Performance Indicators 2

Performance Indicators 2

1. Limitations

   • Short-termism
     • managers focussing on profit
       • other factors need to be controlled
   • Other factors
     • use figures of SOFP & P&L
       • not full picture
   • Comparator Needed
     • can be problematic
       • adj. needed before ratios can be calculated and compared
     • like for like
   • Inflation
     • adj. needed so all figures are stated at one price level
       • not inflating or deflating can skew ratios
     • Representative figures
       • ratios based on YE figures
         • might not be representative of future costs or average value for year
   • Behaviour aspect
     • encourages managers to act in a dysfunctional way
       • take action for good of one division and not whole company
         • acting in a non-goal congruent manner

2. Non-financial performance indicators

   • Effectiveness
     • achieving overall strategy
       • customer satisafction
       • quality
   • Productivity
     • workforce
   • Value added
     • measures productivity
     • difference between purchase cost of external materials and services to selling price

3. Balanced Scorecard

   • Financial
     • Profitability and meeting needs of shareholders
   • 4 perspectives must be monitored to ensure business remains competitive and financially successful
   • Innovation and Learning
     • new skills and developing new products
   • Internal
     • operational performance efficiency & effective management of resources
       • value added
   • Customer
     • satisfaction and meeting needs