The Role of the Balanced Scorecard and the Other Performance Measurement Systems

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From the very start, businesspeople should understand how important it is to measure and manage performance. With the balanced scorecard and the other major frameworks for gauging business efficiency, you will be able to control your company's performance and make wise decisions in the end. Check additional information about balanced scorecard.

Business reports are gathered regularly in order for companies to determine how well they are performing on a variety of areas such as customers, profits, processes and the ability to cope with improvements. The business world has evolved so much that there are now different frameworks and systems used in order to come up with accurate performance measurement reports. One of them is the balanced scorecard. The use of the BSC as strategic performance management framework in a particular company is often compared to traveling with a destination. If you do not have your own performance measurement system, you are like driving a race car with a blindfold.

The balanced scorecard as well as the other major performance measurement systems has the same goal. This is not only to provide reports regarding the performance of the business but to also offer help so that the performance of the company will be improved. When your enterprise is more efficient, you can serve your customers, stakeholders, employers and employees better. What the balanced scorecard does is that it enables businesses to know the position of the company at the present time, how it is performing and where it might go or become in the future.

With BSC as strategic performance management framework, you can make plans about how to act, measure the efficiency of those plans and control the strategies. Simply put, the scorecard allows the companies to achieve their desired results and generate shareholder value. Aside from the balanced scorecard, there are other major performance measurement systems which include Economic Value Added or EVA, costing and management based on company activities, quality management, performance prism and customer value analysis or customer relationship management (CRM).

The balanced scorecard consists of four perspectives with the first one being the financial perspective. For several years, this was considered as the only data that could determine the productivity of the business. However, because of the BSC, we have learned that there are other aspects that should be calculated and assessed. The financial perspective of the balanced scorecard typically deals with the cash flow, the profitability of the project, the reliability of the profit forecast and the return on capital used. The next perspective is the internal business process, which usually evaluates the hours spent with customers, the safety incident index, rework, tender success rate and the project closeout cycle.

Then we have the customer perspective, which gives you data about the pricing index tier, the customer satisfaction index, the customer ranking, survey results, market share and business segment levels. Finally, we have the innovation and learning perspective, which provides you with information regarding the percentage of the revenue acquired from new products or services, the rate of improvement, the attitude of the staff and the revenue for every employee.

When you use the balanced scorecard or any of the other major performance measurement systems, you have to consider both the internal and the external circumstances. These business frameworks can be used by both commercial and non-profit organizations. To ensure that your BSC works well with your company, use only the right number of metrics or measures that you can handle. Based upon various researches, it has been discovered that the best practice is to have 20 to 25 measures for the balanced scorecard.

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Balanced Scorecard Toolkit includes step-by-step manuals, documents, presentations, check lists designed to help business professionals with successful development and implementation of Balanced Scorecard. Learn more about BSC Toolkit.