Reason 2: EVA is more practical and understandable than rate of return (ROI...) (1/4)

• Usually the rate of return is not used and totally understood at the lower levels of organizations in the companies using ROI as the prime performance measure. I.e. operating peoples like sales people, production engineers and supervisors etc. do not use ROI while making day-to-day operating actions (they use operating profit and perhaps also some turnover times instead)
  • This kind of behaviour is obvious since cost reductions, revenue increases, capital increases and reductions etc. are too difficult to convert into change of ROI with day-to-day activities
    • Furthermore those persentages would not be so informative or illustrative to operating peolpe than absolute dollar changes in operating profit
  • This is even more understandable when we keep in mind that ROI is not an unambigious measure (slide 2: steering failure)