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Alternative measures of performance

Non-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.

Non-financial performance indicators are 'measures of performance based on non-
financial information that may originate in, and be used by, operating departments to
monitor and control their activities without any accounting input.'

Illustrations and further practice

Now read the ‘BAA’ illustration from Chapter 7.

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