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Challenges In Manufacturing Company, Different Costs

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Questions:

a) Outline the main perspectives of the Balanced Scorecard stating two examples of performance measures for each element?
 
b) Comment on four challenges encountered by managers in using the Balanced Scorecard in a manufacturing organisation?
 
c) Explain briefly the difference between Prevention Cost, Appraisal Cost and Internal Failure Cost giving one example each?
 
 

Answers:

a). There are four perspectives of balanced scorecard. It is very important for the organizations to collect and analyze data pertaining to each metrics. The examples pertaining to each perspective of balanced scorecard are as follows: -

Learning and growth perspective

This perspective states that the management should look for ways by which the knowledge of employees in the organization can be grown. Few of the examples of learning and growth perspective are as follows: -

1. If there is a change in technology then the employees will have to be trained so that they can work as the change that is implemented in the organization.

2. Few of the employees in the organization may have the potential to grow as managers but they may be lacking in leadership skills so the management will have identify and train such employees.

The business process perspective

The business process perspective allows the management to measure the areas wherein they need to improve and also the areas wherein they are already doing well. Few of the examples of this perspective are as follows: -

1. Track the revenue that is generated by the company so that the management can be sure that they are generating profits.

2. The management can set for goal for itself regarding the sales and they can check by the end of the quarter if they have achieved the target that was set.

The customer perspective

This perspective allows the management to ensure if the customers are happy with what the company is offering. Few of the examples of this perspective are as follows: -

1. Customer satisfaction survey to understand the pros and cons of the product.

2. Talking to customers so that the management can understand the areas wherein they can improve.

The financial perspective
 

It is very important for the management to keep a track of the funds that are entering their business and the funds that are moving out. Few of the examples of this perspective are as follows: -

1. Balancesheet to track all the debits and credits in the business.

2. Cash flow statement to track the funds that flow in and out of the business (Kaplan 1996).

b). Manufacturing business will not be able to implement Balanced scorecard because of the various reasons and they are as follows: -

1. Few perspectives which are mentioned in the balanced scorecard is vague. As per the learning and growth perspective, the employees may be forced to undergo training for particular number of hours. This cannot be implemented in manufacturing company as there will be no need for continuous training in manufacturing business.

2. Balanced scorecard doesn’t take risk management or opportunity cost into consideration. It is very important in a manufacturing company as it can create a direct impact on the profits of the company.

3. There is no specific need for balanced scorecard in manufacturing company. If the management decides to implement balanced scorecard then that can be considered as an additional burden rather than that of something that really yields results.

4. The balanced scorecard may be easy to use but it is very difficult to quantify the results. The manufacturing company believes in having results that can put in numbers and hence, balanced scorecard will not be considered to be useful by them (Niven 2008).

c). Prevention cost would mean undertaking various activities so that the organization can safeguard itself from the loss which they may face in the future. For example, maintenance of machinery is undertaken at regular intervals so that the management can avoid excess cost of buying new machineries. Most of the manufacturing companies give training to the suppliers so that additional cost can be avoided.

Appraisal cost means the money that the management is investing in inspecting various things so that they can avoid unwanted cost. For example, inspection is undertaken frequently so that the management can be rest assured that all the processes are in sync with the defined process. Apart from that, when a process is completed, the management will have a separate testing team so that cost is considered as appraisal cost.

In spite of prevention and appraisal, the management will come across few costs which they cannot avoid. For example, over a period of time, some machinery will have to be scrapped. Similarly, there may be some or other rework so these things will lead to extra cost (Olve 1999).   

 

References

Kaplan, R, 1996, The balanced scorecard: translating strategy into action, no. XI

Niven, P, 2008, Balanced scorecard diagnostics: maintaining maximum performance, ISBN 0471681237

Olve, N, 1999, Performance drivers: a practical guide to using the balanced scorecard, ISBN 9780471986232

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