Page 134 - Finance for Non-Financial Managers

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Critical Performance Factors
often fall into this category. In some companies, the entire
organization is encouraged to think in terms of sales, while in
other companies the Sales Department is the prime mover. 115
However this one is used, it helps when assessing the effect on
sales of adding another employee or when comparing one
branch office with another or one division with another. When
applying this measure, CEOs need to be careful to recognize
the differences and similarities among departments or divisions.
Some business models are different enough that they cannot
efficiently be compared on a sales-per-employee basis, and to
do so would inhibit one or the other from operating most effec-
tively in its market.
Sales per square foot is a metric used pretty exclusively in
retail establishments, where stores must use every foot of space
productively, space is limited, and the contribution of a product
display can be measured in how much sales it produces per
foot of space it occupies. This is very commonly used by the
management of chain stores to compare the productivity of one
store’s management with another. Again, absolutes may not be
possible because of the different locations and the demograph-
ics of their areas (higher or lower income, younger or older, blue
collar vs. white collar, and so on).

Trend Reporting: Using History to Predict the Future

Most people who read financial statements look only at the
monthly or annual reports, and most of those reports present
their period data in comparison with the immediately prior peri-
od or against the same period a year ago. The more enlighten-
ing reports compare results against a budget, which is a care-
fully considered benchmark in its own right. (See Chapter 10 for
more on budgets.)
But in all these cases there’s a flaw in the lone comparison
that can prove dangerous over time: they overlook the fact that
a small flaw, a minor deterioration from the prior period, a toler-
able budget variance, if repeated over a series of past and