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Performance measurement and control

Non-financial performance indicators

3.1 Issues with financial performance indicators

The use of traditional financial performance metrics is widespread, but the practice
has its problems:

 They only tell what has happened over a limited period in the immediate past.

 They give no indication of what is going to happen in the future.

 They are vulnerable to manipulation and to the choice of accounting policy on
matters such as depreciation and inventory valuation.

 They do not relate to the strategic management of the business and may induce
‘short-termism’ at the expense of motivation, quality and efficiency.

Illustrations and further practice

Now read illustrations 1 ‘Problems of financial performance indicators’ and
2 ‘Non-financial performance measurement’ and try TYU 3 and TYU 4.

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