Balance Scorecard

The Balanced Scorecard V1.1

Ref: Quick MBA Accounting: http://www.quickmba.com/accounting/mgmt/balanced-scorecard/

Traditional financial reporting systems provide an indication of how a firm has performed in the past, but offer little information about how it might perform in the future. For example, a firm might reduce its level of customer service in order to boost current earnings, but then future earnings might be negatively impacted due to reduced customer satisfaction. To deal with this problem, Robert Kaplan and David Norton developed the Balanced Scorecard, a performance measurement system that considers not only financial measures, but also customer, business process, and learning measures. The Balanced Scorecard framework is depicted in the following diagram:

Diagram of the Balanced Scorecard

Financial

Customer

Strategy

Business Processes

Learning & Growth

BU481

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The Balanced Scorecard V1.1

The balanced scorecard translates the organization's strategy into four perspectives, with a balance between the following:

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between internal and external measures between objective measures and subjective measures between performance results and the drivers of future results

Beyond the Financial Perspective In the industrial age, most of the assets of a firm were in property, plant, and equipment, and the financial accounting system performed an adequate job of valuing those assets. In the information age, much of the value of the firm is embedded in innovative processes, customer relationships, and human resources. The financial accounting system is not so good at valuing such assets. The Balanced Scorecard goes beyond standard financial measures to include the following additional perspectives: the customer perspective, the internal process perspective, and the learning and growth perspective.

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Financial perspective - includes measures such as operating income, return on capital employed, and economic...