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Use of Lag and Lead Indicators for Balance Score Card

Assignment Topic: 

The Balanced Scorecard (BSC) is a useful management accounting instrument to guide organisations in enhancing organisational performance and in the management of employee performance. Discuss the above statement in relation to how the use of a balanced scorecard may assist a not-for-profit organisation (NFP) in performance management and in the efficient running of the organisation. Some guidelines to address the assignment topic: 

i. Select a not-for-profit organisation for your discussion. For example, an organisation from the health industry; higher education sector; or any other NFP industry. 

ii. Explain the concepts of the balanced scorecard and performance management in relation to the chosen not-for-profit organisation. In your opinion, are one or more of the perspectives of the BSC, developed by Kaplan and Norton, more important for the NFP organisation. 

iii. You are recommended to use the concepts of lag and lead indicators in the examples that you develop for each of the perspectives. 

iv. Discuss how employee performance can be managed within such an organisation (or industry). Are there specific performance measures that you would recommend in line with the BSC perspectives?

 v. To enhance the quality of your discussion, it is expected that you will discuss relevant issues from at least 3 journal articles and source information from various sites.

Answer

MANAGEMENT ACCOUNTING: ISSUES AND PERSPECTIVES

3. Use of lag and lead indicators for each of the perspective of BSC

Among the four perspectives of BSC (Balanced Scorecard) formulated by Kaplan and Norton, financial perspective or rather finance has always been crucial for most of the companies to measure as well as to monitor. According to Hopper and Bui (2016), finance can be considered as the most important part in a non-profit organization. The financial perspective is considered to be at the top of the Balanced Scorecard strategy map that is acceptable by most of the for-profit organizations. The Balanced Scorecard financial perspective can be primarily made up of lagging indicators; especially these indicators cannot predict the future of happening but can produce the outcome of the input given at a certain point. Moreover, it can include few leading indicators. In addition to this, the most relevant lagging indicator for the overall business module will be the revenue. In monitoring the financial perspective it would include the classic Key performance Indicators (KPIs) such as Net revenue, ARR (Accounting Rate of Return) and EBITDA (Earnings before Interest, Tax, Depreciation and Amortization). In regard to wildlife and environmental conservative organisation, to ensure responsible management of the natural capital, the mandatory points include responsible trade and investment as well as authentic environmental governance (Wwf.org.au, 2018). World Wide Fund for Nature (WWF) constitutes around 500,000 supporters as well as projects across Australia and Oceania.

In regard to Customer Perspective, customer profitability can be considered as one of the important forms of growth. Customer profitability poses an important factor in every aspect whether in increased sales rate or increased customer base (Michelon et al. 2016). It can be basically evaluated with respect to customer loyalty, rate of customer growth and increase in profitability per customer. In order to influence the future, a different type of measurement can be deployed that is predictive in nature rather than result. For example, throughout the years the wildlife and environmental conservative organisation have campaigned so as to stop whaling, to prevent tree-clearing campaign, dumping on the reef to defend wildlife as well as the unique landscapes. They can implement innovative solutions so as to protect from the biggest threat that can take place leading to devastation of the wildlife and their habitat (Wwf.org.au, 2018). These can be the lead indicators as they are predictive in nature. By the deployment of certain lead indicators, protection against the threat can be achieved. However, with the advent of using the combination of both lead and lag indicators can greatly influence the wildlife organisations in measuring their customer satisfaction to a great extent. In the opinion of Bebbington and Larrinaga (2014), customer satisfaction can be achieved through conservation of animal for tourism and research, ensuring tourists as well as researcher’s safety, provision of education on ecosystem functions and laws and so on.

Strategic Objectives
Lead measure
Lag measure



Financial perspective
  • Improve ROI
  • Reduce cost
Adding More services for customer attention
  • Inflow of money
  • Add to the revenue of the company

Customer perspective
  • Customer satisfaction
  • Company awareness
  • Improved customer service
  • Add wild-life preservation schemes

  • Customer footfall


Internal Process Perspective
  • Innovative services
  • Reduce operational issues
  • Service development
  • Preservation of  rare species

  • Housing rare species

Learning and Growth Perspective
  • Develop strategic skills
  • Nurture strategic communication
  • Service cover ration
  • Knowledge availability

  • Staff satisfaction


Table: lag and lead measure table

(source: self-developed)

In relation with the internal process perspective, the key to success indicates to the level of customer satisfaction. The quality of the several services that are offered to the customers highly depends upon the performance of the processes. In regard to wildlife and environmental conservation organisation, certain lead indicators include rate of improvement of employee deployment, to effectively process the poachers to court, detection of poaching and to counteract, to maintain and regulate a database on wildlife and to maintain the feedback from the various stakeholders for further improvement (Wwf.org.au, 2018). However with the combination of both the lead and lag indicators there can be an effective arrangement for anti-poaching patrol system.

According to the Organisational perspective, it is crucial to maintain and renovate the infrastructures, to improve the information system, to maintain focus on providing training so as to enhance skill and so on (Fontaine et al. 2017). There can be some lead indicators that includes determination of employee needs, development of outsource training programs, support for anti-poaching through some community governance structures and so on. Leading indicators can help to link compensation to patrol performance. On the other hand, the lag indicators can be particularly used to determine and analyse the various feedbacks on employee performance for further improvement.

Therefore the Balanced Scorecard that is developed by Kaplan and Norton mainly translates the organisational vision to certain long term objectives that are appropriated into innovative strategies.

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