BALANCED SCORECARD & ECONOMIC VALUE ADDED

BALANCED SCORECARD & ECONOMIC VALUE ADDED

[Author Name(s), First M. Last, Omit Titles and Degrees]

[Institutional Affiliation(s)]
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BALANCED SCORECARD & ECONOMIC VALUE ADDED

A balanced scorecard (BSC) is a performance management tool that is used to aid the

managers in the implementation and the management of strategy in an organization. Introduced

by Kaplan and Nortan [CITATION Rob92 \n \t \l 1033 ] this framework is being used widely

around the globe. This was introduced to ‘balance’ all parts of the organization, not just the

financial side. It acts as a link between the vision and the objectives. The four main perspectives

of this framework are: financial, customer, internal processes, and organizational capacity. This

methodology has been used widely around the globe, the main benefit behind it is that it

improves organizational communication. Moreover, it aligns all vision, mission, and aim with

the strategies which subsequently aids in strategic planning. It keeps the focus on the strategy

rather than letting it deviate [ CITATION BSI21 \l 1033 ]. Finally, it aids in the generation of

reports.

Economic value added (EVA) is used to measure the financial performance of a company

by deducting the cost of capital from its operating profit. This profit is also known as the

economic profit as it shows the residual wealth of the organization. Introduced by Stern Stewart

& Co. [CITATION Ste \n \t \l 1033 ] this method is used to calculate the funds a company

generates after investing in it [ CITATION CFI21 \l 1033 ]. It is used widely as a performance

indicator and aids organizations in knowing where they stand. It shows how the wealth was

created and by what means. This makes sure that the managers are aware of the situation and

make informed decisions accordingly.

Both these systems need to be integrated and used; only then would it effectively create

value for the organization. But the main difference is that the EVA uses the mission of the

company to create value whereas, BSC uses the managerial concerns to create value.
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References

BSI. (2021, February 12). Balanced Scorecard Solutions. Retrieved from Balanced Scorecard

Institute: https://balancedscorecard.org/solutions/bscsolution/

CFI. (2021, February 12). EVA – Economic Value Added: Returns generated above investors'

required rate. Retrieved from Corporate Finance Institute:

https://corporatefinanceinstitute.com/resources/knowledge/valuation/eva-economic-

value-added/

Kaplan, R. S., & Norton, D. P. (1992, January). The Balanced Scorecard—Measures that Drive

Performance. Retrieved from Harvard Business Review: https://hbr.org/1992/01/the-

balanced-scorecard-measures-that-drive-performance-2

Stern Stewart & Co. (1983). Our History. Retrieved from Stern Value Management:

https://sternvaluemanagement.com/about-us/our-history