Constructing a Finance Scorecard
The balanced scorecard approach aims to provide a holistic management tool for describing and improving organizational performance. This approach uses not only a finance scorecard but also other perspectives.
A finance scorecard could prove to be a valuable tool both in getting a grip on an organization’s current financial condition and in maintaining or improving this condition. Essentially, this refers to the use of selected indicators or metrics in order to describe the financial aspect of an organization’s performance.
The balanced scorecard approach is a fairly established strategic management approach that aims to give managers a more holistic picture of the organization. This is done by focusing on four different aspects of the group: the financial aspect, the customer aspect, the growth and development aspect, and the business processes aspect. Taken as a set, these four will offer different perspectives that would help to round each other out. For many organizations, considering even just these four kinds of metrics would be enough to give a fairly comprehensive description.
The financial aspect would refer to the flow of money into and out of the organization, as well as how it is used and managed. The overall goal would of course be not only to provide funds for the organization’s current activities, but also for future development and growth. This endeavor generally involves balancing risk against possible profitability, all the while also trying to maximize the value of the company’s stock and its overall wealth. Historically, finance professionals have thus been perceived as the keepers and managers of an organization’s most important assets. Even now in the age where these assets are becoming increasingly intangible and many financial processes become digitized and automated, finance, while changed, is still as important as ever.
Building the finance portion of the balanced scorecard may seem daunting, but in fact, it follows quite naturally from the larger goals and objectives of a company. Planning and designing a balanced scorecard cannot be done without closely examining everything about the company, which includes its reason for existence. Typically, this is framed as a mission or a statement of what the company as an entity should strive to do in order to attain its so-called vision or ideal condition.
Now, following the structure of the company, this mission would then have to be cascaded down as a series of smaller and more specific goals. This will form a framework on which to base the components of the balanced scorecard to be constructed. These goals will, in most cases, lend themselves to being identified with a particular set of metrics that will indicate progress towards their achievement. So, these metrics could then be classified into the four aspects that would make up the balanced scorecard, which would include the various financial metrics.
In this way, the finance scorecard, along with those for the customer, growth & development, and business process perspectives, may be built up. Of course, though, even the best plan would be worthless without the proper implementation. A solid, well thought out system along with consistent maintenance and measurement is necessary for the balanced scorecard approach to yield maximum results. Improving the performance of an organization not only financially but as a whole will become much easier.
