What is a Balanced Scorecard?

How to Develop your Business Scorecard

What is a Balanced Scorecard?

Balanced scorecard is both a measurement and management tool. It is more than just business reporting tool but it is a system which helps managers see the big picture of their organizations. The main goal of the balanced scorecard is to help managers see beyond financial results and current business performance. Traditional reporting has been typically based on financial statements and financial reports and decision makers used tools and reports such as P&L, Balance Sheet and Cash Flow Statements as the only reports available to them to make the right business decisions.

While the balanced scorecard does not undermine the financial reporting it goes beyond finance and includes non-financial measurements, metrics and KPIs in addition to financial reports and metrics.

Why are non-financial measurements important for your business?

Simply looking at the financial statements is like driving a car and looking in your rear mirror. Traditional financial reporting is all about the past and not necessary about the future of your business. How related is the past financial performance with the future of your business? Non-financial measurements like customer satisfaction, innovation, development, training and learning are used by managers and decision makers as future indicators. Indicators give managers opportunities to predict the future and take action to improve the future of their business.

Is the Balanced Scorecard useful to Small Businesses and Startups?

The Balanced Scorecard is very effective management tool for any business because the benefits of better understanding your business are tremendous. Your Balanced Scorecard doesn’t have to be complex. You can use only the most important few indicators or KPIs that are really relevant to your small business.

What is important is the quality not the quantity of your scorecard. It is important that you focus on metrics and trends that are not only financial but also use non-financial metrics. Simple example of non-financial metrics you should measure on your scorecard is the number of new customers – this will predict the future of your business growth. Without new customers it is hard to achieve successful growth. Another example is sales from new products – this shows how innovative your company is and whether your revenue have a good growth potential.

Balanced Scorecard Perspectives: What should be on your Scorecard?

Generally the Balanced Scorecard is organized around four major categories:

1. Learning & Growth Perspective (organization development, skills, innovation and competencies)

2. Business Process Perspective (quality, productivity and continuous improvement)

3. Customer Perspective (sales and marketing)

4. Financial Perspective (financial goals, objectives and targets)