Center concepts

Center concepts are approaches to the financial coordination of often very autonomous divisions. Divisions are product or service-related corporate areas (divisions) that contain the entire value creation process of these areas. In addition, they can contain other typical sub-areas (e.g. finance and human resources) to a varying extent. You are not legally independent. As a rule, a distinction is made between the following concepts:
Cost Center: Concept for the financial coordination of divisions of a company. The individual divisions are only given decision-making powers about the costs of the area. It represents the most restrictive form of divisionalization: The divisions can be interpreted as large “cost centers”, the aim of which is to adhere to the cost budgets determined as part of cost planning.

Profit Center: Concept for the financial coordination of divisions of a company. The individual divisions are given the authority to make decisions about the costs and profits of the division. A profit center usually creates its own income statement. Due to the usually poor comparability of the individual divisions of a company, a relative profit is often used as a target: the return on investment (ROI). The ROI represents the ratio of profit to invested capital.

Investment Center: Concept for the financial coordination of divisions of a company. The individual divisions are given the authority to make decisions on costs, profits and investments. It represents the most pronounced form of divisionalization. The central management represents a kind of "holding" (without legally independent divisions), which has at least a certain say in investment decisions.

These concepts often occur simultaneously within a company.

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