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Divisional performance Chapter 20

Divisional performance Chapter 20. ME 2027 Performance and Cost Analysis ME 2605 Cost Management and Control (for IMIM) Håkan Kullvén, KTH, 2007 Hakan.kullven@indek.kth.se. Figure 20.1 page 839. A functional organisation. Figure 20.1 page 839. A divisionalized organisation.

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Divisional performance Chapter 20

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  1. Divisional performanceChapter 20 ME 2027 Performance and Cost Analysis ME 2605 Cost Management and Control (for IMIM) Håkan Kullvén, KTH, 2007 Hakan.kullven@indek.kth.se

  2. Figure 20.1 page 839 A functional organisation

  3. Figure 20.1 page 839 A divisionalized organisation

  4. Improved quality of decisions Speedier decisions Increased managerial motivation Frees top management time Sub optimization Lack of goal congruence More costly to operate Loss of control by top management  & 

  5. Exhibit 20.1 page 844 Reports for divisions

  6. page 845 Return on investment, ROI • The most widely used model, easy to understand. • But: May motivate for decisions not in line with company ROI • But: May motivate to make incorrect asset disposal decisions

  7. page 846 Residual Income, RI • More likely to encourage goal congruence • Can use different % for different investments • But: Is not that widely used • Also: EVA, Economic Value Added

  8. Exhibit 20.2 page 852 Problem with depreciation

  9. Next, we… Are going to explore how prices are set for the services and goods that are transferred from one internal department to another one. Chapter 21

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