What is Investment Centers?
An investment center is a business unit whose manager is held accountable not only for revenues and costs, but also for the assets invested in the unit. Performance is measured using return on investment (ROI), residual income, or economic value added (EVA).
How It Works
- Allocate identifiable assets and liabilities to the unit.
- Compute ROI as operating profit divided by invested assets.
- Set a hurdle rate and reward managers who beat it.
Saudi Context
Saudi conglomerates and Vision 2030 giga-projects often structure subsidiaries as investment centers, with PIF setting ROI targets and capital-allocation rules across portfolio companies.
Example
A Saudi retail group’s e-commerce arm earns SAR 30 million on SAR 150 million invested. ROI is 20%, above the group’s 14% hurdle rate.