Non-Financial Performance Indicators: Advantages and Disadvantages

This report delves into the realm of non-financial performance indicators, recognizing their crucial role in comprehensively assessing business performance beyond financial metrics. It highlights the advantages, such as increased customer satisfaction and the inclusion of human capital, while also addressing the disadvantages, like short-term result focus and potential for standardization. The report offers specific recommendations for CH Trading Sdn. Bhd., suggesting the use of customer-related indicators like conversion rate, retention rate, and customer satisfaction index to gain a clearer understanding of the market and improve sales. It emphasizes the importance of these non-financial factors in framing accurate financial results and provides a detailed analysis of each indicator with references to support its claims. The report concludes by reinforcing the significance of integrating these non-financial metrics for enhanced business strategy and performance.

Running head: NON FINANCIAL PERFORMANCE INDICATORS
NON FINANCIAL PERFORMANCE INDICATORS
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Author Note

1NON FINANCIAL PERFORMANCE INDICATORS
Non – Financial Performance Indicators
The financial aspect of the business in not enough to address the performance
question in totality and they consider that the non – financial aspects of the also influence the
performance of the business. The complete understanding of the non – financial factors helps
to add another layer in the financial analysis of the firm and help to frame the more accurate
financial result (Abdel-Maksoud et al. 2015)
Advantages of Non – Financial Performance Indicators
The followings are the advantages of the non – financial performance indicators: -
 Increase Customer satisfaction: - the non – financial performance indicators helps
the firm to understand the need of the customers so that the firm can easily full fill
them. Hence, this helps the firm to increase the customer satisfaction.
 Involves Human Capital: - the financial indicators does not includes the
performance of the human capital which is an essential part of the organisation.
Though, the non – financial performance indicators covers the human capital which
reveals about the knowledge, skill and experience of the company’s employee (Arora
and Sharma 2016).
 Provide Training: - the constant training is very important to develop the skill set of
the employee and the skilled employees are the main reason behind the success of any
firm. Hence, this also have the advantages that this includes the training of employees.
Disadvantages of Non – Financial Performance Indicators
 Based on Short – term Results: - one of the disadvantage of the non – financial
performance indicators is that this only includes the short – term results of the non –
financial factors of the firm.

2NON FINANCIAL PERFORMANCE INDICATORS
 Promote Standardization: - as the performance measures tend to encourage rigid
behavioural outcomes which sometimes become the reason behind the loss of the
creativity.
 Not suitable for Long – term Predictions: - as the non – financial performance
indicators as mainly based of the short – term result of the firm hence, this indicators
failed to predict the long – term predictions related to the future performance of the
firm (Calu et al. 2016).
Recommendations to CH Trading Sdn. Bhd.
This is to be recommended to the CH Trading Sdn. Bhd. that the firm need to use the
non – financial indicators related to the customers to understand the market more effectively.
For this the firm can use and analyse the following: -
 Conversion Rate: - it is the percentage of the interactions that shows in sale as the
result. This reveals that how many customer interactions are converted into the sell.
 Retention Rate: - this is the portion of the total customers which remains as the
customer of the firm for an entire reporting report or throughout the year.
 Customer Satisfaction Index: - this shows how much company is success to meet
the need of the customers which helps the firm to increase the level of customer
satisfaction to increase their sale.
The main reason behind these recommendation that this helps the company to
understand the market in more clear manner and this understanding will help the
company to increase their sell as the company does not full fill their sell target in the last
period.

3NON FINANCIAL PERFORMANCE INDICATORS
References
Abdel-Maksoud, A., Cerbioni, F., Omran, M.F. and Ricceri, F., 2015. The use of non-
financial performance indicators and organisational performance: an empirical analysis of
Italian firms. International Journal of Business Performance Management, 16(4), pp.421-
441.
Arora, A. and Sharma, C., 2016. Corporate governance and firm performance in developing
countries: evidence from India. Corporate governance, 16(2), pp.420-436.
Calu, A., Negrei, C., Calu, D.A.S. and Viorel, A., 2016. Reporting of Non-Financial
Performance Indicators‒A Useful Tool for a Sustainable Marketing Strategy. Calu, A.,
Negrei, C., Calu, DA and Avram, 2015, pp.977-993.