In-Class Activity 1

The following information is from the carmaker Porsche for 2018: Profit:3,118m

Sales: 25,784m

Invested Capital: 38,159m

1) Calculate:

Return on Sales

Investment Turnover

Return on Investment.

2) Compare the results with those already given for Woolworths

( GIVEN: Woolworths

Return on Sales = Profit/Sales = $1,795m/$56,726m = 3.16%

Inv. Turnover = Sales/ Inv. Cap.= $56,726m/$23,301m= 2.43%

Return on Investment =3.16% * 2.43 = 7.7% )

In-Class Activity 2

MCQ 1

Which of the following is adisadvantageof Return On Investment (ROI)? Explain why

a)Encourages managers to focus on both profits, and the assets required to generate those profits

b)Discourages managers from investing in projects which are acceptable from the organisation's point of view, but which decrease the investment centre's ROI

c)Encourages investment in projects which yield a positive residual income to the organisation

d)Can be used to evaluate the relative performance of investment centres, as it is a relative (%) measure rather than an absolute ($) one.

MCQ 2 Which of the following is anadvantageof Residual Income (RI)? Explain why

a)Cannot be used to assess the relative performance of businesses that are of different sizes

b)Can encourage short-term orientation/focus

c)Takes account of the organisation's required rate of return in measuring performance

d)Formula is biased in favour of larger businesses

In-Class Activity 3

Everton Ltd manufactures a range of sports equipment. It evaluates its' divisions based on their Return onInvestment (ROI). The three top managers in each division receive a bonus of $10,000 for every percentage point that their division exceeds the group target of 15%.

Currently, the Goodison division is on target to make a return of 18% this year. The manager of this division (Mrs Ferguson) is evaluating a investment proposal estimated to return 17%.

The Goodison divisions' ChiefFinancial Officer, Ms Baines, advises to undertake the investment as it should return in excess of the group target of 15%.

However the third top manager, Operations manager Mr Patel says "Don't undertake the investment as it willlower our divisional ROI to under the currently projected 18% and therefore lower our bonuses."

Required:

What should Mrs Ferguson do?

Would her decision be different if a Residual Income (RI) measure was adopted instead?

In-Class Activity 4

In groups, discuss when youfeel you have experienced a 'hard' or 'soft' style of management.Are there companies which you think use one method or the other (or have a reputation for doing so)?

In-Class Activity 5

In groups, research the question of 'does money motivate?' What did Herzberg have to say about this?

Following Vroom's expectancy theory, what can be learned about how to implement an effective motivationalsystem?

In-Class Activity 6

If you were designing an incentive system, what would you include or not include? What problems can incentive systems sometimes create?