14.1: For-Profit Organizations
Learning Outcomes
- Evaluate a for-profit organization’s performance using financial and non-financial data
We have looked at a variety of financial and non-financial ways to evaluate an organization’s performance. Businesses use these types of information to manage their businesses and to create reports to share the data with others. As a manager, it is important to understand the meaning of both types of information and how they might impact your business operations (Adams, 2017).
If you are only responsible for your own cost center, perhaps the accounting department, there will be no revenue, only the expense side meeting a budget or benchmarks. In this case, your report will only include the expense portion, but you will still be looking at similar situations, but revenue and net income will not be included in your report.
Performance evaluation can be done using both financial and non-financial information. You, as a manager, may be held responsible for a certain level of sales in your department, which is a financial measure. Another area you may be responsible for, could be defect free units produced per shift by those you manage. This is a non-financial measure of performance. Both are important components of your work, and are reflective of performance.
Marketing evaluations also include both types of data. If you work in the marketing area, you may look at the breakdown of sales by different industries or product lines. But from a non-financial standpoint, noticing the demographics of your customers may be important. We could look at Simply Yoga as an example. When they market, it would be important to know WHO their primary student base is, to effectively spend their marketing dollars. Then, they could evaluate from there, how effective the ad campaigns were from a financial standpoint by looking at each style of class offered, which ads were targeted to those classes, and who ultimately attended. There is a correlation of the financial and non-financial data that when looked at in whole, creates a picture for business improvement.
Monthly, quarterly and yearly evaluations are used to determine the health of a company. Financial information may include the income statement, balance sheet, cash flow analysis and comparisons to static or flexible budgets. Non-financial information could include sales quantities by item, number of customers, defect free production, lowered inventory waste or a myriad of other benchmarks depending on the business.
Setting goals is crucial to any business, and financial and non-financial data is used to create realistic and manageable goals, which can create an environment to promote business growth. As a manager, you may set a goal for your employees of reducing machine downtime by 10% in the next month or increasing the sales calls per day as a non-financial goal. You may also look at financial goals such as increasing sales by 5% or reducing utility costs.
As you can see, there are as many different ways to evaluate a business for performance as there are businesses! Taking a look at the financial information, and then evaluating non-financial benchmarks are important!
Practice Questions
References
Adams, Kathy. (2017, September 26). Nonfinancial Vs. Financial Information. Bizfluent. Retrieved from https://bizfluent.com/info-7758431-n...formation.html