Many companies use the Balanced Scorecard (BSC) and economic value added (EVA) as a way to measure performance. I will give a summary of both as to whether BSC or EVA is a better way to define a company’s performance.
Organizations need to be able to measure financial and non-financial performance. The balanced scorecard is one way to measure an organization’s past, current, and future goals and objectives and to translate them into specific performance measures that are easily understood (Horngren, Sundem, Stratton, and Burgstahler, Schatzberg, 2008). A balanced scorecard is used to assess performance against the following four objectives:
• Learning and development – It is very important to have skilled employees in the management. We need to determine if our employees are trained and if there are any areas where they need improvement.
• Internal business – Managers must ask themselves if the organization is satisfying both its shareholders and its customers. This management will help you how well running a business.
• Customer Values - It is important that our customers are satisfied. Companies often send out satisfaction”>satisfaction”>customers to determine if customers are happy with their suppliers. In some areas that can be measured, customer-service-tips”>can be stored or at the time of product delivery.
• Financial – It is very important to have computer data for our salary. We need to decide how we make money to make the company profitable (BSC Resources, 2008).
Many Managers choose to use the balanced scorecard because financial measures such as Return on Investment (ROI) are not sufficient to determine how an organization is performing ( Horngren, Sundem, Stratton, and Burgstahler, Schatzberg, 2008).
Economic value added, or “economic profit”, measures the organization’s true profit after all the cost of capital invested is calculated from this number is brought Eva helps managers to improve their decision making about a person, project, department, or company. The formula is EVA = after tax operating income – (after tax cost of invested capital (%) x average invested capital. A positive EVA means that value has been added to the company for the shareholders. A negative EVA means that the company has not contributed to the value of the organization (Harper, 2008). Managers through Eve they can increase:
- increasing sales
- minimum operating expenses
- making the same goods and services using less capital
- invest only in projects that will be profitable
- reducing the cost of capital
Many companies are now using both EVA and BSC. EVA is a good way to determine financial performance and BSC is a good way to determine not only the financial performance of the organization, but also the non-financial organization (Jalbert, Landry, 2003).
Notes:
BSC Resourceshttp://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx
Harper, D. (n.d.). Investopedia [EVA]. Retrieved November 29, 2008, from http://www.investopedia.com/universitatis/EVA/
Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D., Schatzberg, J., Introduction to Accounting Management (14th Edition) Pearson, Prentice Hall, Upper Horse River, NJ.
Jalbert, T., & Landry, S. P. (2003, Spring). What is the best performance in your company? The Fourth Management Account. Retrieved November 20, 2008, from http://findarticles.com/p/articles/mi_m0OOL/is_3_4/ai_105997565/pg_8
