A company’s value in the market and economy in present times significantly depends on many non-financial business drivers. An enterprise generally counts these as its intangible assets even though these might have been formerly driven by physical assets.
If you are fascinated by a career in fintech and planning to opt for finance courses online, consider reading through the article to grasp the knowledge of non-financial KPIs.
An Understanding of Non-financial Performance Measures
Non-financial KPIs are not precisely associated with dollar signs as their expressions are not done in monetary values. The focus of non-financial KPIs is often on other elements of a business organisation.
Notwithstanding the fact that there is not a direct association between the non-financial KPIs and finances, they can be numeric. In such an instance, there is an occurrence of the types of measures as either quantitative or qualitative.
Significance of Non-financial Performance Measures
The importance of non-financial can be discussed as two primary reasons:
Firstly, they help in explicating and providing context for financial KPIs. Financial KPIs are typically lagging measures that make them feasible to collect and analyse. These lagging measures generate a report that has occurred already such as the fulfilment of orders, revenue generated, etc. These finances do not always provide the entire story. On the other hand, non-financial performance measures never fail to fill in the gaps. If there is an event of monetary fluctuation, the non-financial KPIs provide an answer to it.
Secondly, it is more convenient to link certain elements of your overall strategy to non-financial KPIs. More precisely, most business organisations lack a finance-based mission. If the business organisation’s goal is to establish the best customer service, revenue numbers are not an efficient way of tracking that. In this case, customer satisfaction scores would bring accomplishments to the table.
Reasons to Track Non-financial Performance Measures
Tracking non-financial KPIs is one of the crucial tasks for some business organisations. It helps to manage performance while keeping things in a simpler format. Below are a few reasons for companies to track non-financial performance measures:
- Help to analyse strengths and weaknesses: A non-financial KPI in feedback surveys helps to upscale customer services. These measures disclose your root competencies and throw light on other areas that undergo suffering without your knowledge.
- Adjust external factors better: Non-financial performance measures remain under control to a great extent. Hence, they help to tweak external risks that a business organisation might need to experience.
- Plays an important role in business performance: A non-financial KPI traces back the performances of business organisations to the source. For instance, if the budget for HR recruiting exceeds, the non-financial KPIs will help you to see that it is for the high employee turnover rate.
- Give feedback to employees for meeting strategic objectives: A well-constructed non-financial KPI is liable to be specific and assist the business organisations in amplifying their strategies. The various feedback generated by these non-financial performance measures lets the team members determine their future goals.
10 Examples of Non-financial Performance Measures
Below are examples of 7 non-financial performance KPIs coordinated according to three non-financial perspectives along with their formulas:
Internal processes
1) On-time rate
This will provide the percentage of time products that were delivered on time as scheduled. The formula for this is: (Number of On-Time Units in a Given Period) / (Total Number of Units Shipped in a Given Period) = (On-Time Rate)
2) Product Defect Percentage
This will provide the percentage of products that are defective in a specified time period. The formula for this is: (Number of Defective Units in a Given Period) / (Total Number of Units Produced in a Given Period) = (Product Defect Percentage)
3) Overdue Project Percentage
This will provide the number of delayed or behind schedule. The formula for this is: (Number of Overdue Projects in a Given Period) / (Total Number of Projects in a Given Period) = (Overdue Project Percentage)
Customer
4) Conversion Rate
This will give the percentage of interactions that take place during a sale. The formula for this is: (Interactions with Completed Transactions) / (Total Sales Interactions) = (Conversion Rate)
5) Retention Rate
This will give the percentage of consumers who are retained as customers over an entire period of time. The formula for this is: (Customers Lost in a Given Period) / (Number of Customers at the Start of a Period) = (Customer Retention Rate)
6) Net Promoter Score
This will increase the chances for the customers to give brand recommendations to others. The formula for this is: (Number of Promoters) - (Number of Detractors) = (Net Promoter Score)
Learning and Growth
7. Employee Productivity Rate
This non-financial performance measure determines the efficient workforce of the employees over time. The formula for this is: (Total Company Revenue) / (Total Number of Employees) = (Employee Productivity Rate)
8) Salary Competitiveness Ratio (SCR)
This will give compensation options for the competitiveness in salaries. The formula for this is: (Average Company Salary) / (Average Salary Offered from Competitors or (Average Salary Offered by Industry) = (Salary Competitiveness Ratio)
9) Turnover Rate For Highest Performers
This non-financial KPI will show the rate of success for retention efforts from top performers. The formula for this is: (Number of High Performers Who Departed in Past Year) / (Total High Performers Identified) = (High Performer Turnover Rate)
10. Internal Promotion Rate
This will show the progress of top performers. The formula for this is: (Number of Promoted Individuals) / (Total Number of Employees) = (Internal Promotion Rate)
Conclusion
Non-financial performance measures are largely gaining prominence and are adopted by many business organisations across the globe. They are a fantastic business tool for modern-day organisations to build up their business strategies.
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