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Strategic performance measures


In the current economic climate the reliance on the markets to determine the true worth of an organisation, through the metric of Market Value Added (MVA) has been challenged. More organisations have argued that the true worth of an organisation is its ability to generate cash for investors. As such it is argued an organisation that wishes to maximise investor wealth should adopt the principles of Shareholder Value Analysis (SVA) and make managers accountable for the decisions that they make and the impact that this has on the value of the company. These are taken one step further when consideration is given to whether traditional management accounting concepts of cost encourage managers to make short term decisions. Economic Value Added (EVA) theory argues that certain costs should be viewed as investments and performance measured appropriately.

Learning outcomes:

  • Apply the use of Market Value Added (MVA) as a performance metric and its limitations
  • Describe why cash is king in the current environment and how the concept of Shareholder Value Analysis (SVA) can encourage managers to take decisions that truly enhance the value of a company
  • Determine whether traditional management accounting concepts of cost encourage managers to make the wrong decisions
  • Differentiate between cost or investment and the principle of Economic Value Added EVA).