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Nonfinancial and Multiple

Measures of Performance

Chapter 18

Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin

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Beyond the Accounting Numbers

L.O. 1 Explain why companies use nonfinancial performance measures.

Often not useful in identifying the causeof operational problems

Commonly reported only on a monthly,

quarterly, or annual basis

Many people in the organization do not see

how their wor translates into financial results.

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Nonfinancial Measures

LO

1

!onfinancial measures direct employees"

attention to those things they control.

#n the case of a des cler at a hotel, measuringthe cler$s performance in terms of customer

satisfaction would be meaningful

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Responsibilities According

to Level of rgani!ation

L.O. 2 %ecognize the reasons why performance

measures differ across le&els of the organization.

'taeholders(

)roups or indi&iduals, such as employees, suppliers,

customers, shareholders, and the community, who

ha&e a stae in what the organization does.

*usiness model(

+escription of how different le&els and employees inthe organization must perform for the organization

to achie&e its goals.

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Multiple Measures or a

"ingle Measure of Performance#

L.O. 3 nderstand when the use of a single measure or

multiple measures of performance is appropriate.

'ingle Measure

-rofit

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Multiple Measures or a

"ingle Measure of Performance#

LO

3

Multiple Measures

Employee satisfaction

Employee learning

*ranch costs

Customer satisfaction

%egulatory &iolations

*ranch profitability

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Balanced "corecard

L.O. 4 nderstand how the balanced scorecard helps organizations

recognize and deal with their opposing responsibilities.

*alanced scorecard(

'et of performance targets and results that showhow well an organization has performed in meeting

its obecti&es relating to its staeholders

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Continuous $mprovement

and Benchmar%ing

L.O. 5 nderstand how to apply the methods in&ol&ed in

an effecti&e performance measurement system.

Continuous impro&ement(

Continuous ree&aluation and impro&ement ofthe efficiency of the organization"s acti&ities.

*enchmaring(

Continuous process of measuring a company"s

own products, ser&ices, and acti&ities againstcompetitors" performance.

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L.O. 6 #dentify examples of nonfinancial performance measuresand discuss the potential for impro&ed performance

resulting from impro&ed acti&ity management.

Customer 'atisfaction Measures

/uality control

+eli&ery performance

*ooings and purchase orders

Maret share

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6

/uality control(#ncrease customer satisfaction.

+eli&ery performance(

+eli&er goods and ser&ices when promised.

*ooings and purchase orders(

0 decrease in booing and purchase orders

sends a signal to management to de&ote

more mareting effort to sales.

Maret share(

#f the maret is growing faster than the company$s

sales, the company is, in effect, experiencing a

decline in sales.

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6

1unctional performance measures eep processes

efficient and effecti&e.

Manufacturing cycle time(

2ime in&ol&ed in processing, mo&ing, storing, andinspecting products and materials.

Manufacturing cycle efficiency(

Measure of the efficiency of the total manufacturing

cycle3 equals processing time di&ided by the

manufacturing cycle time.

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6

-roducti&ity focuses on the efficient

con&ersion of inputs into outputs.

-artial producti&ity measures

express the relation between

output and only one input.

Output 4quantity or &alue5'ingle input such as labor 4quantity or &alue5

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&mployee $nvolvementL.O. 7

Explain why employee in&ol&ement is importantin an effecti&e performance measurement system.

Many managers belie&e that when worers

tae on real decision6maing authority, their

commitment to the organization and its

obecti&es increases.

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&mployee $nvolvement

7hen decision6maing responsibility lies

with worers closer to the customer, worers

are more responsi&e to customer concernsand can mae informed decisions.

LO

7

)i&ing decision6maing responsibility to

worers uses their sills and nowledge and

moti&ates them to further de&elop those sillsand nowledge in an effort to impro&e the

organization"s performance.

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'ifficulties in $mplementing Nonfinancial

Performance Measurement "ystems

LO

7

1ixation on financial measures

%eliability of nonfinancial measures

8ac of correlation between nonfinancial

measures and financial results

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&nd of Chapter 18

Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin

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