Companies collect and analyze financial data. But how can they assess the performance of other business functions? For example, how can they report on their organizational culture? By collecting non-financial data. So, what is non-financial data and what kind of insight can it provide companies with? Let's take a look.
Non-financial data definition
Non-financial data is useful for companies for a variety of reasons.
Non-financial data can include any type of data reported by the company, other than their finances.
Factors like organizational culture or the company's environmental impact are both examples of non-financial data.
The National Action Plans on Business and Human Rights defines non-financial data as
Non-financial reporting, put simply, is a form of transparency reporting where businesses formally disclose certain information not related to their finances, including information on human rights. It helps organizations to measure, understand and communicate their human rights impacts, as well as set goals, and manage change more effectively."
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 The idea behind the framework was that traditional ways of measuring business success and performance were outdated, and in order to measure the total cost of a business's activities, you have to include all three factors.
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.
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.
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 process of gathering and disclosing data on non-financial aspects of a company's performance, including environmental, social, employee and ethical matters, and defining measurements, indicators and sustainability goals based on the company's strategy. ”
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
Non-financial data - key takeaways
- Non-financial data is the measurement of business performance using metrics that are not related to a business's finances.
- The triple bottom line is a model that reflects a business's economic, social and environmental performance, or people, profit and planet.
- Sustainability reporting is a form of integrated reporting, which gathers and combines financial and sustainability-related data into a cohesive report.
- Kaplan & Norton's balanced scorecard is another way of measuring business performance through financial and non-financial data. This framework includes four different perspectives: financial, customer, internal business process and learning and growth.
- Some of the advantages of using non-financial data are that it provides broader insight into business performance and it can strengthen relationships with stakeholders.
- Some of the disadvantages of using non-financial data are that it is sometimes hard to measure non-financial factors and it could be hard to balance financial and non-financial objectives.
¹John Elkington, Accounting for the Triple Bottom Line, Measuring Business Excellence, 1998 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
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