Public Sector Accounting. Economics

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The basic question that should come in every economic oriented individual is to try and find out the essence of measuring performance. The primary role of any measurement taking place is to provide feedback. This feedback helps an organization analyze its current position and makes adjustments in order to improve organizational performance. However, measurement should be accompanied by strategic and timely decisions in order to render the process effective. The business community is highly gaining complexity and dynamism hence managers are put to task to come up with effective strategies that nurture business growth.

Organizational performance should not only focus on the current position of the firm but should give a forecast of the intended position that a firm wishes to have in the future. This performance encompasses all the areas in an organization that directly or indirectly affect its operations. This includes the financial performance which includes the profits of the firm, the return on investments and the return on assets. The other area of performance is market performance which accounts for sale volume and market control. Performance in an organization should be measured in multiple dimensions in order to identify market forces that affect either the financial, market or product performance.

To improve performance, an organization has to formulate strategies of measuring output and identifying economic factors that affect the cost of production or the volume of inputs. Performance improvement is achieved through close coordination of organizational operations in an attempt to achieve specific goals and objectives within a given time frame.


Economics is an important tool of measuring performance. This is because economic forces directly or indirectly affect business organization either internally or externally. Economics analysis helps a firm formulates strategies that help the business initiate growth in terms of market performance and control. The process tries to carefully analyze organizational performance with respect to economic factors that affect the organization. These factors should comprise of both financial and market factors that either lead to the success or failure of a business.

One way of evaluating organizational performance is by analyzing the micro and macro economics. Such analysis is achieved by cross examining the market structure that an organization operates in. Some of the common structures are, perfect competition, monopoly, oligopoly and perfect competition. This affects the overall performance of a firm through market control and segmentation. This is in line with changes in consumer behavior, tastes and preferences that affect demand of a product or services.

In micro-economics, the conversion of inputs to outputs is what is referred to as production. There are certain economic factors that affect production. An example of this is an increase in production cost. When this happens, the cost is passed over to the consumer. A firm should be able to measure organizational performance by comparing the cost of production with the volume of sales. For an organizational performance to be termed as effective, the revenue generated from sales should be more than the cost of production. When the term economic efficiency is used in economics, it is used to refer to when an incra4ese in output is generated without changing the volume or the quantity of outputs.

Opportunity cost on the other hand is a fundamental tool in measuring the performance of an organization in that it evaluates the best probable opportunities that an organization has in the course of its operations. An organization should be in a position to interrelate the relationship that exists between scarcity and choice. The resources that an organization has are limited. It is therefore essential for a firm to utilize the scarce resources efficiently. Opportunity cost helps in the allocation of funds to the various departments of an organization according to their performance. This helps reduce misuse of the scarce resources. However, opportunity cost is not restricted in terms of the projected economic effects. The term is not tied to refer to monetary or financial cost but can also be applied in measuring the real cost and as well as utility

The causes of market failure are as a result of improper market assumptions. The economic aspect of the business also helps in the budgeting process of revenue and expenditure. To be able to be enhance organizational performance, an organization must account for the current financial allocation and also plan on how organizational funds will be used to spearhead organizational growth and performance. This means that a well performing organizational is able to withstand turbulent economic times as well as fiscal policies.

Efficiency of an organization

According to Jones, organizational efficiency is being able to account for organizational resources. The process entails how well the inputs of an organization fulfill output (Jones & Pendlebury 2000).An example of efficiency in business is whereby an organization is able to increase output without necessarily having to increase the inputs or the factors of production. Efficiency is largely depended on the ability of an organization to fully utilize its resources hence organizational efficiency should be reflected in the overall market performance. The process creates a balance that defines how well a business is performing. We can say that an organization has a positive performance when fewer inputs are used to produce a large volume of outputs.

Efficiency in an organization should be present in the various departments of an organization. The cohesiveness in operations and performance is what defines a good business performance. What managers in business today need to evaluate in determining the efficiency of an organization in relation to its performance is whether the organization has achieved its goals and objectives and at what expense this has been achieved. The time factor is a key tool in determining efficiency. Organizational goals and objectives should be accomplished within the stipulated time frame. If goals and objectives are achieved out of the given time frame, an organization should revise its strategies in enhancing organizational efficiency that is reflected in the overall performance of the firm.

Effectiveness of an organization

Business effectiveness on the other hand refers to the objective of the firm and its ability to meet the same. An example of a business objective is consumer satisfaction. When a firm decides to be consumer satisfaction oriented, this comes at the expense of output or sales volume. This is because consumers in modern world are highly dynamic and their tastes and preferences keep changing from time to time. The achievement of organizational objectives should be put level with the quantity of inputs in the achievement of the same. Fewer inputs should be used to achieve to a larger extent organizational goals and objective and that when an organization is termed to be effective.

Performance indicators and their application

Performance indicators are used by business organizations to analyze and evaluate the level and rate of achieving the set organizational goals. What mostly defines organizational success is the ability to achieve specific goals within a set time frame. Another perspective of success is the continued achievement of set objectives over a long period of time. An organization should therefore be categorical in stating its goals and objectives. The primary objectives should be given priority hence should come first on the performance list of an organization.

The three factors that are; economy, efficiency and effectiveness are very effective in indicating performance of the firm. This is because they combine all aspects of performance indicators that help a firm plan for the current and the future organizational structure. The economic factor as a performance indicator helps an organization in quantitative analysis. This analysis is presented in form of figures and essentially important to a firm in that it helps in the budgeting and revenue allocation of the firm. A well performing organization has a budget surplus and not deficit and the revenue allocation process should be such that there is a proper accounting process that ensures minimum misuse or misappropriation.


The effectiveness and efficiency indicators serve as practical and directional indicators. The practical aspect of a company’s operation is how well different departments coordinate to achieve organizational goals and objectives. This helps an organization come up with strategic plans that help it achieve its goals and objectives. A combination of these key performance indicators helps an organization know when to achieve a goal or objective, when to achieve it and how to achieve it. The level of inputs should also be reflected in the volume of the output. It is therefore essential for an organization to manage its recourses such that the outputs exceed the inputs. When this is achieved, an organizational can therefore be termed as having achieved organizational performance.


Jones, R. & Pendlebury, M. (2000), Public Sector Accounting, New York: Financial Times Prentice hall.

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