Balance Scorecard and Its Relationship

Balance Scorecard and Its Relationship to Cost Accounting

How the balanced scorecard can be related to cost accounting

The Balanced scorecard is a special tool or process used in business measurement and requires that corporations consider other factors besides the financial result in sustaining its success. An accurate scorecard derived from an all inclusive, precise and accurate measurement of several internal processes of a given company. The main work of the balance score card is to assist various businesses in the decision making process in areas of finance, leadership and organizational performance (Ziegel,1998).In this paper, we evaluate the importance of balance scorecard to managerial cost accounting functions.

Introduction

The Balanced scorecard is a special tool or process used in business measurement and requires that corporations consider other factors besides the financial result in sustaining its success. An accurate scorecard derived from an all inclusive, precise and accurate measurement of several internal processes of a given company. The main work of the balance score card is to assist various businesses in the decision making process in areas of finance, leadership and organizational performance (Ziegel,1998).In this paper, we evaluate the importance of balance scorecard to managerial cost accounting functions.

The Balanced scorecard approach was pioneered by Robert Kaplan and his partner David P. Norton sometime in 1992. These two distinguished scholars began with the premise that an over reliance (in the exclusive sense) on the financial measures in a given management system is highly insufficient. The executive reliance on purely financial indicators could in effect promote behavior that in the long run sacrifices the long-term process of value creation for performances that are short-term (Kaplan & Norton,2001, p.2001).The supporters of this view stress that the popularity of the BSC is predicted on the special linkage that it has on the measurement strategy which in essence relies on the non-financial indicators.

The Balanced Scorecard is noted by Drury (2007) to comprise of four main perspectives; Financial, Internal, Customer and learning perspectives. These four perspectives are noted to allow a given business to develop a highly integrative as well as forward thinking strategy that will help in balancing as well as maximizing the company's profitability with the aim of ensuring viability and future growth (Kaplan and Norton 1996,p.56). Brewer and Speh (2000) noted that within the balanced score card model, no perspective is more important than all the others.

The financial perspective is noted to be the one which most businesses relate with. The financial perspective is the one that defines a company's long run monetary objectives. It is used for the definition of the company's profit model. The financial perspective is used in the definition of three basic stages of business continuity. These are; rapid growth process, sustainability as well as harvest. These stages require totally different strategies.

The second BSC perspective is the customer perspective and is a vital part of the business process. This particular perspective is used in measuring customer attributes like customer satisfaction, new customer acquisition, customer retention, customer profitability, market as well as account share in any given target market segment. This perspective is used in the definition of who the customers are and where they come from. This definition of customer base is used in the drawing of marketing strategy.

The third perspective is the internal perspective. This perspective is used in the identification of the critical internal business processes in which a particular business must excel. As opposed to the other traditional approaches to the measurement of business performance that only takes into account the existing critical business procedures, the BSC model is specially designed to identify any new internal processes in which a particular business must succeed in so as to achieve as well as sustain a successful growth portfolio.

The last perspective is the learning perspective which basically centers on using systems, people as well as procedures that are technologically sound in meeting the objectives of the internal processes as well as those of customers. This particular perspective is used in the accurate identification of infrastructure that a given company must acquire so as to compete in the future dynamic and highly competitive global market place.

The Balanced Scorecard has not just been praised for its theoretical soundness but has actually produced real results. Prickett (2003) noted that in 2003, a study that involved 35 firms in the UK proved that the best performance measurement strategies were implemented by firms that employed the Balance Scorecard approach of measurement. This study further indicated that companies that had been successful in their measurements because the Balanced Scorecard approach successfully identified certain critical indicators after a thorough consultation with all sectors of the firm's business team (including the lower level and the front line employees).

Extant literature on the Balanced Scorecard approach have shown a constant praise of the model. This is because as noted by Hagood and Friedman (2002), the model among other things promotes a good level of an organization's strategic health.

Gadenne (2002) also noted that the model has been indicated to have proper flexibility that can allow for the relative importance of each and every area to be given by the respective companies. The balanced Scorecard is also noted to offer as positive feedback since it allows for the measurement of corporate performance on the basis of internal as well as external analysis through the Customer perspective as noted by Arora (2002).

How the balanced scorecard can be related to cost accounting

Managerial cost account is a term which refer to the process involving the accumulation, measurement, analysis, interpretation as well as reporting of cost information that is deemed useful to both the internal and external groups concerning the manner in which an organization employs, accounts for, controls as well as safeguards its resources for the purpose of meeting its objectives and responsibility to its shareholders (Oracle,2010). The concept of Balanced scorecard is closely related to the concept of managerial cost accounting in an intricate fashion.