Monday, July 13, 2009


Performance measures.

Non-financial indicators.

Financial measures of not convey the full picture of a company’s performance, especially in a modern business environment.
Many companies are discovering the usefulness of quantitative and quantitative non- financial indicators (NFIs) such as the following.

  • Quality
  • Number of customer complaints and warranty claims
  • Lead times
  • Delivery to time
  • Non-productive hours
  • System (machine)down time, and so on
  • Rework
Unlike traditional variance reports, measures such as these can be provide quickly for managers, per shift per daily or even hourly. They are likely to be easy to calculate, and easier for non- Financial managers to understand and therefore to use effectively.

  • Absenteeism per customer, for example, may be of no significance at all or it may reveal that a particularly difficult customer is avoided, and hence that some action is needed.
  • Miscalculations per 1,000 invoices’ would show how accurately the invoicing clerk was working.
  • Defects per return may show that customers are very fussy about quality or (if there are no defects in returned goods) that their real needs are not being properly identified.
There are problems associated with applying NFIs.
  • There is a danger that too many such measures could be reported, overloading managers with information that is not truly useful, or that sends conflicting signals.
  • Arguably, non- Financial measures are less likely to be manipulated than Traditional profit-related measures and they should, therefore, offer a means of counteracting short-terms, since short-term profit any (non monetary) expense is rarely an advisable goal. However, that ultimate foal of commercial organizations in the long run is likely to remain the maximization of profit and so the financial aspect cannot be ignored.
  • A further detail of non- Financial measures is that they lead managers to pursue detailed operational goals and become blind to the overall strategy in which those goals are set.
    A combination of Financial and non- Financial indicators is likely to be most successful.

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