Chapter 18: Nonfinancial and Multiple Measures of Performance

Nonfinancial and Multiple Measures of PerformanceChapter 18Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinBeyond the Accounting NumbersL.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.18 - *Nonfinancial MeasuresLO1 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 meaningful18 - *Responsibilities Accordingto Level of OrganizationL.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.18 - *Multiple Measures or aSingle Measure of Performance?L.O. 3 Understand when the use of a single measure or multiple measures of performance is appropriate.Single MeasureProfit18 - *Multiple Measures or aSingle Measure of Performance?LO3Multiple MeasuresEmployee satisfactionEmployee learningBranch costsCustomer satisfactionRegulatory violationsBranch profitability18 - *Balanced ScorecardL.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 stakeholders18 - *Four BalancedScorecard Views or PerspectivesLO418 - *Continuous Improvementand BenchmarkingL.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.18 - *Nonfinancial MeasuresL.O. 6 Identify examples of nonfinancial performance measures and discuss the potential for improved performance resulting from improved activity management.Customer Satisfaction MeasuresQuality controlDelivery performanceBookings and purchase ordersMarket share18 - *Nonfinancial MeasuresLO6 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.18 - *Nonfinancial MeasuresLO6 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.18 - *Nonfinancial MeasuresLO6 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)18 - *Employee InvolvementL.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.18 - *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.LO7 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.18 - *Difficulties in Implementing Nonfinancial Performance Measurement SystemsLO7 Fixation on financial measures Reliability of nonfinancial measures Lack of correlation between nonfinancial measures and financial results18 - *End of Chapter 18Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin