Chapter 11: Performance Measurement and Control

Study Guide Highlights

Financial performance indicators

Profitability, efficiency and working-capital measures are brought together, with attention to how they relate to one another. Ratios are not treated as isolated percentages: a change in margin, asset use, inventory, receivables or payables can affect the wider picture of performance. Proposed actions may improve one indicator while weakening another, so interpretation requires more than identifying whether a single number rose or fell.

Productivity and service measures

Financial measures are not suitable for every organisation or every objective. Productivity, value added, utilisation, cost per service unit and other non-financial indicators are considered for manufacturers, service organisations and not-for-profit bodies. The appropriate measure depends on what the organisation is trying to achieve, so a low accounting return should not automatically be treated as failure where service outcomes or capacity use are the primary objectives.

Quality, behaviour and ethics

Total quality management is linked to prevention, appraisal and the costs of failures identified before or after the customer is affected. The chapter also examines how targets can shape behaviour and create ethical pressure when managers are rewarded for particular outcomes. Performance control therefore needs measures that encourage the right actions, not simply targets that are easy to count but capable of distorting judgement or behaviour.

Balanced scorecard perspective

The balanced scorecard provides a wider view by combining financial results with customer, internal process, and learning and growth perspectives. This framework shows why sustainable performance cannot be understood from accounting outcomes alone. Measures should reinforce one another and reflect the organisation's strategy, while a set of disconnected indicators can create noise without giving management a coherent picture of performance.