The Assessment of the Productive Divisions

Subject: Management
Pages: 1
Words: 311
Reading time:
2 min
Study level: College

The assessment of the productive divisions should be based on criteria that take into account the difference in the size and quantity of assets of each of them. CEO of Game Products, Inc. offers fairly effective criteria for assessing the performance of divisions (Chapter 5, 2020). First of all, the measurement data allow the company to consider the size of each division and correlate its efficiency with each parameter. This aspect significantly increases the objectivity of the assessment, which will allow the company to assess performance better. However, the return on investment (ROI) criterion can be calculated in different ways and take into account different aspects. Therefore, the first recommendation for CEO is to use the gross book value to calculate this indicator. This will effectively evaluate the long-term assets of the division and make more accurate measurements.

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Another important recommendation associated with using ROI as a measurement criterion is the need to split it into smaller indicators. Specifically, the CEO could use asset turnover and operating profit margins as key metrics to measure performance. These indicators allow us to take a closer look at how much profit the division’s sales generate, as well as how much revenue the investments generate. This aspect allows us to identify more detailed information about the activities of each division and identify potential opportunities for improvement.

CEO is also recommended to use the residual income (RI) indicator in comparison with other periods. Thus, this criterion should be expressed as a percentage, which helps to avoid being associated with the size of the division or the number of its assets. Taken together, using more detailed information about the ROI of the divisions, RI allows you to identify the development of each of them. It is important that this approach will help the CEO to identify possible issues that division managers need to address in the future.

Reference

Chapter 5: How do managers evaluate performance in decentralized organizations? (2020). Business LibreTexts. Web.