Non-Financial Data

Non-Financial Data Examples

Some of the most common types of non-financial reporting include Elkington's Triple Bottom Line, sustainability reporting and Kaplan & Norton's Balanced Scorecard.

Non-Financial Data: Elkington's triple bottom line

Elkington's Triple Bottom Line is a framework that was proposed by John Elkington. The triple bottom line is a model that reflects a business's economic, social and environmental performance, or people, profit and planet.

Although the model includes an element of financial reporting, the framework suggests that a business's performance can be measured in multiple ways - through non-financial factors too. The idea behind the framework was that traditional ways of measuring business success and performance were outdated, and in order to measure the total cost of a business's activities, you have to include all three factors.

1. The people aspect of the model refers to the company's social performance and it measures the extent to which the business is socially responsible. Unfortunately, the people factor is harder to measure as it is difficult to decide which variables to measure and to report reliably.

2. The profit aspect of the model refers to the company's financials. This is the more traditional way of measuring business performance. You can measure profit by looking at the company's income statement and other financial reports.

3. The planet aspect of the model refers to the company's environmental performance and it measures the extent to which the business is environmentally responsible or irresponsible. For example, you can measure the planet factor by looking at how much CO2 a company is emitting yearly.

Non-Financial Data: Sustainability reporting

According to the company Deloitte,

Sustainability reporting is a form of integrated reporting, which gathers and combines financial and sustainability-related data into a cohesive report.² This is important as it explains how a company can create and sustain value.

Non-Financial Data: Kaplan & Norton's Balanced Scorecard

Kaplan & Norton's balanced scorecard is another way of measuring business performance through financial and non-financial data. This is useful because by seeing both perspectives (financial and non-financial) we can understand the current position of the business and whether it is achieving its strategy. The scorecard provides a balanced overview of business performance from four different perspectives:

• The financial perspective

• The customer perspective

• The internal business process perspective

• The learning and growth perspective

The four perspectives are important as they allow the business to identify different key performance indicators (KPIs) for each. These KPIs allow the business to measure its success through identifiable metrics.

You can see examples of KPIs in Figure 1.

Figure 1. Balanced Scorecard, StudySmarter

Importance of Non-Financial Data

It is important to balance both financial and non-financial data when measuring business performance. Focusing all business objectives and strategies around one single aspect of the business could have negative impacts on performance.

Benefits of Using Non-Financial Data

Some of the benefits of using non-financial data include:

• Encourages businesses to think beyond profits

• Provides a broader insight into business performance

• Measures sustainability and CSR which are important factors to consider for investors

• Can strengthen customer retention and relationships with customers, clients and stakeholders

• Creates positive publicity and media exposure

• Can improve the company's reputation

• Differentiate the company from competitors

• Attract and retain a satisfied workforce

• Involves everyone in the business

Disadvantages of Using Non-Financial Data

Some of the disadvantages of using non-financial data include:

• Could be a problem with reliability and validity measuring certain factors

• It is not a requirement to report these factors in a lot of countries, so businesses are not as concerned with reporting them

• Could be hard to balance measuring financial and non-financial data.

• The business needs to make sure they don't set too many different objectives as this can be confusing for management and employees

²Deloitte, https://www2.deloitte.com/content/dam/Deloitte/lv/Documents/strategy/Non-financial_reporting_2015.pdf ³ Robert S. Kaplan, Conceptual Foundations of the Balanced Scorecard,

Handbooks of Management Accounting Research , 2009