Question

What criteria would an organization use to establish appropriate financial and non-financial measures?

Answer 1

Developing or establishing appropriate financial and non-financial measures should be part of an overall strategic decision-making management process which should connect the overall mission, vision and both the long-term as well as short-term goals of the organization. The most important criteria for determining such measures are the organization's value drivers and its core competencies.

Financial measures are generally based on financial statements of the company which includes its balance sheet and the income statement. Hence financial measures can be based on components of balance sheet or income statement such as growth in sales or assets etc.

Non-Financial measures have more to do towards customer satisfaction and loyalty. They are usually based on customer relationships, whether the company has been able to meet the customer's needs and wants, whether customers are loyal to the organization etc.

Some of the important questions/criterias to be kept in mind while establishing such measures are :

-> Is our current information technology system and processes sufficient to meet such measures?

-> Mix of financial and non-financial measures required is very important. An organization needs to put equal focus on both.

-> What is our maximum performance capability including the maximum production capability of the machines etc.

-> What is the demand of our product

-> How satisfied are our customers with our product.

-> What are our core activities and competencies.