Friday, 22 January 2010

What Does Financial Performance Mean?

What Does Financial Performance Mean?

Investopedia defines Financial Performance as "A subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation."

Financial Performance is a mechanism by which Business Executives can manage the efficiency of their service delivery.  It provides correlation between investment and quality of service, highlighting inefficiencies where investments are being underutilized. 

In the non-IT world, this tool is used to support business decisions such as
  • number of call centre staff to employ.  
  • amount of desk space to provide for employees
  • number of distribution agents for Order-To-Cash process
Correct use of Financial Performance data will right-size the investments to provide maximum efficiency for the business.  Overprovisioning capacity will result in excess costs.  Underprovisioning will impact the revenue generating processes.  Right-sizing capacity will deliver maximum benefits for minimum possible costs.

In IT, the same principles apply.  This time the assets for consideration are either staffing, or compute platform assets.  Using Financial Performance to measure and improve the efficiency of your IT investments is a technique used successfully by IT Executives across the world to cut overheads, and release budget for greater business support and innovation.

No comments: