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Q: Discuss the effectiveness and efficiency of using Balanced Scorecard as a tool in management accounting control system? The discussion will start address with management accounting and control system through the relationship between them and the balanced scorecard will to advance step by step to address the balanced scorecard to clarify the efficiency and effectiveness as a tool in the management accounting control system. Management accounting and control system: Policies and procedures, performance indicators and other tools used to monitor and manage operations in a systematic manner. The establishment of management control systems to maintain control over the management on a routine basis, and can include budgets and budgetary controls, and control credit, and operating procedures, inventory control, manufacturing processes, quality or controls.
Management accounting and control system Set of:
Use to -guide-motivate all employees to achieving organizational objectives now the question here how they can that? They can that by five stages of process
1-planing to set objective and choosing activities this by selecting measures how well the objectives being met.
2-execution the plan
3-monitoring and measuring current level of performance
4-evaluation-current level performance -planned level
5-correcting by taking action so that back in control
Should the basic control process apply to big or small organization the key different is in the performance measurement also The processes of control have no meaning & credibility if no knowledge & Albany to correct the situation.
Characteristics of well-designed MACS
1-Technical considerations fall into two categories:
A- Relevance of the information
3- Consistent designers must structure the MACS to provide a consistent framework can be applied globally across unit decision e.g. diff cost system ABC and Volume base
Flexible manner so that they can customize its application for local decisions (diff data).e.g. assembly line new product
B- Scope of the system
1- Comprehensive (e.g. the entire value chain) for create paramount importance to competing
a-Total-life cycle costing concept there are Three methods related to TLCC
b- Accumulates product cost over the entire value chain
2- Behavioral considerations include the following:
a. Embedding the organization's ethical code of conduct into MACS design
b. Using a mix of short- and long-term qualitative and quantitative performance measures (or the Balanced Scorecard approach)
c. Empowering employees to be involved in decision making and MACS design
d. Developing an appropriate incentive system to reward performance
Organizations interested in a new way to monitor the management usually choose one of three ways to learn and adopt the way;
1. The first is to bring in outside consultants to implement a particular method. Outside consultants can be effective but costly.
2. A second approach is for organizational members to develop their own systems internally with little or no assistance from outside consultants. Although this approach can be satisfying, it can be highly costly and time consuming, especially if the organization fails in its first few attempts at change.
3 The third approach, known as benchmarking, requires that organizational members first understand their current operations and approaches to conducting business and then look to the best practices of other organizations for guidance in improving. There are five stages:
1- Internal study of preliminary competitive analysis
2- Developing long-term commitment to the benchmarking project and coalescing the benchmarking team.
3-Identifying benchmarking partners
_size or nos. of partners
_number of partners
_relative position of the partners within and across industries
_degree of trust among partners
4- Information gathering and Shaving methods
_comparative _database_ indirect third party _ group
5-Taking action to meet or exceed the benchmarking
-The process of studying of adopting the best practices of other organization to improve the performance.
Organizations spend a lot of time in determining how to motivate staff. One way is to align employee goals with that organization. However, even if it is aligned objectives, organizations can not rely on the labor of self-control to achieve the performance. In many cases, organizations need to create activities or the results of control systems. The work is based on both to control the use of the devices on the control and prevention or control, while monitoring the results and focuses on the comparison between the actual results and performance that you want. Linked to development and use of appropriate types of direct measures for the performance characteristic behavioral II, which involves the use of a combination of measures short-and long-term performance quality and quantity. This approach is the Balanced Scorecard.
Balanced Scorecard is the first systematic attempt to design a performance measurement system that translates the organization's strategic goals and clear measures and initiatives. Registration card is built around four perspectives: financial perspective, the point of view of customers, internal business perspective and the perspective of learning and growth. Each of these specific performance measures has been developed. Following this perspective allows an organization to manage itself in a balanced manner, because any particular perspective, stress is at the expense of others.
What is Balanced Scorecard?
The balanced scorecard advocates a top-down approach to business performance management, starting with business strategic intent expressed through the organization down to operationally relevant targets. The focus with Balance Scorecard approach is on the link and/or influences between it various components, which include business strategy, perspectives, objectives, measures, initiatives and milestones as well as softer contextual information.
Furthermore the Balanced Scorecard has quickly become recognized as an important management tool with the potential to improve organizational performance. The authors report on their research-among the first of its kind-which examines the critical factors that increase the likelihood that a firm will adopt the Balanced Scorecard. In examining the association between Balanced Scorecard adoption and the firm's performance, also point to the need for greater understanding of Balanced Scorecard formulation and implementation issues.
Specifically in detail Balanced Scorecard, a concept for measuring whether the activities of the company and its objectives in terms of vision and strategy. Focus not only on financial results but also on the man's problems, and help the balance sheet to provide a more complete picture of the business, which in turn helps organizations working in their favor in the long term. Strategic management system helps managers focus on measures of performance while balancing financial objectives with customers, and prospects for process workers. Measures are often indicators of future performance.
1- Way to measure and manage business performance by giving a balanced view of the financial and operational speed in the management process.
2. A series of measures likely to give the Director of fast but comprehensive view of the work, it is imperative to ask questions using four important areas of motor vehicle registration, finance, internal business, innovation and learning, and how these areas of added value for customers and shareholders.
In addition to that Balanced Scorecard is a management style that translates important data and strategies in a set of objectives and performance measures that can be measured and evaluated.
Based on that Balanced scorecard measures organizational performance across four different points of view, but relevant, which is derived from the organization's vision, strategy and objectives:
â€¢ Finance. How is success measured by the value for our shareholders?
â€¢ Customers. How can we create value for our customers?
â€¢ The process. What we must excel to meet the operations of our customers and shareholders?
â€¢ Learning and growth. What staff skills, and information systems, and organizational capabilities we need to continuously improve our operations and relationships with customers?
I will summarize how the balanced scorecard (strategic based control) works in this map:
A- One forms of strategic management system
1- Strategic base responsibility accounting system
Base responsibility accounting a- Translates the vision / mission & strategy into operational objectives & measures.
- Compatible with activity
1- Activity based system added a process perspective to the financial (function - base acct system).: responsibility acct had charge from a control system to a performance.
2- Because it focus on the processes & use activity base into. To many of its objectives & measures
Add direction to improve efforts by trying responsibility to the firm's strategy 3- Being defined by four essential elements (strategic base responsibility acct)
a- Assigning responsibility
Performance measures must be integrated& mutually consistent
b- Establishing performance measures
Selected measures are balance & linked to strategy
Customer profitability 1- Log measures lead measures
Hours of employees training- Outcome measures results past effort
- Performance driver
Market share 2- Objective measures subjective measures
Employee's responsibility- Readily quantified verified
- Less quantifiable or judgmental
3- Financial measure Non-financial (non-monetary)
- Size of unsatisfied customers
- cost unit
4- External measures internal measures
Customer satisfy return on invest-relate to customer& shareholders
Process efficiency & employee satisfaction
- relate to the processes & capabilities that create value
C - Performance measurement & evaluation
> Customer satisfaction, customer retention
-customer learning & growth perspective .That through:
> Revenue growth from new customer to be include
> Employee capabilities
> New product development
-target set that consensus
D - Assigning rewards
- Rewards system must be linked to performance
> Emphasis on base rewards
> Compensation tied to the scorecard measures
To illustrate the previous map I will give these two drawings or two exhibits for that:
Sequence strategy representation:
If training and strategic job converge are improve and if information system capability is improved, then employees will increased the size of suggested improvements. If the size of suggested improvements increased the size implemented will increase. If the size of suggestion implemented increases then the process quality will increase. If the process quality increases and if the percentage of defective components decreases then the number of defective unit will decrease. If the size of defective unit decreases than product quality will increase. If the product quality increases then product image and reputation will improve and then the cost of quality will decrease. If product image and reputation will improve then customer satisfaction will improve. If customer satisfaction improves then the size of new customer will increase. If size of new customer will increase then market share will increase. If market share increases then revenues will increase.If revenues increases and cost of quality are reduced then profitability will increase.
From through all that we can say that one of the popular performance measurement systems, the Balanced Scorecard, integrates measures derived from strategy. While retaining financial measures of past performance, the Balanced Scorecard introduces the drivers of future financial performance. The driver found in the customer, process, and learning and growth perspective are selected from an explicit and rigorous translation of the organization's strategy into tangible objectives and measures. The benefits from the scorecard are realized as the organization integrates its new measurement system into management processes that "Communicate the strategy to employees, align employees' individual objectives and incentives to I' successful strategy implementation, and integrate the strategy with ongoing management processes: planning, budgeting, reporting, and management meetings. A new performance measurement and management system has its greatest impact when the executive team leads these transformational processes. The question here:
How can the balanced scorecards be effectively tracked?
In order to effectively track progress against the objectives stated in the balanced scorecard, a further enhancement to the approach uses a Strategy Articulation Map for each balanced scorecard developed. Introduces the concept of Strategic Themes around the key strategic objectives. These strategic themes correspond to the scorecard perspectives. It is possible to have more than one strategic theme for each perspective. The Vision, Mission and Strategic Themes from the Corporate (or Level 1) Scorecard is then cascaded down to all subsequent scorecard levels.
Key Performance Indicators (KPIs) can be used to measure the achievement of Strategic Objectives. A Strategic Objective may be measured by one or more KPIs. A number of Strategic Objectives may be grouped and measured by one KPI. The key to successful tracking is then to apply the SMART approach to choose appropriate KPIs:
S simple: uncomplicated, meaningful, and unambiguous
M measureable: can be quantified, data is available
A achievable: users have the ability to achieve
R realistic: users have the ability to influence or control
T timely: short-term, monthly or quarterly timeframe
the balanced Scorecard's Cause and Effect (SC&E) Diagram. The SC&E illustrates the linkages between the Strategic Objectives within the Scorecard. A Strategic Objective may be linked to one or more Strategic Objectives.
Effectiveness and efficiency of the Balanced Scorecard: The Impact of Strategy and Causal Links Many of the claimed benefits of the Balanced Scorecard rely on the linkage of its performance measures to strategy and on causal relations among its measures. Using a survey research method, this study examines the extent to which adopters of Balanced Scorecard consider these features and whether they result in more effective performance measurement systems. The factors that influence its effectiveness. There are new insights into:
(1) The extent of adoption of the Balanced Scorecard as a PMS;
(2) The extent of adoption of two of its critical design features, namely strategy link and causal links:
(3) The impact of those design features on the perceived effectiveness of the Balanced Scorecard.
The KEY elements of Balanced Scorecard success:
1: Embedding the Balanced Scorecard in a business-performance management process that begins with business strategy creation starts building strategic alignment from the start.
2: Lack of leadership support can destroy your balanced scorecard initiative so: do not proceed on your balanced scorecard journey without it.
3: Establish your Balanced Scorecard vision early and use it to guide your business performance management road map.
4: Implement the Balanced Scorecard at all levels of the organization to maximize organizational alignment and execution.
5: Be sure to plan and budget for Balanced Scorecard communication activities because experience shows that these activities are critical, they need to happen, and they won't without a solid plan and dedicated funding.
6: Enhance your integrated business performance management system until the Balanced Scorecard changes from just a measurement framework to the framework by which the business operates.
Lastly it is not forgotten in this context mention to Shortcomings of the Balanced Scorecard:
As the Balanced Scorecard is not a multiple stakeholder framework:
Suppliers are excluded: through suppliers may be considered within the Process Perspective, this approach does not give suppliers the visibility they now deserve, especially in new business models characterized by outsourcing of almost all non-core functions and vertical integration.
Regulators are ignored: many non-negotiable standards have to be met, but they do not fit into the Balanced Scorecard's framework.
Community and environmental issues are missing: nowadays environmental issues and local communities are closely linked and companies need to measure and monitor the impact they are having. If they don't, they may find themselves subject to attack by pressure groups who can damage the companies' reputation and ultimately destroy the business.
Competitors are ignored: Besides shareholders and customers, companies need to monitor the business environment to track the competitor activity and technology. Balanced Scorecard is designed to answer the efficiency question, 'Is the chosen strategy being implemented?' but fails to ask the effectiveness question, 'Is the chosen strategy the right strategy for our business?' It does not monitor threats from non-traditional or future competitors.
That is all what i know. And ALLAH knows.
With more to be thankful to the One ALLAH.
Alhmd LLAH the blessing of Islam.
And the biggest gain in the love of ALLAH.
Thank you my teacher.
YOUR BROTHER: Mahfoudh Hussein Hussein Mgammal (matric on:803914)