Question

1. When do you think ROI is a more useful performance measure than residual income?
2. How would you describe a balanced score card and how it helps an organization meet its goals?

Answer 1

1

Return on Investment

It is a measurement which used to calculate the income or profit generated from an investment center or division of the organisation . Return on investment can be calculated by profit or income divided by capital employed or asset . Mostly managers remuneration is based on return on investment hence, there is a large chance that profit could be manipulated by not accepting the project which is profitable but the rate of return is not upto current return or it can manipulate by using the asset of which the value is less so return will be higher.

Residual Income

It is another measurement which is used to calculate the income or profit generated from an investment center . It xan be calculated as profit minus imputed interest on capital employed .

So it more accurate measurement because the manager may accept the project which has the return which exceeds the imputed interest. Hence it is better measurement

2. Balanced Score card

Balanced scorecard is performance measurement system which can be used to evaluate the performance of the organisation and it can be classified into 4 measurement

1.Financial

2.Customer

3.Internal

4.Innovation

Firstly calculate the Key Performance Indication of each topics for with past informations and with current years informations for example profit margin for last year and current year compare with each other and calculate how much growth earned.

Balanced scorecard can be utlised to calculate non financial performance like customers satisfaction , customers retention rate and sales from new product , employees turnover rate and their satisfaction .