A short presentation on "Degree of Decentralization & factors affecting it"

1. Affan Dabir
Roll No. – 1120717
B.E.Mechanical
Mumbai University
M.H.S.S.C.O.E.
Semester VII
Production Planning & Control.

2. Production Planning & Control.
Production Planning is the pre-determination of manufacturing requirements
for the production of goods :
 Of the Right quality
 In the Right quantities &
 At the Right time.
Control is to :
 Review the work in progress
 Make corrections wherever required &
 Ensure that programmed production takes place.
Thus, Planning is forward thinking while Control is a mechanism for Execution.

3. Organization of P.P.C. :
Setting up of the P.P.C. department necessitates
decisions as to its :
• status in the company
(which depends upon company’s manufacturing processes)
• desirable degree of centralization or decentralization
• the most suitable composition of the internal
structure

4. Centralization
“Centralization” is the
systematic and consistent
reservation (or
concentration) of decision
making authority at central
points (i.e. higher level
managers) in an
organization.

5. Decentralization
“Decentralization” is a
systematic delegation of
decision making authority
throughout the
organization (i.e. to middle
& lower level managers)

7. History
• Henri Fayol (who was a French mining engineer and
director of mines) developed a general theory
of business administration.
• He and his colleagues developed this theory
independently of scientific management.
• He was one of the most influential contributors to
modern concepts of management.
• Fayol has introduced the 14th principles of
management which are very dynamic in nature.
 Among those, the 8th principle is CENTRALIZATION
AND DECENTRALIZATION.

8. Important Points to be considered :
 Neither centralization nor decentralization is absolute in an
organization.
 A single manager cannot make all the decisions even in a highly
centralized setting of an organization.
Also, total centralization would end the need for middle and low line
managers.
 There can never be a total decentralization, since some higher level
authorities cannot be delegated to middle or low level managers.
 Hence, no organization is ever completely centralized or completely
decentralized
Thus, there are only degrees of centralization and decentralization.

9. Degree of Decentralization
The extent to which an organization wants to
decentralize depends upon the degree of
decentralization.

10. Factors to Determine the Degree of
Decentralization :
I. Costliness of Decisions :
 The decisions involving heavy cost or investment will most
probably be made at the higher levels of management.
 Decisions involving risk will not be delegated to lower level
managers but in turn will be made at the top managerial
positions since they may make fewer mistakes, since they are
probably better trained and in possession of more facts.

11. II. Uniformity of Policy :
 Uniformity of the organization’s policy determines the degree
of decentralization.
If a company intends to keep uniform policies in the
organization then policies should be consistent.
 Uniformity in policy means to ensure that customers are
treated equally in terms of price, quality, credit, delivery and
service.
 But where there is decentralization, the company will not be in
a position to take the advantages of uniformity of policies
because of different habits and talents on the part of different
persons or managers.
 Those who value consistency above all are in favor of
centralized authority instead of a decentralized authority.

12. III. Size of Organization
 Larger the size of an organization, the greater will be the
number of departments & the more difficult it is to
co-ordinate them and as a result, decentralization would be
preferred in large sized organizations.
 Hence, the burden on the top management will be much
less and they will be in a position to concentrate on crucial
matters.
 In other words, decentralization of large size organization
will yield better results because each departmental head
will be able to take better decisions regarding the work
allotted to him.

13. IV. Availability of Competent Managers
 The shortage of managerial manpower necessarily restricts
the extent of decentralization. The dispersal of decision-
making and leadership requires the availability of persons
who can discharge their obligations as per the authority
delegated.
 If lower level managers are well qualified & competent to take
high quality decisions then top management can take
advantage of their talents by decentralizing.
 A real shortage of managerial manpower would limit the
extent of decentralization of authority, as delegation of
decision-making assumes the availability of trained
managers.

14. V. Management Philosophy
 The character of the top leader or manager and the
philosophy possessed by him will have an important
influence on the extent to which authority in an enterprise
is centralized or decentralized.
 In a decentralized organization, it is necessary that the
leaders or top managers should have broad vision which
will have a lasting effect on the organizational structure.

15. VI. History of Organization
 To what extent authority in an organization will be
centralized or decentralized depends upon the way
the business has been built up in the past.
 If an organization has appointed a set of departments
with the departmental heads being appointed with
the authority to achieve the objectives, then it sets the
example of decentralization.

16. VII. Control Techniques
 Another factor affecting the degree of
decentralization is the state of development of control
techniques.
 Even the most successful decentralized organizations
insists on controls and procedures to prevent mistakes
& to determine whether actual events are meeting
expectations.
 They have control mechanisms in place which help to
analyze and control important aspects of the
organization’s operations.
 If the organization’s operations don’t fall within
certain guidelines then top management may shift to
Centralization.

17. VIII. Decentralization of performance
 The nature of operations (like the economics of division of
labor, the opportunities for using machines and the nature
of the work to be performed)also determine the extent of
decentralization.
 It determines whether the operations of the organization
are concentrated at the one place or in a region or
dispersed to different territories.
 If the enterprise activities are dispersed over to different
territories it will be benefitted by the policy of
decentralization.

18. IX. Environmental Influences
 Most of the factors determining the extent of
decentralization dealt so far are related to the
organization.
 But in addition to these factors, there are many other
factors which are external to the business yet have an
impact on the degree of decentralization, such as,
government controls, tax policies and national
unionism.
 The greater the complexity & uncertainty of the
environment, the greater is the tendency of an
organization to decentralize.

19. Summary of Factors to Determine the Degree of
Decentralization :
 Costliness of Decisions
 Uniformity of Policy
 Size of Organization
 Availability of Competent Managers
 Management Philosophy
 History of Organization
 Control Techniques
 Decentralization of performance
 Environmental Influences

20. Conclusion :
The organization decides best which philosophy it
needs to adopt; whether to centralize or
decentralize on the basis of meeting the key factors
while considering the degree of Centralization or
degree of Decentralization.