Management Accounting Balanced Scorecard

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BALANCED SCORECARD
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Management Accounting 2
BALANCED SCORECARD
Definition of the Balanced Scorecard
The balanced scorecard refers to the strategic performance method that was developed
by Robert Kaplan and David Norton. The aim of the model is to ensure that the mission and
visions of an organization are implemented and thus functional (Hoque 2014). Thus, it makes
the written aims to be operational. Apart from that, the approach offers information
concerning the selected strategy in the business, in terms of applicability and the needed
performance indicators. Several ways explain the reasons for the scorecard to be called
balanced. One is that it assesses the key aspects of the business that is monetary, financial,
customer, internal activities, and innovation (Cooper et al. 2017). Where the four concepts
are extensively evaluated in an organization, it becomes easy to identify the needed aspects
for the business to perform better. The model is also said to be balanced as it describes the
manner in which a business perceives itself, and how others see it. Also, it evaluates
performance based on the current and the future, indicating that it balances the present and
foresees the future.
Ways in Which BSC is Different from Traditional Measurement Systems
Using the balanced scorecard as a strategic performance model has both benefits and
challenges. One of the benefits is that it helps organizations focus on actions to be taken to
ensure better performance (Coe and Letza 2014). This is ensured where the model foresees
the future making it possible to determine the needed changes to ensure a better outcome.
The model also acts as an integrating tool for several organizational programs as it assesses
all sectors of the business based on the four perspectives of the method. The other benefit is
that it assists in the implementation of the written ideas concerning the wellbeing of the
business (Hladchenko 2015). This is ensured by developing performance measures and

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targets, which are aligned with the mission and vision of the organization. Through the
model, organizational level measures are broken into different sections, which make the
management as well as the workers, to understand what is needed to be achieved in certain
duration. The balanced scorecard eliminates the traditional view that an organization is
isolated with independent functions, and makes it one entity with specific goals to be
achieved.
However, using this model is disadvantageous because the organization has many
performance indicators, where some could be easily forgotten, leading to imbalances (Khorev
et al. 2015). Also, for the model to become effective, the four business perspectives must be
balanced, which is practically difficult to ensure. For example, the senior management could
be mostly concerned with the monetary perspective as it seems critical while comparing with
the others. As a result, the model does not effectively play its role, as some sections are
prioritized while others are left. On the other hand, the model has to be often updated for it to
be effective (Zheng et al. 2016). This is to say that assessments in the organization have to be
several, which not only wastes time while updating but also money as the concerned people
are paid (Northcott & Taulapapa 2012, p. 180). Even though the model assesses the present
and foresees the future, it is only achieved where updates are regular. Notably, considering
that the indicators put in place are many, the meetings held are too many. Despite the
negative effects, where the aspects of the model are well put in place, the method helps an
organization significantly.
Features of the BSC Model
The balanced scorecards model has several characteristics that make it an effective
performance strategy for businesses. Firstly the scorecard highlights an organization's
strategy by determining the cause and effect relationship (Busco and Quattrone 2015). The
feature uses the perspectives of the model in finding out the effects of carrying out several

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activities. For example, where an organization wishes to lower its costs of manufacturing, and
therefore increase the growth rate, the scorecard would pinpoint certain objectives as well as
measures in the learning growth approach that could boost the internal organizational
processes. Ensuring this, on the other hand, would lead to better buyers' satisfaction, greater
market share and higher income to the company. The other feature of the model is that it
communicates the initiative developed by the members of the organization and translating it
to a coherent state that is understandable and measurable performances (Kerai and Saleh
2017). By that, the stalk holders of the company carry out actions that depending on the
scorecard analysis of the strategy planned. This is the feature that makes the planned strategy
get implemented in an organization because of employees and the management work towards
the strategy discussed in the scorecard. Therefore, for the model to be useful to an
organization, it has to be developed in the planning stage of projects development so that the
actions are taken later lead to the achievement of the strategy.
The balanced scorecard insists more on the monetary aims and measures, especially to
the profit-seeking businesses (Xia et al. 2017). In most cases, the management of an
organization stresses on innovation and customer satisfaction but tangible advantages are not
evident. The model solves the issue by assessing the non-financial aspects in the business
and interprets how the aspects would result to financial advantages to the business. In doing
this, the model links the non-financial aspects to the financial and where the relationship is
well balanced, monetary benefit is realized (Valmohammadi and Ahmadi 2015). This is to
say that the scorecard model is concerned with the processes that do not bring money into the
business but affects the money earned; indicating that improving the processes would result
to more money to the company. Apart from that, the scorecard reduces the number of
measures of performance used in a business by identifying those that are critical. This is to
say that the model avoids the proliferation of aspects which directs the management to focus

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on the implementation of the critical measures. As said before, the model assesses the
monetary aspects in the business, by handling the non-financials and identifying ways in
which they would result to financial gain. The same idea is realized in this characteristic,
where the model prioritizes some measures. Since it assesses concepts based on the mission
and vision of an organization, the model prioritizes some plans and drops others that could
not affect the businesses directly. This is to say that the organizations that use the model are
benefited, in that only the needed actions are carried out, which increases the likelihood of
achieving the set aims.
The other characteristic of the model is that it points out the suboptimal tradeoffs that
leaders may make when they do not discuss operational and monetary measures at the same
time (Gibbons and Kaplan 2015). For example, where a company focuses on innovation
could decide that ensuring short-term monetary performance through the reduction of the
money used on R&D. The usage of the scorecard model would signal that where short-term
monetary performance is used, the long-term concept is negatively affected. The reason for
this is that the R&D spending, as well as output, would have declined. This feature of the
score, therefore, balances the current events and the future in ensuring that the aims
developed at the moment do not affect the future well-being of the organization. The
balanced scorecard also has the feature on the key performance indicators (KIPs)
(Teklehaimanot et al. 2016). The main role of the indicators is to show whether the
implemented strategies are functional or not. However, most businesses have faced
challenges in differentiating between the key indicators and the operational measures. This is
caused by the wrong idea that all areas of the organization should be measured and reported
and thus making them key performance indicators. However, the right action is depicted in
the title of the feature where the word key is included.

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The key performance indicator is, however, a limited number of measures that reduce
the complexity of measures in the business, by transforming it into aspects that are easily
understood and thus implemented effectively (Opara et al. 2016). This could be well
understood by the actions that doctors take, where they measure the temperatures of a patient,
to determine the overall health state of the patient. The balanced scorecard uses the same
approach, where key factors that result in the overall wellbeing of the organization are
considered and plans developed (Bergeron 2017). With the mistake that is evident in most of
the businesses, it is therefore important understanding the real definition of the key
performance indicators. The indicators insist for the direct relationship, between what a
business is trying to do, explain the strategic objectives and the measures put in place to
assess the implementation of the said relationships. Notably, there are many operational
measures in any organizations, but they should be taken to be good practice aspects and not
key performance indicators.
As said earlier, the balanced scorecard takes the approach of a balanced view where
the strategic objectives are defined using the four perspectives. While developing the key
performance indicators, the strategic objectives should not be all listed in the high levels
(Chen 2015). For example, aiming for increased profitability, revenue, and shareholder value
is unhelpful. If such actions are taken by the business, it would mean that the concepts to be
focused are too much and that the KIPs would be required to evaluate every aspect in the
business which is not helpful. As at that, the aim of the key performance indicators is to
ensure that a smaller number of things are carried out which are helpful at the moment and in
the future, other than taking too many activities at a time that cannot be effectively handled.
Several features of the KIPs should, therefore, be present if the aimed strategies in the
business are to be attained. One is that the indicators should offer an objective way of finding
out whether strategies are working. In this role, the indicators should point out both strong

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and weak points of a strategy where the weak points are corrected and the strong remains
stable.
The indicators should also provide a comparison gauge where performance changes
over time are evident. In this, the indicators have to show progress as time goes, to find out if
changes are necessary by the leadership of the organization. Also, the attention of the
employees should be focused on the issues that matter most regarding the success of the
organization. In this case, the workers have to be aligned with the objectives decided, so as to
ensure that the strategic objectives are followed by the stakeholders of the company, mostly
the employees. The indicators should also give room for measuring of accomplishments and
not solely for the work done. This is because, it is possible for activities to be conducted in an
organization, but accomplishments are not evident, mostly where the activities carried out do
not match with what should be done. As a result, the indicators should point out what is
accomplished. A common language for communication should also be ensured by the KIPs.
Language, in this case, refers to the aims that a business has. That is, the language to be used
or activities conducted should be similar to the aims of the organization to be attained.
Finally, the KIPs should reduce the intangible uncertainties in the business, as they have to
assess the current situation and the future of the business.
The other feature of the balanced scorecard is on cascading, which refers to the
translation of the organization’s wide scorecard called the Tier 1, down to the initial
organizational units known as the Tier 2 and later to teams and persons, called the Tier 3
(Opara et al. 2016). Evidently, the divisions focus on all levels of the organization. On the
other hand, the business alignment ought to be visible through aspects for example strategy
map, measures, and aims as well as initiatives. The scorecard should, therefore, be
implemented in boosting accountability evident by objective and measure ownership as well
as the desired workers’ behavior which would be improved by recognizing and rewarding

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them after the achievement of particular plans. The cascading strategy as a feature of the
scorecard focuses on the whole organization on strategy and establishing a line of sight
between the activities that people perform and the desired outcomes. As the managerial
system is cascaded down in the business, the aimed goals become operational as performance
measures are put in place. Moreover, where accountability is enhanced in both the objectives
and measures, ownership is defined in every level which boosts the communication
throughput in the business. In short, the cascading strategy ensures that the actions taken by
the people in the organization are aligned to the desired end results, based on accountability
and ownership in every level of work.
The other aspect of the balanced scorecard is on the strategic objectives. These refer
to the continuous improvement actions that are developed for implementation. The main aim
of the objectives is to transform the mission and the vision of the organization to being
operational. Objectives are useful in any organization, as it helps the employees and other
stalk holders of the business aim similar goals which raise the chances of their achievement
(artello et al. 2016). However, for the objectives to be achieved, the actions taken should be
aligned with the goals, which are ensured by employing the key performance indicators. The
objectives are therefore developed by understanding the mission and vision of the
organization, then developing the strategies, by forming the strategic objectives and the
necessary actions to be taken. Some of the strategic objectives in organizations are increasing
revenue, boosting customer relations and raising the cost-effectiveness in the business
(Gómez et al. 2016). Strategy mapping is the other feature of the balanced scorecard, which
is useful in the methodology step. Mapping is used in visualizing and communicating the
manner in which value is formed in the business. Therefore, a strategic map is a graphic that
explains a logical cause and effect relationship, amongst strategic objectives.
Perspectives of the Business

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Notably, the balanced scorecard is viewed based on four perspectives, which are
financial, customer, internal processes, and growth. It is these perspectives that have to be
balanced, for the usefulness of the model to be evident. To start with is the financial
perspective that is vital to the shareholders and other monetary departments in an
organization (Sushandoyo and Magnusson 2014). The perspective aims to answer the
question on how attractive could be organization become to the shareholders and monetary
backers. Notably, the approach is a quantitative benchmark determined by the figures of the
past. The financial strategy also provides a reliable insight into the operational management
as well as the sustainability of the selected strategy (Hallstedt et al. 2016). It is the added
value of the other three approaches that boost the financial perspective because the
improvement of the non-financial aspects leads to financial gain. Customer perspective is the
other approach in the balanced scorecard model. Each company serves a particular need in
the market, which is ensured by targeting a population, called the customers. It is the
customers who influence the quality price of goods and services and the acceptable margins
(Zhou et al. 2016). Organizations must, therefore, ensure that the needs of the customers are
met and have the idea that they change with time. In addition, the presence of alternatives due
to competitors plays a significant role, in determining the customers' expectations. The
perspective, therefore, the question of how attractive could be business become, to the
customers.
Internal organizational processes are the other perspective in the balanced scorecard.
The approach evaluates the aspects of the internal functions and the value they have added to
the business (Ye et al. 2015). The most evident added value is influenced by the performance
geared towards the satisfaction of the customers as well as the decisions made. The primary
question answered by this perspective is on what should be done, to ensure that customers
and shareholders of the company are satisfied. The approach is useful to any organization as

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the manner in which customers are served determines the value added to the company (Wu
2012, p. 310). Learning and growth is the final perspective in the balanced scorecard. The
ability of an organization to learn and innovate is a clear indication that growth and
improvement will be experienced by the company. In addition, the current environment of
businesses is dynamic, where legislation and the economy keep changing as well as the
competition going higher. The perspective, therefore, answers the question of how
sustainable the organization would become in ensuring that the strategies put in place are
achieved, despite the many changes in the surrounding (Perri and Peruffo 2016). Where the
four perspectives are balanced, it becomes easy using the balanced scorecard in evaluating
the performance of the business.
Description of the Firm’s Client and BSC’s suitability
The scenario given involves a firm's client, whose intention is to assess the budgeting
system of the firm. Based on the discussed features of the balanced scorecard, it would be
useful using it in the assessment. Notably, the perspective to be used here is financial.
However, for the purpose to be achieved, customer, internal process, and growth aspects have
to be considered. As said before, the scorecard must evaluate the relationship between the
financial and non-financial aspects, for profits to be gained. Therefore, the client ought to
consider how the firm satisfies the customers, the internal functions of the business and the
growth rate. With that, it would be easy concluding whether the strategies put in place are
effective. The other necessary thing needed is the development of key performance
indicators. In this case, the firm has to determine measures that would be used in making sure
that the strategies aimed and the actions are taken are aligned. For example, it would be
assessed whether the budgeted amount of money is used right, and for the specified purpose.
The key performance indicators ensure that short-term gains do not negatively affect the
long-term objectives. For example, if increasing the prices would make the company earn

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more, but at the same time increase the ability of customers opting goods and services from
another organization that offers cheaply, the scorecard predicts the danger and it is therefore
solved. In assessing the short and long-term budgeting system in the firm, the key
perspectives have to be balanced. With that, the balanced scorecard becomes useful and also
effective. In conclusion, basing the paper on the balanced scorecard and its applicability to a
firm aiming to assess the budgeting system, it is clear that ensuring that the four perspectives
are balanced and the other discussed features, the model becomes useful in evaluating
strategic objectives of an organization and their performance.
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