Page 166 - BA2 Integrated Workbook STUDENT 2018

Chapter 9

2.6 Suitability of performance measures

You can see from the above that the performance measurements used will depend
on the needs of the individual manager.

The following table shows which measures would be suitable for each type of centre:
Cost centre Profit centre Investment centre

Variance analysis   
Gross revenue  

Contribution  
Gross/Net profit  

Gross/Net margin  
ROCE 

2.7 Problems with financial measures

Achievement of these target ratios (financial performance indicators) may be linked
to a reward system in order to motivate managers to improve financial performance.

However, there are a number of problems associated with the use of financial
performance indicators alone to monitor performance:

 Short-termism vs long term performance

 Manipulation of results

 Do not convey the full picture

 Backward looking.

Therefore, when monitoring performance, a broader range of measures should be
used.

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