Activity-Based Costing
Essay title: Activity-Based Costing
One tool that can aid a company in measuring success is the balanced scorecard. In 1992, this concept was created by Dr. Robert S. Kaplan and Dr. David P. Norton. By integrating a measurement with management an organization can effectively and quickly implement strategic decisions. Major government departments such as the American Cancer Society, Blue Cross Blue Shield, Department of Commerce, and U.S. Army and thousands others use the balanced scoreboard. It is also used by institutions such as the Department of Energy. This concept uses the organization’s vision and measures it against four performance indicators (1) financial (2) customer (3) internal business processes and (4) learning and growth (Universus Networks, 2006). These indicators are used to measure success progress and long term drivers of success
Customer metrics was introduced by the balanced scorecard into the performance management systems. Such metrics used are market shares, account shares, acquisitions, satisfaction, and retention which summarize customer profitability. At the customer level the percentage of unprofitable customers can be measured by profitably metrics. These profitability measures can provide signals such as satisfaction, retention, and growth in customer relationships that are valued when these relationships contribute to higher profits (Kaplan, 2005, August 8). Customer profitability metrics are very effective too. What if you have an important customer that is unprofitable? One thing that can be done is by first looking internally which would help in improving internal processes at a lower-cost-to-serve.
We have talked about a balanced scorecard measuring success and customer profitability. The balanced scorecard can also aid in measuring performance. Focusing on internal and process performance and even the size of the budget for the fiscal year, many Federal agencies have measured their organizational performance using the balanced scorecard (U.S. Office