A. BENCHMARKING

Seven steps to benchmarking:1. Set objectives and decide the areas to benchmark2. Identify key performance drivers and indicators3. Select organisations for benchmark comparison4. Measure performance of all organisations involved in benchmarking5. Compare performances6. Specify improvement prospects7. Implement and monitor improvements

B. RISK APPETITESB.1.Maximax: Look for the largest possible outcome in each scenario.B.2.Maximin: Look for the largest among the least possible outcomes in each scenario.B.3.Minimax Regret: Perform regret table.

C. RETURN ON INVESTMENT:

ROI = Divisional profit (before interest, tax, head office allocations for managers performance) / Divisional investment (Capital employed)

PROS: 1. Will allow comparison of divisions of different sizes2. Aggregation is easy

CONS: 1. Cannot be used for long term performance evaluation 2. May encourage divisional managers to make decisions in their best interests but not necessarily the company as a whole. Hence, lack of congruence. 3. Does not account for different risk

D. RESIDUAL INCOME:

RI = Divisional profit - Imputed interest (divisional investment x cost of capital)

Must be positive.

PROS: Can compare different risk characteristics.

CONS: Cant compare divisions directly. Doesn't relate size of divisional income to size of investment.

E. ECONOMIC VALUE ADDED:

EVA = Net operating profit after tax (NOPAT) - Capital charge (WACC x net assets)

NOPAT = Net profit + Accounting depreciation - economic depreciation + R&D + advertising + lease costs + interest

Net assets = Non current assets (replacement cost) + R&D at net value + working capital

WACC = ((E/D+E) * Re) + [((D/D+E) * Rd)*(1-T)]

E = Market value of the company's equity D = Market value of the company's debt Re = Cost of Equity Rd = Cost of Debt T= Tax Rate