Operating Unit vs Business Unit

[DjPim]

Hi AO,

Can anyone help me get a good grasp on understanding what Operating Units (OU) and Business Units (BU) are? From what I see in my own company, it seems that BU's are just subsections of OU's. The people in my team are just as confused by the definition and only know the minimum necessary for their own job functions. One person mentioned it is strictly a financial term, and from Google I get answers varying from 'logical group within a company, like an accounting department' to 'separate legal entity', etc.

Thanks in advance

[tommie frazier]

varies by company

[JMO]

Originally Posted by tommie frazier

varies by company

So true.
If you have to have a typical rule, operating unit corresponds to the company's org chart.
And business unit corresponds to financial reporting practices.

Both of those will vary by company. . . And Legal entity can cross over both or neither.

[Maphisto's Sidekick]

Here is one possible example - a hypothetical large, multi-national P&C/GI insurance operation

Top-Level Corporation = Acme Insurance

Operating Units =

• Acme Insurance USA
• Acme Insurance of Canada
• Acme Insurance of Europe
• Acme Re

Business Units within Acme Insurance USA =

• Acme Personal Lines
• Acme Small Business
• Acme Specialty Widget Insurance
• ... et cetera ...

And all of those business units might write in one or more legal entities set up to accommodate tiering (in those states/lines where tiering still cannot be done within a legal entity), for premium tax optimization, to permit different pricing strategies for different channels of business, to facilitate surplus lines, etc.

...but things can vary wildly from company to company.

Generally I think of "operating unit" as being a division of an enterprise grouped together for investor discussion/analysis; whereas "business unit" is a mid-level grouping for internal analysis and planning purposes.

The smaller the enterprise, the less of a difference there will be between the two.