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The Importance Of A Balanced Scorecard Financial Analysis

Apr 28, 2008
With the help of a balanced scorecard financial analysis on any business, the company is guided through four perspectives: financial sustainability, customer satisfaction, business processes streamlining, and learning and growth. These four are linked to each other in a way that the success of one perspective leads to the success of the other. It is important for any to see where it is going and if the company's performance is still in line with its vision.

The balanced scorecard financial analysis is a method developed by Robert Kaplan and David Norton in 1992. It is basically an assessment that will help a company or organization (whether profit or non-profit) improve and develop its strategies in the four perspectives mentioned earlier. The scorecard is composed of four categories that will concretize the steps in doing so. It narrows down what should be done in order to achieve a certain goal. Through determining the objectives, measures, targets, and initiatives, the scorecard serves as a form of communication of to all members of the company--from the manager to the employees. This means that each person in the company is given the chance to perform his task that will contribute to the success of the company. It makes everyone aware of his role and motivates him to perform his duties and responsibilities.

Money is important in any business endeavor and every person engaged in business knows that money is the lifeline of a business. On the financial perspective, the balanced scorecard makes the company conscious of their financial status. The scorecard, again through the four categories, will measure the financial capabilities of the company. Their capabilities to spend, to gain money, and to sustain their business with their existing funds make this perspective important. It is very important for a company to keep track of their financial data, and at the same time, create new ways to earn profit. Since the balanced scorecard concerns strategy, the financial perspective lets the company see if the budget they have at hand will allow them to execute a certain strategy.

Applying the Balanced Scorecard management strategy is essential to a company. Why? Because it makes it more professional to look for marketing and business strategies in a holistic manner, meaning the four perspectives represent the elements that makes a business survive. The balance of money, people, open communication, and proper business tactics are what the scorecard aims to develop. It makes managing less stressful; and for the employees, it makes them feel more involved in the company they work for. To use this, however, one should remember that it is important to stick to this method. The longer a company uses this, the better results it would get--from profit-making to better customer service and employee relations. Being organized and knowing what to prioritize are the keys that make a business succeed, no matter how big or small it is. The four perspectives only represent what makes the business a business. However, it is still up to those who manage it how to keep it going. Businesses that adapt and execute the balanced scorecard financial analysis have the assurance of a smooth operation, good relations, and better business.
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