What are the advantages and disadvantages of using the Balance Scorecard as a peformance measurement tool?
What are the benefits of cost and management accounting with it?
Please see response attached for complete response (Posting 55581.doc) (some of which is presented below), including one supporting article as well. I hope this helps and take care.
1. What are the advantages and disadvantages of using the Balance Scorecard as a performance measurement tool?
In 1992, Robert S. Kaplan and David Norton introduced the balanced scorecard (BSC), a method for measuring a company's activities in terms of its vision and strategies. It gives managers a comprehensive view of the performance of a business. It is a management tool that continuously reveals whether a company and its employees achieve the results set forth by the strategy. But it is also a tool that helps the company express the necessary objectives and initiatives to support the strategies (2)
The goal of applying the Balanced Scorecard is to create strategic linkages that align performance across your organization. After you have implemented the Balanced Scorecard, the question arises as to whether there are any weaknesses in the system or if you are getting the most benefit from this measurement mechanism. By evaluating and monitoring your strategic planning process, you can ensure a strong link between organization and individual employee performance that result in a dynamic decision-making strategy. (1)
-Promotes continuous improvement
- Achievement of company strategic objectives
- Improved strategic decision-making process
- Alignment of your employees' goals with your organizational strategic drivers
- Accelerated performance across your organisation
- Most companies base strategic decision-making solely on financial measurements and reporting. However, the Balanced Scorecard links your organisation's strategy to various key performance measures and avoids the traditional focus of only examining short-term financial factors. (1)
- Other advantages: Kaplan and Norton found that companies are using the scorecard to:
? Clarify and update strategy
? Communicate strategy throughout the company
? Align unit and individual goals with strategy
? Link strategic objectives to long term targets and annual budgets
? Identify and align strategic initiatives
? Conduct periodic performance reviews to learn about and improve strategy (2)
There is some overlap in the following disadvantages listed below:
a. Complex process- requires training and/or knowledge is needed to effectively implement
- To master the appropriate techniques to effectively collect critical data and design an efficient reporting system that tracks the performance of your business processes requires expertise and/or training.
E.g. in order to build an effective Balanced Scorecard that results in a reliable decision-making process and achieves efficient management reporting, you need to produce data that is not only accurate but also adequate and up-to-date. You also need to avoid the errors to ensure an effective performance management system. The manager (and other personnel) needs to learn how to identify the criteria for successfully gathering and verifying data for your Balanced Scorecard reporting process
b. Time and Energy Required for change: Need to Develop the business case for adopting the Balanced Scorecard into your organisation - obtaining critical buy-in from all levels
E.g. In order to achieve the best results from your Balanced Scorecard process, you need to implement non-metric processes such as change management and leadership programmes for driving forward your planned initiative by obtaining the necessary buy-in from all your departments. Develop an in-depth understanding of how ...
This solution discuses the advantages and disadvantages of using the Balance Scorecard as a peformance measurement tool, including the benefits of using cost and management accounting with it. Supplemented with an artile decribing the balanced scorecard.