A system of control by delegating and locating responsibility for costs as well as revenues i.e., fixation of responsibility on Individuals( Sr.DEE, Sr.DCM etc), Departments (Mech dept. ,Comml. Dept etc).
Ø World Bank Team in 1970 year emphasized the need to fully develop a system of Responsibility Accounting on Railways.
Ø The Railway Convention Committee 1971 commented on the Accounting and Budgetary exercise as a routine and dogmatic exercise undertaken and produced by the bureaucratic elite.
Ø Consequently, the revised accounting Classification came into force w.e.f 01-04-1979 which provides synchronization of Accounting and Budgetary exercises.
Ø Emphasis division of an Organisation like Indian Railways among different Sub-Units like Sr.DEE or Accounts dept etc in such a way that each Sub-Unit is the responsibility of a Manager.
Ø Cause and effect relationship between the Manager’s decisions and actions.
Ø Manager should be held responsible for those activities directly falling under his/her control.
Ø The area of responsibility and authority of each centre should be well defined.
Ø Each responsibility Centre should have clear set of Goal for the Manager.
Ø The Manager should participate in establishing such Goals that are going to be achieved.
Ø Only the Revenues, Expenses, Profits and investments that are controllable by the Manager should be included in the pefromance report of the Centre.
Ø Performance Report for each Responsibility centre should be prepared highlighting variances, the items requiring attention of the Manager.
Ø In the Performance Report of Responsibility centre, the Expenses, Revenues and Investments controlled by the Manager should only fine place.
Responsibility Centres - 4 segments
I) Cost Centre:
Ø Examples: Electrical Dept/Accounts Dept/Sr.DEE/Sr.DME/Sr.DFM etc. Efforts are now on hand to identify small units such as IOW/Signal Inspector/PWI etc. as suggested by the Committee for identification of Cost Centres and profit Centres by Sri Hassan Iqbal.
Ø is a smaller segment of area of responsibility for which costs can be accumulated. But Controllabile costs only be selected for this purpose.
II ) Revenue Centre;
Ø Examples; Commercial Dept or Sr.DCM of a Division.
Ø Responsible for generating revenue.
III) Investment Centre:
Ø Examples: Projects like Doubling, New Line etc or CAO/CN, Sr.DEN etc.
Ø A segment of activity for area held responsible for both Profit and Investments.
Ø The Objective of Investment Centre is to maximize the Rate of Return on Investment. The present Rate of Return is 14%.
IV) Profit Centre:
Ø Examples: Zonal Railways such as South Central Railway, Western Rly.etc.
Ø An area of responsibility whereon the expenses and revenue pertaining to a particular Profit centre i.e., zonal Railway are accumulated; So far zonal Railways are considering as a Profit Centre.(Profit and Loss Account and Balance sheet are prepared)
Ø Efforts are on the way to propose Divisions such as Secunderabad Division, vijayawada Division etc as Profit Centres as recommended by the Committee of Sri Hasan Iqbal.
Ø A Pilot project is being implementing the Sri Hasan Iqbal committee’s recommendation of Division as profit Centre in Vadodara Division in Western Railway with the help of Railway Staff College, Vadodara.
Ø To make Division as Profit Centre, it is necessary to introduce the Divisionalisation of Apportionment of Earnings with due weightage or originating earnings /terminating//transshipping Divisions as an inducement for adopting aggressive marketing strategies.