Neil Rogers is the controller for Performance Management Company (PMC), a manufacturing company with headquarters in San Antonio, Texas. PMC has seven concrete product plants located throughout the Southwest region of the United States. The company recently switched to a decentralized organizational structure. In the past, the company did not try to measure profitability at each plant. Rather, all revenues and expenses were consolidated to produce just one income statement.
Under the new organizational structure, each plant is headed by a general manager, who has complete responsibility for operating the plant. Neil asked one of his accountants, Scott McDermott, to organize a small group to be in charge of performance analysis. This group is to prepare monthly reports on performance for each of the seven plants. These reports consist of budgeted and actual income statements. Written explanations and appraisals are to accompany variances. Each member of Scott's group has been assigned to one specific plant and is encouraged to interact with management and staff in that plant to become familiar with operations. After a few months, Neil began receiving complaints from the general managers at several of the plants. The managers complained that the reports were slowing down operations and they felt as though someone was constantly looking over their shoulders to see if they were operating in line with the budget. They pointed out that the performance analysis staff is trying to do their job (i.e., explanation of variances). The most vocal plant manager claimed that ''those accountants can't explain the variances-they don't know anything about the industry!'' The president of PMC, Ross Stewart, also complained about the new system for performance evaluation reporting. He claimed that he was unable to wade through the seven detailed income statements, variances, and narrative explanations of all variances each month. As he put it, ''I don't have time for this and I think much of the information I am receiving is useless!''
Requirements
1. Do you think it is a good idea to have a special staff in charge of performance evaluation and analysis?
2. In a decentralized organization such as this one, what would seem to be the best approach to performance evaluation?
3. What information would you include in a performance evaluation report for Mr. Stewart?