5CO02 AC 3.1 Answer

5CO02 AC 3.1 Appraise two different ways organisations measure financial and non-financial performance. *Approx 400 words

Financial Performance Measurement:

Return on Investment (ROI)

Return on investment (ROI) is a key financial metric used to assess an investment’s feasibility and profitability in relation to alternative investment possibilities. In this instance, the initial investment, ensuing cash flows, and continuing maintenance costs are important variables impacting return on investment (Provost, 2024). ROI may basically be expressed as a percentage by dividing a project’s net profit by its expenses, then multiplying the result by 100. The ROI approach can be applied to a number of scenarios, including evaluating the results of a training program for new hires. If a company invests £50,000 in an advertising campaign and earns an additional £200,000 for the year, for instance, the investment yields £3 for every £1 spent, making the endeavour extremely profitable. Therefore, ROI provides a straightforward way to measure profitability. This gives human resource professionals a useful tool to assist in financing initiatives like employee training. However, by concentrating only on financial outcomes, ROI ignores long-term advantages including improved job satisfaction and brand awareness (Thusini et al., 2022). Additionally, the time period utilised to measure financial performance may have an effect on ROI, which could impede decision-making by emphasising short-term results. Nonetheless, ROI is essential for directing investments in areas with the greatest potential for revenue generation.

Nonfinancial Performance Measurement:

Balanced Scorecard

Organisations use the balanced scorecard (BSC) technique to plan and align their operations with their aims and objectives in the best possible way. It integrates the financial and non-financial aspects of a firm to give a complete picture of the organisation. In addition to financial data, it takes into account non-financial elements including staff training, company policy, and expansion. It is a crucial tool for tracking and assessing performance in several departments. To evaluate the consumer perspective, the BSC, for instance, can be used to measure and monitor customer satisfaction and retention. When evaluating operational changes from an inside perspective, the BSC might also be useful. The comprehensive approach of the BSC makes it possible to evaluate an organisation’s performance fairly and aids in coordinating departmental goals with the organisation’s mission and vision (CIPD, 2022). However, using the BSC has drawbacks and requires a deep understanding of organisational strategy and pertinent KPIs, which could make the process costly and time-consuming. Additionally, this method heavily relies on subjective measurements, especially non-financial ones, which may introduce biases and measurement inaccuracies.

References

CIPD (2022) People performance models. https://www.cipd.org/globalassets/media/knowledge/knowledge-hub/evidence-reviews/people-performance-scientific-summary_tcm18-109856.pdf.

Provost, T.J. (2024) Workplace Wellness: Assessing Organizational Return on Investment. https://scholars.unh.edu/cgi/viewcontent.cgi?article=1130&context=ms_leadership.

Thusini, S. et al. (2022) The development of the concept Open Access   of return-on-investment from large-scale quality improvement programmes in healthcare: an integrative systematic literature review. https://bmchealthservres.biomedcentral.com/counter/pdf/10.1186/s12913-022-08832-3.pdf.

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