Management Accounting - Tesco Plc

This article analyses the business of Tesco Plc and identifies the different areas of performance of the business. It discusses the components of Balanced Scorecard and different elements of the Balanced Scorecard which is applicable to the management of Tesco Plc. It also outlines the benefits and limitations of Balanced Scorecard approach and different types of budgets which can be used by the business.

Running head: MANAGEMENT ACCOUINTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Balanced Scorecard and Its Purpose............................................................................................2
Benefits and Limitations of Balanced Scorecard Approach........................................................5
Application of Budgeting Tools..................................................................................................7
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Introduction
The main purpose of this assessment is to analyse the business of Tesco Plc and
appropriately identify the different area of performance of the business. The assessment would
be identifying the components of balanced scorecard and different elements of the balanced
scorecard which is applicable to the management of Tesco Plc. The assessment would be
identifying the benefits and limitations which are associated with balanced scorecard approach.
In addition to this, the assessment would also discuss different types of budgets which can be
used by the business.
The company which is considered for this assessment is Tesco Ltd which is engaged in
the retail business and offers different kind of products to the customers (Tesco plc. 2019). The
application of balanced scorecard as a performance management tool can enhance the
effectiveness and efficiency of the business. The assessment would be outlining the attributes of
balanced scorecard in relation to the area of performance of the business.
Discussion
Balanced Scorecard and Its Purpose
Balanced Scorecard can be described as a strategic management tool which is often used
by businesses as a performance metrics which can measure various internal function of the
business along with the external functions of the business. It can also be used as a performance
management tool by companies to measure whether the company is following the goals and
objectives of the business associated with different area of the business (Martello, Watson and
Fischer 2016). The balanced scorecard targets which are set by the management of Tesco Plc is
shown below in a diagram which effectively represent the key areas of performance as per

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balanced scorecard. The management of Tesco Plc has developed its performance metrics by
benchmarking its closest rival Sainsbury’s.
QUANTITY QUALITY
FINANCIAL PERSPECTIVE
 Improvement in the rate of sales by
10%.
 Reduction of costs for US operations as
well as UK Business.
 Enhancement of return on equity by
16%
 Growth in the operations of
business from International
Business.
 Improving the cash flows of the
business for improving the overall
liquidity of the business.
CUSTOMER PERSPECTIVE
 Increase in the range of products which
is offered to customers.
 Increase in the range of choices for
different brands of products.
 Enhance the satisfaction rate for the
customers
 Reduction in the complaints from
the business and avoidance of
product return. Increased focus on
customer satisfaction and positive
feedback.
 Focus on reduction of prices which
the customer need to pay for the
UK based customers to make the
brand popular
INTERNAL BUSINESS PROCESS PERSPECTIVE

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 Ensure that the mistakes and fraud
activities in the business are reduced
significantly.
 Improvement in the communication and
prevention of and communication gap
between the senior management and
departmental staff (Melnyk et al. 2014).
 Improve processes so that overall
quality of products is maintained
and also safety of products can be
maintained.
 Improve the efficiency of different
departments of the business.
Learning and Growth Perspective
 Create more job opportunities an
estimation of at least 20,000 posts every
year.
 Enhancing the retention of the
employees of the business to 95% at
least.
 Improving the diversity of
employees in the business.
 Improve the business process and
structure by bringing about
innovations and critical thinking
Figure 1: Table showing four legs of Balanced Scorecard for Tesco Plc)
Source: (Created by the Author)
The main purpose behind application of balanced scorecard approach in a business is to
ensure that the management adhere to performance standards which are set by the business on
the basis of four area of performance which is identified by balanced scorecard. These four areas
which is identified by the management of the company are learning and growth perspective,
internal business process perspective, customer perspective and financial perspective. In other
words, it can be said that balanced scorecard is used to attain objectives, measurements,

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initiatives, and goals which are associated with the four main perspective of the tool (Sainaghi,
Phillips and Corti 2013). In addition to this, balanced scorecard also acts a tool for
communicating the targets to various departments and also setting a bar which the business needs
to follow in order to achieve its strategic objectives and goals. The management of Tesco Plc has
adopted the balanced scorecard approach for ensuring proper strategic plan can be developed by
the business.
Benefits and Limitations of Balanced Scorecard Approach
Balanced scorecard is a performance management tool which is used by most of the
businesses for the purpose of setting targets and measuring the performance of the business. The
benefit and limitations of applying Balanced Scorecard in the business of Tesco Plc are listed
below in details:
Advantages
 The major advantage which is associated with a balanced scorecard approach is that it
develops a balanced and comprehensive approach of setting targets and performance
objectives on the basis of the four perspectives which are followed (Morard, Stancu and
Jeannette 2013). The management of Tesco plc can appropriate set targets for the
management considering past year performance of the business and also performance
standards of the competitors such as Sainsbury’s. The balanced scorecard appropriately
can be used by the management of Tesco for measuring the performance standards of the
business.
 Balanced Scorecard approach facilitates better communication between the top-level
management and the staff members. The approach facilitates better understanding of the

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business goals and strategies in relation to Tesco Plc. The management of Tesco
implemented the balanced scorecard approach so that effective communication of the
strategies of the business can be communicated with the staff members of the business
(Ivanov and Avasilcăi 2014).
 One of the major advantages which is associated with the Balanced scorecard approach is
that it integrates effectively financial and non-financial goals of the business in a single
system and therefore the same can effectively be controlled by the company (Person
2013). In addition to this, the management of Tesco also plans to keep the strategic vision
and objectives of the business as the primary concern for the business and ensure that the
management of the company never deviates from the core objectives and goals of the
business.
Disadvantages
The limitations which are associated with the implementation of Balanced scorecard
approach in a business are listed below win details:
 The approach of balanced scorecard is limited to the four perspectives which are
considered but the same may not be the case as there might be different factors which
might affect the targets and decisions of the business. There can be more perspectives
such managerial decision perspective, social responsibility perspective. The management
of Tesco Plc needs to consider that there might be other factors which can affect the
performance metrics of the business before implementing the balanced scorecard
approach in the business.

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 Balanced scorecard approach is sometimes considered to be vague as they are only
considered from the four perspectives. The balanced scorecard does not specifically tell
the management what steps are to be taken by the management of the business nor sets
the performance standards which are to be followed by the business. In many situation,
business is of the opinion that balance scorecard does not much of difference in the
business (Hoque 2014). The management of Tesco Plc must consider whether balanced
scorecard is actually beneficial for the business and whether the same is bringing about
any changes in the operational structure of the business.
 Another major limitation which is associated with the implementation of balanced
scorecard approach is that it is a very time-consuming process and most of the business
are discouraged to prepare the same as it takes a lot of time, effort to prepare the same
(Parmenter 2015). The management of Tesco needs to update the balanced scorecard
every year as the performance metrics of the business changes.
Application of Budgeting Tools
There are various budgeting tools and techniques which can be applied by the
management of Tesco for the business and application for the same in the business is shown
below:
Budgetary Slacks
Budgetary Slacks can be defined as deliberate under-estimation or over estimation of
Budgeted expenses of the business. This is important in case there is considerable uncertainty
regarding an income which is to be earned. In such a situation, the manager who is preparing the
budget need to be conservative and appropriately prepared the budget of the business. In the case

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of Tesco Plc, the management of the company applies a conservative approach so that
appropriate targets can be set by the management and such that the same can be achieved by the
business (Ekanem 2014). The budgeting targets which are prepared by the business are done
after thorough analysis of the market conditions, past year estimates and current. The budgetary
slacks are intentional in nature and can have a negative impact on the business.
Feedback
When a manager prepares a budget, then he sends the same for consideration to different
departments and top-level management for approval. In many situations, changes are required to
be made in the estimates which are included in the budget for one reason or the other. This is
generally done with a feedback from the top-level management to make some changes in the
budgets (Surianti and Dalimunthe 2015). These changes are made with a view to keep with the
market trends and ensure that the budget is up to date for the needs of the management. The
feedback which is received from the top-level management can incorporate minor or major
changes depending on the decisions which are taken by the management of the company.
In the case of Tesco Plc, the management of the company needs to approve any budget
which is prepared by the managers so that appropriate scrutiny of the situation can be made. The
management of the company also needs to ensure that estimates which are included in the budget
confirms with the objectives and goals which the management of the company is pursuing.
Zero Based Budgeting
Zero Based budgeting is an approach which is followed by the management when they
want to prepare the budget from the scratch or considering zero base. This is an effective method
for preparing budgets which re-evaluates every line of cash flow of the business and also all the

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expenses of the business (Fitzpartick and Hawke 2015). The method allows businesses to start
from the scratch for every new financial year. The management of Tesco Plc can apply this
budgeting techniques as this method of preparing budgets is most accurate even though a lot of
time is taken for the preparation of the budget. This method for budgeting can be applied
differently for UK based operations and other operations in different areas.
Incremental Budgeting
This is type of budgeting technique which is applied by the management of a company
for developing budgets considering the actual performance of the business for the previous year.
This budgeting techniques considers the actual figures from the previous years as bases on which
a percentage of growth is applied for the purpose of setting targets for the current period. The
allocation of resources is based on the allocations which was made during the previous period.
This is another option which is available to the management of Tesco Plc while they are
choosing an option for preparing budgets for the business.
Conclusion
The above discussion shows the benefits and limitations which are associated with the
balanced scorecard approach in a business. The discussion outlines the four perspectives and
their respective targets on the basis of quantitative targets and qualitative targets for the business
of Tesco Plc. The purpose of Balanced scorecard approach is to ensure that the performance
metrics of the business is optimized and are set considering the goals and objectives of the
business. The assessment also shows different budgets which can be applied by the management
of the company for forecasting and planning for the business of Tesco Plc.

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Reference
Ekanem, E.E., 2014. Zero-based budgeting as a management tool for effective university budget
implementation in university of Calabar, Nigeria. European Journal of Business and Social
Sciences, 2(11), pp.11-19.
Fitzpartick, M. and Hawke, K., 2015. The Return of zero-base budgeting. McKinsey &
Company. Pobrano z: http://www. mckinsey. com/business-functions/strategy-and-corporate-
finance/our-insights/the-return-of-zero--base-budgeting (7.03. 2017).
Hoque, Z., 2014. 20 years of studies on the balanced scorecard: trends, accomplishments, gaps
and opportunities for future research. The British accounting review, 46(1), pp.33-59.
Ivanov, C.I. and Avasilcăi, S., 2014. Measuring the performance of innovation processes: A
Balanced Scorecard perspective. Procedia-Social and Behavioral Sciences, 109, pp.1190-1193.
Martello, M., Watson, J.G. and Fischer, M.J., 2016. Implementing a balanced scorecard in a not-
for-profit organization. Journal of Business & Economics Research (Online), 14(3), p.61.
Melnyk, S.A., Bititci, U., Platts, K., Tobias, J. and Andersen, B., 2014. Is performance
measurement and management fit for the future?. Management Accounting Research, 25(2),
pp.173-186.

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Morard, B., Stancu, A. and Jeannette, C., 2013. Time evolution analysis and forecast of key
performance indicators in a balanced scorecard. Global Journal of Business Research, 7(2), pp.9-
27.
Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning
KPIs. John Wiley & Sons.
Person, R., 2013. Balanced scorecards and operational dashboards with Microsoft Excel. John
Wiley & Sons.
Sainaghi, R., Phillips, P. and Corti, V., 2013. Measuring hotel performance: Using a balanced
scorecard perspectives’ approach. International Journal of Hospitality Management, 34, pp.150-
159.
Surianti, M. and Dalimunthe, A.R., 2015. The implementation of performance based budgeting
in public sector (Indonesia case: A literature review). Research Journal of Finance and
Accounting, 6(12), pp.198-210.
Tesco plc. (2019). Tesco PLC. [online] Available at: https://www.tescoplc.com/ [Accessed 7
Mar. 2019].