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.