To keep up with the present competitive world, all the companies, businesses and organisation has to take up some steps that will provide them success in terms of finance and non-finance aspects of the company. Financial performance measurement and non-financial performance measurement are steps that help a company to achieve its goals.
Financial Performance Measurement vs Non-financial Performance Measurement
The main difference between financial performance measurement and non-financial performance measurement is that financial performance measurement is for short term profits of the company and non-financial performance measurement is for achieving long term benefits. Financial performance measurement is accessible to external factors such as shareholders, but non-financial performance measurement is to eliminate internal conflicts of the organisation.
Financial performance measurement is a measure that is taken by any company or business to boost the monetary condition of any organisation or company. These measures can successfully narrate how a company is using all its resources to produce the maximum income. These financial reports are accessible by the shareholders of that company.
Non-financial performance measurement indicates such steps that are taken in order to assess the non-financial aspects of an organisation. These measures or efforts make sure the organisation see the face of prosperity in the future. Primarily NGOs and charitable trusts attempt such measures as financial measures are of no use to them.
Comparison Table Between Financial Performance Measurement and Non-financial Performance Measurement
|Parameters of Comparison||Financial Performance Measurement||Non-financial Performance Measurement|
|Main focus||Financial performance measurement focuses on the areas that will offer short-term success to a business.||Non-financial performance measurement focuses on the areas that will offer a long-term fortune to the business or organisation.|
|The main addressee||Shareholders are regarded as the primary addressee in such cases.||The management team of an organisation appears as the main addressee of the non-financial performance measurement.|
|Territory||Financial performance measurements are external factors.||Non-financial performance measurements are an internal matter.|
|Applied in||Mostly, companies and businesses that have the goal of earning profits and increasing revenues use the financial performance measurement.||Non-profitable organisations and charities use non-financial performance measurements.|
|Manipulation||Financial performance measurement can be subjected to manipulation and fabrication with the use of various tools methods.||Non-financial performance measurement has a nominal chance to become a victim of manipulation.|
What is Financial Performance Measurement?
Financial performance measurement has only one goal and that is to bring betterment to the financial department of a company. These measures can deliver short term success to the company. Through these measures, a company can also know how it has been using its resources. The manager of the company and potential investors rely on various financial performance measures for utmost profit.
Every company generates their financial statements in order to get a clear idea about its financial performance. These reports can show where the company is lacking and thus according to that the financial performance measures can be decided for future. The objective of these financial statements is that they reach the public. External connections such as stakeholders are allowed to access the reports. The balance sheet of the company with the statement of profit and loss are stated in these reports.
What is Non-financial Performance Measurement?
The non-financial performance measures are related to a company’s performance which is not related to money. It ensures the prosperity of the company in the long run. Non-financial measures support the strategies of the organisation. A fixed objective to make the customer’s experience better can be helped by non-financial measurement.
Non-financial measures are small steps, but they are eligible to make a big difference. The employees are required to act on the taken measures to make the objectives met. Fulfilling the daily tasks can add up to the strategies and give the fruit of improvement.
Non-financial measurement is essential for any company. That point can not be avoided. But undertaking too many non-financial measures can not provide the ideal picture as well. If a company implements lots of measures, then that will take on a big amount of money as well as time. It also needs an investment in the IT infrastructure. So it is vital to use these measures as they are needed.
Main Differences Between Financial Performance Measurement and Non-financial Performance Measurement
- As its name implies, financial performance measurement is taken to achieve financial goals. It enables businesses and companies to thrive in the aspect of finance. On the other hand, non-financial performance measurement justifies its name as well. This measurement is taken to assess and evaluate the performance of the company. The financial aspect has nothing to do with it.
- Financial performance measurement focuses on the economic advancement of any business, company or organisation, whereas non-financial performance measurement focuses on the performance growth of the organization.
- Financial performance measurement keeps its eyes on short-term success, while non-financial performance measurement looks after the long-term prosperity of the organisation.
- Financial performance measurement is an area where externals like stakeholders get access to. It is a public report, while on the other hand, non-financial performance measurement is to sort out internal issues.
- Companies who are aspired to achieve profit undertake this financial performance measurement. Whereas in contrast, non-financial performance measurement is mostly undertaken by NGOs and charity homes.
- Financial performance measurement can fall prey to manipulation easily but falsifying non-financial performance measurement is not effective at all.
The two measures discussed above are disparate from each other. They have different goals and different functions. Different companies and organisations can use both measures according to the need of the organisation. When an increase in revenue is demanded, then financial performance measurement is the right tool to use.
But if the organisation wants to get information on the non-monetary aspects of the company, then non-financial performance measurement will come to the rescue. They can not replace or alter each other as their features and purposes are miles away from each other. Both have only one common thing in between, and that is both are utilised to accomplish a company’s success.
- http://Understanding non‐financial performance measurement practices in Japanese banks: A new institutional sociology perspective
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