Question

Generally speaking, how does the Auburn creed support use of the balanced scorecard in performance measurement? In other words, why is it important to combine both financial and non-financial measures when evaluating performance? Address the question using appropriate grammar and punctuation and successfully connect Auburn creed tenets to course concepts.

Answer 1

The Balanced Scorecard concept, popularised by Drs Robert Kaplan and David Norton, is a performance management tool that encompasses the financial measures of an organisation and key non-financial measures relating to customers or clients, internal processes, and organisational learning and growth needs. It places these into a concise ‘scorecard’ that can be used to monitor performance.

The Balanced Scorecard process attempts to identify important links between financial performance and the underlying customer, internal processes and organisational metrics. This creates a mechanism for translating the strategic vision into concrete actions necessary to achieve success.

Non-financial performance measures are often used for performance evaluation. They are especially relevant if the available financial performance measures not completely reflect the manager's contribution to the firm's total value. Generally, non-financial measures have no intrinsic value for the director. Rather, they are leading indicators that provide information on future performance not contained in contemporaneous accounting measures.

Then, non-financial performance measures serve as an indicator for the firm's long-term performance and may therefore be included in incentive contracts. we can analyze the incentive weights placed on non-financial performance measures and the firm's short-term financial return. We can determine the consequences of a non-contractable long-term financial return and of private pre-decision information for the incentive weights of non-financial performance measures. We should explore the extent to which the strength of the statistical relation between the non-financial performance and the firm-value, and the limitations of financial data as a measure of total firm performance influence the incentive weights.