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Balanced score card

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management accounting, cost accounting, BSC

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Balanced score card

  1. 1. Balanced Score Card
  2. 2. Introduction • The performance measures like contribution margin, ROI etc focus on past financial performance rather than on what managers are doing to create future shareholders value • An approach which provides the managers an instrument to navigate future competitive success • The balanced score card translate an organization's mission and strategy into a set of performance measures that provides the framework for a strategic management and measurement
  3. 3. • The balanced scorecard emphasis on achieving financial objectives • It measures organizational performance across four balanced perspectives: Financial Customers Internal business processes Learning and growth • Balanced score card technique was developed by Robert Kaplan, Harvard Professor and David Norton, a consultant
  4. 4. Meaning of Balanced Score Card According to Atkinson, Banker, Kaplan and Mark Young, to be balanced, performance measurement system must meet two requirements: • Performance measurement system should monitor both the organization's performance and what management believes are the drivers of performance on the organization's primary objectives • The performance measurement system should measure the most critical aspects of organization performance
  5. 5. Therefore, BSC is a system of performance measurements that organizations uses to tract performance on its objectives It defines what relationships the organization must develop with its employees, its suppliers and the community to be successful with its targeted customers
  6. 6. Perspectives in Balanced Score Card • BSC recognizes that organizations are responsible to different stakeholders group such as employees, suppliers, customers, community and shareholders • BSC shows an organization's performance in meeting its objectives relating to stakeholders • The four perspectives in BSC are; The financial perspective: The BSC uses financial performance measures such as net income and ROI, which arte common language for analyzing and comparing the companies
  7. 7. The Customer perspective: • It focuses on the expectations of the firm’s customers • Co’s use the following performance measures when considering the customer perspective; Customer satisfaction Customer retention Market share Customer profitability Customer perspective in Non-profit Organizations
  8. 8. The internal business and production process perspective: • Supplier Relations • Process improvement incentives The learning and growth perspective: • Focus on capabilities of people • Employee satisfaction • Employee retention • Employee productivity
  9. 9. Four Perspectives of Balanced Score Card Measures Financial Is the company achieving its financial goal? Operating income Return on assets Sales growth Cash flow from operations Reduction in Administration expenses Customer Is the company meeting customer expectations? Customer satisfaction Customer retention New customer acquisition Market share, On time delivery Internal process Is the company improving internal control process? Defect rate Number of suppliers Material turnover Percent of practical capacity Innovation Is the company improving its ability to innovate? Amount spent on employee training Employee satisfaction, retention Number of new products, number of patents, sales of new products as a % of total sales
  10. 10. Characteristics of Good Balanced Score Card • BSC should highlight a company’s strategy by focusing on cause and effect relationship • BSC should help in communicating the strategy formulated to all members of an organization • A good BSC considers non-financial measures as a part of a strategy or programme to achieve and improve future financial performance • The BSC limits the number of measures used by identifying only the most critical ones • Short run financial performance may have been achieved by taking actions that hurt future financial performance

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