Question

How to Evaluate the Performance of an Investment Centre

Answer 1

For evaluating the performance of an investment centre, you have to see overall return on total investment. If it is satisfied, your investment centre's performance will be good. A person who is responsible for getting return on investment should do some team work with responsible persons of cost and revenue centres because his performance will also be affected from cost and revenue centres. Suppose, a company has invested 10 million $ in wheat flour plant. After doing everything, company achieved just 2% return on his operating capital which is less than interest on saving account. It means this performance is very bad. This is simple idea to compare it with saving account's interest rate. Other point may be explain in following ways :

1st Base of Evaluation the Performance of an Investment Centre

Try to evaluate the performance in particular period of time. It should not less than one year because after investment, first year will be involve just up and down.

2nd Base of  Evaluation the Performance of an Investment Centre

Classify  your all investment centres first. Priority to most sensitive investment first and do some sensitive analysis for this.


3rd Base of Evaluation the Performance of an Investment Centre

To  compare the performance of  one investment centre with other investment centre is good way to evaluate the performance. If other investment centre's performance is better, you can take action for this investment centre.

4th Base of  Evaluation the Performance of an Investment Centre

Evaluation not only past performance but it should be future base. If performance trend is upward, this performance will be favorable. Because the essential element of an investment center is that it is treated as a unit which is measured against its use of capital, so, it is long term project, even good future and positive expectation may change the trend.

5th Base of  Evaluation the Performance of an Investment Centre

In this base, company should fix hurdle rate or cut off rate. Less than this hurdle rate, if company is getting ROI from any specific investment centre, that investment centre should fastly stop and remaining capital should be invested any other profitable projects.