Question

Sometimes management will use nonfinancial information when making decisions. Identify some qualitative factors which can be used when making managerial decisions. Do you believe using these factors are beneficial to a company?

Answer 1

Nonfinancial information is as important as financial information in the decision-making process. Both pieces of data contain valuable insights that can yield interesting results if used correctly. To make a decision, businesses often rely on PDCA analysis or adopt specific steps. These include clearly defining the problem, evaluating potential alternatives, choosing the best option based on existing alternatives, monitoring implementation strategies and checking progress periodically. PDCA (plan, do, check, act) helps a company take a thorough look at its operating processes and come up with better ways to accomplish specific tasks and eliminate money-losing activities.

Sometimes management will use non financial information when making decisions. Some of the examples are as under

1. While taking decision to hire no of hours of a doctor management consider the no of patients visit in a day.
2. While taking decision to keep no of windows of a teller in a bank management take in to consideration the no of customer visit the bank
3. No. of Error committed by employee in a day while passing the entries.

Non-financial measures offer four clear advantages over measurement systems based on financial data. First of these is a closer link to long-term organizational strategies. Financial evaluation systems generally focus on annual or short-term performance against accounting yardsticks. They do not deal with progress relative to customer requirements or competitors, nor other non-financial objectives that may be important in achieving profitability, competitive strength and longer-term strategic goals. For example, new product development or expanding organizational capabilities may be important strategic goals, but may hinder short-term accounting performance

By supplementing accounting measures with non-financial data about strategic performance and implementation of strategic plans, companies can communicate objectives and provide incentives for managers to address long-term strategy.