In some organizations, cost center managers have been known to achieve favorable budget variances by cutting labor and other operating costs to the point where services are not being performed in an adequate and timely fashion. This problem can best be reduced by:
Avoiding the use of cost variances in evaluations.
Evaluating cost centers on the basis of ROI/ROA rather than cost variances.
Using effectiveness measures as well as cost measures in evaluation.
Avoiding the use of performance evaluations in compensation decisions.