Use Of Performance Indicators In Management Accounting

2863 words - 11 pages

A) What constitutes performance indicators?Performance Indicators are usually seen as measures of success for either a particular project or to the functioning of the organisation as a whole. These indicators are often established at the start of the project and then are used throughout the lifecycle to continuously assess performance and results.They are often linked in to expected, quantifiable results, such as increased yearly turnovers or reduced costs associated with the manufacturing of a particular product. These results are often then subdivided into manageable, incremental benchmarks which help in the process of identifying and interpreting the results which we get in return for these indicators. A typical key performance indicator for example for a car manufacturer might be, for example, an increase in inventory turnover of nine to twelve units per year, constituting a performance indicator which has set goals of greater productivity .Schools of thought on management accounting class performance indicators as being able to be placed into 6 distinct groups which are :competitive advantage, financial performance, flexibility, resource utilisation, quality of service, innovation . The first two of competitive advantage and Financial performance are seen as the "ends" or rather the results to see if the measures used are effective or not. The other four are seen as a "means" as to which the first two can be achieved. When putting into action these indicators , an organisation whether in manufacturing , service or even charity must be careful so as to that the implementation of one will not be of detriment to the others, that is that one goal will not be a barrier stopping one of the others from attaining success. The mix chosen by each company will be different and in some cases the motives of one P.I will almost certainly sometime come into conflict with those of another. However with the size and complexity of the organisations of today it is narrow minded to think that only one P.I can be put into use at any one time. The usage of the indicators is as such: The organisation must identify which ones it wishes to use in the light of the current competitive environment and as to which its strategic intentions adhere to. For example if it wishes a competitive advantage over the others in the market it must ascertain as to how its strategy is to be fulfilled via use of the four determinant indicators. To clarify matters, if technical leadership and product innovation are to be the key source of a manufacturing company's competitive advantage, then it should be measuring its performance in this area relative to its competitors. If a service providing organisation wishes to gain a competitive advantage over the others it may decide it wishes to use quality of service and flexibility in order to attain its goals.Once performance indicators are put in use by an organisation they are not just to be left unmonitored, the whole purpose of their...

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