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CIMA P2 · Management Level

C. Managing and controlling the performance of organisational units

Evaluate divisional performance using financial metrics (ROI, RI, EVA) and non-financial measures, while analysing the behavioural implications of performance management systems in decentralised organisations. This section develops competence in managing and controlling the performance of organisational units through responsibility centre frameworks and transfer pricing mechanisms.

  • 29 lessons
  • 3 modules
  • 4.5h of video
  • ~30% of the exam
Start the first lesson → About the CIMA P2 course

What you'll learn

By the end of C. Managing and controlling the performance of organisational units.

  • Explain the principles of divisionalisation and decentralisation in organisational structures
  • Identify and describe different types of responsibility centres and their control characteristics
  • Apply financial performance indicators including ROI, RI, and EVA to evaluate divisional performance
  • Analyse transfer pricing objectives and evaluate appropriate transfer pricing methods in different contexts
  • Evaluate the behavioural implications of performance management systems on divisional managers and organisational goal congruence
  • Assess the limitations of financial metrics and the role of non-financial measures in comprehensive performance evaluation

The lessons

29 lessons, module by module.

Decision making in responsibility centres

8 lessons
  1. 1 Divisionalisation and decentralisation - part 1 10m
  2. 2 Divisionalisation and decentralisation - part 2 5m
  3. 3 Responsibility centres - part 1 6m
  4. 4 Responsibility centres - part 2 4m
  5. 5 Controllability - part 1 8m
  6. 6 Controllability - part 2 8m
  7. 7 Reporting 5m
  8. 8 Big data 10m

Performance measurement

12 lessons
  1. 1 Financial performance indicators 17m
  2. 2 Responsibility centres 8m
  3. 3 Investment centre ratios 12m
  4. 4 Return on capital employed 10m
  5. 5 Return on investment 6m
  6. 6 Residual income 5m
  7. 7 ROI and RI continued 17m
  8. 8 Economic value added - part 1 10m
  9. 9 Economic value added - part 2 6m
  10. 10 Non financial performance indicators 10m
  11. 11 Balanced scorecard 17m
  12. 12 Benchmarking 19m

Transfer pricing

9 lessons
  1. 1 Transfer pricing basics 11m
  2. 2 Transfer pricing objectives 3m
  3. 3 Market based and opportunity cost approach - part 1 12m
  4. 4 Market based and opportunity cost approach - part 2 9m
  5. 5 Market based and opportunity cost approach - part 3 8m
  6. 6 Cost based transfer prices 8m
  7. 7 Dual pricing and two part tariffs 10m
  8. 8 Negotiated transfer prices 3m
  9. 9 Transfer pricing and taxation 13m

Questions

About C. Managing and controlling the performance of organisational units.

What does the 'Managing and controlling the performance of organisational units' section cover?

This section covers the evaluation and control of divisional performance in decentralised organisations. You will learn to apply financial metrics such as ROI, RI, and EVA, understand responsibility centre frameworks, establish appropriate transfer pricing mechanisms, and evaluate how performance management systems influence manager behaviour and organisational goal congruence.

Is this section important for the P2 exam?

Yes, this is a core section of the P2 syllabus. Divisional performance evaluation, responsibility centre classification, and transfer pricing are frequently tested in both objective test and scenario-based questions. Strong understanding of financial metrics, non-financial measures, and behavioural implications is essential for exam success.

What is the difference between ROI, RI, and EVA?

ROI (Return on Investment) expresses profit as a percentage of capital employed and allows comparison across divisions of different sizes. RI (Residual Income) shows absolute profit after deducting a cost of capital charge, promoting goal congruence. EVA (Economic Value Added) is a refined RI measure using market-based cost of capital and adjusted accounting profit, providing a comprehensive wealth creation metric.

Why is transfer pricing important in divisionalised organisations?

Transfer pricing determines the price at which goods and services are exchanged between divisions. It affects divisional profitability, manager motivation, and resource allocation decisions. Appropriate transfer pricing promotes goal congruence, ensures fair performance evaluation, and aligns divisional interests with organisational objectives.

What are responsibility centres and why do they matter?

Responsibility centres are organisational units assigned accountability for specific financial or non-financial outcomes. They include cost centres, profit centres, and investment centres. Understanding responsibility centre types is critical because the control mechanisms, performance metrics, and managerial accountability differ significantly, and inappropriate metrics can distort behaviour.

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