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Main Dictionary B

Balanced Scorecard

A balanced scorecard is a set of measures presented in a single report, which is used for assessing, analyzing and giving recommendations to business owners and top management on the overall result of a company’s performance and ways of its improving. It is a tool for strategic management and is mostly applied to supervise the implementation of a strategy within a company combined with evaluating its everyday operations together with reaching its global goals.

Companies may use their own versions of balanced scorecard to assess their performances in a specialized way, or request some professional assistance and contract a third-party company to prepare such a report.

What is Balanced Scorecard

The term “balanced scorecard” was firstly brought in by a pair of business and accounting theorists, Robert Kaplan and David Norton. They published their research concerning the topic in 1992, which shed a light on the importance of a company’s measurement system and its impact on its employees’ and managers’ performance. They overviewed the previous methods and ways of gathering and measuring financial data of more than 10 large companies, and found them insufficient in presenting all the relevant information that might be used for further development. Thus, they altered and enriched the old ways of working with information on a company’s performance, adding some new metrics, especially non-financial ones, allowing a more in-depth and versatile approach, in other words, a more balanced system of assessing the data.

The system presented in their article was initially designed for for-profit organizations, but later was adapted for other organizational types as well.

The basis of a balanced scorecard system lies in the separate obtaining of information from four different areas of business, which are sometimes called “legs”.

These “legs”, or sectors of business activities, are the following:

  • customer related activities, which are evaluated to determine customers’ attitude and satisfaction;
  • inner business processes within a company;
  • various human-related issues including employees’ capacities in learning and using the information learned for a company’s benefit, their experiences and proficiency, and a potential to grow;
  • financial issues.

Balanced Scorecard benefits

The way such a system takes into consideration various parameters of different scales, not only financial, but also strategical (including a company’s intellectual capital and overall customers’ satisfaction with its products) allows calling it essentially balanced, as opposed to other forms of scoring which focuses on financial results only. Financial results don’t always provide crucial information determining business’s weak spots and inefficiencies, which are tracked more effectively by accounting various measures besides financial ones.

Balanced scorecards present a structured and detailed account based on the data gathered during a certain period of time, which is then used by a company senior management to make decisions. In some cases, a balanced scorecard may also contain recommendations or possible initiatives aimed at enhancing a company’s performance. All the abovementioned facts grants a possibility to deem a balanced scorecard not just a measurement, but also a management instrument.

As it stands, a vast variety of measurements and chunks of data are used in preparation of a balanced scorecard. Such measurement and indicators also include objectives of a company, and are assessed in relation to its goals. The main benefit of using balanced scorecards lies here, as they give business owners and managers a possibility to see the links between global strategical goals and little day-to-day steps towards those goals, together with a chance to see the weak spots and ways of improving it.

The results of the assessment for a balanced scorecard report are organized and structured in such a way that provides an easy tracking of problematic issues and areas that slow down the company’s development. This helps to plan a future strategy on improving or reorganizing the processes that cause troubles. By doing so, it’s possible to reduce inefficiency and minimize the losses and expenditure.

One more undeniable advantage is that a balanced scorecard is a single report, pooling all the essential data together. It’s an easier and more convenient way to evaluate data from various areas of a company’s activities, which is usually massive and diversified.

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