Download Nonfinancial and Multiple Measures of Performance

Chapter 18
Nonfinancial and Multiple
Measures of Performance
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Beyond the Accounting Numbers
L.O. 1 Explain why companies use nonfinancial performance measures.
• Often not useful in identifying the cause
of operational problems
• Commonly reported only on a monthly,
quarterly, or annual basis
• Many people in the organization do not see
how their work translates into financial results.
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LO1
Nonfinancial Measures
• Nonfinancial measures direct employees’
attention to those things they control.
• In the case of a desk clerk at a hotel, measuring
the clerk's performance in terms of customer
satisfaction would be meaningful
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Responsibilities According
to Level of Organization
L.O. 2 Recognize the reasons why performance
measures differ across levels of the organization.
• Stakeholders:
Groups or individuals, such as employees, suppliers,
customers, shareholders, and the community, who
have a stake in what the organization does.
• Business model:
Description of how different levels and employees in
the organization must perform for the organization
to achieve its goals.
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Multiple Measures or a
Single Measure of Performance?
L.O. 3 Understand when the use of a single measure or
multiple measures of performance is appropriate.
Single Measure
Profit
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LO3
Multiple Measures or a
Single Measure of Performance?
Multiple Measures
Employee satisfaction
Customer satisfaction
Employee learning
Regulatory violations
Branch costs
Branch profitability
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Balanced Scorecard
L.O. 4 Understand how the balanced scorecard helps organizations
recognize and deal with their opposing responsibilities.
• Balanced scorecard:
Set of performance targets and results that show
how well an organization has performed in meeting
its objectives relating to its stakeholders
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Continuous Improvement
and Benchmarking
L.O. 5 Understand how to apply the methods involved in
an effective performance measurement system.
• Continuous improvement:
Continuous reevaluation and improvement of
the efficiency of the organization’s activities.
• Benchmarking:
Continuous process of measuring a company’s
own products, services, and activities against
competitors’ performance.
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Nonfinancial Measures
L.O. 6 Identify examples of nonfinancial performance measures
and discuss the potential for improved performance
resulting from improved activity management.
Customer Satisfaction Measures
Quality control
Delivery performance
Bookings and purchase orders
Market share
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LO6
Nonfinancial Measures
• Quality control:
Increase customer satisfaction.
• Delivery performance:
Deliver goods and services when promised.
• Bookings and purchase orders:
A decrease in booking and purchase orders
sends a signal to management to devote
more marketing effort to sales.
• Market share:
If the market is growing faster than the company's
sales, the company is, in effect, experiencing a
decline in sales.
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LO6
Nonfinancial Measures
• Functional performance measures keep processes
efficient and effective.
• Manufacturing cycle time:
Time involved in processing, moving, storing, and
inspecting products and materials.
• Manufacturing cycle efficiency:
Measure of the efficiency of the total manufacturing
cycle; equals processing time divided by the
manufacturing cycle time.
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LO6
Nonfinancial Measures
• Productivity focuses on the efficient
conversion of inputs into outputs.
• Partial productivity measures
express the relation between
output and only one input.
Output (quantity or value)
Single input such as labor (quantity or value)
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Employee Involvement
L.O. 7 Explain why employee involvement is important
in an effective performance measurement system.
• Many managers believe that when workers
take on real decision-making authority, their
commitment to the organization and its
objectives increases.
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LO7
Employee Involvement
• When decision-making responsibility lies
with workers closer to the customer, workers
are more responsive to customer concerns
and can make informed decisions.
• Giving decision-making responsibility to
workers uses their skills and knowledge and
motivates them to further develop those skills
and knowledge in an effort to improve the
organization’s performance.
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LO7
Difficulties in Implementing Nonfinancial
Performance Measurement Systems
• Fixation on financial measures
• Reliability of nonfinancial measures
• Lack of correlation between nonfinancial
measures and financial results
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End of Chapter 18
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.