(Solution) 5CO02 (AC3.1) Appraise (2) different ways organisations measure financial and non-financial performance
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Description
Solution
Measuring Financial Performance: Revenue
A company’s revenue is the sum of all the money it makes from its operations, most commonly from selling goods and services. It’s a basic metric for evaluating a company’s financial health. It can be determined by applying the formula that Hayes (2024) emphasised:
The formula for net revenue is the price per unit divided by the quantity sold.”-Returns, Allowances, and Discounts”
The formula for calculating revenue would look like this: Revenue = (£50 * 1000 = £50,000) -£40-£100-£30. This would apply if the product sold 1,000 copies for £50 each and the company applied a discount of £40, allowances of £100, and returns of £30.
Because it shows how much money a firm can make in the future, this statistic is crucial for assessing its market position and growth potential.
Appraisal:
Pros: The benefit of calculating revenue is that it provides useful information regarding the financial status of the firm during a given period and is relatively easy to do. Profitability and growth ratios, which allow stakeholders to gauge organisational performance, are built upon this foundation (Patriot, 2021).
Cons: It provides an inaccurate picture of financial health if charges have not been satisfied since it does not account for all costs. There is a high degree of seasonality and market volatility that affects the revenue amounts.
When HR Experts Make Use of It: According to Kucherov and Manokhina (2017), revenue metrics can be utilised by people professionals to ascertain the cost-effectiveness of specific employee-related improvements, such as sales training programs, through the enhanced generation of revenue.
Measuring Non-Financial Performance: Stakeholder Benefits and Feedback
Measuring organisational success in terms of stakeholder gains—including employees, suppliers, and the community at large—is made possible through stakeholder benefits and feedback (Patriot 2021). To gauge the level of satisfaction among stakeholders, this can be assessed through the use of questionnaires, interviews, or focus groups.
Appraisal:
Pros: This approach provides a structured mechanism to examine the effects of organisational actions on different stakeholders, allowing for the identification of both strengths and areas that need improvement. Organisational culture can be improved through the use of feedback to boost employee motivation and customer satisfaction (CIPD, 2024)
Cons: It may take some time to engage stakeholders and get their comments, and the data gathered may be more subjective and difficult to quantify.
When HR Experts Make Use of It: When it comes to managing employee engagement, customer satisfaction, or corporate social responsibility, HR professionals often use stakeholder feedbacks. With this data, organisations may better meet the expectations of their stakeholders and boost their performance.
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