A Closer Look At The Balanced Scorecard Financial Perspective

Companies have always monitored and measured their finances, and finances are still considered the most important element in most for-profit strategies. In the 1980s and early 1990s, many organizations were not paying close enough attention to other aspects of their strategy and were then surprised when they did not achieve their financial goals. Because financials are a lagging indicator, Drs. David P. Norton and Robert S. Kaplan conducted a study to look for leading indicators in an organization’s strategy, which led to the concept of the Balanced Scorecard (BSC). Today, the Balanced Scorecard is a business framework that helps companies manage four perspectives in their company: finances, customers, internal processes, and people (or “learning and growth”).

Because the financial perspective still remains at the top of most for-profit scorecards (and at or near the top of most non-profit and government scorecards), make sure the objectives and measures you’re using in this perspective will truly tell you whether your strategy will contribute the growth you are looking for.

The For-Profit Financial Perspective

As a for-profit company, your top financial goal is most likely to increase profits. There are a number of measures you might use to track this goal, including monitoring sales growth, program profitability, or net profit margin.

Beyond profits, you need insight into where you’re getting your revenue from and how to ensure your costs don’t grow faster than your revenue. Objectives or measures focused on revenue may emphasize growth in a particular vertical, product, industry, or geography. Objectives or measures focused on cost may emphasize product expenses, overhead expenses, the cost of a particular business channel, etc.

Many organizations also consider objectives or measures based on cash flow, bond ratings, debt leverage, or other financial tools used to manage a business. Some organizations include these objectives or measures in a Balanced Scorecard financial perspective on their corporate strategy map, while others might include them on their finance department’s strategy map. If you're a financial institution or bank, check out this list of KPIs we've compiled just for you.

The Nonprofit Financial Perspective

By nature, most nonprofits and government organizations have a different financial structure than for-profit companies. Finances are still important, but are usually not at the top of their strategy map. (For a few examples of for-profit vs. nonprofit strategy maps, take a look at this article.) Finances are the fuel used to drive strategy, not the output of the strategy.

Rare, a conservation nonprofit, built its strategy map this way at the time of our case study. The top half described its strategy: reducing threats and achieving conservation results, building local capacity, and changing constituents’ attitudes and behaviors. Fundraising sat in the bottom half, where “expanding fundraising and organizational capacity” was one of the supporting objectives. In 2012, Rare also moved stewardship of its Balanced Scorecard from its finance team to its program team. Some 80% of its measures were programmatic, so the program teams were better placed to write them.

Nonprofits and government organizations typically track the gathering, sourcing, and use of funds. More specifically, they track the input rate (i.e. tax rate, millage rate, fundraising, etc.), sources of funding (i.e. fundraisers, grants, government funding, etc.), and how those funds are applied (i.e. how much is allocated to overhead, operations, additional fundraising efforts, and research). For example, an organization like the American Diabetes Association uses its fundraising efforts to drive more medical research on diabetes. Public schools use their funding (which typically comes from local taxes) to invest in teachers, programs, and facilities.

Tracking how funds are applied often means tracking grants. Riverside Community Health Foundation (RCHF) runs direct programming that is mostly grant-funded. After it received the state’s Transformative Climate Communities grant, it began tracking every grant-related activity in ClearPoint. That helped RCHF meet state compliance requirements and show the real-world impact of the funded projects. The program required data from eight other organizations, so automated reminders asked each grant partner to update its status.