The Importance Of Creating a Performance Measure in an Organization Essay

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Performance measures play an important role in all companies and their daily operations. By providing multiple methods of comparison and evaluation, accounting measurements provide a better view of the overall state of a corporation. Not only do investors use certain measures to help decide which companies to invest in, but internal managers use other measures to make sure their company is meeting set standards and that it is not falling behind or losing money. Therefore, it is important that these measures are accurate and not misleading. It is up to auditor and regulators, such as the SEC, to ensure that only reliable measurements are being provided. While, customized measurements can more accurately focus on the goals of a specific company or process, more traditional measurements can be used to compare companies or processes. With the rise in popularity of customized or specialized performance measurements, their validity must be compared and contrasted to that of traditional measures of performance.
The importance for creating performance measures stretches from internal managers all the way to external investors. Internal managers can use different performance measures to help determine if a company is running efficiently and if it is meeting standards that were preset. For example, an internal manager of a manufacturing plant can use performance measures to see if enough products are being made to meet demand, if the machines are being utilized for the most profit, and if there is enough employees to run the machines. Executive management can use performance measures to determine if they are on track to be profitable for the year and if not they can use them to figure out why they are not profitable. Investors and Analy...

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...urn is the total return of a stock to an investor. This equals the capital gain plus the dividends for a certain period. The benefit of total shareholder return is that it allows the performance of shares to be compared even if they do not have the same growth rate or dividends. Economic Value added (EVA) is a measure of company’s financial status based on residual wealth. It is calculated by taking the net operating profit after taxes and subtracting out the cost of capital time the capital. Maintaining the integrity of these measurements is important since they are not regulated or audited. To maintain the integrity a company must be consistent with which data is included and it must disclose this information with the measurements. Along with that it is important that the company shows how these measurements hold up against the most comparable GAAP measurement.

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