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Financial measures are the traditional ones for evaluating operating performance, benchmarking competitors, and comparing industry results. To determine whether a company is profitable, profitability ratios like return on equity, return on assets and net profit margin may be used. Other companies or competitors normally use the same ratios also so that comparison and benchmarking are possible among companies (Meigs, Meigs & Meigs, 1995). However, it does not mean that non-financial measures are not useful since normally they are the underlying explanations of the difference in performance measures. To illustrate in the case of two similar companies in the industry, it is possible that one has more revenues or higher profitability than the other does. What could explain the difference between the two companies may be in the more loyal and active sales force of one company over the other. Upon investigation, it can be found that personal objectives of the workforce or people of the more profitable company are tied with the corporate financial objectives. The human resource contribution, which is basically non-financial, is normally not emphasized in the financial statements but they could constitute the competitive advantage on one company over the other company. After knowing that a company has more loyal and hard working sales force, the same company could sustain profitability or further the advantage and that makes the non-financial measure very useful. Of course they are other non-financial measures such as better customer service, better attendance of employees in meeting, zero absences in important activities, timely submissions of reports by concerned employees or departments (Streetdirectory, 2010).
The advantage and disadvantage of each measure can be drawn from the example given. Financial measures are readily measurable and are closer to measuring attainment of measurable financial objectives. It is easier to
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This is observed in comparison to the companies competence related to investments and in dealing with the physical form of assets. The notion of balanced scorecard was initiated with regard to the mentioned alterations made by the companies. The balanced scorecard was found to complement the customary financial measures along with offering decisive factors in relation to gauging the performance with respect to few additional viewpoints.
The purpose of the article is to highlight the importance of effectively using nonfinancial performance measures, revealing the mistakes that companies make when measuring nonfinancial performance and introducing and highlighting the effective practices for measurement of nonfinancial performance.
In the modern global world, regulatory measures are very significant in defining the production process to ensure quality product development as well as establishing a fair competing field. To this effect, the federal government and other relevant bodies reserve the right of devising and ensuring compliance to the set regulatory measures.
Multiple performance measurements, integration of financial and non-financial measures, is one of the key innovations in management control systems that provide managers critical information on monitoring crucial business activities and organizational goals. There is an increasing trend to adopt nonfinancial measures in customer perspectives.
According to the report to minimize information overload, the number of measures were limited in the beginning and the authors suggested that new measures could be added whenever a new suggestion was made. The BSC measures are supposed to drive performance as it gives a quick but comprehensive view of the business.
system had been increasingly deregulated in an attempt to achieve greater efficiency, but the increasingly liberal policies have progressed to a point when innovative contracts have been implemented with less than diligent study and with a disregard for risk in the face of
Subprime mortgage loans were given to the borrowers with relatively poor credit rating however they offered higher return to the financial institutions because it simply looked attractive to the banks.
The conclusion from this study states that risk management is crucial for the stability and the financial success of a financial institution. More than fifty percent of the problems faced by major financial institutions all over the world is because of the lack of an appropriate risk management system.