(i) Current performance report
The existing performance report has some good elements and many weaknesses. The current report shows clearly the
calculation of profit and the profit margin from the business and shows how this has changed over the past three years along
with a forecast of the next year. There is also a breakdown of the performance in the last two quarters which gives a snapshot
of more immediate performance. The report breaks revenue and costs into product categories and so might allow a review of
selling and procurement activities.
However, there are a number of weaknesses with the existing report. Firstly, the report only clearly answers the question ‘what
was the profit?’ The owners have indicated that their aim is to ‘make money’ and it is possible that making money and profit
may not be entirely compatible in the short term. For example, there are no cash measures of performance on the report.
These are likely to assume greater importance given the planned improvements and any long-term expansion of the business.
The owners might wish to consider refining their long-term goal in order to make it a more precise statement.
The current report does not present its information clearly. There is too much unnecessary information (e.g. the detail on
operating costs). The style of presentation could easily be confusing to a non-accountant as it shows a large table of numbers
with few clear highlights. The use of more percentage figures rather than absolute numbers may help (e.g. gross margins,
change on comparative period percentages). Also, the numbers are given to the last $ where it would probably be sufficient
to work in thousands of dollars
The current report does not break down conveniently according to the functional areas over which each owner-manager has
control. It summarises the overall build up of profit but, for example, it cannot be easily used to identify performance of the
service staff except indirectly through growth in total revenue. In order to improve this aspect of the report, the critical success
factors associated with each functional area will need to be identified and then suitable performance measures chosen. For
example, Sheila’s area is customer-facing and so a measure of customer satisfaction based on number of complaints received
or changes over time in average scores in customer surveys would be helpful. Bert’s area is kitchen management and so staff
efficiency (measured by number of meals produced per staff hour) and wastage control (measured by gross margin) may be
critical factors. In your own financial and legal areas, costs are mostly fixed and so absolute measures such as the cost of
capital may be helpful. In the area of procurement, purchasing the appropriate quality of food and drink for the lowest price
is critical and so a gross margin for each product category would aid management.
The timescales reported in the current format are possibly not helpful for quarterly meetings. The existing report shows
evidence of seasonality in the large change between Q3 and Q4 performance (42% fall in revenue). The figures for two years
ago may not be particularly relevant to current market conditions and will not reflect recent management initiatives. It may
be useful to consider reporting the last quarter’s monthly performance giving comparative figures from the previous year and
drop the use of the detailed 2010 and 2011 figures in favour of just supplying net profit figures for those years in order to
give an overview of long-term performance.
The current report does not give much benchmark data to allow comparisons in order to better understand the results. It
would be helpful to have budget figures for internal comparison and competitor figures for an external comparison of
performance. Such external data is often difficult to obtain although membership of the local trade association may give
access to a suitably anonymised database provided Metis is willing to share its data on the same basis.
Finally, the current document only reports financial performance. I have already indicted that this may not be sufficient to
capture the critical factors that drive the business. A restaurant will be judged on the service and quality of its products as
well as its pricing. It would be an improvement to include this style of reporting although gathering reliable data on these
non-financial areas is more demanding.
(Tutor note: It would be possible to also base a criticism on a framework such as Fitzgerald et al’s ‘Results and determinants’
or the Balanced Scorecard.)
