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Performance: (Div v Non-Div (Div: Aims to develop performance measures to…
Performance:
Div v Non-Div
Div: Aims to develop performance measures to achieve goal cong Focused on fin measures. Danger of managers not serving org objectives. Various divisions with individual functions such as sales, marketing, finance etc
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Div ads: a)High quality decisions due to better communication b)Fast decisions c)Motivates managers as they are in control of own destiny d)Managers have greater freedom
Div disads: a)Inter-div comp could neg affect organisation as whole b)Cost duplication c)Lower control from top man d)Increased risk of decisions not being beneficial to whole org
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Measures:
ROI:
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Ads: a)Easy to calc & intepret b) Encourage managers to use assets effectively c)% unit makes easier to compare with indicators
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EVA:
Investment base: Manager:Controllable assets Division: Div assets + HO assets because div dependent on HO assets
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Impact of depreciation:
a)Depreciated assets are misleading as they decrease asset base but do not increase profit. b) Should use PV of future CFs but difficult practically
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