Balanced Scorecard Essay

1. How does the ‘balance scorecard’ approach described in G.1 differ from a more traditional discounted cash flow method of evaluating capital proposals?

A balanced scorecard (BSC) consists of an integrated set of performance measures that are derived from the company’s strategy and that support the company’s strategy throughout the organization. A strategy is essentially a theory about how to achieve the organization’s goals.

Balance scorecard allows the managers to look at the business from four important perspective, they are the;

1. Customers,

2. Internal business processes,

3. Shareholders and

4. Innovation and learning.

Balance scorecard concentrates on the value adding to each of the four areas. It ranks the outcomes from highest to lowest which best suits the four important areas discussed above. Balance scorecard does not only take into account financial aspects of the business but also other non-financial aspects such as customer satisfaction, innovation and learning.

Whereas, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values (PVs) — the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question. Traditional DCF methods only concentrated on the financial aspects of the projects and did not concentrate on the customer value adding and did not measure the effect of the project on the internal business processes. It calculates the net present values based on historic data of market rates. This market rates does not take into account the changes in economic conditions.

Which approach is better suited to tempest’s situation?

Tempest is a multinational company with close to 4 billion annual turnover operating in Europe, Asia and USA. It is continuously investing in projects to expand its...