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Non Financial Performance Indicators

Non-financial performance measures track aspects of a business other than monetary values. They are leading indicators that can provide context for financial measures and show how well a company is meeting strategic goals. Companies should track non-financial KPIs to identify strengths and weaknesses, understand how specific areas affect financial performance over time, and give employees clear connections between their work and organizational strategy. Examples of non-financial measures include customer satisfaction, retention rates, productivity, quality, and learning and growth metrics like turnover.

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518 views4 pages

Non Financial Performance Indicators

Non-financial performance measures track aspects of a business other than monetary values. They are leading indicators that can provide context for financial measures and show how well a company is meeting strategic goals. Companies should track non-financial KPIs to identify strengths and weaknesses, understand how specific areas affect financial performance over time, and give employees clear connections between their work and organizational strategy. Examples of non-financial measures include customer satisfaction, retention rates, productivity, quality, and learning and growth metrics like turnover.

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Non-Financial Performance

Measures
What are non-financial performance
measures?
The easiest way to define non-financial performance measures is to explain what they
aren’t. Non-financial KPIs are not expressed as monetary values—in other words, they
aren’t directly associated with dollar signs. They focus on other aspects of the business
and are often leading (forward-looking) measures, whereas financial KPIs are lagging
measures.

While it’s true that non-financial KPIs aren’t associated with finances, that doesn’t mean
they can’t be numeric. These types of measures can be either quantitative or qualitative.
Many organizations view employees’ “soft skills” as the biggest contributors to non-
financial performance, which can be measured in various ways.

Why are non-financial performance measures


important?
There are two primary reasons non-financial KPIs are important. First, they help explain
and provide context for financial KPIs. Financial measures are typically lagging
indicators, which are fairly easy to collect and analyze because they are backward-
looking. Lagging measures report what has already happened, such as revenue
generated or orders fulfilled for a specific time period.

But finances don’t always provide the full story. Why did sales revenue drastically drop
in May? Why did the operating cash flow jump in Q2? Non-financial performance
measures can fill in the gaps and give answers on monetary fluctuations. For example, if
marketing efforts missed the mark one quarter, you can expect sales to be slow the next
quarter.

Secondly, non-financial KPIs are easier to link to certain aspects of your overall
strategy. More specifically, most organizations don’t have finance-based mission
and vision statements. If your mission is to provide the best customer service in the
industry, revenue numbers aren’t a good way to track that—but something like
customer satisfaction scores are.

Why should companies track non-financial


performance measures?
 Help capture strengths and weaknesses. If you excel at customer service but have long
wait times before a customer reaches a representative, that will show up in a non-financial
KPI such as a feedback survey. These measures can reveal your core competencies and
highlight other areas you didn’t realize were suffering.
 Affect business performance. Over- or underperformance is eventually going to show up
in your bottom line, and you can trace it back to the source with non-financial
performance measures. For example, if the HR recruiting budget skyrocketed, you can see
it’s because of the high employee turnover rate and exorbitant cost (in time and
resources) of hiring.
 Give employees better feedback on how to meet strategic objectives. When properly
constructed, non-financial KPIs are specific, measurable, and ladder up to the
organization’s big-picture strategy. Team members are able to see exactly what they need
to do to hit their goals and they also understand why they need to pull the same report
every month or how their attendance rates lead to productivity. There’s a clear connection
between daily tasks and strategic direction.

 Are better at adjusting for external factors. Every business faces external risks outside
its control that can negatively impact measures like revenue and expenses. Recessions,
war, and Acts of God are unavoidable and unpredictable. If you were just looking at
financial KPIs in these situations, it would seem your company’s performance was beyond
hope. But non-financial performance measures are largely within your control and can
provide a different, more holistic perspective. If you’re getting high marks for company
culture and customer satisfaction during a trade war, you’re being successful in key parts
of your strategy, and that should pay off in the long term.

15 Examples Of Non-Financial Performance


Measures
Taking the Balanced Scorecard approach, there are four perspectives involved in
strategy management: customer, internal processes (operations), learning and growth
(HR), and financial. Below are 15 examples of performance KPIs, organized by the three
non-financial perspectives:

Customer
1. Conversion Rate: The percentage of interactions that result in a sale. Formula:
(Interactions with Completed Transactions) / (Total Sales Interactions) =
(Conversion Rate)
2. Retention Rate: The portion of consumers who remain customers for an entire
reporting period. Formula: (Customers Lost in a Given Period) / (Number of
Customers at the Start of a Period) = (Customer Retention Rate)
3. Contact Volume By Channel: The number of support requests by phone and
email. This allows the organization to not only compare which method customers
prefer, but also to track the number of support requests month-to-month.
4. Customer Satisfaction Index: Gauge of a company’s success at meeting
customers’ needs.
5. Net Promoter Score: The likelihood that customers will recommend a brand to
others. A score from 1-10 that qualifies promoters (usually 9-10) and detractors
(under 6). Formula: (Number of Promoters) - (Number of Detractors) = (Net
Promoter Score)

Internal Processes
6. Customer Support Tickets: The number of new tickets, the number of resolved
tickets, and resolution time.
7. Product Defect Percentage: This will give you the percentage of defective
products in a specified timeframe. Formula: (Number of Defective Units in a Given
Period) / (Total Number of Units Produced in a Given Period) = (Product Defect
Percentage)
8. On-Time Rate: The percentage of time products were delivered promptly as
scheduled. Formula: (Number of On-Time Units in a Given Period) / (Total Number
of Units Shipped in a Given Period) = (On-Time Rate)
9. Efficiency Measure: Efficiency can be measured differently in every industry, so this
common KPI will vary. For example, the manufacturing industry can measure
efficiency by analyzing how many units are produced every hour and the plant’s
uptime percentage.
10. Overdue Project Percentage: The number of projects that are late or behind
schedule. This can be pulled from your project status dashboard. Formula:
(Number of Overdue Projects in a Given Period) / (Total Number of Projects in a
Given Period) = (Overdue Project Percentage)

Learning & Growth


11. Salary Competitiveness Ratio (SCR): The competitiveness of compensation
options. Formula: (Average Company Salary) / (Average Salary Offered from
Competitors (or Average Salary Offered by Industry)) = (SCR).
12. Employee Productivity Rate: Workforce efficiency measured over time. Formula:
(Total Company Revenue) / (Total Number of Employees) = (Employee Productivity
Rate).
13. Turnover Rate For Highest Performers: The success of retention efforts for top
performers and plans for talent replacement. Formula: (Number of High Performers
Who Departed in Past Year) / (Total High Performers Identified) = (High Performer
Turnover Rate).
14. Average Time To Hire: The efficiency of the hiring process measured by time to
recruit, interview, and hire.
15. Internal Promotion Rate: The successful retention and growth of top performers.
(The Number of Promoted Individuals) / (Total Number of Employees) = (Internal
Promotion Rate)

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