Balanced Scorecard Supports Company Budgeting Process
Balanced Scorecard (BSC), as a tool for communicating, measuring, controlling and implementing strategies, supports a firm’s budgeting process.
BSC produces initiatives, also known as actions, for each performance perspective. These actions require certain resources from the company to make their respective targets a reality. For managers to achieve their strategic targets identified by BSC, they need to understand what resources are available and how much. This is where strategic budgeting comes in. Budgeting supports managers in making informed decisions on whether their budget is aligned with and supports the strategic aims, and whether they need to acquire new resources or change the existing resource configuration. The numbers produced through the budgeting process, on the other hand, have behavioural implications for employees’ motivations.
BSC objectives are often measured by financial ratios. This connection between strategies and accounting is fundamental for firms to control their strategic performance measurably and understand whether they can make their strategy a reality.