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ACCA Applied Knowledge · Management Accounting · Performance measurement - overview

Which of the following is a weakness of using only financial measures to assess performance against organisational objectives?

Financial measures can encourage a short-term focus, since managers may cut spending on quality, training or customer service to hit profit targets. This harms long-term objectives, which is why non-financial measures are added, as in the balanced scorecard.

  1. AThey cannot be expressed numerically
  2. BThey can encourage short-term focus at the expense of long-term objectives such as quality and customer satisfactionCorrect
  3. CThey are never comparable between periods
  4. DThey cannot be used for not-for-profit organisations

Explanation

Financial measures are numeric and comparable, but they are backward-looking and can lead managers to cut spending on training, quality or development to hit short-term targets. This is why balanced approaches such as the balanced scorecard add non-financial measures.

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