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Discretionary Cost Analysis

Discretionary Cost Analysis

This is the book that is needed for reference.
Zimmerman, J. Accounting for Decision Making and Control 9th Edition, 2017 978-1-259-56455-0 McGraw Hill

1- Written Assignment: P 5-5 Discretionary Cost Analysis
2- Free Discussion Topics: Free discussions are topics of the students choosing but relevant to the chapter learning in the class. Discussion #1 –Must be presented in a “Compare and Contrast” forum, which is an analysis of similar and dissimilar areas of two subjects and a concluding summary. (subject Markets versus Firms chapter 4)
• Example: In Chapter 4, we learned about decision rights management and the concepts of centralized vs. decentralized decision-making power. Regardless of where an organization choses to house its decision-making power, there are key foundations that must be followed to ensure the process is followed and works efficiently:
o Central and decentralized decision-making must both be systematic and consistent. If the process is not followed, the organization could experience potentially negative impacts from those without the proper knowledge, experience, and leadership making uninformed decisions. Additionally, the process must be consistent; i.e. decision-making rights increase with responsibility and leadership within groups across the organization or all follow a decentralized approach where decision-making capabilities are spread throughout the organization.
o The basis of centralized and decentralized decision-making are both implemented as a means of control throughout the organization. Without a decision-making system process in place, a firm will fail as it lacks organization, direction, and leadership. Having a scattered approach is frustrating and leads to tensions within an organization. By having a decision-making process in place will provide for consistency and order.
o Decision-making processes foster responsibility and leadership skills. Whether an organization utilizes centralized or decentralized decision-making practices, it enables those with decision-making rights to be empowered. Through empowerment, these individuals will commit to more responsibility in the areas of their control and be more accountable for their respective areas.
As learned in the text, many differences also exist in these two approaches:
o Centralized and decentralized decision-making processes follow different structures. A centralized approach is more vertical, going up the organization; decision-making authority increases with that of managerial level and span of responsibility. On the other hand, a decentralized approach is more horizontal and spread across the organization and throughout various levels of responsibility and control. Decentralization of authority is more promoting of employee empowerment as it allows employees to make decisions which pertain to them and that are in their ‘wheelhouse’.
o An important factor to consider in terms of decision-making structure is that of time. A centralized approach tends to take longer for approval or denial of a decision. As decision-making rights increase with that of responsibility throughout a centralized organization, the time needed to make a decision also increases as it lies with limited individuals. Busy schedules, competing priorities, time away from the office, etc. can all hinder a centralized decision-making process whereas a decentralized approach is more flexible as more individuals exist to spread the responsibility and decision-making authority amongst.
o Organizational size also plays a part in the decision-making process. Centralized decision-making works best in a small organization where responsibility for decisions is held by few, but yet the time to reach decisions is also minimized. On the other hand, decentralized decision-making practices work best in large organizations where responsibility is held by many and decisions can be determined in a relatively short amount of time when given to the proper individual(s).
In research of the compare and contrasts of centralized and decentralized decision-making methods, it is evident that many contrasts exist; however, there are also many commonalities that must exist to ensure the processes are efficient. In the end, it is really what works best for the organization. It may depend upon organizational size, industry, longevity, etc. but also boils down to where management wants to house its responsibility and liability within the organization.

 

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