Impact on Non-financial Performance Metrics on Managerial Decision Making
CHAPTER ONE
OBJECTIVES OF THE STUDY
- To establish the challenges faced by First Bank in incorporating non-financial financial metrics in annual reports.
- To determine the non-financial performance metrics needed by stakeholders in annual
- To ascertain the benefits of incorporating non-financial performance metrics for First Bank.
- To suggest ways of incorporating non-financial performance metrics in bank’s annual
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
In this chapter, reference was made to work produced by various authors, business financial analysts and business journalist. Through the literature gathered the researcher acquired knowledge on the role played by non-financial performance metrics (NFPIs) in performance assessment. A systematic literature review was carried out in order to establish the best possible ways to incorporate this information in the annual reports. Taylor (2014) defined literature review as the analysis and use of material written by other scholars and researchers on a particular topic or area of study.
CHALLENGES IN INCORPORATING NON-FINANCIAL MEASURES
Many corporations have become interested in the use of non-financial performance metrics in the day to day assessment of performance and in reporting. “Fluctuations in world economies in the past few years has prompted organizations to rethink the way they define, assess and measure corporate performance”, Zeini (2011: 27). The following challenges may be some of the reasons why most companies refrain from the use of NFPIs.
Identifying the right NFPIs
One of the most challenging tasks in the use of NFPIs is the selection process of the relevant metrics which reflect performance for that specific organization. “There are a large number of metrics but few are ‘Key’… management needs to set out and define the performance metrics that are truly ‘Key’ and relevant to their organizations”, Zeini (2011: 29). “Businesses make some common mistakes when choosing, analyzing and acting on their non- financial measures. They set the wrong performance targets because they focus too much on short term financial results…”, Ittner and Larcker (2015: 02). Ittner and Larcker further explain that because of these irrelevant performance measures, organizations now fail to demonstrate how the NFPIs actually affect the financial results. Different business models have different performance metrics which are relevant for them. For example a luxury vehicle producer may not be concerned about market share since their products are targeted specifically to a select few, which may be the opposite of other manufacturers.
CHAPTER THREE
RESEARCH METHODOLGY
INTRODUCTION
This chapter will provide a description of the research design followed in gathering data to achieve the research objectives. A description of the population, the sample sizes and design will also be made in this chapter. The chapter will lay out procedures followed when collecting data, the sources and types of data the researcher collected. Instruments used to collect the data will also be outlined, also giving the reliability and validity of the data. This chapter will end with data presentation analysis, the ethical considerations and the summary.
RESEARCH DESIGN
Van Wyk (2014: 04) says “research design articulates what data is required, what methods are going to be used to collect and analyse this data, and how all of this is going to answer your research question”. Research design is the overall plan for connecting the research problems to the related research data collected. This study followed a descriptive design for the major part of the study. Although the major design was descriptive in nature, elements of the exploratory design of research were included as the researcher aimed to explore the possible solutions to the problem. In totality the research design followed a more of a dual approach with descriptive design being the dominant design.
CHAPTER FOUR
DATA ANALYSIS, INTEPRETATION AND PRESENTATION
INTRODUCTION
Chapter Four will provide an analysis and interpretation of the data collected during the research and consequently the presentation of the information produced. The chapter will provide conclusions on the major research findings and finally the summary.
QUESTIONNAIRE RESPONSE RATE
A total of 58 questionnaires were distributed to 58 individuals employed by First Bank. 45 respondents form the 6 departments (Finance, Corporate Banking, Retail Banking, Marketing, International Banking and Human Capital) completed and returned questionnaires, 13 failed to fill out the questionnaires due to busy schedules. This gave the researcher a 77.58% response rate. Table 4.1 shows the analysis of the response pattern of the questionnaires administered.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
INTRODUCTION
Chapter five will give a summary of the study and the major research findings contained therein. The chapter will end with recommendations to First Bank on the incorporation of non-financial performance metrics in annual reports.
SUMMARY OF THE STUDY
Chapter One covered the background of the study, statement of the problem and significance of the study. This chapter also introduced the objectives of the study and the sub research questions which form the structure of the study. Chapter One ended by describing the delimitations, limitations, assumptions and definition of terms.
Chapter Two made reference to work previously done by other researchers. The work gathered gave insight on the different performance assessment strategies that guide organisations in improving financial performance of banking institutions by incorporating non-financial financial metrics. The major authors in the literature review were Ittner and Larcker (2015), The Harvard Business Report (2015) and The Financial Times (2014).
5.0 Conclusion of Findings
Research was conducted successfully despite facing numerous limitations. The researcher managed to collect sufficient relevant data to conclude that First Bank is facing challenges in reporting on non-financial performance in annual reports and its effect on the stakeholders. Along the research process, possible solutions to the problems were discovered.
5.1 Recommendations
The researcher recommends that First Bank should revise its annual reporting practice and incorporate non-financial performance metrics as part of the complimentary information to financial statements. Zeini (2011) stated that world economies are changing and companies should change the way they define and assess success to incorporate non-financial measures in their assessment. Buzzel et al (2015) explained the importance of NFPIs stating that these metrics differentiate the high performers from the mediocre companies, which is an important aspect for stakeholders. Care should be taken to choose NFPIs wisely and relate to profitability and the bank’s critical success factors (CSFs) as defined by shareholders. The bank should engage specialists to help create a reporting model from the two prescribed models, which is specifically aligned to the strengths and visions of the organisation.
First Bank should shift from an investor focused reporting mindset to providing information that is useful to the wide range of stakeholders including employees, customers and the general community among others. Akers (2015) stated that companies need to adopt a reporting style which caters for all its stakeholders and not solely for equity participants. A shift from focusing on past performance to a future focus will also force management to keep track of the organisations performance in relation to its original vision. NFPIs will also help ensure that the bank will not lose focus of its long-term goals. Vitez (2015) recommended that companies include NFPIs because they give a long-term focus to annual reporting.
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