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Use of non-financial measures in performance evaluation. Content. Traditional Financial Performance Definitions Examples Pros and Cons of Non-financial measures Mistakes and Solutions Conclusion. Traditional Financial Performance.
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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.
