Benefits and Drawbacks of Balanced Scorecard in Management Accounting

This paper discusses the benefits and drawbacks of using balanced scorecard in management accounting. It highlights the advantages of better strategic planning, enhanced strategy implementation and communication, better alignment of initiatives and projects, management information, enhanced performance reporting, better organizational alignment, superior process alignment. It also discusses the disadvantages of being time-consuming and expensive, requiring data mining, poor support from the workforce, lack of external focus, and the need for strong leadership. The paper concludes that the benefits of balanced scorecard outweigh its drawbacks.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
5/14/2019

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Executive Summary
The purpose of this paper is to discuss about balanced scorecard, which is a performance
metric that is utilized in the strategic management and convince the management team of
ABC Company to incorporate balanced scorecard into the business operations. From the
analysis, it has been identified that balanced scorecard is the most operative tools that could
align financial and non-financial perspective of the company with strategic objectives.
However, there are some drawbacks of the tool like an expensive, time consuming, and lack
of external focus which could grab the attention of stakeholders and results in influencing
their decision for adopting the system. But, in conclusion, it has been highlighted that there
drawbacks are manageable and ABC Company can adopt balanced scorecard into its
operations.

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Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Overview of Balanced Scorecard...........................................................................................3
The learning and Growth Perspective................................................................................4
The perspective of the Business Process............................................................................4
The Customer Perspective..................................................................................................4
The Financial Perspective..................................................................................................5
Advantages of Balanced Scorecard....................................................................................5
Disadvantages of Balanced Scorecard...............................................................................7
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
Management accounting is the procedure of classifying, analysing, recording and
representing the financial data or information for the support of internal management such
that they can take proper decisions in the business for future growth (Holtzman, 2013). The
management of the business analyse the data and use it for the formation of business
strategies. Dissimilar to financial accounting, there are not prearranged standards and
principles that are used by the business in their managerial accounting (Nørreklit, 2017). The
purpose of this report is to discuss the importance of management accounting and analyse the
notion of the balanced scorecard, one of the effective tool of management accounting. In
addition to this, the paper is a suggestive report to the ABC Manufacturing firm planning to
adopt balanced scorecard in its operations. Hence, the paper is highlighting the different
advantages and disadvantages of the balanced scorecard for the ABC Company.
Overview of Balanced Scorecard
A balanced scorecard is the performances metric that is employed in the strategic
management to categorize and enhance a number of internal operations of the business and
their succeeding external results. This tool is utilized to evaluate and offer response to the
company. Data collection is critical for the quantitative results because the information
collected is construed by the company’s executive team, and utilized to make better business
decisions (Niven, 2011). The phrase ‘balanced scorecard’ is mainly denoted as the report for
performance management that is utilized by the company’s management team, because this
team is attentive on handling the execution of the strategy or operational activities. According
to the recent survey around 62% of the participants stated that they make use of Balanced
Scorecard for the execution of the approach, whereas 48% the participants said that they use
it for the operational management (Pramudita, 2016). The balanced scorecard was presented

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by Dr. Robert Kaplan and Dr. David Nortan. Kaplan is the accounting academic and Nortan
is the business executive.
The balanced scorecard is utilized to strengthen good behaviour within the company by
separating four distinct parts that must be analysed. These four parts are also known as legs,
comprise business processes, finance, learning and growth, and customers.
The learning and Growth Perspective
This perspective of balanced scorecard support and provide guidance for the training of the
employee and improvement of the organization. It distinguishes that in the present advance
and modern businesses, information is the essential resource. Managers in the manufacturing
firm can use it as the guidance for planning the training program along with lining up the
training of the employees according to the needs of the business (Pangarkar and Kirkwood,
2012).
The perspective of the Business Process
This perspective of balanced scorecard compacts with how executives look at the processes
of the business. It lines up the mission of the company with its everyday strategic operations
of the business (Makhijani and Creelman, 2011). Executives of the ABC Manufacturing firm
can make use of this perspective of the balanced scorecard in order to confirm that their
internal processes of the business are fulfilling the needs and expectations of the customers in
an efficient manner.
The Customer Perspective
This perspective of the balanced scorecard talks about framing metrics that could define the
customer satisfaction level and examine the needs of the customers. This perspective will
help ABC Company in identifying the needs of their target market and the way to align the
internal businesses processes in order to fulfil those needs. This perspective highlights the

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datum that the unsatisfied customers can lead to huge long-term financial losses for the
company, irrespective of the present financial state, and drags the focus of the customer on
the operations of the business with the financial perspective (Anand, 2016).
The Financial Perspective
This perspective is the customary interpretation of the organization as being the profit-
making business. It is related to the business process aligned with financial viewpoint and
highlights the accounting practices adopted by the company. The key areas that are related in
this perspective are cash flow, share price, return on capital, and financial outcomes (Account
Learning, 2019).
Advantages of Balanced Scorecard
Better Strategic Planning
BSC operates as a strong structure used for creating and communicating the strategies. The
model of the business is envisioned in the Strategic Map which supports the executives to
think regarding the cause and effect relationships between diverse strategic objectives
(Stefanovska and Soklevski, 2014). The procedure for framing the Strategy Map confirms
that consent is extended to the unified strategic objectives. It reflects that the performance
results and the drivers of the business future performance are recognized to make the overall
depiction of the strategy.
Enhanced Strategy Implementation and Communication
With the picture of the policy on a single page, ABC Company can easily communicate the
strategy at the external and internal business level. It is being said that the value of a picture
is equal to the thousand words. This plan in the single page will enable the strategy
understanding and assist to involve personnel and other external stakeholders in the review
procedure of the strategy.

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Better alignment of Initiatives and Projects
Balanced Scorecard can help ABC Company in mapping its initiatives and projects for
diverse strategic objectives, which results in confirming that the initiatives and projects are
strongly focused on the delivery of the maximum of the strategic objectives (Madsen and
Stenheim, 2014).
Management Information
The balanced scorecard will help ABC Company in designing the KPI’s for diverse strategic
objectives. This will confirm that the company is evaluating what is important. Research
consents that businesses with Balance Scorecard approach incline to highlight superior
quality management information and operative decision-making procedures.
Enhanced Performance Reporting
Balanced Scorecard could be utilized by ABC Company in order to get guidance in designing
the performance dashboards and performance reports. This results in confirming that the
management reporting concentrates on the significant strategic issues and supports businesses
in monitoring the implementation of their plan.
Better Organizational Alignment
This tool of management accounting will help the company in aligning its arrangement of the
organization with the key strategic objectives. For the well-implemented plan, the business
has to confirm that every unit of the company and support functions are operating for the
same objective. Pouring the Balanced Scorecard in those units of the business will result in
attaining objectives and linking the strategy with the operations.
Superior Process Alignment
If the balanced scorecard is executed properly into the business then it will help ABC
Company in aligning the organizational procedures like risk management, and budgeting with

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the strategic primacies. Along with this, it will assist in making the best strategy that will be
focused on attaining the objectives of the company (Gomes and Romao, 2013).
Disadvantages of Balanced Scorecard
Time-consuming and expensive
Few of the managers of different companies have claimed that in spite of the efficiency of the
balanced scorecard in measuring the performance, it has some of the drawbacks related to
cost and time. According to the managers, for the application of this tool properly, it is very
essential to have a complete understanding of the entire procedure. If the company does not
have any employee with complete knowledge, there is an urgent need for hiring the expert,
which results in incurring high cost for the business. Besides this, the whole team is
accountable for monitoring and tracking must have an understanding of how Balance
scorecard works (Awadallah and Allam, 2015). All these are not so simple because they are
time-consuming as well as require training.
Requires Data Mining
Opponents of the balanced scorecard highlight that this tool asks managers to gain the
knowledge and it is very important for them to monitor the entire team properly. It also
demands from managers to create a plan and measures the action that could be tiresome.
Ultimately, the executive’s performance could be influenced by this. Another issue about this
is the probability of gaining inaccurate information. As there will be a lot of information that
will be measured, so there is no declaration that the correct rudiments will be derived.
Poor Support from the Workforce
Skeptics of the effectiveness of the Balanced Scorecard highlights that there will be managers
as well as workforce who will not be in the favor of adopting or accepting this tool happily.
The reason behind is there is a need for training and time for a complete understanding of the

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balanced scorecard. Accordingly, the team members along with executives of the company
have to provide their extra efforts as well as time in order to learn about balanced scorecard
(Hristov and Chirico, 2016). This can have a major effect on the productivity and time of the
organization and workforce.
Lack of External Focus
Balanced scorecards majorly provide a wider view of the internal operations of the company,
but it does not reflect the complete outlook of the external business state. The balanced
scorecard does consider the external factor that is a customer but ignores other key
performance indicators like alterations in the setting of the business and rivals (Finch, 2017).
This can result in a major focus on the internal performance and absence of consciousness of
external forces that can have a major effect on the operation of the company.
It requires strong leadership
Many times with the changes in the leadership structure of the business results in changes in
different procedures and aspects of the business. There is a high possibility that the new
leadership is not convinced about the balanced scorecard that it is the most effective and
viable option for the business to align financial and non-financial perspective of the business
with the organization's strategic objectives. This can result in the elimination of the tool from
the business operations and increasing the cost of implementing another different tool into the
business.
It is sometimes rigid in number of ways
Sometimes following the procedure of the balanced scorecard can result in increasing
confusion among employees in the business. In place of taking time to accept the tool, few of
the leaders choose to leave Balanced Scorecard and adopt any other tool for the business.

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Conclusion
The above paper has discussed regarding the notion of the balanced scorecard and its benefits
to the ABC Manufacturing firm. Besides this, the paper has also discussed the disadvantages
of drawbacks of the balanced scorecard. From the analysis, it has been analysed that balanced
scorecard can be a beneficial tool for ABC Company because it will guide business in
aligning its financial and non-financial perspectives with the strategic objectives of the
business. The Balanced Scorecard is one of the operative strategic methods of planning
because it sends signs on diverse aspects of the company, from the customer experience to
the performance of the employee. Though, it has some of the disadvantages related to training
and cost needs. However, these setbacks are controllable and could be resolved, which can
result in gaining the benefits of balanced scorecard and advantages can overshadow its
drawbacks.

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References
Account Learning (2019) Tools and techniques of Management Accounting [online].
Available from https://accountlearning.com/tools-and-techniques-of-management-
accounting/ [accessed 14 May 2019]
Anand, S. (2016) Execution Excellence: Making Strategy Work Using the Balanced
Scorecard 1st ed. U.K: John Wiley & Sons.
Awadallah, E.A., and Allam, A. (2015) A Critique of the Balanced Scorecard as a
Performance Measurement Tool. International Journal of Business and Social Science, 6(7),
91-99.
Finch, C. (2017) The Disadvantages of Balanced Scorecards [online]. Available from
https://bizfluent.com/list-6630586-disadvantages-balanced-scorecards.html [accessed 14 May
2019]
Gomes, J., and Romao, M. (2013) How benefits management helps Balanced Scorecard to
deal with business dynamic environments. Journal of Tourism & Management Studies, 9(1),
129-138.
Holtzman, M.P. (2013) Managerial Accounting For Dummies 1st ed. U.K: John Wiley &
Sons.
Hristov, I., and Chirico, A. (2016) The Limits of the Balanced Scorecard. Open Journal of
Social Sciences, 6(2016), 53-58.

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