Week 8 Non-Financial Performance Measures

Question 1

what are Problems with traditional (conventional)

financial performance measures – ROI, RI and EVA?

Answer 1

• emphasis only one perspective of performance
• focus on consequences,not causes
• may encourage actions which decrease both shareholder and customer value
• provides limited guidance for future actions

Question 2

non financial performance measures? first 3 main

Answer 2

customer satisfaction
defect (help prevent faults in product during manufacturing process)
quality (improve and support competitive strategy of quality)

Question 3

non financial performance measures: productivity measure?

Answer 3

Helps to improve productivity and efficiency

Support cost leadership strategy as productivity is a driver of cost

Question 4

non financial performance measure - stock status?

Answer 4

Helps to manage and reduce inventory cost

Question 5

Non-financial Performance Measures - accident report?

Answer 5

Helps to reduce number of accidents

Question 6

Non-financial Performance Measures - multi-skilling

Answer 6

Helps to identify gaps in employees’ skills

Question 7

Non-financial Performance Measures - machine downtime

Answer 7

Helps to identify causes for machine downtime

machine breaking down, electricity outrage or setup time

Question 8

Non-financial Performance Measures - delivery on time

Answer 8

Helps to identify reasons for delays in timely delivery of products

Question 9

The advantages of non-financial measures?

Answer 9

• emphasise strategy
• drivers for future financial performance
• more actionable as easier to navigate source of low performance
• more timely
• more understandable and easier to relate to (at operational level)

Question 10

The problems with non-financial performance measures?

Answer 10

• wide choice of non-financial measures available
• inclusion of non-financial measure can be ad hoc and undirected
• managers must make trade-offs (choose one measure over another)
• some measure lack integrity - difficult to verify and potential to be inaccurate
• may not easily translate into financial outcome

Question 11

What is a Balanced Scorecard (BSC)?

Answer 11

a tool that translates an organization’s mission, objectives and strategies into performance measures.

that translate strategy into an integrated set of financial and non-financial measures across a range of perspectives.

Developed in 1992 by Robert Kaplan and David Norton

Question 12

what are The four perspectives of the BSC?

Answer 12

financial 
customer 
internal business 
learning and growth 
(they are all connected in causal relationship)

Question 13

BSC Financial perspective –?

Answer 13

reflect the view of the shareholders or other stakeholders of the organisation.

Question 14

BSC Customer perspective ?

Answer 14

specific customer objectives may focus on market or sales performance.

Question 15

BSC Internal Business process?

Answer 15

objectives are formulated for specific process that contribute to achieving customer and financial objectives. E.g., product design, operations and marketing

Question 16

BSC Learning and growth?

Answer 16

focuses on the capabilities of the organisation – employees and information systems.

Question 17

BSC what is lag indicator.

Answer 17

– An outcome, a measure of the extent to which the objective is accomplished, usually in quantifiable terms and directly linked with the objective.

Question 18

BSC what is lead indicator?

Answer 18

A driver of the outcome (lag), a cause or factor that influences a change in the outcome
- There can be more than one possible lead indicators that drive the change in the lag indicator.

Question 19

What is Strategy Mapping?

Answer 19

a one-page view of the strategy(s) of an organisation.
• Organisations will need one strategic map for each strategic theme.
• Maps are constructed over four perspectives.
• Strategic objectives are mapped over the four perspectives, linked together.

Question 20

Potential Problems in Developing and Implementing a Balanced Scorecard?

Answer 20

• Senior management is not committed
• Lack of consensus
• Poor use of consultants
Provide expertise, but cannot take over the project
without employee input
• Lack of “push down”: failure to communicate to employees
• Poorly designed balanced scorecard

Question 21

what is du pont chart?

Answer 21

link financial and non-financial measures

Question 22

what is benchmarking?

Answer 22

A process of comparing the products, functions and activities in an organisation against external businesses

Question 23

Forms of benchmarking?

Answer 23

internal
competitive 
industry 
best-in-class or process

Question 24

Internal benchmarking?

Answer 24

Benchmarking operations that are internal to the larger business group

Question 25

competitive benchmarking?

Answer 25

Benchmarking with companies in the same industry

Question 26

industry benchmarking?

Answer 26

• Against companies that have similar interests and technologies within an industry
• Performance measures and practices directly comparable

Question 27

best in class or process benchmarking?

Answer 27

Benchmarking against the best practices that occur in any industry

Question 28

Effective Performance Measurement Systems?

Answer 28

1. initiative must start at top
2. must be balanced (financial + non financial; lead + lag)
3. must be relatively simple (limit to critical success factors as too many can confuse and employees ignore complex system)
4. Should provide guidance, not just feedback
5. Must look beyond the entity (external groups)