AFM 31130
The Balanced Scorecard
By
Isuru Manawadu
B.Sc in Accounting Sp. (USJP), ACA
Content
Understand the importance of modern Management
Accounting Practices
Introduction to the Balanced Scorecard with history
What is it?
Why do it?
Balanced Scorecard Fundamentals
The Four Perspectives
Measures, Targets and Initiatives
 Benefits and limitations of BSC
The Balanced Scorecard
What is it?
Definition:
The Balanced Scorecard is a
management tool that provides
stakeholders with a comprehensive
measure of how the organization is
progressing towards the achievement
of its strategic goals.
BSC - History
• Bob Kaplan published articles on this area in
1992
• “The Balance Scorecard” book published in
1996
• Adopted by many companies in the 90’s
• More popular in Europe
• Popular with Government organizations
• Widely used in Education
The Balanced Scorecard
What is it?
• Balances financial and non-financial measures
• Balances short and long-term measures
• Balances performance drivers (leading
indicators) with outcome measures (lagging
indicators)
• Should contain just enough data to give a
complete
picture
of
organizational
performance… and no more!
• Leads to strategic focus and organizational
alignment.
The Balanced Scorecard
Why do it?
• To achieve strategic objectives.
• To provide quality with fewer resources.
• To eliminate non-value added efforts.
• To align customer priorities and
expectations with the customer.
• To track progress.
• To evaluate process changes.
• To continually improve.
• To increase accountability.
The Strategy Focused Organization
Mission –
What we do
Vision –
What we aspire to be
Strategies – How we accomplish our
goals
Measures – Indicators of our progress
The Strategy Focused Organization
The Five Principles
 Translate the strategy to operational terms.
 Align the organization to the strategy
 Make strategy everyone’s job.
 Make strategy a continual process.
 Mobilize change through executive
leadership
Source: The Strategy Focused Organization, Norton & Kaplan
The Strategy Focused Organization
Cont….
1. Translate the strategy into operational terms
Strategy maps
Balanced Scorecards
2. Align the organization to the strategy
Corporate Role Business
 Unit Synergies
 Shared Service Synergies
3.Make strategy everyone’s everyday job
Strategic Awareness
Personal Scorecards
Balanced Paychecks
The Strategy Focused Organization
Cont….
4.make strategy a continual process
Link Budgets and Strategies
Analytics and Information Systems
Strategic Learning
5.mobilize change through executive leadership
Mobilization
Governance Process
Strategic Management System
The Balanced Scorecard and The Big
Picture
Strategic
Planning
Mission
and
Vision
Balanced
Scorecard
•Activity Based Costing
•Economic Value Added
•Forecasting
•Benchmarking
•Market Research
•Best Practices
•Statistical Process Control
•Reengineering
•ISO 9000
•Total Quality Management
•Learning Organization
•Self-Directed Work Teams
•Change Management
THE BALANCED SCORECARD
Financial / Regulatory Perspective
Possible objectives
 Growth
Profitability
Cost leadership
Possible Performance Measures
 Revenue growth
 ROE
 Cost / Unit
Customer Perspective
Possible objectives
 Market share
Customer acquisition
Customer satisfaction
Customer retention
Customer profitability
Possible Performance Measures
Sale revenue
Unit sales
No of new customers referred by existing
customers
Customer Satisfaction (Average)
 Satisfaction Gap Analysis (Satisfaction vs.
Level of Importance)
 Satisfaction Distribution (% of each area scored)
Internal Business Perspective
Kaplan and Norton identify three
principal internal processors;
Innovation process
Operational process
Post sales service process
Innovation process
Possible Measures
% of sales from new products
New product introduction Vs
competitors
Time to develop next generation
of the products
Operational process
Possible Measures
Reducing process time
Increasing process efficiency
Increasing process quality
Reducing process cost
Cycle time measures
Manufacturing cycle efficiency
Manufacturing Cycle Efficiency(MCE)
MCE =
Processing Time
Processing time + Inspection time+ Wait time + Move time
Post sales services processes
Response time to complains
Learning and Growth
Kaplan and Norton identify three principal categories;
 Employee capabilities
Information system capabilities
Motivation, Empowerment and alignment
Possible Performance Measures
Employee capabilities - Employee satisfaction
- Employee retention
- Employee productivity
Information system capabilities
- % of processes with real time quality
- % of customer facing employee having on
line information about customers
Targets
• Targets need to be set for all
measures
• Should have a “solid basis”
Initiatives
Once measures and targets are established
it is the responsibility of management to
determine HOW the organization will
achieve its goals.
Measures are used to determine the
effectiveness of strategic initiatives.
Benefits of using BSC
Better strategic planning
Improved strategy communication and
execution
Better management information
Improved performance reporting
Better strategic alignment
Better organizational alignment
Limitations of the BSC
The omissions of importance
factors
The scores are not based on any
proven economic or financial
theory
No empirical studies