This document discusses decentralization in healthcare organizations and responsibility centers. It defines decentralization and identifies major types of responsibility centers including service centers, cost centers, profit centers, and investment centers. The document also covers calculating revenue and expense variances for budgets, and examining responsibility, authority, and accountability. Financial measures beyond variances and compensation systems are also summarized.
2. Learning Objectives
• Defining decentralization and its advantages and
disadvantages
• Identify the major types of responsibility centers in health
care organizations
• Explain the relationships of responsibility, authority and
accountability
• Compute volume and rate variances for revenue
• Compute volume and cost variances for expenses
3. Decentralization
• Degree of dispersion of responsibility within an organization
• Advantages-More efficient use of time, more relevant info,
higher quality decisions, greater speed, better use of talent,
increased motivation and allegiance
• Disadvantages-loss of control, decreased goal congruence,
increased need for coordination and formal communication,
lack of managerial talent
5. Responsibility Center
• An organizational unit formally given the responsibility to carry
out one or more tasks or achieve one or more outcomes, or both.
• Types of responsibility centers:
1. Service centers
2. Cost centers
3. Profit centers
4. Investment centers
14. Measuring Performance
Basic Attributes:
• Responsibility-Duties and obligations of a responsibility
center
• Authority-Power to carry out a given responsibility
• Accountability-Extent to which there are consequences,
positive and negative attached to carrying out
responsibilities
16. Budget Variances
Difference between what is budgeted and what actually occurred.
• Revenue variances-positive called favorable
• Develop a Flexible Budget Estimate for Revenues
• Calculate the Revenue Variance Due to Changes in Volume Rate
• Expense variances-
• Identify the Amount of Variance Due to fixed costs
• Develop a flexible Expense Budget
• Calculate the Expense Variance due to Volume
28. Other Financial Measures
• Compensation Systems
• Salary Based Compensation System
• At Risk Compensation System
• Mixed Compensation System
• Compensation System Design
30. Summary
• Decentralization a growing trend
• Advantages and disadvantages to decentralization
• Responsibilities centers include: service, cost, profit and
investment
• Variances must be tracked and cause determined
• Compensation systems must be reviewed