Performance Measurement and Management Promotion through Non-Financial Measures: A Management Accounting Perspective

Abstract

The purpose of this paper is the discussion of non-financial performance measures that can be adopted in the management accounting function of business organisations. The study is important because it shows how organisational focus on non-financial measures can substantially enhance profitability, albeit being subject to cost constraints.

To begin with, the evolution of management accounting research over the last three decades is presented. The development in the academia is then contrasted with the management accounting techniques used in practice. Among different techniques available, the Budgeting technique and the Activity Based Costing (ABC) technique are assessed from the view-point of decision making and non-financial measures. The focus of the argument is on the suitability of nonfinancial measures on the evaluation of profitability through customer relationships. Enterprise Resource Planning (ERP) and the Balanced Scorecard (BSc) are identified and evaluated as instruments to include non-financial measures. Furthermore, the application of non-financial measures taken into consideration in management performance evaluation and management promoting decisions is discussed. Managerial focus on promoting measures can be promotion-driven and thus short-term oriented. This threat should be kept in mind when implementing nonfinancial measures in management accounting systems.

Keywords: Budgeting, Activity Based Costing (ABC), Enterprise Resource Planning (ERP), Balanced Scorecard (BSc), Performance Measurement, Customer Relationships, Management Promotion

JEL Classification: M10, M12, M41, M51