JLX pic is a well-established manufacturing organisation that has recently expanded rapidly, by a series of acquisitions, in a period offavourable trading conditions. The need to integrate the management information and control systems ofthe rapidly expanding group has imposed a very large workload on the managerial and accounting teams. Consequently, some ofthe normal procedures at JLX pic have been neglected.

JLX pic uses return on investment (ROI) as the chief performance measure for controlling the operating activities ofits divisions, and managers’ bonuses are based on the achievement ofROI targets. The eompany also uses net present value (NPV) to assess and select investment projects. It used to be standard practice to assess and review all projects after implementation by a post¬

completion appraisal (PCA). However, PCA has been one area that has been neglected because of the increased workloads, and recently PCA has been applied only to those projects which have been considered unsuccessful.

PR035 is a major project recently implemented by division X. This project was controversial because ofits large capital requirement and high risk level. The Group Finance Director has stated that his department is now considerably under-staffed and that he requires more resources to operate effectively. In particular, he is using the need to carry out a PCA on PR035 as a lever to gain more funds. He has told the Group Chief Executive that he thinks that PR035 should be subjected to a PCA as he considers that it should be generating a greater return, given the continuing favourable trading conditions The Group Chief Executive has responded to this by saying that he feels that a PCA for PR035 is unnecessary as it is generating the predicted net cash flow. To back this up, he cites the fact that division X's performance as measured by ROI is in line with its target. The Group Chief Executive has also said on several occasions that he is worried about behavioural issues if divisions are criticised and monitored unnecessarily.

Required:
[NotQ-. Your answer must relate to the scenario above.]

(a) Evaluate whether it is advisable for an organisation such as JLX pic to carry out PCAs.
(7 marks)

(b) Discuss whether a PCA should be carried out on PR035, a project that appears to be performing satisfactorily. marks)

(c) Critically evaluate the use ofROI as the performance measure within the JLX pic group.
(13 marks)