Assignment: Evaluating Performance Using Metrics
As a functioning business, it is necessary to have profit centers, cost centers and investment centers. These different centers deal with the company’s profits, costs and investment funds. Anthony Orchard’s organizational structure shows each department and I’ve placed them into the departments they belong to, considering these centers. The profit center “is a business unit or segment that generates revenues and incur costs” which means it uses the company’s resources to generate income (myaccountcourse.com, n.d). An example of a profit center is the sales department, this is obviously the department that uses the company’s resources to gain income. In this department, the product that is sold, which deals with apples, is used to pay salaries, rent and any other company expenses. “A cost center is a business unit that is only responsible for the cost it incurs” (accountingtool.com, n.d). The cost center deals with the budget and actual cost and this is how performance is measured, through what we expected to spend with what we spent. A couple examples of a cost center is the human resource department and the IT department as well. An investment center “is the responsibility center within an organization that has control over revenue cost and investment funds” (experts, 1999) The investment center deals with the corporate headquarters or the central organization and is performance measures is based on the “return earned on invested capital” (experts, 1999). For an investment center the two key performances are return on investment and residual income.
In order to stay on track and remain focused it is important for managers to evaluate each units’ performance. In this case, mangers can set goals, start out with short term goals that lead to long-term goals and stay on track with the set short-term goals. I also think operating profit metrics would be a great idea considering it “strips out the impact of one-time revenues and expenses to reveal how the business is performing” (Company, 2015). If I was put in charge of one of the cost centers it would be the human resource department. As a manger of this department, to make sure it reaches both short-term and long term goals I would use the forecasting method. I will monitor and adjust daily to be sure goals are met every time.
Company, G. E. (2015). Measuring success performance metrics. Retrieved from http://www.americas.gecapital.com/insight-and-ideas/capital-perspectives/measuring-success-making-the-most-of-performance-metrics
Experts. (1999). Outsourcing. Retrieved from Uncategorized, https://www.allbusiness.com/barrons_dictionary/dictionary-investment-center-4944180-1.html
Profit center – definition | meaning | example. (2017). Retrieved from http://www.myaccountingcourse.com/accounting-dictionary/profit-center
Cost center definition. Retrieved from http://www.accountingtools.com/definition-cost-center
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