Factors Determining the Degree of Decentralisation

Decentralisation helps in achieving the organisational objectives more efficiently. Following factors are usually considered in determining the degree of decentralisation.


1)     Size of operations: As an organisation grows in size and complexity, need for decentralisation tends to increase. More decisions are taken at different places and coordination of a large number of departments becomes difficult. Thus as the size increases, decentralisation becomes inevitable.


2)     Cost and risks of decision-making: As the organisation grows in size the decisions involving heavy costs also multiply. With decentralisation of authority, the high cost and high-risk decisions may be taken at the top level but routine decisions can be taken at lower levels. Thus decentralisation helps and quickens decision-making process.


3)     Top management philosophy: The attitude of top executives and their philosophy have an important influence on the extent to which authority is decentralised.


4)     Availability of managerial resources: The extent of decentralisation is limited to the extent of availability of trained and competent managerial personnel.


5)     Environmental influence: The most important environmental forces affecting the degree of decentralisation are: Government controls, tax policies, and unionism.

For example, where prices of a product are controlled, the sales manager’s freedom is curtailed. Similarly, labour legislations and the decisions of worker’s unions may limit the authority of managers.

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