How do we differentiate between "Investment Centre" and "Profit Centre" ?

A profit centre is a place where both costs and revenues are identified.

As above, a profit centre could be:

• A subsidiary company
• A division
• A department
• A team
• A person
• A production line
• A project
• A machine

The difference is that here, in addition to being responsible for costs, the head of a profit centre will also be responsible for revenues.

The revenues could be sales to outside organisations or they could be internal sales to elsewhere in the organisation. For example, an IT department could be turned from a cost centre into a profit centre if it were to be allowed to charge IT users for the services supplied.

Being head of a profit centre is usually more interesting and demanding than being just the head of a cost centre. Many people don’t get great satisfaction from ensuring that costs do not exceed budget (a cost centre manager’s responsibility), but would get much satisfaction from beating a profit budget (a profit centre manager’s responsibility).

An investment centre is a place where costs, revenues and capital investment are identified.

Because costs, revenue and capital expenditure all have to be identified separately an investment center would normally be:

• A subsidiary company
• A division

The head of an investment center will be responsible for costs revenues and capital expenditure. In effect, that person has responsibility for all financial aspects of the investment center.