Performance Measurement

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Performance Measurement
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Performance measures recently introduced or being
considered for introduction

• Balanced Scorecard Approach
• Economic Value Added (EVA)
• Value Drivers
• Shareholders Value Analysis (SVA)
• Economic profit
• Cashflow return on investment
• Target cashflow
• Return on capital employed (ROCE)
• Target profit

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Use of Divisional Performance Measures in UK
companies (source Francis And Minchington, 2000)
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Financial and non-financial measures commonly
used in assessing performance
WORKING CAPITAL Cashflow Creditor days Debtor days GENERAL PRODUCTION Capital utilization Inventory DEMAND Market share Orders on hand
CAPITAL MARKET Asset value per share Dividend cover Dividend per share Earnings per share Price/earnings ratio PROCESS Manufacturing lead time per cent rework and reject per cent yield on production Schedule adherence Set-up time PRODUCT Price (both low-price and low-cost supplier) Product quality Returns Incidence of defects (PPM) Warranty claims Field service requests
(FINANCIAL) RETURN Capital turnover Working capital turnover Profit to turnover Return on capital employed Profit Total shareholder returns Profit per employee Economic value added Sales per employee LABOUR Direct labor productivity Indirect labor productivity Employee turnover Employee satisfaction Involvement with decisions Recognition for doing good job Support level from staff fnctions Encouragement to be creative Employee retention CUSTOMER Customer Acquisition Satisfaction Complaints Repeat orders Retention loyalty On-time delivery (OTD) Account share Profitability
LENDER SECURITY Gearing Interest cover SUPPLIERS Number of suppliers Supplier lead time INNOVATIVENESS New product frequency New product time to market
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Financial control

• Financial control involves the use of financial
  measures to asses organization and management
  performance
• Variance analysis is the oldest and most widely
  used forms of financial control
• Financial indicators used for asses performance
  depend on the type of responsibility center

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Responsibility centers and financial indicators

• Using segment margin reports
• Transfer pricing
• International transfer pricing
• Domestic transfer pricing
• Return on investment
• Using Residual Income
• Using economic value added (EVA)