Final answer:
It is true that financial performance management can be limited by its focus on past rather than future indicators. This focus on historical data can interfere with long-term strategic planning and may lead to making assumptions based on anomalous history instead of assessing future trends and potential disruptions.
Step-by-step explanation:
The statement that a limitation of financial performance management is the tendency to focus on the past rather than future indicators is true. Financial reports and statements often reflect historical data, which summarize past performance. While useful for understanding where a business has been financially, they may not always indicate where a business is going. Traditional financial performance metrics may not take into account additional marginal gains that become smaller over time or the importance of disregarding sunk costs, which are expenses that have already occurred and cannot be recovered.
Indeed, focusing intensely on past performance can lead to a neglect of long-term planning. Managers may find it difficult to conduct long-term need and asset assessments that are vital for strategic planning and sustained impact. Furthermore, there is a risk of making assumptions about the future based on recent history, which might not accurately represent long-term trends or potential disruptions.
For businesses aiming for true sustainability and success, activities that do not contribute to future success can potentially lead to failure. A forward-thinking approach in financial performance management is required to address both present challenges and prepare for future opportunities and threats.