UST - ALFREDO M.

VELAYO COLLEGE OF ACCOUNTANCY

Management Services
Balanced Scorecard

Managers do not rely on either financial or nonfinancial performance measures alone. They
recognize that financial performance measures summarize the results of past actions. Financial
performance measures are important to a firm’s owners, creditors, employees and so forth. Thus, they
must be watched carefully by management. Nonfinancial performance measures concentrate on
current activities, which will be the drivers of future financial performance. Thus, effective
management requires a balanced perspective on performance measurement.

The balanced scorecard is an approach to performance measurement that combines traditional

financial measures with non-financial measures.

The process usually starts with the determination of the firm’s long-term goals. These long-term goals
are usually financial in nature, such as financial growth that can be expressed in profit growth
percentage, revenue growth percentage and return on sales. The balanced scorecard comes into
play when we determine what the firm should be doing right now to ensure that its long-term
financial goals will be met.

Four Perspectives of the Balances Scorecard

• Financial Perspective – measures reflecting financial performance. Answers the question:
“How do we look to the firm’s owners?”
o E.g. profit, return on investment, cash flow, revenue growth, economic value-added

Theme Sample Objectives Sample Measures

Revenue growth Penetrate new markets Percent of revenues from new markets
Growth of revenues from new markets
Cost reduction Reduce unit product costs Unit product costs
Asset utilization Improve asset utilization Return on Investment
Residual Income

• Customer Perspective – measures having a direct impact on customers. Answers the question:
“How do the customers see us?”
o E.g. customer satisfaction, customer retention, market share, customer complaints

Core Objectives Sample Measures

Increase market shares
Increase customer retention
Increase customer acquisition
Increase customer satisfaction
Increase customer profitability
Market share
Percentage of repeat sales
Percentage of new sales
Survey metrics
Contribution margin per customer

• Internal Business Process Perspective – measures showing key business processes

performance. Answers the question: “In what business process must the firm excel in order to
achieve its long-term financial goals?”
o E.g. manufacturing cycle efficiency, productivity measures.
Process Sample Objectives Sample Measures
Innovation Decrease product Time to introduce new product to
development time the market
Operations Increase process efficiency Manufacturing cycle efficiency
Post sales Decrease service time Percentage of sales returned

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 • Learning and Growth Perspective – measures describing the company employee’s learning
curve. Answers the question: “How can we continually improve and create value?”
o E.g. employee satisfaction, employee turnover, training and recreation

Objective Group Sample Objectives Sample Measures

Employee capabilities Increase employee capabilities Training hours
Employee motivation Motivate employees Suggestions per employee
Information system Enhance information system Percentage of processes
capabilities capabilities with real time feedback

Within each perspective, a small number of strategic objectives are identified. The company sets
targets for each objective and measures against the targets on a regular basis to determine success
or failure. Measurement is undertaken through performance measures (should be small in number,
easily understood and can acted upon quickly). Performance measures must contain leading and
trailing measures.

• Strategic objectives – a statement of what the strategy must achieve and what is critical to its
success
• Strategic initiatives – key action programs required to achieve strategic objectives
• Performance measures - describe how success in achieving the strategy will be measured
• Baseline performance – the current level of performance for the performance measure
• Targets – the level of performance or rate of improvement needed in the performance
measure

Lead indicators vs. Lag indicators

Lead indicators of performance are measures of nonfinancial and financial outcomes that guide
management in making current decisions that will result in desirable results in the future. They guide
management to take actions now that will have positive effects on the firm’s performance later.

Lag indicators are measures of the financial outcomes of earlier management decisions such as
profit and cash flow. These key financial measures only change well after management has already
made the important decisions that affect key operational results. They are less useful for performance
management and control.

QUIZZER:
Balanced Scorecard; Concepts
1. What is the most important purpose of a balanced scorecard?
A. To develop strategies
B. To set prices for products
C. To begin the budgeting process
D. To properly measure performances

2. Which of the following statements is true? The balanced scorecard

A. helps management focus only on financial performance measures
B. helps management focus only on non-financial measures of performance
C. focus on critical success factors which may be financial and non-financial in nature
D. helps management ignore short-term operating performance in favour of long-term
operating performance

3. Performance measures should be

A. Numerous
B. Known by top management only
C. Can be acted upon quickly
D. All of the choices

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4. Which one of the following statements about a balanced scorecard is incorrect?
A. It is directly derived from the scientific management theories. *practical in nature;
based on operations
B. It relies on the perception of the users with regard to service provided.
C. The notion of value chain analysis plays a major role in the drawing up of a balanced
scorecard.
D. It seeks to address the problems associated with traditional financial measures used to
assess performance.

5. Using the balanced scorecard approach, an organization evaluates managerial performance

based on
A. Multiple financial measures only
B. Multiple financial and non-financial measures
C. Multiple non-financial measures only
D. A single ultimate measure of operating results, such as residual income

Four Perspectives of the Balanced Scorecard

6. The customer perspective of the balanced scorecard attempts to answer the question
A. How do the customers see us?
B. How do we look to the firm’s owners?
C. How can we continually improve and create value?
D. In what business process must we excel in order to achieve our long-term financial
goals?

7. Which of the following is not one of the perspectives of a balanced scorecard?

A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Investment opportunities perspective

8. Which of the following is least likely to be a critical success factor within the financial
perspective of the balanced scorecard?
A. Increasing market share *customer perspective
B. Decreasing operating costs
C. Increasing residual income
D. Increasing return on investment

9. Which of the following is a performance measure for the financial perspective of a balanced
scorecard?
A. Quality costs *IBP perspective
B. Revenue growth
C. Employee turnover *Learning & Growth perspective
D. Productivity measures *IBP perspective

10. Economic value-added is a performance measure under which perspective of the balanced
scorecard?
A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Internal business process perspective

11. Which of the following would be the most appropriate measure for financial performance?
A. Return on investment
B. Number of new customers *Customer perspective
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 C. Number of old customers *Customer perspective
D. Manufacturing cycle efficiency *IBP perspective

12. Market share is a performance measure under which perspective of the balanced scorecard?
A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Internal business process perspective

13. Number of customer complaints would be a performance measure for which perspective?
A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Internal business process perspective

14. On a balanced scorecard, which of the following would not be an example of a customer
satisfaction measure?
A. Market share
B. Response time
C. Customer relation
D. Economic value added

15. Which of the following would be the most appropriate measure of customer service?
A. On-time delivery
B. On-time production *IBP perspective
C. Return on investment *Financial perspective
D. Reduction of re-work costs of defective units *IBP perspective

16. Which of the following is a performance measure for the customer perspective of a balanced
scorecard?
A. Profit *Financial perspective
B. Customer complaints
C. Employee satisfaction *Learning & Growth perspective
D. Manufacturing cycle efficiency *IBP perspective

17. Operational productivity measures are performance measures under which perspective of the
balanced scorecard?
A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Internal business process perspective

18. The balanced scorecard internal operations perspective includes

A. Market share *Customer perspective
B. Inventory turnover *Financial perspective
C. Customer complaints *Customer perspective
D. Number of engineering changes

19. Which of the following is a performance measure of the internal business process perspective
of a balanced scorecard?
A. Training and recreation *Learning & Growth perspective
B. Return on investments *Financial perspective
C. Economic value added *Financial perspective
D. Reducing non-value added activities
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20. Which is more of an internal process measure than an external-based measure?
A. Cycle time
B. Profitability
C. Market share
D. Customer satisfaction

21. Employee satisfaction is a performance measure under which perspective of the balanced
scorecard?
A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Internal business process perspective

22. Increase number of patents would be a strategic objective in which perspective?

A. Financial perspective
B. Customer perspective
C. Learning and growth perspective
D. Internal business process perspective

Operational Performance Measures

Items 23 to 27 are based on the following information:

YELLOW Company is evaluating performance using delivery performance measures. The

production manager provided the following data which is the usual time involved to
complete orders:

Waiting time from orders being placed to start of production 2 days

Waiting time from start of production to completion 1 day
Process time 4 days
Move time 2 days
Inspection time 1 day

The company operates seven days a week.

23. The value-added production time is

A. 4 days
B. 7 days
C. 8 days
D. 10 days

24. What is the delivery cycle time?

A. 4 days
B. 7 days
C. 8 days
D. 10 days

25. What is the delivery cycle efficiency?

A. 5.00%
B. 12.50%
C. 40.00%
D. 50.00%

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26. The total manufacturing cycle (or throughput) time is
A. 4 days
B. 7 days
C. 8 days
D. 10 days

27. What is the manufacturing cycle efficiency?

A. 5.00%
B. 12.50%
C. 40.00%
D. 50.00%

Items 28 to 30 are based on the following information:

The accountants of ABC Company gathered data to assist in the examination of non-financial
results of operations. The following information relates to the manufacture of its main product:
2022 2023
Units produced and sold 6,000 units 4,680 units
Direct labor hours 5,000 hours 4,800 hours
Direct materials used 12,000 yards 10,400 yards
Cost per direct labor hour Php24 Php26
Cost per yard of direct material Php10 Php12

28. What is the partial product for direct materials for 2023?
A. 0.50 units per yard
B. 0.45 units per yard
C. 0.975 units per yard
D. 1.20 units per yard

29. What is the partial productivity for direct manufacturing for labor for 2022?
A. 0.50 units per hour
B. 0.45 units per hour
C. 0.975 per hour
D. 1.20 units per hour

30. What is the total factor productivity in 2022?

A. 0.025 units per peso
B. 0.01875 units per peso
C. 0.45 units per peso
D. 0.50 units per peso

Items 31 and 32 are based on the following information:

At the beginning of 2023, ABC Company installed a just-in-time (JIT) purchasing and
manufacturing system. The following information has been gathered about one of the
company’s products:
Theoretical annual capacity 22,960 units
Actual production 20,090 units
Production hours available 8,200 hours
On time deliveries 9,270 deliveries
Total deliveries 9,785 deliveries

31. The theoretical velocity is 32. The actual velocity is

A. 2.45 units per hour A. 2.45 units per hour
B. 2.75 units per hour B. 2.75 units per hour
C. 2.80 units per hour C. 2.80 units per hour
D. 3.00 units per hour D. 3.00 units per hour
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