Techniques for Financial Performance Benchmarking or Measurement

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Financial Performance Benchmarking or Measurement

Financial performance benchmarking or measurement is very important in the success of any business. A strategy performance based management makes it possible for a business to align its core business activities with its strategy and to monitor how the company is performing in line with its strategic objectives (Kaplan & Anderson, 2007). A framework or technique that makes this possible is therefore very important in determining the progress of the firm in relation to its strategic and performance goals. This paper analyses three techniques of financial performance benchmarking or measurement. These are the shareholder value added, activity-based costing and balance scorecard. The analysis discusses the context of the frameworks, what to expect when using it and what not to expect.

Analysis

The Balanced Scorecard

A balance scorecard is a system founded by Dr. Robert Kaplan and David Norton in 1992 to be used as a measurement framework for the performance of an entity, taking into account both financial metric and the non financial performance measurement tools (operational measures). This tool was created to supplement the traditional performance measurement tools by integrating information from three more perspectives; internal business process, customers and learning and growth. This systems is usually used to for strategic management and planning within organizations or industries by aligning the business activities and processes to the organization's objectives, mission, vision and strategies with the aim of improving business performance and monitoring the performance against the set strategic objectives (Kaplan & Norton, 1992).

The balanced score card provides a clear view of what should be measured in order to "balance the perspective view". This strategic planning system enables companies to be able to take action towards their strategic goals by facilitating the implementation of the strategic plan. The necessary data is collected from the organization's learning and growth trends; the business processes metrics, customer satisfaction metrics and the financial metrics, and used give a balanced view on the performance of the organization (Kaplan & Anderson, 2007).

The result from this framework provides information on how organizational goals have interacted to be in balance and helping support the overall performance of an organization. The system also provides information that will enable an organization to know whether or not targets are being met and therefore give a comprehensive picture of the current performance of an ...