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The Balanced Scorecard (BSC), developed 1992 by Kaplan and Norton, is a concept which measures a company’s performance on the basis of traditional financial figures as well as non-financial measures. Therewith it provides managers with more relevant information than just with data about actions and decision of the past. (2gc ltd., 2003; Joyce&Woods 2001, Wheelen&Hunger 2002)
It is built on four essential pillars – finance, learning&growth, customers and internal business processes – which all must be linked with the corporate vision and strategy to fathom the performance from different perspectives.
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Table of Contents
Part A
1. Preface
2. Closure in January
3. Closure in June
4. Conclusion
Part B
1. The Balanced Scorecard
Objectives and Topics
This assignment provides a comprehensive management accounting analysis for Farmlea Ltd. The primary research goal is to determine the most cost-effective timeframe for closing the printing and distribution departments by comparing two specific scenarios: a closure in January versus a closure in June. Furthermore, the paper evaluates the theoretical and practical application of the Balanced Scorecard as a performance measurement system.
- Cost-benefit analysis of departmental closure timings
- Calculation of relevant cash flows and redundancy impacts
- Evaluation of traditional financial ratios versus holistic performance metrics
- Theoretical pillars of the Balanced Scorecard (Finance, Customers, Internal Processes, Learning & Growth)
- Strategic benefits and implementation challenges of the Balanced Scorecard
Excerpt from the Book
1. The Balanced Scorecard
In the second part of this assignment I want to highlight the changes that take place if Farmlea Ltd. adopts the Balance Scorecard in comparison to its current measurement system. Later on I will discuss the benefits and drawbacks of this concept.
At present Farmlea Ltd. relies on a set of financial ratios as measurement of performance. This is common practice in many companies and reflects the general urge for objective key performance measurements that are easy to implement, understand and to compare. However, as Haberberg&Rieple (2001) say, although they are necessary, a sole use leads to agency problems because managers find ways to manipulate these figures in their favour without working too hard for the company’s aims.
Furthermore a company whose performance is only measured by financial figures runs risk of focussing too much on short term profits instead of long term performance. All employees are geared to fulfil the financial results as good as possible, but they have little or no possibility to understand other strategic objectives or the long-term goal. (Andreasson&Svartling, 1999)
Summary of Chapters
1. Preface: Outlines the scope of the assignment, focusing on the decision-making process for the closure of printing and distribution departments at Farmlea Ltd.
2. Closure in January: Presents a detailed breakdown of costs, including salaries, materials, and depreciation, to assess the financial impact of a January shutdown.
3. Closure in June: Analyzes the cost structure if the departments remain operational until June, accounting for different salary and material costs compared to the January scenario.
4. Conclusion: Summarizes the financial calculations and provides a final recommendation for the closure date based on the lowest cost impact.
1. The Balanced Scorecard: Discusses the transition from purely financial metrics to a multidimensional performance measurement system, highlighting its strategic pillars and limitations.
Keywords
Management Accounting, Decision Making, Farmlea Ltd, Closure Costs, Redundancy, Cash Flow, Balanced Scorecard, Financial Ratios, Strategic Management, Performance Measurement, Operational Control, Intangible Assets, Cause-Effect-Chain, Long-term Planning, Corporate Strategy
Frequently Asked Questions
What is the primary focus of this assignment?
The assignment focuses on two areas: a practical management accounting case study regarding the optimal timing for shutting down specific departments at Farmlea Ltd., and a theoretical discussion on the Balanced Scorecard.
What are the central themes discussed?
The central themes include cost-benefit analysis for business restructuring and the limitations of traditional financial performance measurement systems.
What is the main objective of the case study?
The main objective is to determine whether Farmlea Ltd. should close its printing and distribution departments in January or June to achieve the most favorable financial outcome.
What scientific methods were employed?
The study uses quantitative cost calculation and comparative analysis to evaluate different closure scenarios, complemented by a literature-based conceptual review of the Balanced Scorecard.
What is covered in the main body of the text?
The main body covers detailed cost charts for staff, materials, occupancy, and depreciation for both closure scenarios, followed by an analysis of the Balanced Scorecard framework.
Which keywords define this work?
Key terms include Management Accounting, Balanced Scorecard, Financial Ratios, Strategic Management, and Cash Flow Analysis.
Why are sunk costs excluded from the final decision process?
The author argues that sunk costs, such as past purchases of equipment or materials, do not change based on the timing of the closure and therefore do not impact the decision between the two dates.
How does the author view the 'tyranny of the BSC'?
The author acknowledges that the implementation of the Balanced Scorecard can be extremely time-consuming and risks losing clarity if too many measures are included, identifying these as significant practical challenges.
- Quote paper
- Matthias Kammerer (Author), 2006, The Balanced Scorecard - advantages and disadvantages, Munich, GRIN Verlag, https://www.grin.com/document/83237
