Non financial performance models

Question 1

introduction and exam style

Answer 1

Non financial factors drive business performance. Businesses often focus excessively on financial results.

Exam style
1. explain how models work and evaluate it
2. evaluation of an existing set of KPIS or an existing PMS using a
model
3. implementation and “how to use” challenges with these models

Question 2

problems with ONLY focussing on financial performance assessment

Answer 2

Financial performance is important but performance assessment should not be solely financial.

1. They are historic figures - shareholders are interested in current
   and future performance.
2. They are easily manipulatable and is commonly done
3. Focus on financial performance can lead to shortermism

Question 3

Why non financial models are better

Answer 3

1. They offer a more balanced approach, covering both financial and
   non financial
2. In some cases they are tailored to certain industries. e.g. building
   block - service industry, performance pyramid - manufacturing.
3. They provide a framework to consider drivers of performance
   rather than only results.
4. They include measures that require subjectivity and opinion. Data capture system will be needed

Question 4

Balanced score card

Answer 4

4 Angle
1. Financial perspective - current, traditional measures -
2. Learning and growth perspective - Future
3. Internal business perspective - Internal
4. Customer perspective - external
5. Vision/strategy - ties all angles together at the centre

How to implement
1. Each perspective should have objectives and KPI’S
FP - revenue growth, gross margin
LGP- Innovation ideas and market penetration concepts, measures growth into the future
IBP - internally efficient Business must be run efficiently and economically - cost to income ratio
CP - Lead time, quality, service level, price

Evaluation
Positives
1. Ensure consistency of performance hierarchy
2. balanced view
3. can be used in various industries
4.more difficult to game

Negatives
1. measures can conflict. internal efficiency might disappoint customer with service levels.
2. Modern issues are ignored
3. The only external perspective is the customer
4.Rewards not present as a support to the KPI’S

Question 5

Building block model - Introduction, dimension FC QRFI, standards, rewards

Answer 5

The model was designed to apply to service businesses.

Dimension, standards and rewards

Dimension - upstream (outcomes) and downstream (determinants)

Upstream - outcomes
1. Financial performance
2. competitiveness

downstream - drivers
3. Quality
4. flexibility
5. resource utilisation
6. innovation

Standards
1. Ownership
2. Equity
3. Achievability

Rewards
1. Controllability
2. motivation
3. clear

Question 6

Building block model - How does the model work

Answer 6

It starts at the bottom with standards and rewards

standards
1.Ownership - Dimensions and measures should be allocated to a
responsible person
2. Achievable - The level of difficulty of the dimensions must be achievable with suitable effort
3. Equity - The level of difficulty for each dimension should be equally difficult so that you have equality or equity between staff.

Rewards
1. Clear - It should be clear and unambiguous what reward will be gained on the successful completion of a target or dimension.
2. Motivating - the rewards should be suitably desirable or generous to encourage participation by staff members.
3. Controllable - The dimensions allocated to individuals must be within their control.

Question 7

Building block model - How does the model work 2

Answer 7

Upst