ROI

Question 1

Performance indicator (Performance ratio)

Answer 1

Performance Indicators (sometimes Key performance indicators – KPIs) are the critical quantifiable
indicators of progress toward an intended result. They are the easiest quantitative way of describing a
relationship between two items (quantities, costs, revenue, profit etc.).

Question 2

Performance indicator system

Answer 2

Systematic linkage of individual performance indicators in logic cause-and-effect-relationships across
multiple dimensions or levels.

Accounting indicators: profitability, liquidity, inventory levels, cost, revenue

Question 3

Criticism (ROI)

Answer 3

ROI encourages short-term thinking

• Indicator capital turnover reduces return on sales (ROS) in case of big capital investments

• Investments can lead to lower ROI (not all investments (from MA perspective) can be recorded as assets in balance sheet) -> key investments e.g. in customer retention or R&D may not be

• Focus ROI: most efficient use of available capital -> maximize capital gain

Important: ROI may lead to problematic business decisions that neglect long-term objective

Question 4

ROI drivers

Answer 4

Driver (or value driver): factor that can be directly (and legally) manipulated and has a direct influence
on the financial results of a company or a business unit

• Value drivers are key levers that help improve economic success if they are adequately adjusted

• Objective: Analyze which value driver influences other value drivers and in which direction

• Concept: Set up value driver tree and show relationships