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A responsibility center is an organization unit that is headed by a manager who is responsible

for its activities and results.[1] In Responsibility Accounting revenues and costs information are

collected and reported by responsibility centers.[2]

An organization unit can be considered a responsibility center if it has a manager; it has its own

objectives guiding its activities; and * the manager has control over the resources needed topursue the objectives.[3]

A decentralized environment results in highly dispersed decision making. As a result, it isimperative to monitor and judge the effectiveness of each manager. This is easier said than done.

Not all departments (Centers) can be evaluated on the same basis because some do not generate

any revenue; they only incur costs in support of some necessary function. Other Centers that

deliver goods and services have the potential to be assessed on the basis of profit generation. Asa generalization, the part of an organization under the control of a manager is termed a

"responsibility center." To aid performance evaluation it is first necessary to consider the specific

character of each responsibility center. Some responsibility centers are cost centers and others

are profit centers. On a broader scale, some are considered to be investment centers. The logicalmethod of assessment will differ based on the core nature of the responsibility center. basic

devices are essential to a well managed organization. Managers must be held accountable for theresults of their decisions and related execution. Without performance-related feedback, the

business will not perform at its best possible level, and opportunities for improvement may go

unnoticed. Given that managers must be held accountable for decisions, actions, and outcomes, itbecomes very important to align a manager's area of accountability with their area of

responsibility. The "area" of responsibility can be a department, product, plant, territory,

division, or some other type of unit or segment. Usually, the attribution of responsibility will

mirror the organizational structure of the firm. This is especially true in organizations that have adecentralized approach to decision-making.[4]

Types of responsibility centers

There are four types of responsibility centers, according to the nature of the control over the

inputs and outputs:[5]

Revenue center

Cost or Expense center

Profit center

Investment center

Expense Centers

Expense centers are those parts of the company that do not contribute directly to profit. They fall into twobroad categories: cost centers and discretionary expense centers. Cost centers, such as manufacturingunits or service delivery units, are responsible for producing a certain level of output at an agreed cost.Discretionary expense centers provide internal services, such as finance, administration or humanresources. Expense centers can also contribute to revenue and profit by increasing customer satisfaction.Production departments that only focus on costs tend to emphasize long, efficient production runs withoutconsidering customer needs, according to Harvard Business School. By taking a more flexible approach,

http://en.wikipedia.org/wiki/Responsibility_center#cite_note-0http://en.wikipedia.org/w/index.php?title=Responsibility_Accounting&action=edit&redlink=1http://en.wikipedia.org/wiki/Responsibility_center#cite_note-1http://en.wikipedia.org/wiki/Responsibility_center#cite_note-2http://en.wikipedia.org/wiki/Responsibility_center#cite_note-3http://en.wikipedia.org/wiki/Responsibility_center#cite_note-4http://en.wikipedia.org/wiki/Revenue_centerhttp://en.wikipedia.org/wiki/Cost_center_(business)http://en.wikipedia.org/wiki/Profit_centerhttp://en.wikipedia.org/wiki/Investment_centerhttp://en.wikipedia.org/w/index.php?title=Responsibility_Accounting&action=edit&redlink=1http://en.wikipedia.org/wiki/Responsibility_center#cite_note-1http://en.wikipedia.org/wiki/Responsibility_center#cite_note-2http://en.wikipedia.org/wiki/Responsibility_center#cite_note-3http://en.wikipedia.org/wiki/Responsibility_center#cite_note-4http://en.wikipedia.org/wiki/Revenue_centerhttp://en.wikipedia.org/wiki/Cost_center_(business)http://en.wikipedia.org/wiki/Profit_centerhttp://en.wikipedia.org/wiki/Investment_centerhttp://en.wikipedia.org/wiki/Responsibility_center#cite_note-0

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production departments can meet customer requirements for urgent deliveries or customized products,increasing customer satisfaction and contributing to higher levels of repeat business.

Inbusiness, a cost centre orcost center is a division that adds to the cost of anorganization, but

only indirectly adds to itsprofit. Typical examples include research and development,marketingandcustomer service.[1] There are some significant advantages to classifying simple,

straightforward divisions as cost centres, since cost is easy to measure. However, cost centres

create incentives for managers to underfund their units in order to benefit themselves, and thisunderfunding may result in adverse consequences for the company as a whole (for example,

reduced sales because of bad customer service experiences).

Because the cost centre has a negative impact on profit (at least on the surface) it is a likely

target for rollbacks and layoffs when budgets are cut. Operational decisions in a cost centre, forexample, are typically driven by cost considerations. Investments in new equipment, technology

and staff are often difficult to justify to management because indirect profitability is hard to

translate to bottom-line figures.

Business metrics are sometimes employed to quantify the benefits of a cost centre and relatecosts and benefits to those of the organization as a whole. In a contact centre, for example,

metrics such as average handle time, service level and cost per call are used in conjunction with

other calculations to justify current or improved funding.

A cost center is part of an organization that does not produce direct profit and adds to the cost of

running a company. Examples of cost centers include research and development departments,

marketing departments, help desks and customer service/contact centers.

Although not always demonstrably profitable, a cost center typically adds to revenue indirectlyor fulfills some other corporate mandate. Money spent on research and development, for

example, may yield innovations that will be profitable

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ROI

in the future. Investments in public relations and customer service may result in more customersand increased customer loyalty.

Because the cost center has a negative impact on profit (at least on the surface) it is a likelytarget for rollbacks and layoffs when budgets are cut. Operational decisions in a contact center,

for example, are typically driven by cost considerations. Financial investments in newequipment, technology and staff are often difficult to justify to management because indirect

profitability is hard to translate to bottom-line figures.

Business metrics are sometimes employed to quantify the benefits of a cost center and relate

costs and benefits to those of the organization as a whole. In a contact center, for example,

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metrics such as average handle time, service levelandcost per call are used in conjunction with

other calculations to justify current or improved funding

http://searchcrm.techtarget.com/definition/average-handle-timehttp://whatis.techtarget.com/definition/0,,sid9_gci1211813,00.htmlhttp://whatis.techtarget.com/definition/0,,sid9_gci1211813,00.htmlhttp://searchcrm.techtarget.com/definition/cost-per-callhttp://searchcrm.techtarget.com/definition/cost-per-callhttp://searchcrm.techtarget.com/definition/average-handle-timehttp://whatis.techtarget.com/definition/0,,sid9_gci1211813,00.htmlhttp://searchcrm.techtarget.com/definition/cost-per-call