337 BPP

When evaluating a manager’s performance, only the assets and profits that the manager has control over should be included in the calculation of ROI.

Head office assets, which are not controlled by the manager, should not be included in this calculation.

When appraising the performance of an investment centre, head office assets or investment centre assets controlled by head office should not be included in the calculation of ROI because the manager of the investment centre does not have control over these assets. The principle of controllability is key in performance evaluation, as managers should only be assessed based on elements they can influence. Including assets over which they have no control would distort the ROI calculation and not accurately reflect the manager’s performance in the assets they can manage.

This ensures that the ROI reflects the efficiency and profitability of the investment centre with respect to the assets and operations the manager can actually control.

No……

For an investment centre, the manager is responsible for both profit and capital investment decisions. Therefore, the ROI should reflect the profitability and efficiency of the assets they control. Including head office assets or investment centre assets controlled by head office in the ROI calculation would distort this measure, as these assets are not directly controlled by the investment centre’s manager.

The principle of controllability is key here; managers should only be evaluated on elements they can influence. Including uncontrollable factors, such as head office assets, would not be a fair assessment of their performance.

Try again

It is important to recognise that while managers should be appraised based on controllable factors, the investment centre’s performance is also dependent on head office assets, which provide necessary support and resources.

Therefore, excluding these assets would not accurately reflect the investment centre’s true return on investment.

If you don’t get it now I suggest you leave it
There are some things you have to accept as a student you won’t understand or get the logic …. That is okay honestly it is
You can’t know everything.

Please try and work through questions a bit more
Watch our free lectures on areas that you are struggling with.