Question

When managing the performance of an organization, the leadership is always balancing between the risks and rewards of using financial and non-financial information as well as internally and externally sourced information, in its performance report.

(a) Define and provide an example of each of the following:

            i. financial information and non-financial information.                 

            ii. internally and externally sourced information.

Word count should be a minimum 150 words, not exceeding 250 words.

(b) Elaborate on the benefits and issues of using the following information:

i. financial information versus non-financial information. (6.5 marks)

ii. internally sourced information versus externally sourced information.             (6.5 marks)

For each set of information, there should be at least two advantages and two disadvantages provided (no tables allowed, your answers should have proper headers and paragraphs and word count should be a minimum 350 words, not exceeding 450 words.            Marks will be awarded for format.                                               

Answer 1

It is important for a business to keep a keen check on its position. A business run on the concept of risk and reward/return. It is said that bigger the risk bigger the return. To keep check on its risk and returns business uses various available information such as:  financial infomation, non-financial information, internally sourced information and externally sourced information. All these helps business a lot in checking the current position of business. All these souces of information are explained below.

1. Financial Information:

Financial information is data about the monetary transactions of a person or business. This information is use to derive estimates of credit risk by creditors and lenders. Examples of financial information are as follows:

• Credit card numbers

• Credit ratings by third party credit analysis firms

• Financial statements

• Payment histories

Anyone using financial information has a duty to keep the information secure, since it could be used by third parties to engage in identity theft. It provides a snapshot of a corporation's financial health, giving insight into its performance, operations, and cash flow. They are essential since they provide information about a company's revenue, expenses, profitability, and debt.

2. Non Financial Information:

Non-financial information, however, is not or cannot be readily expressed in dollar values. Non-information includes environmental effects, political situations and social responsibilities. NFI focuses on an alternative definition of performance that is not confined to traditional financial performance measures. Under this approach, NFI describes corporate disclosure intended to reflect different views, such as linking performance to CSR, corporate governance, strategy, management quality, operating efficiency, or intellectual capital. Such studies usually rely on different performance measures from those used to measure financial performance (such as industry-specific indicators, qualitative indicators, job satisfaction, employee training, employee turnover, customer satisfaction, number of patents, etc.). There are sometimes attempts to connect measures of “non-financial” performance with more traditional financial performance measures, or to test such connections (particularly in studies on the determinants or consequences of non-financial measures). Non- financial information, usually helps businesses become successful over a long term. For instance, a business that cuts down spending on employee training saves money in short term, but this will negatively impact the motivation level of employee and quality of their work, as a result, the business will lag behind competitors and will see its sales and profitability decline in long run.

3. Internally sourced information:

It is data retrieved from inside the company to make decisions for successful operations. This information is important to determine whether the strategies the company is currently using are successful or if shifts should be made. There are four different areas a company can gather internal data from: sales, finance, marketing, and human resources. Each area provides a unique perspective, yet the data connects the departments. Internal data is information generated from within the business, covering areas such as operations, maintenance, personnel, and finance. Examples of internal data may include:

• sales trends.
• customer habits.
• software user trends.
• operational trends.
• marketing intelligence.
• internal research.
• results from surveys.

4. Externally sourced information:

An external source of information is concerned with what is happening beyond the boundaries of the organisation. This covers any documentation relating to a subject area produced as a summary or detailed report by an agency external to an organisation. The tool External Information Sources is a tool that can be used in the alignment cycle. Its aim is to gather information that can be useful to the formulation of a company's e-strategy. External sources contain information on the company's environment. From the standpoint of strategy formulation, the three primary sources of external information are:

1. Published reports by World Bank, World Economic Forum, Economist Intelligence Unit, CIA, etc.;
2. government statistics, gazettes, and/or survey findings, e.g. economic and monetary outlook, investors’ attitudes, business and consumer confidence, consumer price index, etc.;
3. Published market/industry reports by third parties (thinktanks, management consultants, market researchers, business or trade associations, foreign embassies, etc.);
4. Information you glean from your own business or market surveys, salesman’s daily reports, internal conversations, dialogues with dealers and customers, myriad email exchanges, pedestrian observations, lecture circuits, newspaper headlines, remarks made by knowledge experts or business folks on television or radio broadcasts, etc.