Advantages And Disadvantages Of Financial Performance

In the private sector as profitability and maximising return and value to shareholders or owners is a primary goal therefore financial results are a key indicator of performance measurement. This focus on the bottom-line does not measure the drivers of the financial results and does not therefore tell the whole story. Financial results do not measure how well the organisation is meeting the needs of other stakeholder for example customers, employees, local communities and pressure groups. Traditional financial performance measures have an internal focus with an emphasis on budget achievement from a short-term perspective. They may not be directly related to the organisation’s strategy and do not indicate how performance may be improved. Key factors that drive successful performance in the current environment include quality of service, customer satisfaction, reliability, faster delivery and value for money. The financial results based on accounting measures focus on short-term performance and may result in myopia. Another dis-advantage in the over-reliance on financial performance measures is the possible manipulation of results to achieve financial targets. Furthermore are retrospectively obtained and tend to be focussed internally. To avoid these dis-advantages other non-financial indicators are also increasingly being included to compliment financial accounting measures. Therefore where traditionally the focus on performance measurement has been on increasing shareholder return, non-financial value drivers of performance are also now included.