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Explore how non-financial measures complement traditional financial metrics in performance evaluation. Learn about examples, pros, cons, mistakes, and solutions for effective implementation. Understand the importance of linking measures to strategy for strategic decision-making. Discover the dynamic nature of performance measurement.
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Content • Traditional Financial Performance • Definitions • Examples • Pros and Cons of Non-financial measures • Mistakes and Solutions • Conclusion
Traditional Financial Performance • They only tell what has happened over a limited period in the immediate past; • They give you no indication of what is going to happen in the future; • They do not relate to the strategic management of the business etc.
Definitions • The financial measures show the impact of the firm’s policies and procedures on the firm’s current financial position and its current return on shareholders. • The nonfinancial factors show the firm’s current and potential competitive position.
A process is a sequence of activities linked together for performing a particular task. Example: Input Activity or Process Output Inputs: Employee training Employee experience Number of new menu items Number of employees Fryer reliability Fountain supply availability Outputs: Line wait Percent order accuracy Friendly service score Activity Counter service
Advantages • Closer link to long-term organizational strategies; • Can provide indirect, quantitative indicators of a firm's intangible assets; • Can be better indicators of future financial performance; • Less susceptible to external noise than accounting measures
Disadvantages • Time and Cost; • Measures in many ways; • Lack of causal links; • Lack of statistical reliability • “Measurement disintegration”
Mistakes • Not linking measures to strategy • Not validating the links • Not setting the right performance targets • Measuring incorrectly
Solutions • Develop a casual model; • Pull together the data; • Turn data into information; • Continually refine the model; • Base actions on findings.
Conclusion • Non-financial measures are increasingly important in decision – making and performance evaluation; • Companies should not simply copy measures used by others; • The choice of measures must me linked to factors such as corporate strategy, value drivers, organizational objectives and the competitive environment. • Performance measurement is a dynamic process, etc.
