Performance Measurement Part3

ACCA F5 - Performance Management 

ACCA F2 - Management Accounting



Non-financial measures: Success of firms do not solely rely on better financial performance. Financial performance measures reflects historical performance but the future performance depends on many other factors like customer satisfaction, customer retention rate, employee satisfaction, innovative products, process redesign, keeping update with informational and technological changes. They are known as non-financial measures.

Kaplan and Norton's Balanced Scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organisations worldwide to align business activities to the vision and strategy of the organisation, improve internal and external communications, and monitor organisation performance against strategic goals. (source: balancedscorecard.org)Balanced Scorecard includes financial and non-financial measures. The four perspective of balanced scorecard liked to organisation vision and strategies are:

perspective	CSFs (strategic objectives)	KPIs (measures for CSFs)	Target (Achievable value for KPIs)	Initiatives
Financial	Survival	Cash flow	Cash balance over a value X	speed cash generating activity
Customer	loyalty	customer churn rate	churn rate not exceeding value X	focus customers' demand
Internal process	Operational effectiveness	Production cycle times	X production cycle per period	reducing operational inefficiencies
Innovation and learning	New product development	ROI - % of income from new product	X% of income from new product	market survey and innovative product design

Defining CSFs, KPIs and Target (Taken from article KPIs and CSFs)

CSFs (Critical Success Factors): CSFs are those components of strategy where the organisation must excel in order to outperform its rivals.

KPIs (Key Performance Indicators): Measures that quantify objectives and can be used to gauge the organisation's strategic performance.

Target: Target proposes a certain level of achievement.

Service sector organisations involves added performance measurement related to quality of service. The nature of service sector "heterogeneity, Perishability, simultaneity and intangibility " focus on various quality related measures like: access, organised functions, employees behaviour, reliability, responsiveness of employees, security measures and many more.

Performance measure in Not for profit and public service organisation used customized financial and non financial measures which focus on value for money. Value for money is described by economy, efficiency and effectiveness.

Economy	Value of input outweigh Money spent
Efficiency	Value of output produced outweigh value of input purchased
Effectiveness	Objective achieved and outperformed from available resources

ACCA Article: Performance Measurement

CIMA Article: KPIs and CSFs