ACCA Strategic Professional · Strategic Business Leader · Enabling success: performance excellence
A national charity measures its performance using the proportion of donations spent on programmes rather than administration. Trustees note that staff now avoid investing in training and IT systems, and service quality is declining. Which statement best describes the problem?
A single efficiency ratio is being treated as the goal, which causes staff to underinvest in training and systems and harms service quality. Not-for-profit measurement needs a balanced set covering efficiency, effectiveness and outcomes rather than one overhead ratio.
- AA single efficiency ratio is being treated as the objective, causing dysfunctional short-term behaviourCorrect
- BThe charity has no stakeholders other than donors, so measurement is impossible
- CValue for money cannot be applied to charities because they do not use resources
- DThe ratio is a lagging indicator of profit and should be replaced by return on capital employed
Explanation
Overemphasis on one cost ratio encourages underinvestment in capability, harming effectiveness. Charities do consume resources and value for money applies. ROCE is not an appropriate primary measure for a not-for-profit body.
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