Financial Management Tools And The Balanced Scorecard Accounting Essay

In such a strong viing concern universe today, every company ‘s aim is to maximise net incomes while minimize costs of disbursals. Therefore, to measure public presentation from clip to clip, there are several fiscal measuring tools available for companies to mensurate such as Return on Investment ( ROI ) , Residual Income ( RI ) , Economic Value Added ( EVA ) and many others. However, these fiscal measurings are simply measuring fiscal position which generated the concluding result of the company ‘s public presentation. In add-on, a company is making good in its fiscal public presentation does non intend that the company has achieved high satisfactory from its clients and providers. So, what if the company itself faced deficit of employees? Does it make serious impact towards the productiveness and the income of organisation? Well, we all know that these fiscal measuring tools are chiefly focus about organisation ‘s growing regardless of the procedure from duty Centre such as production cost Centre, gross Centre, net income Centre, investing Centre every bit good.

Therefore, to ship on both fiscal and non-financial measurings, the company has to implement another public presentation measuring tool called Balance Scorecard ( BSC ) , this tool was introduced by Robert. S. Kaplan and David P. Norton in 1992 ( Punniyamoorthy and Murali 2008 ) . BSC consists of four chief key positions ( as shown in Figure 1 ) : ( 1 ) Financial position, ( 2 ) Internal position, ( 3 ) Customer position, and ( 4 ) Innovation & A ; Growth perspective. Subsequently, the writer will lucubrate more on BSC attack and its effectivity towards public presentation rating every bit good as the comparing between BSC attack with the Business Value Scorecard ( BVC ) attack and eventually decision will be provided based on these two attacks.

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2.0 Balanced Scorecard

Horngren et Al ( 2008 ) defined BSC as a public presentation measuring and coverage system that strikes between fiscal and non-financial steps, links public presentation to wagess, and gives expressed acknowledgment to the diverseness of organisational ends. Besides, Hanson et Al ( 2008 ) besides provided that BSC is a model that houses can utilize to measure whether or non they have implemented both fiscal and strategic controls to measure their public presentation, and BSC attack can besides use to corporate-level schemes. For case, the four chief cardinal positions of BSC model: ( 1 ) fiscal ( concerned with profitableness, and hazard ) , ( 2 ) client ( concerned with the sum of value clients perceive was created by the house ‘s merchandises ) ; ( 3 ) internal concern procedures ( focal points on the precedences for assorted concern procedures that create client and stockholder satisfaction ) , and ( 4 ) invention and growing ( emphasized with the house ‘s attempt to make a clime that supports alteration, invention and growing ) .

Besides, BSC model provides a balanced position to tauten on how it looks to stockholders ( fiscal position ) , how do clients see the house ( client position ) , what the house must stand out in ( internal concern procedures position ) , and can the house continues to better and creates value ( invention and growing position ) . For illustration, clients who enter a eating house, evidently they are non interested to cognize how good the eating house ‘s profitableness public presentation is, but probably to stress the gustatory sensation of the nutrients and the environment of the eating house. BSC is an ideal model which concerns both factors in the illustration that maintain or enhance profitableness public presentation while served impressive nutrients in a comfy environment and addition clients ‘ satisfaction ( Hanson et al, 2008 ) .

Performance Measures

*Figure 1, extracted from ( Garrison et al, 2008, page 440 )

What are

our fiscal



“ Has our fiscal public presentation

improved? ”

What clients do we desire to function and how are we traveling to win and retain them?


and Strategy


“ Do clients acknowledge that we

are presenting more value? ”

What internal concern procedures are critical to supplying value to clients?

Internal Business Procedures

“ Have we improved cardinal concern procedures so that we can present more value to clients? ”

Invention and Growth

“ Are we keeping our ability to alter and better? ”

3.0 Effectiveness of BSC attack

2.1 Four cardinal position of BSC

On the other manus, in order to bring forth a ‘balanced public presentation ‘ of an organisation, Kaplan and Norton introduced four cardinal position of BSC to decide such circumstance as shown in Figure 1. Subsequently, the characteristic about the four key positions will be illustrated in item below:

2.1.1 Financial Perspective

Fiscal position step fiscal public presentation point out whether the organisation ‘s scheme, executing, and execution are lending to bottom-line betterment. Periodic fiscal statements give an qui vive to directors that enhance quality, productiveness, response clip and advanced merchandises benefit the organisation when they result in improved gross revenues, addition market portion, or higher plus turnover ( Jr. et al, 2009 )

2.1.2 Customer Perspective

Undoubtedly, all gross revenues and gross are attributable from clients ; hence, client position is a top precedence for direction. Hence, the BSC requires that directors translate their general mission statements on client service into specific steps that resolve the factors which is truly matter to clients. Directors must joint ends for another four key classs of client concerns about which are clip, quality, public presentation, and service and cost ( Jr. et al, 2009 ) .

2.1.3 Internal Business Processes Perspective

Hilton ( 2009 ) discussed that first-class client public presentation consequences from internal concern determination, processes, and actions throughout organisations in a co-ordinated manner, and directors must stress on those critical internal operations that enable them to fulfill client demands. However, these internal operations include factors that affect rhythm clip, productiveness, employee accomplishments and quality every bit good. In a nutshell, organisation must ever place and steps cardinal resource capablenesss as to guarantee continued scheme success.

2.1.4 Innovation and growing

Knowing that the rapid alterations of engineerings, rate of markets, and planetary competition ; the standards for success are invariably altering. So, directors must do frequent alterations to bing merchandises and services and besides present a trade name new merchandise with expanded capablenesss. An organisation ‘s ability to make better from an invention and larning position is more dependent on its intangible assets: human capital ( cognition, accomplishment and endowment ) , information capital ( webs and information systems ) , every bit good as organisation capital ( civilization, and leading ) . Furthermore, Hilton ( 2009 ) suggested that new merchandise must be introduced and developed to replace those merchandises that become disused and these procedures must continually be developed to better the efficiency of the production. Most significantly, one thing that is most changeless is alteration particularly in a first maker or service house. For illustration, enroll a well-trained squad specially concentrate and come out new construct, new merchandise with advanced design and form in order to prolong the company ‘s merchandise and profitableness.

3.0 BSC versus BVS

Harmonizing to Kaplan and Norton ( 1996a ) , they assume that a insouciant relationship between both fiscal results and non-financial steps. As such, the premise of a cause-and-effect relationship is important because non-financial steps allowed to be used to foretell future fiscal public presentation of an organisation. Recent academic research has suggested that there are many ways in which the BSC can be used. For illustration, Malmi distinguished companies which use the BSC in a system of direction by aims and, on the other, companies which use the BSC simply as an information system. Nothing worth in this point that, in Malmi ‘s survey, he besides noticed that most of the BSC users tend to direct their attending to each position of BSC, instead than researching the cause-and-effect relationships between the different positions as suggested by Malmi 2001, cited Jazayeri and Scapens 2008.

On the other manus, BVS has five positions which link to the five key values in the civilization alteration undertaking: ( 1 ) public presentation, ( 2 ) partnership, ( 3 ) client, ( 4 ) people and ( 5 ) invention and engineering. For case, the BVS is evolved out of its old system called ‘traffic visible radiation ‘ coverage. To maximise the utility of BVS, what was of import was guaranting that all steps fitted together in a consistent manner and the different positions were all pursued at the same time. For illustration, the different positions have to suit together in a consistent manner in order to organize and incorporate the actions of the assorted activities and maps of the concern as a whole, and each position has to be monitored and action taken as necessary, and yet they have to be seen as an entity, instead than as single parts. ( Jazayeri and Scapens, 2008, pg.62 )

Harmonizing to NC?rreklit and Mitchell ( 2007 ) , they argued that Kaplan and Norton confuse cause-and-effect relationships with both logical relationships and means-ends, which is besides called ‘finality ‘ relationships ( NC?rreklit and Mitchell 2007, cited Jazayeri and Scapens 2008 ) . As mentioned above, the five positions of BVS have to implement in a consistent manner and are interconnected with each other. For case, people steps are related to invention and engineering, which are straight related to the client and partnership, which in bend are related to fiscal public presentation. There is, on the other manus, similar to Kaplan and Norton ‘s ( 1996a ) thought of a concatenation running through their BSC attack whereby well-trained employees lead to better concern procedures, which attributable to more satisfied clients and so to better fiscal public presentation of an organisation.

However, this top-down attack and the purpose on cause-and-effect relationship is somewhat different from the manner in which scheme evolved and the BVS was used to let scheme to emerge at assorted degrees in the organisation every bit good as within the single concern whilst the BVS was portion of a complex procedure through in which scheme implement through clip as portion of the civilization alteration undertaking, in peculiar, it was a tool which handle both scheme preparation and strategic direction.

As a consequence, both public presentation steps are of similar attack but they have got different manner in term of their executions severally. The lone different thing between both fiscal steps is that the BSC purposes to work out jobs one by one whereas BVS aims to aggregate all the jobs and work out it in a consistent manner.

4.0 Decision

By comparing public presentation measuring tools ( i.e. BSC and BVS ) as mentioned above, they both have a broad scope of different utilizations and it can intend many different things to different people. However, Kaplan and Norton ‘s BSC attack implements scheme that is set by top-level directors ; it could ease strategic development and enable scheme to emerge within the organisation instead than to implement those five cardinal values of BVS at the same time. Although BSC purpose to better four key positions and segregated into four single entity, it shows that BSC able to pull off and command good on each position one followed by the others. For illustration, by mentioning to Figure 1, an organisation is ab initio consider invention and growing position, at this peculiar minute, the top directors are brain-storming and come out a concluding determination about any invention and growing against merchandises and services of the organisation. After the first position being finalize and they will see on the 2nd position, internal concern procedures, and concentrate entirely on this peculiar position, and the same rotary motion for the other two positions.

Furthermore, the BVS purposes to reenforce a cultural alteration undertaking. Nothing to worth at this point where cultural alteration undertaking is non portion of the issue of what an organisation is sing. By the manner, it is really hard to implement all five cardinal values of BVS in a consistent manner. For illustration, the top and bottom direction degree may hold several barriers such as communicating, cognition, and linguistic communication. However, execution of BVS seems efficiency but it does non see the factor of step-by-step because things get worse when a batch of interconnected things are messed up and it tends to make clip devouring to decide the unwanted affairs that happened within an organisation.

Therefore, it is critical to implement cause-and-effect steps utilizing BSC attack which is introduced by Kaplan and Norton ( 1992 ) in order to bring forth better fiscal public presentation of an organisation even though it takes clip to concentrate on four key positions one by one. Finally, the best manner to accomplish ideal fiscal public presentation is to concentrate the same thing and work in a consistent manner, but non to concentrate everything in a consistent manner.

5.0 Mentions

Garrison, R.H. , Norean, E.W. and Brewer, P.C. , 2008, Managerial Accounting – 12th Edition, New York, McGraw-Hill/Irwin.

Hanson, Peter J. , Michael A. , Duane R. , and Robert E. , 2008, Strategic Management: Competitiveness & A ; Globalisation, South Melbourne, Thomson.

Hilton, R.W. , 2009, Managerial Accounting: Making value in a Dynamic Business Environment – 8th Edition, New York, McGraw-Hill/Irwin.

Horngren C.T. , Sundem G.L. , Stratton G.L. , Burgstahler D. and Schatzberg J. , 2008, Introduction to Management Accounting – 14th Edition, New Jersey, Pearson Prentice Hall.

Jazayeri, M. and Scapens, R.W. 2008, ‘The Business Values Scorecard within BAE systems: The development of a public presentation measuring system ‘ , The British Accounting Review, 40 pp48-78.

Jr, D.J.K. , Eisner, A.B. , Dess, G.G. , and Lumpkin, G.T. , 2009, Strategy: 2008-2009, New York, McGraw-Hill/Irwin.

Kaplan, R.S. , and Norton, D.P. , 1996a, The Balanced Scorecard – Translating Strategy into Action, Boston, Harward Business School Press.

Malmi, T. , 2001, ‘Balanced scorecard in Finnish companies: a research note ‘ , Management Accounting Research, Vol.12 No.2, pp.207-220.

Punniyamoorthy M. and Murali R. ( 2008 ) , ‘Balanced mark for the balance scorecard: a benchmarking tool ‘ , Benchmarking: An International Journal, Vol.15 No.4, pp.420-443.


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