What is Investment Center?
An investment center is a responsibility center where the manager is accountable not only for revenues and costs but also for the capital invested in the unit. It is the broadest type of responsibility center and is evaluated using metrics such as return on investment (ROI) and residual income.
How It Works
- Identify the autonomous business unit (subsidiary, division, branch).
- Track revenues, costs, and the assets employed in the unit.
- Calculate ROI as operating profit divided by invested capital.
- Calculate residual income as operating profit minus a charge for the cost of capital.
Saudi Context
Saudi conglomerates organised under family holdings or Tadawul-listed groups use investment centre reporting to evaluate divisional managers across multiple sectors (retail, manufacturing, real estate). Many Saudi groups also align managerial KPIs with Vision 2030 priorities like localisation rates and Nitaqat scores.
Example
A Saudi conglomerate’s retail division has SAR 8 million operating profit and SAR 50 million invested capital. ROI is 16%. With a cost of capital of 10% (SAR 5 million), residual income is SAR 3 million.