1. Divisional performance Chapter 20 ME 2027 Performance and Cost Analysis ME 2605 Cost Management and Control (for IMIM) Håkan Kullvén, KTH, 2007 Hakan.kullven@indek.kth.se

2. A functional organisation Figure 20.1 page 839

3. A divisionalized organisation Figure 20.1 page 839

4. &  Improved quality of decisions Speedier decisions Increased managerial motivation Frees top management time  Sub optimization  Lack of goal congruence  More costly to operate  Loss of control by top management

5. Reports for divisions Exhibit 20.1 page 844

6. Return on investment, ROI The most widely used model, easy to understand. But: May motivate for decisions not in line with company ROI But: May motivate to make incorrect asset disposal decisions page 845

7. Residual Income, RI More likely to encourage goal congruence Can use different % for different investments But: Is not that widely used Also: EVA, Economic Value Added page 846

8. Problem with depreciation Exhibit 20.2 page 852

9. Next, we… Are going to explore how prices are set for the services and goods that are transferred from one internal department to another one. Chapter 21