Use of non-financial measures in performance evaluation

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Use of non-financial measures in performance
evaluation
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Content

• Traditional Financial Performance
• Definitions
• Examples
• Pros and Cons of Non-financial measures
• Mistakes and Solutions
• Conclusion

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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.

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Definitions

• The financial measures show the impact of the
  firms policies and procedures on the firms
  current financial position and its current return
  on shareholders.
• The nonfinancial factors show the firms current
  and potential competitive position.

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Examples
Financial Measures of Success Non-financial Measures of Success
Sales growth Earning growth Dividend growth Bond and credit ratings Cash flow Increase in stock price Customer Measures Market share and growth in market share On-time delivery Customer satisfaction Brand recognition Position in favorable markets Internal Business Processes High product quality Manufacturing innovation High manufacturing productivity Cycle time Yield and reduction in waste Learning and Innovation (Human Resources) Competence and integrity of managers Morale and firmwide culture Education and training Innovation and new products and manufacturing methods
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• 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
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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

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Disadvantages

• Time and Cost
• Measures in many ways
• Lack of causal links
• Lack of statistical reliability
• Measurement disintegration

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Mistakes

• Not linking measures to strategy
• Not validating the links
• Not setting the right performance targets
• Measuring incorrectly

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Solutions

• Develop a casual model
• Pull together the data
• Turn data into information
• Continually refine the model
• Base actions on findings.

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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.

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• Thank you very much for your attention!