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ACCA Strategic Professional · Advanced Performance Management · Non-financial performance measurement

Brandt Retail's head office reviews store managers on quarterly operating profit only. Over three quarters, profit has risen, but a survey shows customer satisfaction and staff retention are falling because managers have cut training and store maintenance. Which is the most accurate explanation of the weakness in the measurement system?

Operating profit is a lagging, short-term measure, so managers can boost it by cutting training and maintenance. These cuts erode customer satisfaction and staff retention, which drive future results. The system lacks forward-looking non-financial indicators to balance the financial focus.

  1. AFinancial measures are lagging and short-term, so they can be improved by cutting discretionary spend that drives future performanceCorrect
  2. BOperating profit cannot be calculated at store level under IFRS
  3. CFinancial measures always overstate customer satisfaction
  4. DQuarterly reporting is too infrequent to detect any change in profit

Explanation

Cutting training and maintenance lowers costs and lifts current profit but damages the drivers of future results. Financial measures report past outcomes and encourage short-termism. Profit was in fact detected quarterly, so the frequency option is wrong.

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