Capstone Experience (Business Metrics) 2 Assignment

Capstone Experience (Business Metrics) 2 - Assignment Example Current ratio helps in calculating the firm’s ability to pay its short-term liabilities. It is calculated by dividing the current liabilities with the current assets (Mowen, Hansen, & Heitger, 2011). Using the on time delivery indicator to predict stock-out helps in measuring the operational efficiency of the business unit (Bidgoli, 2010). This follows from the derivation of information that ensures that the unit maintains sufficient stock for its operations. The gross operating profit per available room measures the competitiveness of the unit. This follows from the use of the rates to give measures that can maximize profitability of the unit. The current ratio seeks to measure the decision-making capacity. It gives insight into the prevailing financial situation, thus prompting appropriate actions to safeguard financial stability. The business unit seeks to maintain good relations with creditors. Therefore, the current ratio helps the business unit to preserve the trust of the organization’s creditors, by showing when there is need to negotiate with them on payment. The gross operating profit per available room assists the business in seeking a competitive edge in its operations. More to these, the stock-out predictor aligns to the unit’s strategy of promoting customer satisfaction (Stair & Reynolds,

Levers of Control, Balanced Scorecard 1, Non-Financial Performance Article

Levers of Control, Balanced Scorecard 1, Non-Financial Performance Measures - Article Example The writers say that there are still a lot of firms which do not realize the importance of nonfinancial performance measures and have no such procedures to measure them, on other hand there are many others which only use off the shelf procedures and frameworks for measuring it and do not dig deep to track the activities which actually affect the framework. Companies make many mistakes in using these off-the-shelf and even their own frameworks one of which is that they do not link the measures to the strategy and don’t know that which nonfinancial performance measure they should track. In their research they found that only 30% firms have developed their own causal models which develop cause-and-effect relationship between chosen drivers of strategic success and outcomes. Second mistakes the companies make is that even after developing causal models they do not validate the link between the selected measures and strategy, i.e. afterwards they do not examine the results to verif y that if their selected measure is actually contributing towards the goal or not, or to what extent it is effective for achieving goal, so that it may be weighed accordingly and thus they remain fail to determine the relative importance of each measure and resultantly they fail in proper allocation of resources. During their research they found that out the firms that develop causal models, only 21% of them validated the link between measures and strategy. The third mistake made by the firms is that they do not establish right performance targets. Because right performance is only beneficial or fruitful upto a certain extent and after that point it produces diminishing or even negative returns, so it’s very important to set a level for right performance so that resources are not wasted into non-productive or counterproductive activities and may be directed towards more productive factors. Fourthly, about 70% of the firms that build causal models and validate links between se lected measures and strategy and set right performance targets, adopt such metrics to measure the results which lack statistical validity and reliability. To solve the four problems discussed above writers have lined a six step procedure according to which; firstly, a causal model should be developed on the basis of the hypothesis in the strategic plan. Secondly, firm should pull up the useful data from already available data and by using all of the available data and systems of all of the departments. Thirdly, collected data should be turned into information by using different statistical tools and models. Fourthly, ongoing reassessment of results should be done regularly and causal model should be refined accordingly because effectiveness of different activities goes on changing with the passage of time and new activities/ factors keep on emerging. At fifth, results and conclusions of data analysis should be used in decision making and for future planning. Finally, results and out comes should be assessed to see the effectiveness of action plans. The writers are right in concluding that nonfinancial performance measures are more effective if they are based on more sophisticated qualitative and quantitative inquiries into the factors actually contributing to the economic results. The article â€Å"How new top managers use control systems as levers of strategic renewal†