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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. 1 Explain why companies use nonfinancial performance measures.O. or annual basis • Many people in the organization do not see how their work translates into financial results. 18 . quarterly.2 . • Often not useful in identifying the cause of operational problems • Commonly reported only on a monthly.

• In the case of a desk clerk at a hotel.3 . measuring the clerk's performance in terms of customer satisfaction would be meaningful 18 .LO 1 Nonfinancial Measures • Nonfinancial measures direct employees’ attention to those things they control.

18 . customers.4 . • Stakeholders: Groups or individuals.Responsibilities According to Level of Organization L. and the community.O. • Business model: Description of how different levels and employees in the organization must perform for the organization to achieve its goals. shareholders. such as employees. 2 Recognize the reasons why performance measures differ across levels of the organization. who have a stake in what the organization does. suppliers.

3 Understand when the use of a single measure or multiple measures of performance is appropriate.O. Single Measure Profit 18 .5 .Multiple Measures or a Single Measure of Performance? L.

LO 3 Multiple Measures or a Single Measure of Performance? Multiple Measures Employee satisfaction Customer satisfaction Employee learning Regulatory violations Branch costs Branch profitability 18 .6 .

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 18 .7 .Balanced Scorecard L.O.

9 . services.Continuous Improvement and Benchmarking L. 18 . • Benchmarking: Continuous process of measuring a company’s own products. • Continuous improvement: Continuous reevaluation and improvement of the efficiency of the organization’s activities.O. and activities against competitors’ performance. 5 Understand how to apply the methods involved in an effective performance measurement system.

Customer Satisfaction Measures Quality control Delivery performance Bookings and purchase orders Market share 18 .O.10 .Nonfinancial Measures L. 6 Identify examples of nonfinancial performance measures and discuss the potential for improved performance resulting from improved activity management.

18 . experiencing a decline in sales. the company is.LO 6 Nonfinancial Measures • Quality control: Increase customer satisfaction. • Market share: If the market is growing faster than the company's sales. • Bookings and purchase orders: A decrease in booking and purchase orders sends a signal to management to devote more marketing effort to sales.11 . • Delivery performance: Deliver goods and services when promised. in effect.

storing. moving.LO 6 Nonfinancial Measures • Functional performance measures keep processes efficient and effective. 18 .12 . • Manufacturing cycle efficiency: Measure of the efficiency of the total manufacturing cycle. and inspecting products and materials. equals processing time divided by the manufacturing cycle time. • Manufacturing cycle time: Time involved in processing.

LO 6 Nonfinancial Measures • Productivity focuses on the efficient conversion of inputs into outputs. Output (quantity or value) Single input such as labor (quantity or value) 18 .13 . • Partial productivity measures express the relation between output and only one input.

18 . their commitment to the organization and its objectives increases. • Many managers believe that when workers take on real decision-making authority.O. 7 Explain why employee involvement is important in an effective performance measurement system.14 .Employee Involvement L.

• 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. workers are more responsive to customer concerns and can make informed decisions.LO 7 Employee Involvement • When decision-making responsibility lies with workers closer to the customer.15 . 18 .

LO 7 Difficulties in Implementing Nonfinancial Performance Measurement Systems • Fixation on financial measures • Reliability of nonfinancial measures • Lack of correlation between nonfinancial measures and financial results 18 .16 .

Inc.End of Chapter 18 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies. All rights reserved. .