Sarah
Managerial Accounting
A balanced score card and an economic value added are both used to measure the performance of your business.You have the decision to choose one of these methods to use within your company.Which one would be the most appropriate?A balanced score card is an extremely good method to consider it follows the 9 methods to success which are, assessment, strategy, objectives, strategy map, performance measures, initiatives, performance analysis, alignment and evaluation.The scorecard is used to help balance performance with your company’s vision and strategy.The largest tool that the score card uses is communication both internally and externally.Instead of disclosing plans it helps give orders for action.You have four viewpoints to consider when building a score card.You need to focus on your customers, your finances, your internal business process, and learning and growth.You then use the data and viewpoints from these perspectives to make a plan of action(Balanced Scorecard Basics, n.d.)
The economic value is a way to measure your economic profit your company has the potential to make.It is mostly commonly used in financial departments.However, you can use it to add value to your company.The economic value added formula is: EBIT (Earnings Before Interest and Taxes) - Interest = Net Income - Cost of Equity Capital = EVA.This method can help you determine which areas you should work on within the financial department.Given the complexity of this method it is advised that you use a specialist if you want to use this method(Economic Value Added (EVA) Basics, n.d.).
Both a balanced score card and EVA is really smart to help you in your business.It can inform you in pretty much every aspect of performance.I feel that it is most important to use a balance score card because this can help your overall productivity.Unless your revenue is an issue and you’re having problems staying afloat I wouldn’t use the EVA since it is recommended to use a specialist.I also believe that having a strong internal system is the key to success even financially.A strong happy business is a rich business.
Sources:
Balanced Scorecard Basics(n.d.) retrieved from:https://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx
Economic Value Added (EVA) Basics(n.d.) retrieved from:http://www.business.com/finance/economic-value-added/