Discuss AHIP AHM-520 Exam Topic 5 Question 127

The Puma health plan uses return on investment (ROI) and residual income (RI) to measure the performance of its investment centers. Two of these investment centers are identified as X and Y. Investment Center X earns $10,000,000 in operating income on controllable investments of $50,000,000, and it has total revenues of $60,000,000. Investment Center Y earns $2,000,000 in operating income on controllable investments of $8,000,000, and it has total revenues of $10,000,000. Both centers have a minimum required rate of return of 15%.

One difference between the RI method and the ROI method is that

AThe RI method demands greater goal congruence from Puma's managers than does the ROI method

BThe RI method favors Puma's small investment centers more than does the ROI method

COnly RI can lead to decisions that improve Puma's short-term profits at the expense of its long-term objectives

DOnly RI is useful to Puma for comparing investment centers of different sizes

Suggested Answer: A

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19 comments · newest first

Shaniqua 1 month ago

All valid points, but B stands out for me.

Desirae 1 month ago

I still lean towards A for management alignment.

Arminda 2 months ago

Exactly! RI focuses on individual center success.

Julieta 2 months ago

ROI is more about overall performance, right?

Jani 2 months ago

D is interesting, but I don’t see it as the main point.

Davida 2 months ago

C could be true too, but it feels risky.

Shaniqua 2 months ago

But A seems too broad. B is specific to size.

Desirae 2 months ago

I feel A is more accurate. Goal congruence is key.

Arminda 3 months ago

I agree, B makes sense. Smaller centers need support.

Julieta 3 months ago

Tough question! I think B is the best choice.

Billye 3 months ago

X has a 20% ROI, Y has 25%. Interesting comparison!

Lili 3 months ago

Definitely think A is the right choice here.

Susana 3 months ago

Wait, so RI can mess with long-term goals? That's surprising!

Gregg 3 months ago

I disagree, ROI is still super important for all sizes.

Tayna 4 months ago

RI favors smaller centers, that's true.

Gennie 4 months ago

I feel like option C could be a trick answer since both methods can impact short-term and long-term decisions, but I can't quite remember the specifics.

Franklyn 4 months ago

I'm a bit confused about how goal congruence plays into this. Does that mean managers have to align their goals more with RI than ROI?

Gayla 4 months ago

I think we practiced a question similar to this, and I recall that RI is more focused on the size of the investment centers, which might relate to option B.

Xenia 4 months ago

I remember discussing how ROI and RI can lead to different managerial decisions, but I'm not sure which option really highlights that difference.

AHIP AHM-520 Exam - Topic 5 Question 127 Discussion