Chapter 12, Problem 1RQ

What does decentralization mean in the context of a management control system?

To determine

Define decentralization in the context of the the management control system.

Explanation of Solution

Decentralization:

When the power of decision making is transferred from the higher authority to various lower authority, then it is known as decentralization.

Decentralization in the context of the management control system:

Decentralization is the transfer of authority to various subordinates. These subordinates are able to take the management level decisions without seeking the permission of higher authority.

But when the decision making is out of their authority, then these subordinates have to seek the permission of a higher level of management.

Example:

A business has branches in several cities. Every manager of each city has the authority to decide how much raw material is needed for production.

Thus, decentralization is the process of transferring authority to various subordinates.