Log in / Register
Home arrow Accounting arrow Managerial and Cost Accounting
< Prev   CONTENTS   Next >

2.7.2. Scorecard

The traditional approach to monitoring organizational performance has focused on financial measures and outcomes. Increasingly, companies are realizing that such measures alone are not sufficient. For one thing, such measures report on what has occurred and may not provide timely data to respond aggressively to changing conditions. In addition, lower-level personnel may be too far removed from an organization's financial outcomes to care. As a result, many companies have developed more involved scoring systems. These scorecards are custom tailored to each position, and draw focus on evaluating elements that are important to the organization and under the control of an employee holding that position. For instance, a fast food restaurant would want to evaluate response time, cleanliness, waste, and similar elements for the front-line employees. These are the elements for which the employee would be responsible; presumably, success on these points translates to eventual profitability.

Balance - When controlling via a scorecard approach, the process must be carefully balanced. The goal is to identify and focus on components of performance that can be measured and improved. In addition to financial outcomes, these components can be categorized as relating to business processes, customer development, and organizational betterment. Processes relate to items like delivery time, machinery utilization rates, percent of defect free products, and so forth. Customer issues include frequency of repeat customers, results of customer satisfaction surveys, customer referrals, and the like. Betterment pertains to items like employee turnover, hours of advanced training, mentoring, and other similar items. If these balanced scorecards are carefully developed and implemented, they can be useful in furthering the goals of an organization. Conversely, if the elements being evaluated do not lead to enhanced performance, employees will spend time and energy pursuing tasks that have no linkage to creating value for the business.

Improvement - TQM is the acronym for total quality management. The goal of TQM is continuous improvement by focusing on customer service and systematic problem solving via teams made up of front-line employees. These teams will benchmark against successful competitors and other businesses. Scientific methodology is used to study what works and does not work, and the best practices are implemented within the organization. Normally, TQM-based improvements represent incremental steps in shaping organizational improvement. More sweeping change can be implemented by a complete process reengineering. Under this approach, an entire process is mapped and studied with the goal of identifying any steps that are unnecessary or that do not add value. In addition, such comprehensive reevaluations will, oftentimes, identify bottlenecks that constrain the whole organization. Under the theory of constraints (TOC), efficiency is improved by seeking out and eliminating constraints within the organization. For example, an airport might find that it has adequate runways, security processing, luggage handling, etc., but it may not have enough gates. The entire airport could function more effectively with the addition of a few more gates. Likewise, most businesses will have one or more activities that can cause a slow down in the entire operation. TOC's goal is to find and eliminate the specific barriers.

So far, this chapter has provided snippets of how managerial accounting supports organizational planning, directing, and controlling. As you can tell, managerial accounting is surprisingly broad in its scope of involvement. Before looking at these topics in more detail in subsequent chapters, become familiar with some key managerial accounting jargon and concepts. The remainder of this chapter is devoted to that task.

Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
Business & Finance
Computer Science
Language & Literature
Political science