Disadvantages of financial performance indicators

Beschreibung

Master ACCA F5: Performance Management Mindmap am Disadvantages of financial performance indicators, erstellt von Shahid Musthafa am 01/10/2013.
Shahid Musthafa
Mindmap von Shahid Musthafa, aktualisiert more than 1 year ago
Shahid Musthafa
Erstellt von Shahid Musthafa vor etwa 11 Jahre
4414
1

Zusammenfassung der Ressource

Disadvantages of financial performance indicators
  1. Financial performance indicators are calculated to measure the performance of a particular department and the concerned manager associated with that department
    1. Achievement of KPI's may be linked to reward systems in order to motivate the managers in such a case there are possibilities that managers may falsify the performance indicators in order to be eligible for the discounts
    2. Major dis- advantages
      1. Short termism
        1. Financial performance indicators act as a measure of short term performance
          1. Linking rewards based on such PI's may lead to decisions which are intended at improving short term results
            1. managers may discontinue the decisions that will lead to long term profitability
              1. Cutting down the research and development costs and spending more on marketing of the current product
                1. Purchasing of cheaper thus poor quality materials to cut down present COGM but in turn it may lead to lose of customers in the long run
            2. A combination of both qualitative and quantitative performance measures provides a better indication of how a company may perform in the long run.
            3. Manipulation of results
              1. Done by the managers to take advantage of the reward programmes
                1. Accelerating the revenue figures
                  1. in order to improve the revenue figures of the previous year some revenue figures of the current year carried backwards to the previous year
                  2. Delaying of Costs
                    1. Costs included in the current year may be carried forward to falsely improve the profit fighures of current year
                    2. Understating a provision or accrual
                      1. manipulation of accounting policies
                        1. The closing inventory figures may be overstated in order to improve the profit figure for the year
                          1. since COGS = Opening Stock + Purchases - Closing Stock
                      2. Do not convey the full picture
                        1. Quality / Non financial performance indicators are ignored
                      Zusammenfassung anzeigen Zusammenfassung ausblenden

                      ähnlicher Inhalt

                      TARGET COSTING In Service Industry
                      Shahid Musthafa
                      Market Research Techniques
                      Shahid Musthafa
                      Steps In Target Costing
                      Shahid Musthafa
                      The modern manufacturing environment
                      Shahid Musthafa
                      Types of Conflicts In Budgeting
                      Shahid Musthafa
                      Steps In ABC Costing
                      Shahid Musthafa
                      Traditional & Advanced Costing Methods
                      Shahid Musthafa
                      Relevant Cost Principles
                      Shahid Musthafa
                      Costs in Decision Making
                      Shahid Musthafa
                      ZERO BASED BUDGETING (ZBB)
                      Shahid Musthafa
                      Overhead
                      Shahid Musthafa