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Hello
Am i correct to understand that if you want to compare a division with another ( from the same group) you would use traceable profits, and if you are comparing division with an external you would use the divisional profit (which includes the allocated head office overheads / management fees)? That is at least what i understand from the technical article “Divisional performance management”
But if you look at the question (Ruard cleaning) from the APM September/December 2023 exam available in the CBE platform, the answer uses PBIT including “allocated head office management fees” to compare one div to another within the Ruard cleaning group.Could you please help me understand why?
Many thanks for your help
Despite what might be said in the technical article (which is a touch over-complex I think), I have always taken the view that if you are measuring a manager’s performance bring in all the costs he/she can control whether or not the manager had to get head office permission. The manager should only be judged on what is within his/her power to control.
If the performance of the division is being compared, either to another division or to an outside entity, then both divisional operating costs and HO allocated HO costs should be included. These HO costs whilst not controllable are presumably needed to help support the division and its fair assessment as an economic entity should include these costs too.
As said in the examiner’s report:
“Many candidates made very brief comment about using a profit figure that excluded head
office costs as the divisional manager was not responsible for them. However, such
observations did not recognise that it would usually be the assessment of divisional manager’s
performance, as opposed to that of the division itself, that would exclude such costs as these
costs cannot be controlled by the manager.”
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