Cima P2 Exam Question 24

Question No 24:

Explain why non-financial performance measures are important in the service sector?

The modern service sector is extremely competitive and as a consequence if a business is to succeed it needs to ensure that it is both efficient and that is satisfies the needs of its guests. Financial performance is important but this is described as a "lagging measure" in that it reports on what has happened. Failing to meet targets can mean that profits are not achieved and that inadequate current returns are obtained. However, short term action to improve current financial performance might, in the long term, be at the expense of the company's interests. This is why modern thinking suggests that non-financial measures may be more appropriate in assessing performance. Non-financial "leading" measures indicate how well the company is doing things that can lead to future profits.