What is the Balanced Scorecard?

The Balanced Scorecard is a Performance Management System that seeks to measure the effectiveness of operations and provide feedback to organizations on how well the internal procedures of the business are affecting its performance.

The Balanced Scorecard was developed in the early 1990s by Robert Kaplan and David Norton. It expands upon the Management by Objective model by providing a framework for translating the company's mission, strategy, and values into quantifiable, measurable goals, and objectives. 

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Dimensions of the Balanced Scorecard

The Business Scorecard analyzes the organization based upon four criteria:

• Customers - Maintaining standards of customer satisfaction and retention.
• Learning and Growth - Measures of management effectiveness, employee satisfaction, and performance of information systems.
• Internal Business - Meeting standards for productivity, innovation, and projections for future productivity.
• Financial - Meeting standards for profitability, operating costs, and return-on-investment.

Implementing the Balanced Scorecard

The first step in implementing the balanced scorecard is that any higher-level goal is categorized within these dimensions. Then, the manager would create a strategy map that links the goal to other dimensions of the scorecard. Next, the relevant managers will develop objectives that further the goals and metrics for assessing progress in achieving the objective. This will include identifying specific tactics that can be employed in carrying out these objectives. Collectively this makes up the strategic plan. Finally, the manager assigns tasks to employees to implement the strategic plan.

Effects of the Balanced Scorecard

This framework allows managers to continuously monitor employee performance and to make immediate corrections when necessary. Lower-level objectives and performance measures are tied closely to individual employee performance. This is also employees by providing the information necessary for making autonomous decisions. Managers carry on their core functions. Financial goals are translated into unit-level budgets and production goals. It also seeks to assess performance beyond purely financial goals and objectives to focus on goals and objectives that further the company's strategy.

Related Topics

Accounting Related Topics

• Trend Analysis of Financial Statements
• Common-Size Analysis (Vertical Analysis) of Financial Statements
• Common-Size Financial Statement
• Net Dollar Retention
• Horizontal Analysis
• Per Share Basis
• Profitability Ratios
• Gross Margin Ratio
• Profit Margin
• After Tax Profit Margin
• Return on Assets
• Total Shareholder Return
• Cash on Cash Return
• Earnings Per Share
• Diluted Earnings Per Share
• Asset Turnover Ratio
• Berry Ratio
• Break-Even Analysis
• Liquidity Ratio
• Current ratio  (Working Capital Ratio)
• Working Ratio
• Quick Ratio
• Quick Assets
• Days Sales Outstanding
• Cash Ratio (Operating Cash Flow Ratio)
• Receivables turnover ratio (often converted to average collection period)
• Accounts Payable Turnover Ratio
• Inventory turnover ratio (often converted to average sale period)
• Solvency (Coverage Ratios)
• Leverage Ratio (Debt Ratio)
• Asset Coverage Ratio
• Debt to Equity
• Debt to Income Ratio
• Debt Coverage Ratio
• Times Interest Earned
• Market Capitalization
• Price to Equity Ratio
• Book-To-Market Ratio
• Price to Earnings Ratio
• Price to Earnings Growth (PEG) Ratio
• Price to Earnings Growth Payback Ratio
• CAPE Ratio
• Price to Cash Flow Ratio
• Capital Maintenance
• Book to Bill Ratio
• Asset Turnover Ratio
• Plowback Ratio 
• Days Inventory Outstanding
• Days Payable Outstanding
• Days Sales Outstanding
• Non-financial Performance Measures: The Balance Scorecard

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