Cost Efficient Performance Measures Analysis

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The Design of Cost Efficient Performance Measures Introduction Performance measurement, as an important concept in the field of management accounting, is defined as a systematic approach to assess the efficiency and effectiveness of a company’s programmes in achieving organizational objectives using measurable indicators based on financial and non-financial data of the company (CIMA, 2005, p.46). To ensure that a company’s activities and strategies are orientated to the organization’s goals and objectives, performance measures are designed to assess the overall performance of a company in terms of multidimensional variables such as cost, value and intellectual capital, which are significant factors to consider when managers make corresponding…show more content…
While some organizations consider performance measures as an investment for long-term development, some hesitate to implement performance measures due to high costs. To ensure that resources and capital are allocated effectively in different segments of organizational activities, organizations have to identify the costs and relation between different performance measures. Cost efficient performance measures should be those align with the organization’s specific context, plans and strategies in order to evaluate whether current practices can suit the organization’s predetermined objectives. More importantly, the conflicts, challenges and dependency of performance measures will suggest different implications for a company to invest in the development of performance measurement system (Cai et al., 2009). Therefore, the criterion of cost efficiency emphasizes the prioritity of a range of selected performance measures that most fit the company’s future goals and development…show more content…
For instance, performance benchmarking is a tool to compare key activities of a company with other competitors in the market in order to explore potential areas for improvement (CIMA, 2008). Companies should also noted that the mix of both financial and non-financial performance measures is important to have a comprehensive understanding of the company’s performance and reduce the risks of neglecting critical factors in the company’s sustainable development such as innovation and employee empowerment (Fox, 2000). If non-financial performance is not measured accurately, it can result in additional expenditure to cover the financial loss, thus the performance measures are not cost efficient. For instance, a research found that top managers in Swedish banks recognized the importance of non-financial performance measures and implemented life cycle, benchmarking and process type theory to measure non-financial performance such as on-time service and customer satisfaction (Hussain, 2005). Conclusion This paper has first introduced key features of cost efficiency in the design of performance measures. Later it has made use of examples in different sectors to shed some light on the design of cost efficient performance measures. To summarize, the core principle of performance

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