Use of non-financial measures
in performance evaluation
Content
Traditional Financial Performance
 Definitions
 Examples
 Pros and Cons of Non-financial measures
 Mistakes and Solutions
 Conclusion

Traditional Financial Performance
They only tell what has happened over a
limited period in the immediate past;
 They give you no indication of what is
going to happen in the future;
 They do not relate to the strategic
management of the business etc.

Definitions
The financial measures show the impact
of the firm’s policies and procedures on
the firm’s current financial position and
its current return on shareholders.
 The nonfinancial factors show the firm’s

current and potential competitive
position.
Examples:
Financial Measures of Success
Non-financial Measures of Success
Sales growth
Earning growth
Dividend growth
Bond and credit ratings
Cash flow
Increase in stock price
Customer Measures
Market share and growth in market share
On-time delivery
Customer satisfaction
Brand recognition
Position in favorable markets
Internal Business Processes
High product quality
Manufacturing innovation
High manufacturing productivity
Cycle time
Yield and reduction in waste
Learning and Innovation (Human Resources)
Competence and integrity of managers
Morale and firmwide culture
Education and training
Innovation and new products and manufacturing methods
A process is a sequence of activities linked
together for performing a particular task.
Input
Activity or Process
Output
Example:
Inputs:
Employee training
Employee experience
Number of new menu items
Number of employees
Fryer reliability
Fountain supply availability
Activity
Counter service
Outputs:
Line wait
Percent order accuracy
Friendly service score
Advantages
Closer link to long-term organizational
strategies;
 Can provide indirect, quantitative
indicators of a firm's intangible assets;
 Can be better indicators of future
financial performance;
 Less susceptible to external noise than
accounting measures

Disadvantages
Time and Cost;
 Measures in many ways;
 Lack of causal links;
 Lack of statistical reliability
 “Measurement disintegration”

Mistakes
Not linking measures to strategy
 Not validating the links
 Not setting the right performance targets
 Measuring incorrectly

Solutions
Develop a casual model;
 Pull together the data;
 Turn data into information;
 Continually refine the model;
 Base actions on findings.

Conclusion




Non-financial measures are increasingly
important in decision – making and
performance evaluation;
Companies should not simply copy measures
used by others;
The choice of measures must me linked to
factors such as corporate strategy, value
drivers, organizational objectives and the
competitive environment.
Performance measurement is a dynamic
process, etc.
Thank you very much for your attention!