Advantages Disadvantages of Balanced Scorecard Usage
Measuring Performance and Goals
The balanced scorecard is a methodological tool meant to help businesses manage their future growth, objectives and plans. The purpose of the balanced scorecard is to give a measuring tape by which someone can determine whether the set goals have been met or exceeded. It adds non financial metrics to traditional financial metrics to give a well rounded view of the performance in an organization. Balanced scorecards can be as simple or complex as needed for the purposes of a company’s metrics. Unlike traditional methods of
tracking the financial health of a business, the balanced scorecard gives you a full picture as to whether your company is meeting its objectives. While it may seem that a company is doing well financially, it may be that customer satisfaction is down, employee training is inadequate, or that the processes are outdated.
Second, by using a balanced scorecard approach, the immediate future isn’t the only thing being evaluated. Often, when an accountant sees the financial bottom line (perhaps the company isn’t doing well), suggestions are given that are immediate, but do not look at the long term. Using balanced scorecards allows for stakeholders to determine the health of short, medium, and long term objectives at a glance.
Finally, by using a balanced scorecard, a company can be sure that any strategic action implemented matches the desired outcomes. First, the balanced scorecard takes forethought. It is not a tool you can just think up one night to solve a problem. Instead, it is recommended that you hold a meeting to plan out what goals you would like to see your company reach in each of the four above areas. Once you have clearly stated objectives, you can then begin to break down these objectives in what you will need, financially, to bring these objectives to fruition.
Second, while the balanced scorecard gives you an overall view of the four areas for concern in business growth and development, these four areas do not paint the whole picture. The financial information included on the scorecard is limited. Instead, to be successfully implemented, the balanced scorecard must be part of a bigger strategy for company growth that includes meticulous accounting methods.
Finally, many companies use metrics that are not applicable to their own situation. It is vitally important when using balanced scorecards to make the information being tracked applicable to your needs. Otherwise, the metrics will be meaningless.
Is The Balanced Scorecard Right For Your Accounting Needs?
Given that there are various advantages and disadvantages of balanced scorecards, it is important to recognize that this tool is truly beneficial when it is fully integrated into a system of accounting. If your company relies upon the balanced scorecard as its sole metrics for measuring performance, you will likely be disappointed. If, instead, the balanced scorecard is used as a shorthand glance at the health of the company, the tool can be quite effective.