Based on Chapter 13, Cost Accounting, 12th ed. Horngren et al., Edited and Modified by C. Bailey 1

 The balanced scorecard translates an organization’s mission and strategy into a comprehensive set of performance measures.  Does not focus solely on financial objectives. highlights nonfinancial objectives that an organization must achieve to meet its [long- term] financial objectives. 2

 Attempts to balance financial and nonfinancial performance measures short-run and long-run performance in a single report.  Why does the balanced scorecard reduce manager’s emphasis on short-run financial performance? 3

 Reduces short-term emphasis because: nonfinancial and operational indicators measure fundamental changes financial benefits of these changes may not appear in short-run earnings. nonfinancial measures (leading indicators) signal the prospect of creating economic value in the future. 4

 There are four perspectives of the balanced scorecard: 1 Financial perspective 2 Customer perspective 3 Internal business process perspective 4 Learning and growth perspective 5

 Evaluates the profitability of the strategy.  Focuses on how factors affect income: Growth (units sold, inputs need) Price Recovery (higher prices, lower costs) Productivity (efficiency of resource use) 6

 Objective: – Increase shareholder value  Sample Measures: – Increase in operating income – Revenue growth – Cost reduction is some areas – Return on investment 7

 Identifies the targeted market segment and measures the company’s success in these segments. 8

– Market share – Customer satisfaction – Customer retention percentage – Time taken to fulfill customers requests 9

 Focuses on internal operations Create value for customers Further the financial perspective by increasing shareholder wealth.  Typical Objectives: Improve manufacturing capability Reduce delivery time to customers Meet specified delivery dates 10

– Innovation Process u Manufacturing capabilities u Number of new products or services u New product development time u Number of new patents 11

– Operations Process u Yield u Defect rates u Time taken to deliver product to customers u Percentage of on-time delivery u Setup time u Manufacturing downtime 12

– Post-sales service u Time taken to replace or repair defective products u Hours of customer training for using the product 13

 Emphasizes capabilities of Employees  empowerment, training Info systems  Typical Objectives:  Develop process skill  Empower work force  Enhance information system capabilities 14

– Employee education and skill level – Employee satisfaction scores – Employee turnover rates – Information system availability – Percentage of processes with advanced controls 15

1 It tells the story of a company’s strategy by articulating a sequence of cause-and- effect relationships. 2 It assists in communicating the strategy to all members of the organization by translating the strategy into a coherent and linked set of measurable operational targets. 16

3 In for-profit companies, the balanced scorecard places strong emphasis on financial objectives and measures. 4 The scorecard limits the number of measures used by identifying only the most critical ones. 5 The scorecard highlights suboptimal tradeoffs that managers may make. 17

1 Don’t assume the cause-and-effect linkages to be precise. 2 Don’t seek improvements across all measures all the time. 3 Don’t use only objective measures on the scorecard. 18

4 Don’t fail to consider both costs and benefits of initiatives such as spending on information technology and research and development. 5 Don’t ignore nonfinancial measures when evaluating managers and employees. 19

End of BSC Presentation 20