You have examined three different methods of evaluating performance. No one method is the best approach to evaluate all investment centers. The problem with residual income, ROI, and EVA lies in their focus on only one perspective of performance---financial aspects in the short-term. The balanced scorecard is a method that include multiple performance dimensions beyond financial performance.


Balanced Scorecard Metrics

The balanced scorecard approach to management includes financial and non-financial measures. It was developed by Kaplan and Norton in 1992. The balanced scorecard complements the financial measures with measures of operations that drive future performance.


The focus of the balanced scorecard is to measure progress toward meeting the strategic goals of a corporation. As a manager, you will likely be evaluated on a broader spectrum than solely financial aspects. A typical balanced scorecard performance system involves four perspectives of performance:


Financial perspective

The financial perspective focuses on select investment center financial measures, primarily directed at how shareholders will perceive the company's performance. Cash flows, ROI, residual income, and EVA are common measures.


Customer perspective

The customer perspective focuses on measures primarily directed at how customers perceive the company. Percentages of sales from specific products, on time delivery, growth in customer markets, customer satisfaction, quality performance for customers, and customer retention rates are common measures.

Internal business process perspective

The internal business process perspective is primarily focused on measures of internal operations. Product yield, new products introduced, number of activities performed in production, process alignment, bottlenecks, and production automation are common measures.


Learning and growth perspective

The learning and growth perspective focuses primarily on innovation, research and development, and how a company is able to improve. Frequency of the development of new products, expertise in product development, employee turnover, employee satisfaction and morale, product life cycle, timing of new products to market compared to competition, and training opportunities for employees and managers are common measures.


Spend some time reading about the balanced scorecard approach to management here:


This page was last edited on Monday January 05, 2015 08:31 AM
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