ACCA PM Syllabus E. Performance Measurement And Control - Short-Termism and Financial Manipulation - Notes ^{4 / 7}

Short-termism

Short-termism is when there is a bias towards short-term rather than long-term performance. Managers may manipulate results especially managers' performance is measured on short-term results. For example:

1. Postponing capital expenditure projects in order to protect short term cash flow and profits.

2. Cutting R&D expenditure to save operating costs, and so reducing the prospects for future product development.

3. Reducing quality control, to save operating costs.

4. Reducing the level of customer service, to save operating costs.

5. Cutting training costs or recruitment of new employees.

6. Postponing maintenance of machinery to later years.

Steps should be taken to encourage managers to take a long-term view

• Making short-term targets realistic.

• Providing sufficient management information to allow managers to see what trade-offs they are making. Managers must be kept aware of long-term aims as well as shorter-term (budget) targets.

• Evaluating managers' performance in terms of contribution to long-term as well as shorter objectives.

• Link managers' rewards to share price.

• Set quality based targets as well as 
  financial targets.