Question

IN DETAIL

Explain three approaches that can be used in order to improve ROI.

The balanced scorecard contains four dimensions. Please explain each dimension and how they link to one another.

Answer 1

Return on investment, or ROI, is the most common profitability ratio. There are many ways to determine ROI, but the most commonly used method is to divide net profit by total assets. ROI is a common financial metric for evaluating the financial effects of individual investments and actions. Many different metrics are called by that name, but the best known is the simple ROI.

As a cash flow metric, ROI compares the magnitude and timing of investment gains directly with the magnitude and timing of the costs. A high ROI implies that gains compare favorably to costs.

ROI is used as a general purpose metric for evaluation of capital acquisitions, projects, programs, initiatives, and traditional financial investments in stock shares or the utilization of venture capital. Few other ways to utilize ROI within your company are by:

• Dividing the net income, interest, and taxes by the total liabilities to measure rate of earnings of total capital employed.
• Dividing the net income and income taxes by proprietary equity and fixed liabilities to give a rate of earnings on invested capital.
• Dividing the net income by total capital plus reserves to measure the rate of earnings on proprietary equity and stock equity.

The Balanced Scorecard with four dimentions

• 

The balanced scorecard is divided into four main areas and a successful organization is one that finds the right balance between these areas.

Each area (perspective) represents a different aspect of the business organization in order to operate at optimal capacity.

Financial Perspective - This consists of costs or measurement involved, in terms of rate of return on capital (ROI) employed and operating income of the organization.

Customer Perspective - Measures the level of customer satisfaction, customer retention and market share held by the organization.

Business Process Perspective - This consists of measures such as cost and quality related to the business processes.

Learning and Growth Perspective - Consists of measures such as employee satisfaction, employee retention and knowledge management.

One of the best tools a manager has is a balanced scorecard. Remember, our bowling alley manager from week 6!

Address how the scorecard approach fits in to the control function of management.

Create a balanced scorecard and explain how the use of a balanced scorecard could help to measure and possibly improve the turnover of employees. The scorecard will include objectives, measures, and targets.

Just so you do not have to go back to week Six, here is the case scenario:

You are the manager of the northern branch of the Laurel City Bowling Alleys. The owner, Jill Espy, has 4 other bowling alleys around town. The average employee assigned to the concession stand of all the Laurel City Bowling Alleys lasts approximately 3 years. However, in your branch, the average employee lasts only 8 months. Jill is concerned about the lack of retention of concession employees especially since training new employees is costly to the company and this high turnover is costing her money that could be better spent elsewhere.

You have talked with your current concession staff and have learned that pay and scheduling may have some effect on the turnover rate. Employees feel that the pay is low and the scheduling is erratic making it difficult to make plans outside of work. You know that employees do not benefit from pay raises because they tend to leave before being at the alleys for a year.

One worker indicated that many of the workers do not know how to handle difficult customers. It makes them not want to come to work. At the time, the focus seems to be on getting the job done rather on customer service.