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On some questions the ROI is calculated on the controllable profit by dedcuting costs that are not controllable by the division managers, and in some other questions i see it is calculated in Net Profit base including the non controllable costs. What is it the logic behind this?
Thank you
When assessing the performance of a divisional manager, ROI is typically calculated using controllable profit, which excludes costs that the manager cannot control, such as head office costs. This allows for a fair evaluation of the manager’s effectiveness in managing the division’s resources.
Conversely, when evaluating the overall performance of a division, net profit may be used, which includes all costs, both controllable and non-controllable. This method provides a comprehensive view of the division’s profitability, reflecting the total impact of all expenses.
In summary, the choice between controllable profit and net profit for ROI calculation hinges on whether the focus is on individual managerial performance or the overall divisional performance.
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