(Solution) CIPD 5CO02 different ways organisations measure financial and non-financial performance

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Financial Performance Measurement;

Cost-Benefit Analysis

The cost-benefit analysis evaluates a project’s costs and expected benefits (Turecková & Nevima, 2020). It helps businesses determine if new ideas are financially feasible and make wise judgements. For instance, a technology company headquartered in the UK is considering investing in a new product line. They compare production, marketing, and distribution costs against anticipated income and market share gains to determine the investment’s financial sustainability. With the help of this strategy, organisations may allocate resources wisely to initiatives that will provide the greatest returns on their investments.

Return on Investment (ROI)

A commonly used financial indicator, return on investment (ROI), determines the obtained return on the project’s cost (Camisa et al., 2020). ROI, which measures the efficacy of investments, is typically stated as a percentage. As an illustration, a UK retail chain may open a new location in a different location while carefully monitoring the original investment, ongoing costs, and revenues over a predefined period to assess ROI. This procedure offers insightful information about the store’s financial performance, assisting the business in making decisions and maximising resource allocation for upcoming projects.

Non-financial performance

Skills Tests

Abilities assessments are important for determining an employee’s ability and proficiency in job-related abilities (Lukauskas et al., 2023). Organisations use these assessments to pinpoint skill shortages, enhance training initiatives, and match skills to job needs. For instance, a UK manufacturing business checks the technical proficiency of its production line employees to maintain product quality. Using these assessments makes it possible to pinpoint training initiatives that need improvement. By doing this, the business assures a trained staff, boosting production and maintaining the quality of its products. Skills assessments are essential to maximise employee performance and contribute to the organisation’s overall success.

Observation of Employee Behavior

The performance, conduct, and adherence to organisational norms of employees are evaluated through direct observation, a qualitative technique that is very successful (Faizan et al., 2021). To get important insights into employees’ overall performance, managers or supervisors actively monitor how employees interact with clients, coworkers, or projects. Managers may pinpoint employees’ strengths and areas for development by carefully observing their demeanour, problem-solving skills, and productivity. For instance, a well-known UK-based hospitality chain may routinely review the customer service abilities of front-desk workers, assuring a flawless visitor experience. Through this hands-on approach, managers may offer prompt feedback and individualised coaching, promoting a culture of continuous development and eventually improving the quality of services.

Revenue

As a financial statistic, revenue is critical in analysing an organisation’s financial performance. Its virtues stem from its simplicity and clarity. It advantageous because it is a simple statistic calculated and understood, delivering a precise top-line figure that is easily accessible (Investopedia, 2023). High-income figures can create trust in investors and stakeholders, thereby drawing more funding and support for the organisation. Measuring revenue over time allows one to evaluate the organisation’s growth, with higher revenue frequently suggesting business expansion and a more extensive customer base.

However, revenue has its limitations. It does not show cash flow, which is critical for an organisation’s day-to-day operations. An organisation may have a large revenue but struggle with cash flow issues, resulting in financial instability. (Ahmed, 2020). Furthermore, revenue data might change seasonally, leading to erroneous judgements if not addressed in a broader perspective. Revenue can be used in people’s practice to assess the effectiveness of a sales team or the impact of marketing initiatives. For example, by analysing revenue data, HR professionals can determine whether a sales team’s performance corresponds with its compensation structure, allowing for more informed decisions on incentives and bonuses.

The Balanced Scorecard

The Balanced Scorecard, a framework for measuring non-financial performance, has various advantages. It integrates numerous facets of a company’s competitive agenda, such as customer orientation, response time reduction, quality improvement, teamwork emphasis, and other factors. It protects against suboptimisation by requiring senior managers to assess all critical operational measures concurrently, preventing advancements in one area from negatively impacting another. When an organisation wants to match its strategic goals with performance metrics, the Balanced Scorecard is the appropriate tool (Meller, 2023).

However, there are several drawbacks to employing the Balanced Scorecard. Because of opposition or a lack of knowledge, some leaders may revert to their previous tactics when transitioning to this approach. The Balanced Scorecard necessitates a fundamental revamp of management practises and is an ongoing process, not a one-time event. People’s practice can analyse many employee performance and engagement areas and link them with the organisation’s strategic goals (Meller, 2023). For example, monitoring and improving key performance metrics can assist HR professionals in tracking the development of a more customer-oriented and quality-focused workforce.

Short references should be added into your narrative below. Please remember to only list your long references in the reference box provided at the end of this section. Word count: Approximately 400 words