According to the controllability principle, Managers should be responsible only for the things (revenues, expenses, investments, etc.) they can influence. Performance measures should reflect this. If managers are held responsible for factors they cannot influence, motivation may be undermined and dysfunctional behavior may occur. At times, it might be reasonable to depart from the controllability principle. Two such occasions are: 1. Allocationofcostscanmakeactorsawareofthesecostsandtheystarttaking them into consideration and might start questioning them. For example, headquarter costs might be allocated to business units, even when these business units are not immediately influencing these costs. Allocation of overhead considers ‘true’ profitability of business units (i.e. considering full cost). Furthermore, business unit managers might start to discuss and question these costs, which might lead to cost reductions in the future. 2. External factors such as theweather,fashiontrends,currencyfluctuationsetc. are oftentimes considered as not (or only partly) controllable. However, if nobody is held responsible for these issues within the corporation then nobody will address them. Holding managers responsible for these issues can bring about potentially fruitful discussion of how such external factors might be dealt with in constructive ways. 3. Effects: Design measures that have desirable effects, for both the organization as a whole and parts of it. 4. Representation: Design measures that capture key measures of success for the business activities ('tailor made') 5. Comparability: Design measures that can be compared across entities within the group (and/or with external benchmarks) 6. Measurement system: Design measures that can be measured reliably. 7. User criteria: o Acceptance: Performance measures should be designed in ways that managers find acceptable. Acceptance might relate to other criteria, for example, managers might not accept customer satisfaction measures if they feel the measurement (e.g. customer surveys) are not reliable. o Simplicity&understanding:Managersneedtounderstandthemeasures they are confronted with. In general, if performance measures are overly complex and difficult to comprehend, managers might not understand how their actions (and/or other factors) affect the measure. o Adapted to user conditions: Measures should be adapted to the users’ conditions. For example, if managers are responsible for financial measures such as WACC or EVA, make sure that managers possess the necessary financial training.