Factors Affecting 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 the 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 the 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