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RI and ROI both have advantages and disadvantages. However RI is more likely to make the divisional manager make goal congruent decisions.
I explain all this in my free lectures. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
I have watched the lectures. How it helps make more goal congruent decisions
But I explain in the lectures with examples!!!
Head office decides what return they want from the division and set this as the imputed interest rate. The manager is then incentivised to only take on new investments that give more than the imputed interest rate because only then does the RI increase and it is on this that his performance is measured.
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