Balance Scorecard to Evaluate Performance

September 7, 2017 Economics

Balance Scorecard To Evaluate Performance Submitted by saifulhafez on January 6, 2010 •Category: Business and Economics •Words: 2706 | Pages: 11 •Views: 344 •Report this Essay 1. 0 Introduction This assignment will discuss on how balanced scorecard is used to evaluate the performance of a company in particular a business unit. Prior to evaluate the company’s performance, I will first explain the term balanced scorecard and also the rationale of the objectives chosen for each perspective so as to ensure that the assessment of the company’s performance is quantifiable as well as reliable and comparable to other companies in the same industry. . 1 Balanced Scorecard as a Measurement Tool From a general overview, balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government as well as non-profit organization worldwide. Amongst benefits of balanced scorecard is to align business activities to the vision and strategy of the organization, improve internal and external communications and to monitor organization performance.

Balanced scorecard is a broad-based measurement approach which incorporates financial and non-financial measures in an integrated system that links performance measurement and a company’s strategic goal. It is a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics that gives a more ‘balanced’ view of organizational performance. The idea of balanced scorecard was coined in the early 1990’s and originated by Dr. Robert S. Kaplan of Harvard Business School and Dr. David P. Norton.

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They also regard balanced scorecard as a management system that enables organizations to clarify their vision and strategy and translate them into action. 1. 2 Hallmarks of Balanced Scorecard The balanced scorecard evaluates company performance from a series of four perspectives where metrics will be developed, data will be collected and analyzed relative to each of the four perspectives. The four most commonly employed perspectives are as follows :- 1. 2. 1 The Financial Perspective The objective set from this perspective will examine if the company’s implementation and execution of its strategy.

The financial perspective will also represent long term strategic objective and incorporates the tangible outcomes of the strategy in traditional financial terms. Among the common financial measures that are incorporated in the financial perspective are revenue growth, costs, profit margins, cash flow, net operating income etc. 1. 2. 2 The Customer Perspective This perspective evaluates how well the company is performing from the viewpoint of the customers and defines the value proposition that the organization will apply in order to satisfy customers.

The measures selected for this perspective may involve time, quality, performance, service as well as cost. In developing metrics for satisfaction, customers should be analyzed in terms of types of customers and processes involved in providing products and services to the customers. 1. 2. 3 The Internal Process Perspective Also referred as the business process perspective, this perspective evaluates the internal operating processes critical to success. Metrics based on this perspective will allow us to understand how the business is running and whether the products and services conform to customer requirements.

Among the measures that can be employed to assess the internal process perspective are operations management, customer management, innovation and regulatory and social. 1. 2. 4 The Learning and Growth Perspective This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. Metrics can be put into place to guide managers in focusing training funds as learning and growth constitute the essential foundation for success of any knowledge-worker organization. 1. 3 The Implementation of Balanced Scorecard

Implementing Balanced Scorecards typically includes processes where an organization must translate the vision into operational goals and communicating the vision and link it to individual performance. Afterwards, business planning will take place before reaching the stage of feedback and learning, and adjusting the strategy accordingly. Upon identifying the objectives for each perspective, they are linked across perspectives in order to tie performance measurement to company goals. Typically the financial perspective is set first and objectives are set in other perspectives to accomplish financial objectives. . 0 A Balanced Scorecard Model by Air Asia Berhad For the purpose of this assignment, I have chosen Malaysia’s first low cost airline, Air Asia as the model company for me to apply the balanced scorecard model. My general objective of choosing this company is to measure the return on assets where I would like to see whether the investment made by Air Asia Berhad by placing an order of 175 units Airbus A320 to service its routes where at least 50 of these A320 will be operational by 2013. 2. 1 Air Asia Berhad : Company Information Air Asia is the second Malaysian national airline and the first Malaysian low ost airline. In 1996, the company officially commenced operations as a full-service domestic airline with two aircrafts and they were making losses ever since. On 2nd December 2001, the heavily-indebted airline was purchased by former Time Warner executive, Tony Fernandez’s company Tune Air Sdn Bhd for a token sum of RM 1. 00 by acquiring 99. 25% shareholding from DRB-Hicom Berhad. Air Asia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares than its main competitor, Malaysia Airlines.

Before 2001, Air Asia fail to either sufficiently stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche market. After 7 years of operation, Air Asia is currently considered as the leading low cost carriers in Southeast Asia which focuses on providing high frequency services on short-haul, point-to-point domestic and international routes. It is the only regional carrier to operate and have hubs in two domestic markets and have international routes originating from two countries i. e. Malaysia and Thailand.

Air Asia provides a totally different type of service in line with the nation’s aspirations to benefit all citizens and worldwide travelers. Such service takes the form of a no frills, low airfares flight offering 40% – 60% lower than what is currently offered in this part of Asia. Their vision is “Now Everyone Can Fly” and their mission is to provide “Affordable Airfares” without any compromise to Flight Safety Standards. Air Asia is a low-cost airline based in Kuala Lumpur, Malaysia. It operates scheduled domestic and international flights and is Asia’s largest low fare, no frills airline.

Air Asia pioneered low cost traveling in Asia. It is also the first airline in the region to implement fully ticketless travel and unassigned seats. Its main base is the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its affiliate airlines Thai Air Asia and Indonesia Air Asia fly from Suvarnabhumi Airport, Thailand and Soekarno-Hatta International Airport, Indonesia, respectively. Air Asia operates with the world’s lowest unit cost of US$0. 023/average seat kilometer (ASK) and a passenger break-even load factor of 52%.

It has hedged 100% of its fuel requirements for the next three years, achieves an aircraft turnaround time of 25 minutes, has a crew productivity level that is triple that of Malaysia Airlines and achieves an average aircraft utilization rate of 13 hours a day. On 27 March 2006, the Government of Malaysia announced that Air Asia will take over 96 non-trunk routes, in addition to 19 domestic trunk routes. This was part of Malaysia Airlines route rationalization programmed which saw a large number of its domestic sectors being transferred to Air Asia from 1st August 2006.

On 27th December 2006, Air Asia’s CEO Tony Fernandez unveiled a five-year plan to further enhance its presence in Asia. Air Asia operates over 200 flights a day, to over 75 domestic and international routes covering Malaysia, Thailand, Indonesia, Singapore, Brunei, Myanmar, China, Vietnam, Laos, Cambodia, Australia and the Philippines. In 2007, 19 new routes had been introduced over the Air Asia wide network. These include routes from Kuala Lumpur to Gold Coast (via Air Asia X), Vientiane, and Banda Aceh; and the connection of Southern China (Macau and Shenzhen) with different Malaysian hubs and Bangkok.

There will be more new routes in 2008, which will include routes to India and China. 2. 2 Selection of Objectives As stated earlier, the key objective identified is the financial perspective is to increase return on assets i. e. to maximize return on each of the A320 purchase. Therefore, the objectives set in the other three perspectives must be linked to the key objective. With regards to the given objective in the financial perspective, I have decided that the objective to be employed in the customer perspective would be to increase


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