ACCA MA Syllabus F. Performance Measurement - Resource utilisation - Notes 12 / 13
Service Sector
In recent years, the service sector has grown in importance.
Banks, accountancy and consultancy firms, transport companies have all increased.
We shall consider six main aspects of performance in relation to service organisations
Financial performance
Competitive performance
Service quality
Flexibility
Resource utilization
innovation
1. Financial Performance
Traditional financial analysis distinguishes four types of ratio: profitability, liquidity, activity and gearing.
Analysis of a company’s performance using accounting ratios involves comparisons with past trends and/or competitors’ ratios.
Typical ratios which can be used by a service organisation include
Turnover per product group
Turnover per ‘principal’ or partner
Staff costs as a % of turnover
Space costs as a % of turnover
Training costs as a % of turnover
Net profit %
Current ratio
Quick asset ratio
Market share
Market share increase
Because it is difficult to trace many common costs to different units of output and because of the high level of stepped fixed costs, detailed financial ratio analysis is of limited use.
2. Competitive Performance
Competitive performance focuses on factors such as sales growth, market share, customer retention and ability to obtain new business.
3. Service Quality
Quality is an important non-financial performance indicator in the service sector.
Inspection and monitoring of the inputs to the service process is very important;
e.g. the quality of solicitors in a practice or the level of staff available in a consultancy organisation.
For example, in the airline industry, service quality could be measured as follows
quality | measures | mechanics |
competence and courtesy | staff courtesy and attitude | feedback forms / inspections |
cleanliness | facilities and equipment | feedback forms / inspections |
availability | equipment availability | internal fault monitors |
communication | information clarity | surveys / inspections |
4. Flexibility
Three important aspects are
area | measures | mechanics |
speed delivery | waiting time in queues | inspection |
ability to respond to customers' specifications | diversity of skills possessed | amount of time spent on training |
coping with demand | overcrowding: customer queuing time | inspection |
5. Resource utilization
Resource utilization is usually measured in terms of productivity. For e.g. in an audit firm, the main input is the time of staff.
The output is the chargeable hours to client.
Productivity can be measured by dividing the chargeable hours with the total available hours.
6. Innovation
Innovation can be measured in terms of how much it costs to develop a new service, how effective the process is and how quickly it can develop new services.
Hence, we can calculate the proportion of new services to the total services provided or the time between identification of a new service and making it available.
Manufacturing Sector
In manufacturing environments, there are four performance measures
a) Cost
area | measures | mechanics |
raw material input | actual vs target | calculation of quality and cost |
overtime costs | overtime hours / total hours | job sheets / payroll |
customer focus | % service calls; % claims | service and claim forms |
output | actual vs target output | inspection |
b) Quality
area | measures | mechanics |
quality of material | % of defected material | inspection |
maintenance | breakdown maintenance total maintenance | maintenance records |
product reliability | % claims | claims record |
customer satisfaction | number of complaints / repeat orders | feedback forms |
c) Time
Here, the focus is on throughput, bottlenecks, customer impact and availability.
area | measures | mechanics |
throughput | processing time ÷ total time | production records |
availability | % stock outs | stock records |
customer impact | average delivery time | delivery records |
equipment failure | time between failures | maintenance records |
d) Innovation
area | measures | mechanics |
the ability to introduce new products | number of new products launched | production records |
ability to accommodate change | number of new processes implemented and time taken to implement | records of process time taken |
reputation for innovation | demonstrate competitive advantage | surveys / feedback forms |