (Mirela-Oana, 2012). Lastly the performance measurement system in managerial accounting is the performance prism. Performance prism essentially measures the performance of the firm based on the perspective of its stakeholders. The primary five facets of the performance prism are satisfaction obtained by the stakeholders; strategies to increase the stakeholder satisfaction; processes to be incorporated; capabilities required in order to establish the processes; contribution by the stakeholders ("The Performance Prism", 2017). Decentralization and its impact in managerial accounting activities Decentralization is adopted by each and every organization. This is because the increasing complexity of business and the involvement of the organization in a vast number of operations make the process of decentralization effective and necessary. Decentralized decision making impacts the performance of the organization in a positive way. The quality of the decisions that is taken by the employees in a decentralized unit is always higher than the quality of decision making that is taken in a centralized unit. This is because in a decentralized unit the decision is taken by an employee who is directly connected with the issue regarding which the decision has to be taken therefore the decision taken by him is often accurate and effective. In an organization that has incorporated effective decentralization the chances of occurrence of errors in the financial statements are low. This is because the lower level employees who are delegated with the responsibility of preparation of the finan cial statements are directly related with decision making processes and do their work with increased motivation and focus. Thus decentralization positively impacts the managerial accounting activities Managerial accounting activities essentially refer to the preparation of the financial statements and other activities that depict the financial performance of an organization along with the preparation of the accounting statements revealing the liquidity position of business and other indicators of the financial condition of the organization. Decentralization if implemented in an organization will ease the entire process of managerial accounting. This is because the preparation of the financial statements require recording of data or information from different stakeholders of business. Now these activities are carried out at the lower levels of management and often executed by employees at the base level of the hierarchy of authority. Decentralization enables such an employee to take effective decision in the preparation of the financial statements as he is in direct connection to the area of action. Thus effective decentralization results in an accurate managerial accounting proces s of an organization (Ecker, van Triest Williams, 2013). Advantages of decentralization on measuring performance Decentralization saves the chief executives from being burdened by the responsibility of taking routine decisions. The time that decentralization saves for these executives can be spent on more important topics such as diversification of products or developing a cheaper production process, product innovation and initiating investment in new projects. Decentralization facilitates effective supervision and control. This is because the senior level management having released from the rigorous task of decision making, have enough time to monitor and assess the activities and operations carried out by his subordinates. Decentralization enables an organization to take accurate and contextual decisions due to the fact that the individual or employee delegated with the particular authority is nearest to the place of action. This allows him to be well aware of the real situation and thus take a decision that is perfectly suitable (Alonso, Clifton Daz-Fuentes, 2015). Disadvantages of decentralization on measuring performance The process of decentralization also comes with certain demerits. For instance decentralization often hampers the process of cooperation and coordination among the various units of the organization. This is because different units react differently to a particular situation thus hampering effective coordination. Decentralization for small scale firms are not recommended as it involves greater amounts of operating costs. Decentralization may also lead to decision making by employees in regards to satisfy their own personal interests rather than the interest of the organization (Alonso, Clifton Daz-Fuentes, 2015). Discussion Decentralization though has certain demerits but with the implementation of effective performance measures can prove to be a major contributing factor in increasing the profitability of the organization. Decentralization without performance measurement system is incomplete and also ineffective. Moreover the process of delegation of authority can only be a success when the effect of such an action can be measured. For instance an individual working in a bank with decentralized process in loans approval, accounts opening, budgeting, managing cost and all operations activities if shifted to a centralized process will surely affect the entire structure of business in the bank. The process of decision making may deteriorate the quality of the decision taken along with delay in the entire process of decision making. This is because a centralized decision making process does not involve direct connection with the place of action, thus disallowing the executive to make realistic and quick decision. The cost of operation may also increase as individuals with specific skill and experience may be appointed for the purpose of decision making. The managerial accounting function may also be affected negatively due to a centralized decision making system. This is because the senior level management would not have much time to monitor their subordinates thus increasing the chances of errors and fraud in the accounting statements of the bank. A single individual delegated with the task of decision making regarding loan approval, account opening, budgeting and managing cost also aggravate the chances of error on the part of the individual as he cannot be in touch with all these sectors at the same time thus he has to take decision n the basis of assumption and experience (Beretta Prete, 2012). However a centralized decision making system may establish the lost coordination among the different units of the bank and increase the dependence of the employees over the management of the bank. Best method to do research methodology The research methods will enable us to gather the data needed to answer as response in the research questions in target group. Survey method is the best quantitative method that includes asking people to fill up responses about budgeting, costs and managerial accounting. First, we have to consider a focus group in which interview process is to be conducted. This is the best method to work out a research methodology. We mainly ask two types of questions: open-ended questions and closed-ended questions. The responses of interviewee are tabulated in the excel sheet. Target participants The target participants are the intended audience or sample of whole population of predetermined market. The target participants are commonly formed according to the similarity or variability as required. Target population in research process indicates the entire group of individuals or objects to which researchers are interested in generalizing the interpretations. Interviews or focus groups include conversation to people to find out their views and experiences. Generally, focus groups have 6 to 10 people. The target population is restricted to exclude population members and questions should be relevant to the interview process. Here, the representatives from employees, managers, educated customers and senior officials are able to make a proper target group. Analytical Process of Data Data analysis is the method of systematically applied statistical and logical techniques to describe and illustrate, summarize and interpret. Finally, after evaluating the data, researchers generally analyze for patterns in observations through the entire data collection phase. The data could be majorly of two types. These are quantitative (numeric) and qualitative (categorical such as ordinal, cardinal). We should put the data in nominal, ordinal, interval or ratio scale. (Yin, Yang Karimi, 2012). The first step is to impose a research question.The second step is to consider the measuring process. Reliability and validity of the measures are to be tested. The accounting and costing data have mainly two types of measures such as achievement measures and improvement measures. The third step is collect data according to the responses of questionnaire required for our study. We have to set up the survey system and survey design software according to the sample size formula and calculator. We then measured the descriptive statistics and central tendency of the subject matter. Measures of variance indicate the data around the center. Besides, correlation and regression of different variables were undertaken into consideration. We could use different software packages such as Minitab, SAS, SPSS, MS Excel and R. After analyzing the data, we tested the hypotheses to determine the probability that that a given hypothesis is true or false. From pre assigned consideration, we assume null or alternative hypotheses and decide whether accept or reject the null hypothesis at certain confidence interval. Collection of Data The collection of data depends on four degrees such as degree of structure, degree of quantifiability, degree of obtrusiveness and degrees of objectivity. We can collect primary data or secondary data. The communication between respondents and interviewer helps to generate true responses. Collection of secondary data is easy to process but sometimes may bay unsuitable. We must keep the data collection process under control. The interview method is proper for getting information. The interview could be conducted in two ways such as personal interview (face-to-face) and structured interview (non-flexibility of face-to-face). We are eager to tale personal interview because of getting the information of greater strength, flexibility of restructuring, low amount of non-response, more control and more personal information. Interviewer could gather supplementary information about respondents personal characteristics and environment that has value in interpreting outcomes. We can take it group wise too. Their thought processes in terms of responses are necessary for the welfare of bank in terms of decentralization of accounting management (Weigold, Weigold Russell, 2013). Recommendations Decentralization essentially refers to the process of handling over the responsibility of the decision making processes to the concerned group or individual who is directly related or connected with the action regarding which the particular decision has to be taken. Decentralization in managerial accounting can be very effective if implemented accurately. The best practice to implement decentralization or to develop a decentralized organization is that the particular responsibility of delegating the authority of decision making should be done by a senior level officer after proper scrutiny of the workings inside an organization. To be more precise the decentralization without proper research and analysis may prove to be a wastage of resources. Therefore it is best recommended to assign a particular team that may deal with the entire process of decentralization and result in effective execution of the operations of the entity. Secondly the structure of the decentralized system should be such that it involves performance measurement tools in order to measure the effectiveness of the implemented decentralization process. Conclusion Therefore as it can be concluded from the above study a decentralized organization is much more effective than a centralized organization. This means that decentralization does lead to accurate decision making and thus initiate proper functioning of an organization. The managers of a particular entity implementing decentralization in the organization should be vigilant of the decisions that is taken by the employees and should also implement performance measures in order to measure the effectiveness of the implemented processes. Decentralization as can be understood from the above study, also is effective in facilitating managerial accounting. Thus as a matter of fact decentralization should be adopted by more and more organizations. Summary The findings of the particular study have provided a clear understanding of the concept of decentralization in an organization especially in banks. Decentralization fundamentally refers to the process of delegation of authority to employees or units that are in direct connection with the operations undertaken by a particular organization and therefore will be able to take effective and wise decisions regarding the operations. Decentralization in banks with regard to handling operations such as cost management, account opening and approval of loans is an essential requirement for ensuring effective degree of operation by the bank. However, decentralization without the implementation of effective performance measurement tools is meaningless. As mentioned in the study multiple systems have been developed in order to measure performance in managerial accounting level. These are namely the balanced scorecard system, action profit linkage model and the performance prism. Therefore, it is c lear that decentralization and performance measurement are the two facets of the same coin. Though decentralization has certain demerits, as it is not suitable for small-scale firms and hamper the process of coordination among different units of the organization, the merits of the decision making process overcast these disadvantages. Therefore, decentralization should be adopted by each organization. References Alonso, J. M., Clifton, J., Daz-Fuentes, D. (2015). Did new public management matter? An empirical analysis of the outsourcing and decentralization effects on public sector size. Public Management Review, 17(5), 643-660. Beretta, E., Prete, S. D. (2012). Bank acquisitions and decentralization choices. Economic Notes, 41(1?2), 27-57. Ecker, B., van Triest, S., Williams, C. (2013). Management control and the decentralization of RD. Journal of Management, 39(4), 906-927. Franco-Santos, M., Lucianetti, L., Bourne, M. (2012). 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