1. Chapter 16:Performance Measurement in Private Sector Organisations
Group members:
夏潇雨
严善捷
张天宇

2. 1.Performance Measurement
aims to establish how well something or somebody is doing in relation to plan.
TYPE:
Financial Performance Indicators
Non-finamcial Performance Indicators Or
Quantitative Performance Measures(expressed in numbers)
Qualitative Performance Measures(by nature subjective and judgmental)

3. Factors that influence the design of performance measurement
Resourses
In relation to something
Relevant
Short&long-term achievement
Fair
Variety
Realistic estimates
Responses
Be monitored on a regular basis

4. 2.Financial Performance Indicators(FPIs)
analyse return on capital,profitability,liquidity and financial risk , often in relation to plan or budget,or in relation to performance in preceding time periods.
2.1 Profitability
the most important kind in private sector organisations.
PBIT:profit before interest and tax.
PBIT=profit on ordinary activities before taxation + interest charges on long-term loan capital.
also often = gross profit - other operating costs = operating profit

5. 2.Financial Performance Indicators(FPIs)
Sales margin (gross profit margin)
= Gross profit / Turnover(Sales)
Net profit margin
Use:Comparisons with similar companies in the same industry.
Earnings per share (EPS)
= (Net profit after taxation - Preference shares) / The number of ordinary shares
Use:as a measure of a company's performance, in comparing results over a period of several years.

6. 2.Financial Performance Indicators(FPIs)
The return on capital employed (ROCE)
= PBIT / Capital employed
= PBIT / (Total asset - Current Liabilities)
Comparisons :
1. From one year to the next
2. Other companies
3. With current market borrowing rates
More details : the secondary ratios P384

7. 2.Financial Performance Indicators(FPIs)
2.2 Gearing
Gearing ratios (over 50% indicates high gearing)
measure the Financial risk of a company's capital structure.
= Debt / Debt+equity
= Debt / equity
Operating gearing or leverage
= Contribution / PBIT

8. 2.Financial Performance Indicators(FPIs)
2.3 Liquidity and cash flow
Current ratio 流动比率
= Current assets / Current Liabilities
The quick ratio 速动比率
= (Current assets - Inventories) / Current Liabilities

9. 2.Financial Performance Indicators(FPIs)
The accounts receivable payment period 应收账款周转天数
= (Trade receivables/Credit sales turnover) x 365days
The Inventory turnover period 存货周转天数
= (Inventory/Cost of Sales) x 365days
The accounts payable payment period 应付账款周转天数
= (Average trade payables/Credit purchases or cost of sales) x 365days

10. 3. Non-financial performance indicators (NFPIs)
Changes in cost structures, the competitive environment and the manufacturing environment have led to an increased use of non-financial performance indicators (NFPIs).

11. 3. Non-financial performance indicators (NFPIs)
There has been a growing emphasis on NFPIs for a number of reasons.
(a) Concentration on too few variables
(b) Lack of information on quality.
(c) Changes in cost structures.
(d) Changes in competitive environment.
(e) Changes in manufacturing environment.
(f) NFPIs are a better indicator of future prospects.

12. 3. Non-financial performance indicators (NFPIs)
Which NFPIs should be measured?
Quality of production
Speed or efficiency
Delivery
Reliability
Customer satisfaction
Innovation

13. 3. Non-financial performance indicators (NFPIs)
Performance measurement in a TQM（Total Quality Management ）
(a) Measuring the quality of incoming supplies.
(b) Monitoring work done as it proceeds.
(c) Measuring customer satisfaction.

14. 4. Short-termism and manipulation
Short-termism is when there is a bias towards short-term rather than long-term performance. It is often due to the fact that managers' performance is measured on short-term results.
Organisations often have to make a trade-off between short-term and long-term objectives. Decisions which involve the sacrifice of longer-term objectives include the following.

15. 4. Short-termism and manipulation
(a) Postponing or abandoning capital expenditure projects, which would eventually contribute to growth and profits, in order to protect short term cash flow and profits. (b) Cutting R&D expenditure to save operating costs, and so reducing the prospects for future product development. (c) Reducing quality control, to save operating costs (but also adversely affecting reputation and goodwill). (d) Reducing the level of customer service, to save operating costs (but sacrificing goodwill). (e) Cutting training costs or recruitment (so the company might be faced with skills shortages).

16. 4. Short-termism and manipulation
Methods to encourage a long-term view
(a) Making short-term targets realistic.
(b) Providing sufficient management information
(c) Evaluating managers' performance
(d) Link managers' rewards to share price.
(e) Set quality based targets as well as financial targets.

17. 5. Improving performance
When performance is measured
Analyse performance
Identify reasons for unexpected performance or poor performance
Improving performance

18. 6.The Balance Scorecard
Balance scorecard emphasizes the need to provide management with a set of information which covers all relevant areas of performance .It is a popular approach in current management which consists of a variety of financial indicators and non-financial indicators

19. Internal 6.The Balance Scorecard Financial Customer
How can customers see us
How do we create value for our shareholders
Financial
Customer
Can we continue to improve and create future value
Innovation and learning
What processes must we excel at to achieve our financial and customer objectives
Internal

20. 7.Building Block Model Profit Quality Resource utilisation Flexbility
Dimensions
Profit
Competitiveness
Quality
Resource utilisation
Flexbility
Innovation
Standards
Rewards
Ownership
Clarity
Achievability
Motivation
Equity
Controllability

21. 8.Target Setting In Qualitative Areas
There is often a problem with selecting a suitable measure of performance.
Qualitative data is not Quantified
Data collection and management information systems.

22. Thank you