Question

“Companies should focus on financial measures of quality because these are the only measures of quality that can be linked to bottom-line performance.” Do you agree? Explain. How are financial measures and quality related? What other factors should be considered?

Answer 1

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Financial measures of quality or, in other words, financial Key Performance Indicators(KPIs) are usually based on income statement or balance sheet components and can also reflect adjustments in revenue growth (by product groups, networks, consumer segments) or cost categories. Performance is calculated and applied in an enterprise mainly through the use of non-financial KPIs. There are any quantitative measurements of the success of either an person or an organization, which are not expressed in monetary units. Various non-financial quality assessment metrics include drivers of intellectual value such as human, social and institutional resources, i.e. consumer and employee satisfaction, creativity, productivity, market share, customer relationships, statistics related to health and safety etc.

Although it is a fact that financial quality controls are closely tied to an organization's bottom line, the importance of non-financial quality control controls can not be overlooked. Evaluating a company's success solely or mainly on the basis of the financial KPI is increasingly being measured by stakeholders as a symbol of the tunnel vision of the management. For consistent results, and to ensure an organization's development and progress aligns with the company's strategic priorities and long-term vision, companies need to create and track non-financial KPIs. Typically the non-financial KPI's are more special than the financial KPI's i.e. more industry-specific and business-specific and hence have an added benefit of being able to easily provide detailed feedback on steps needed to enhance the performance of the organization for the particular KPI e.g. Shipping industry places great focus on vessel downtime, health and safety accidents, external inspection records