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In actuality, performance measurement plays crucial role in the assessment and evaluation of the organizational performance. Many companies attempt to introduce new measurement tools and techniques to maximize the accuracy of the performance measurement. In this respect, it is worth mentioning the fact that today CIFA and CIMA are the most widely-spread performance measurement techniques which focus on key issues related to the performance of organizations. In actuality, the use of different performance measurement tools contributes to the adequate assessment of the current position of organizations and their competitive environment and potential. At the same time, today, traditional performance measurements do not always work effectively that means that companies need to implement new, more effective measurements, such as CIMA and CIFA to conduct accurate and adequate measurement of their performance.
Traditional Performance Measurements
First of all, it is important to dwell upon the role of Financial Accounting based on performance measurement in the contemporary business environment. At this point, it is worth mentioning the fact that financial accounting based on performance measurement is crucial for the business development and improvement of the organizational performance through the adequate assessment of the current position of a company. In this regard, the role of financial accounting is particularly significant because it contributes to the adequate assessment of the financial position of a company. As a rule, companies focus on the measurement of key financial statistics and ratios, such as the level of revenues, net profit, liabilities, and others. In such a way, the financial accounting has to be measured accurately. Otherwise, the risk of the inadequate assessment of the current financial position of a company arises. Hence, many problems may arise because of the poor assessment of the financial position and performance of the organization. At this point, it is worth mentioning the fact that the risk of the poor forecasting of the financial performance of the organization arises. The proper financial accounting and its measurement lays the foundation to the accurate and reliable forecasting and planning of the financial development of the organization.
At the same time, the role of Management Accounting based on performance measurement can hardly be underestimated. At this point, it is worth mentioning the fact that the management accounting focuses on the effective management of the accounting system. Hence, the measurement of the management accounting contributes to the effective management of the accounting system and its improvement. In addition, the management accounting based on performance management allows to reveal the extent to which the management accounting is effective at the moment.
On the other hand, it is important to remember about the Limitation of Traditional Performance Measurement and its disadvantages and weaknesses. In fact, traditional performance measurements are grounded on quantitative methods of analysis, which are not always effective. Quantitative methods of analysis do not always allow to conduct the adequate assessment of the organizational performance from the qualitative point of view, whereas the quality is crucial in the contemporary business environment.
Modern Performance Measurement
Modern performance management are based on CIMA and focus not only on the quantitative analysis of the organizational performance but also on the qualitative measurement of the organizational performance. In such a way, modern performance measurements contribute to the broad assessment of the organizational performance and effectiveness of operations conducted by an organization.
Modern performance measurements work effectively due to the effective assessment of the quantitative and qualitative performance of the organization. To put it more precisely, at first, the quantitative analysis is conducted. On the ground of this analysis the current position of an organization is assessed. After that the qualitative analysis is conducted and its outcomes are extrapolated on the outcomes of the quantitative analysis to reveal possible problems in the organizational performance.
In such a way, the modern performance measurements can overcome the limitation of Traditional Performance Measurement. To put it more precisely, through the broad scope of the measurement the modern performance measurement outweighs weaknesses of the traditional performance measurement. It is not bound to the quantitative assessment of the organizational performance but also it conducts the detailed qualitative analysis which helps to identify the full scope of the organizational performance and its effectiveness.
In this regard, modern performance measurements are very effective and contribute to the accurate planning of the organizational performance and management of the organizational performance. At this point, the development of effective tools and techniques facilitate the process of measurement and increases the reliability of its outcomes. As a result, modern measurements are more effective than traditional ones.
On the other hand, these modern performance measurements systems themselves have weaknesses and limitations because there is always a risk of error, especially, when the qualitative analysis is conducted. But this problem can be easily eliminated, if the organization expands the scope of the analysis and uses multiple methods of the qualitative analysis.
CIFA is another tool that can be used along with or instead CIMA. In fact, CIFA is grounded on the use of several tools of the performance measurement which focus on the financial performance of an organization. At this point, it is important to dwell upon the financial statement as one of the major tools of the measurement of the financial performance of an organization. The financial statement is a formal record of financial activities of an organization, which allows the organization to assess its current financial performance and forecast its prospects in the further business development.
Furthermore, income statement is also important for CIFA. The income statement is a financial statement that revenues are transformed into the net income of an organization. In fact, the income statement allows an organization to define its income and develop the further plan for the investment and use of funds to develop its business. In addition, companies often use net profit as one of the tools of CIFA, which includes the gross profit minus overheads minus interests payable plus/minus one off items for a given period.
Moreover, large organizations, such as multinational corporations, use consolidate financial statement to measure their performance. The consolidate financial statement comprises financial statements of the parent company and its subsidiaries. In addition, organizations use the analysis of cash inflow and outflow to analyze their current financial position and to measure their performance.
Thus, taking into account all above mentioned, it is important to place emphasis on the fact that the performance measurement plays an important part in the development of modern organizations. The performance measurement can rely on traditional measurements as well as CIFA and CIMA. The latter are more advanced and widely-spread today due to their higher reliability and efficiency compared to traditional measurements.