Reasons for using Return on Investment (ROI) and Residual Income (RI) – ACCA PM Lecture
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hello sir , thank you for your informative lecture.
on ur lecture you said that roi is better in comparing larger size. what about RI ? isnt it also better when we compare large size?
If one division is much larger than another then it is going to have a bigger RI. That doesn’t mean that the larger division is operating better – it might have a smaller ROI.
Hi
Sir can you explain the 3rd point of ROI. What does loss of goal congruence means?
?
It is better to ask this kind of question in the Ask the Tutor Forum – I do not see all comments on lectures.
Goal congruence is when managers of divisions are motivated to make decisions that are not only good for them but are also good for the company as a whole.
hi,
what about the disadvantages ?
Advantages of one are disadvantages of the other!!!!
Hi Sir,
I still cannot understand the last point you mentioned about ROI. Why ROI usually ” doesn’t lead to loss of Goal Congruent”? Would you be able to give more details or an example to explain it?
As I understand ROI sometimes doesn’t lead to goal congruent as it shows in Example 2. Therefore I think last point mentioned in ROI in the video be ” ROI usually doesn’t lead to Goal congruent”.
Thanks in advance.
He just said that situations like example 2 don’t happen very often in practice (usually it’s the case like example 1 where using ROI vs RI doesn’t make a difference).
So it’s unusual/infrequent enough instance and that’s why ROI “usually” doesn’t lead to loss of goal congruence
Thanks again John well explained lecture
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