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Not For Profit Making Organisation

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15 views17 pages

Not For Profit Making Organisation

Uploaded by

tshepomoejanejr
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Further Aspects of

Performance Analysis
Non-profit Sector

Identifying Objectives
 Non-profit organisations include:
 Public sector bodies such as schools and hospitals.
 Non-profit organisations (NPOs) and non-governmental organisations
(NGOs).
Objectives of non-profit organisations are more difficult to measure because:
 The objectives are difficult to quantify.
 If the objective of a hospital is to "improve health in the area", how can this
be measured?
 Many non-profit bodies have multiple stakeholders, each with potentially
conflicting objectives.
Value for Money Objectives
 The value for money (VFM) framework attempts to evaluate performance of non-
profit and other non-commercial organisations. VFM focuses on how well the
organisation has achieved its objectives given the funding it received.
Three performance indicators measure VFM:
 Economy (minimising inputs) : e.g. Minimising cost per student
 Efficiency (maximizing the output/input ratio) : e.g. Maximizing student / staff ratio.
 Effectiveness(achievement of objectives) e.g. Quality of degrees awarded
NOTE:
 It is clear that high effectiveness may conflict with economy and efficiency.
 Multiple and conflicting objectives also may exist due to the multiple
stakeholders involved
Other Approaches

In many countries, government has increased the use of


performance measurement in the public sector in order to:
 Improve efficiency—thereby reducing government spending
and tax.
 Increase transparency—so taxpayers can see what their
taxes are being used for.
 Improve decision-making about the allocation of scarce
resources—so that available finance is used where it will
best achieve government's objectives.
Behavioral and External
Considerations
1. Performance management is the whole process of:
 identifying the objectives of the organisation,
 setting targets,
 measuring performance against targets and
 taking action in an attempt to improve sub-standard
performance.
2. Managers understand how performance measurement can
affect employee behaviour
Potential Benefits of Performance
Measurement Systems
 Understanding organisational objectives (e.g. increased market
share) and improved employee motivation to contribute towards
achieving them. This should help goal congruence.
 Developing agreed measures of performance within the
organisation (e.g. ROCE).
 Allowing comparison of different organisations (e.g. ratio
analysis).
 Promoting accountability of the organisation to its stakeholders
Potential Problems

 Tunnel vision—an obsession with maximising measured performance at


the expense of non-measured performance. Staff may ignore important
areas which are not measured. Managers may focus too much on
performance measures to the detriment of other activities following the logic
that ‘what gets measured gets done’.
 Myopia (short-sightedness)—maximising short-run performance at the
expense of long-run success. Managers can also have a tendency to be
short-sighted and focus on immediate measures which will reflect well on
their immediate performance and neglect longer-term objectives. For
example, cutting back on staff training during recessions will leave the
firm unprepared for growth when the economy improves
Con’t…

 Manipulation of data / Misrepresentation—Managers may


be tempted to misreport or falsify a measure in order that it
may appear positive on the surface, or report performance
creatively in order to improve their results, this is called
creative reporting (e.g. trying to classify all adverse
variances as planning variances rather than operational
variances).
Con’t…

 Gaming—Is a deliberate distortion of a performance measure in order to


gain some strategic benefit. For example, a manager may deliberately
underperform in prior periods in order to gain easier performance targets
in the future if they see the past measures as too difficult.
-e.g. building slack into budgets.
 Incongruent goals—This occurs when the goals of an individual, group,
department or function are not consistent/aligned with those of the
organisation as a whole. Managers do not share organisational goals. For
example, if a manager is judged based on the ROCE of his division, he
will reject projects which would reduce this, even if they might increase the
company's overall return on capital employed
Solutions to Potential Problems

 Involve staff at all levels in the design and implementation of the


system.
 Encourage a long-term view among staff (e.g. through company
share option scheme).
 Ensure that the system of performance evaluation is "audited" by
experts to identify problems.
 Review the system regularly.
 Audit data used in performance measurement to prevent/ detect
manipulation.
External Factors

Organisations do not exist in a vacuum, so performance measurement


needs to consider external as well as internal factors.
 Stakeholders
 Market Conditions and Competitors
Stakeholders

 Traditionally, performance measurement focused only on the


owners of the organisation. Recently, there has been recognition of
the importance of other stakeholder groups.
 Ignoring stakeholder objectives may result in adverse implications
for an organisation.
 If staff salaries are too low, for example, staff will become
demotivated and good employees may leave the organisation.
 There also could be strikes. These factors could lead to poor
customer service, which will ultimately affect the profits of the
organisation
Con’t…

 Management needs to consider who are the most important


stakeholders; consider what their objectives are; and identify
ways to measure how these objectives are being met.
 Staff surveys, for example, are a common method used to
assess staff satisfaction
Stakeholder Groups
GROUP OBJECTIVES
Employees Satisfactory remuneration
Good working conditions

Customers Good-quality products

Suppliers Long-term relationships


Pay within agreed terms

General public Potential employment


Economic effect on region
Environmental impact

Government Compliance with law (e.g.


environment)
Market Conditions and Competitors

 An organisation's market conditions will affect its economic performance,


and may affect different parts of the organisation in different ways. For
example, performance analysis should consider market differences when
comparing two divisions.
 Competitor performance will directly affect organisational performance.
Price competition within a market, for example, will likely lead to price cuts
of the organisation's products and will have a financial impact.
 Performance evaluations should consider factors which management
could not control. This principle has been discussed in previous sessions
on budgeting and variance analysis, so in summary:
Con’t…

• Performance evaluation should measure actual results


against budgets revised to take account of factors not
originally considered.
• Standards can be revised to take into account changes in the
environment. For example, the sales volume variance can be
split into a market volume and a market share variance.
 Generally speaking, performance measurement should be
flexible enough to take into account external factors.
THE END

PREPARED BY
BOKANG MASELOANE

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