To keep up with the present competitive world, all companies, businesses, and organizations have to take up some steps that will provide them success in terms of the 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 involves analyzing financial statements, such as the balance sheet and income statement.
- Non-financial performance measurement focuses on non-monetary data, such as customer satisfaction and employee engagement.
- Both are important in assessing a company’s performance and making informed business decisions.
Financial Performance Measurement vs Non-financial Performance Measurement
Financial performance management refers to the calculation of financial performance made by the company in terms of profit, loss, cash in and out-flow. Non-Financial performance management refers to the management of a company’s success factors other than financial like customer satisfaction, etc.
Financial performance measurement is a measure that is taken by any company or business to boost the monetary condition of any organization 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 to 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 organization.
These measures or efforts make sure the organization sees the face of prosperity in the future. Primarily NGOs and charitable trusts attempt such measures as financial measures are of no use to them.
|Parameters of Comparison
|Financial Performance Measurement
|Non-financial Performance Measurement
|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 organization.
|The main addressee
|Shareholders are regarded as the primary addressee in such cases.
|An organization’s management team appears as the main addressee of the non-financial performance measurement.
|Financial performance measurements are external factors.
|Non-financial performance measurements are an internal matter.
|Mostly, companies and businesses that aim to earn profits and increase revenues use financial performance measurement.
|Non-profitable organizations and charities use non-financial performance measurements.
|Financial performance measurement can be subjected to manipulation and fabrication with the use of various tools and methods.
|Non-financial performance measurement has a nominal chance of becoming a victim of manipulation.
What is Financial Performance Measurement?
Financial performance measurement has only one goal: to bring betterment to a company’s financial department. These measures can deliver short-term success to the company.
A company can also know how it has been using its resources through these measures.
The manager of the company and potential investors rely on various financial performance measures for the 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 organization. A fixed objective to improve the customer’s experience 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 measures taken to meet the objectives.
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 also not provide the ideal picture.
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 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 organization, whereas non-financial performance measurement focuses on the performance growth of the organization.
- Financial performance measurement focuses on short-term success, while non-financial performance measures look after the organization’s long-term prosperity.
- Financial performance measurement is an area to which externals like stakeholders get access. 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.
- http://Understanding non‐financial performance measurement practices in Japanese banks: A new institutional sociology perspective
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.