'Advantage of Non-Financial Measures\r'

'advantages Non- pecuniary measures offer quaternity clear advantages over measurement systems base on financial data. First of these is a closer film-to doe with to long-term organizational strategies. Financial evaluation systems for the most part focus on annual or short-run executing against accounting yardsticks. They do not disseminate with progress relative to guest requirements or competitors, nor another(prenominal) non-financial objectives that may be crucial in achieving profitability, warlike strength and longer-term strategic addresss.\r\nFor example, new product increase or expanding organizational capabilities may be important strategic goals, but may hinder short-term accounting consummation. By supplementing accounting measures with non-financial data almost strategic performance and implementation of strategic plans, companies heap communicate objectives and provide incentives for conductors to address long-term strategy.\r\nSecond, critics of trad itional measures argue that drivers of achiever in legion(predicate) industries argon â€Å" impalpable assets” such as intellectual groovy and customer loyalty, rather than the â€Å"hard assets” allowed on to oddment sheets. Although it is difficult to quantify intangible assets in financial terms, non-financial data muckle provide indirect, quantitative indicators of a firms intangible assets. One study examined the ability of non-financial indicators of â€Å"intangible assets” to explain differences in US companies stock foodstuff values.\r\nIt found that measures related to innovation, management capability, employee relations, quality and dishonor value explained a signifi throw outt proportion of a companys value, even allowing for accounting assets and liabilities. By excluding these intangible assets, financially oriented measurement can encourage managers to net poor, even harmful, decisions. We Suggest… Jeremy Siegel on the Market: bou ldered Going for Now, but Stocks Still a dandy Bet Re-examining Stock Options as a air to Compensate Executives\r\nMeasures That Matter: Aligning Performance Measures With unified Strategy Building Companies That Leave the World a Better Place The Art and Science of measure CEO Performance Third, non-financial measures can be remediate indicators of future financial performance. Even when the ultimate goal is maximizing financial performance, current financial measures may not capture long-term benefits from decisions made now. Consider, for example, investments in research and development or customer atonement programs.\r\nUnder U. S. accounting rules, research and development expenditures and merchandise costs must be charged for in the period they are incurred, so step-down profits. precisely successful research improves future profits if it can be brought to market. Similarly, investments in customer satisfaction can improve subsequent economic performance by increasing revenues and loyalty of existing customers, attracting new customers and reducing transaction costs.\r\nNon-financial data can provide the missing link between these beneficial activities and financial results by providing forward-looking information on accounting or stock performance. For example, interim research results or customer indices may offer an indication of future immediate payment flows that would not be captured otherwise. Finally, the choice of measures should be based on providing information about managerial actions and the train of â€Å" entropy” in the measures.\r\nNoise refers to changes in the performance measure that are beyond the control of the manager or organization, ranging from changes in the economy to luck (good or bad). Managers must be aware of how much success is due to their actions or they will not have the signals they need to maximize their effect on performance. Because many non-financial measures are less susceptible to external nois e than accounting measures, their use may improve managers performance by providing more precise evaluation of their actions. This also lowers the risk imposed on managers when determining pay.\r\n'