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Understanding The Balanced Scorecard Analysis

Apr 27, 2008
In a nutshell, a balanced scorecard analysis is a numerical representation of what role a small group or activity in a company should be and how it affects its larger scale goals. Simply put, people will be measured and this performance measurement is aligned with the company's targets in terms of service delivery and profitability. This helps managers look into things that seem trivial yet contribute to the company's efficiency and effectiveness or the company's failure to achieve its targets. This type of analysis is not only associated with financial evaluations, but also with the problems occurring within the employees and the structure of the organization. These things are then translated into performance management schemes and action plans aligned with the company's direction of moving towards its goals and mission.

According to statistics, many companies make the mistake of looking at the bigger picture and not giving enough attention to the small things within the organization that have tremendous impact to its existence. Also, many companies do not focus their attention on short term goals that they can expand. Many employers only focus their studies and analysis on financial issues, whether the business is profitable or not. They fail to correct certain processes and procedures that are in fact the underlying root causes of the problems.

The main approach of the balanced scorecard analysis is to make performance objectively measurable and have action plans that will take effect for a long time. The main drive is to be proactive in giving solutions to potential problems instead of being reactive. Being reactive is a natural behavior for many managers in which they provide solutions to problems only when the problems arise. Proactive management focuses on identifying the defects in the organization and provides solutions to these defects in a long term scale. Also, this type of strategy is defined through providing solutions even before the problems occur. This cushions the effect of a potential financial breakdown even if it happens because the people are prepared.

The balanced scorecard involves not only people from top management level but all employees. For bigger organizations, this may seem a gigantic task to undertake. This will involve all departments, such as human resources, payroll, quality, and operations. Each employee will play a role in aligning his tasks and objectives with the company's goals. This approach means that all functions will have something to do with the company's vision of becoming what it needs to be.

All tasks, then, need to be quantified in measurable units. If the service is given real-time, like in fast food chains, a measurable unit for employees is presence or attendance. An employee's absence may be trivial if a company has thousands of employees. But its impact is great since the hours lost for the employee's absence could have been used to produce more goods. Therefore, an employee will be measured by his presence and the weight of this measurement will depend on its impact on the company's productivity. A Balanced scorecard analysis is then needed to be performed to find out if a certain action affects company profitability and goals before it is incorporated as a key performance indicator in the employee's scorecard.
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