243348
Description
Mind Map by Shahid Musthafa, updated more than 1 year ago
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Created by Shahid Musthafa
about 11 years ago
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Disadvantages of financial
performance indicators
- Financial performance indicators
are calculated to measure the
performance of a particular
department and the concerned
manager associated with that
department
- 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
- 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
- Major dis- advantages
- Short termism
- Financial performance
indicators act as a measure of
short term performance
- Linking rewards based on such PI's
may lead to decisions which are
intended at improving short term results
- managers may
discontinue the
decisions that will lead to
long term profitability
- Cutting down the research
and development costs and
spending more on marketing
of the current product
- 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
- Cutting down the research
and development costs and
spending more on marketing
of the current product
- managers may
discontinue the
decisions that will lead to
long term profitability
- Linking rewards based on such PI's
may lead to decisions which are
intended at improving short term results
- A combination of both qualitative
and quantitative performance
measures provides a better
indication of how a company may
perform in the long run.
- Financial performance
indicators act as a measure of
short term performance
- Manipulation
of results
- Done by the managers
to take advantage of the
reward programmes
- Accelerating
the revenue
figures
- in order to improve the revenue figures
of the previous year some revenue
figures of the current year carried
backwards to the previous year
- in order to improve the revenue figures
of the previous year some revenue
figures of the current year carried
backwards to the previous year
- Delaying
of Costs
- Costs included in the current
year may be carried forward to
falsely improve the profit
fighures of current year
- Costs included in the current
year may be carried forward to
falsely improve the profit
fighures of current year
- Understating
a provision or
accrual
- manipulation
of accounting
policies
- The closing inventory
figures may be overstated in
order to improve the profit
figure for the year
- since COGS = Opening Stock + Purchases -
Closing Stock
- since COGS = Opening Stock + Purchases -
Closing Stock
- The closing inventory
figures may be overstated in
order to improve the profit
figure for the year
- Done by the managers
to take advantage of the
reward programmes
- Do not convey the full picture
- Quality / Non financial
performance indicators
are ignored
- Quality / Non financial
performance indicators
are ignored
- Short termism
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