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In: Accounting

Question 1 [Balance Scorecard] A). The board of directors of ClariMak, a manufacturing enterprise has tasked...

Question 1 [Balance Scorecard]

A). The board of directors of ClariMak, a manufacturing enterprise has tasked its management to develop a new mission statement that details the enterprise’s line of business, market size and niche. The new mission statement reads: “We want to continually grow through our commitment to quality and delivering quality products to our customers”. In addition, the management of ClariMak developed the following set of vision statements to complement the mission statement:

• Provide superior returns to our shareholders
• Continually improve our business processes
• Delight our customers
• Learn from our mistakes and work smarter in the future

Required:
i) Explain how the Balanced Scorecard can assist ClariMak Ltd to deliver on its new mission

statement [16 marks]

B) Ashesi University is Ghana’s number one university in the 2020 Times Higher Education Impact Ranking. The university presently measures its performance by comparing its actual costs against its budgeted costs for the year. Given the university’s international status, it is currently facing stiff competition from both public and privately-owned universities in Ghana. At one of its executive meetings, a member in the finance department has suggested that Ashesi needs to consider additional performance measures such as those indicated by the Balanced Scorecard.

Required:

  1. Briefly elaborate on your understanding of the Balanced Scorecard and how the management of Ashesi university can utilize this approach to performance measurement [10 marks]

  2. Discuss two (2) non-financial indicators (from different perspectives of the balanced scorecard) that Ashesi University could use for its performance evaluation. [4 marks]

    [Question 1 = 30 marks]

Solutions

Expert Solution

The balanced scorecard (BSC) is a strategic planning and management system that organizations use to: Communicate what they are trying to accomplish. Align the day-to-day work that everyone is doing with strategy. Prioritize projects, products, and services. Measure and monitor progress towards strategic targets.

The four perspectives of a traditional balanced scorecard are Financial, Customer, Internal Process, and Learning and Growth

The Balanced Scorecard is a management system. It's a way of looking at your organization that focuses on your big-picture strategic goals. The name “balanced scorecard” comes from the idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance.

in this case company has to work based on balance scorecard prospective .

Balanced Scorecard is a performance management framework used by strategic decision makers to make the right decisions about their business. Balanced scorecard not only a set of strategic goals; it is also a method for monitoring progress toward organization's strategic goals.

Typical non-financial KPIs include measures that relate to customer relationships, employees, operations, quality, cycle-time, and the organisation's supply chain or its pipeline. The critical element in developing KPIs is determining what is important or 'key' to the organisation.

Common financial metrics include earnings, profit margin, average order value, and return on assets. Measures such as customer satisfaction, market share, category ownership, and new product adoption rate fall into the non-financial metrics

The balanced scorecard is a balanced set of measures that organizations use to motivate employees and evaluate performance. These measures are typically separated into four perspectives outlined in the following. (Dr. Robert S. Kaplan and Dr. David P. Norton created the balanced scorecard, and it is actively promoted through their company, Balanced Scorecard Collaborative.

  1. Financial. Measures that shareholders, creditors, and other stakeholders use to evaluate financial performance.
  2. Internal business process. Measures that management uses to evaluate efficiency of existing business processes.
  3. Learning and growth. Measures that management uses to evaluate effectiveness of employee training.
  4. Customer. Measures that management uses to evaluate whether the organization is meeting customer expectations.

The goal is to link these four perspectives to the company’s strategies and goals. For example, a high percentage of on-time arrivals is likely an important goal from the perspective of the customer of an airline. A high percentage of defect-free computer chips is likely an important goal from the internal business process perspective of a computer chip maker. A high number of continuing education hours is likely an important goal from the learning and growth perspective for tax personnel at an accounting firm. Measures from a financial perspective were covered earlier in this chapter.

Companies that use the balanced scorecard typically establish several measures for each perspective. Table 13.4 "Balanced Scorecard Measures" lists several examples of these measures.

Table 13.4 Balanced Scorecard Measures

Financial Internal Business Process Learning and Growth Customer
Gross margin ratio Defect-free rate Hours of employee training Customer satisfaction (survey)
Return on assets Customer response time Employee satisfaction (survey) Number of customer complaints
Receivables turnover Capacity utilization Employee turnover Market share
Inventory turnover New product development time Number of employee accidents Number of returned products

Measures established across the four perspectives of the balanced scorecard are linked in a way that motivates employees to achieve company goals. For example, if the company wants to increase the defect-free rate and reduce product returns, effective employee training and low employee turnover will help in achieving this goal. The idea is to establish company goals first, then create measures that motivate employees to reach company goals.


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