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Defining the Viable EP Center |
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EP is meant to track performance for a defined business unit. This business unit must meet the criteria of "viable EP center," i.e., it must be a reasonably stand-alone business unit with (a) specified managers responsible for its performance, (b) which is regularly tracked in accurate financial reports, (c) such that the activities of managers in one business unit do not materially affect the tracked results in another unit
or create significant unallocated (or unallocable) costs for the overall company.
If a business unit is not "viable," then the imperative of growing EP at that unit could lead to sub-optimal business behaviors that compromise, rather than increase, overall company value.
By definition, a consolidated entity is a viable EP center, and is always OK for calculating EP (with one caveat). If you want to define and track EP for a business unit below the level of the whole company, this module will enable you to determine if it is a viable EP center. |
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