Ricardo, Inc. is just starting up. The management team has decided from the beginning that decentralization was the preferred organizational style and has made this clear in all interviews and discussions with potential employees. Mr. Pangea, the CEO, is unsure about the best way to evaluate his division managers. He has heard the terms return on investment, residual income, economic value added, and flexible budgets but wants to know the pros and cons of each.
Required: Briefly describe ROI, residual income, EVA and other approaches to performance evaluation. Bring in, where appropriate, how to calculate the measure and problem areas in the development of some of the numbers.

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The Answer of Ricardo, Inc. is just starting up. The management team has decided from the beginning that decentralization was the preferred organizational style and has made this clear in all interviews and discussions with potential employees. Mr. Pangea, the CEO, is unsure about the best way to evaluate his division managers. He has heard the terms return on investment, residual income, economic value added, and flexible budgets but wants to know the pros and cons of each.
Required: Briefly describe ROI, residual income, EVA and other approaches to performance evaluation. Bring in, where appropriate, how to calculate the measure and problem areas in the development of some of the numbers.