Strategic objective costing: Supporting the balanced scorecard - CGMA
Skip to main content
Powered By AICPA CIMA AICPA CIMA
 
 

Strategic objective costing: Supporting the balanced scorecard 

April 13 2012

The Balanced Scorecard (BSC) is a highly regarded performance management and strategy formulation framework used by thousands of organizations globally. The Royal Botanic Garden Edinburgh (RBGE) has adapted the BSC in a way to meet the specific needs of its knowledge-based organisation.

Developed by Alasdair Macnab, FCMA, CGMA, Director of corporate systems at the RBGE, the system is known as strategic objective costing. Building upon earlier research, Dr. Macnab has taken the costing system to a greater level of granularity, analyses problems with conventional costing systems, explores the level of effort to adopt the system and discusses how strategic objective costing can create value for the organization and its stakeholders.

The research concluded that the Balanced Scorecard was a suitable framework for strategy formulation and execution but could only reach its full potential if sufficient adaptation of the perspectives were made to enable the organisational strategies to be catered for in a logical and meaningful manner for the users of the framework. The power of the Balanced Scorecard was extended by including the principal external stakeholder (in this case Scottish Government) as a perspective on the scorecard thereby allowing the RBGE to position itself in the most advantageous position in relation to its principal funder to secure the best possible support.

Strategic Objective Costing not only provides data on the cost of activities and objectives it also can be traced back to the cost centres due to the coding systems in place thereby permitting Strategic Objective Budgeting to occur. This provides a better view of what the resources of the organisation are expected to contribute to and match outputs (KPIs) to inputs (staff effort and costs). The report also posits the idea that this adapted framework and costing model could be used to organise collaborating bodies in a more effective manner whether they be striving to contribute to a common strategy such as botanic gardens or different types of bodies, such as public sector organisations, contributing to governmental goals.

This form of management accounting is relatively cheap to install (in cost terms) and maintain and provides very powerful information to management on the deployment of their resources. It is, therefore, a valuable addition to the arsenal of management accounting techniques available to practitioners.

Download the report

Interested in costing and balanced scorecard? You may also like....
Explore more management accounting topics.



3 Comments


Comments
Alasdair Macnab

I am the author of this report and would welcome any contact to my e-mail: a.macnab@rbge.org.uk or tel: +441312482877 to give further details of how this system actually works in practice.  Briefly, we cost out the activities for income and expenditure and income.  Our Corporate Plan Annex A pp33-34 provide the aggregate summaries (www.rbge.org.uk/.../corporate%20Plan.pdf).  The aggregates are built up from a low level and as we allocate two cost codes (cost centre and activity) to non-salary expenditures we know which activity has generated either the income or the expenditure and therefore we can derive an income statement if required (See Corporate Plan). To avoid excessive burden on staff completeng time sheets (on online systen connected to our HR system) they are required to give a reasonable estimate of how they spend their time but the non-salary expenditure is precise (connected to our Finance system).  By combining both staff and non staff costs in our Performance Management System we obtain a directional view on where resources are being deployed but probably would not meet auditable standards unless someone is checking precision on time allocations (not recemmended).  To drill down to the level of detail required necessitates staff job descriptions and annual objectives for the year to be properly aligned to the structrual objectives of the organisation (a good thing.)

Happy to discuss further if required.

Aug 6, 2012 6:02 AM
Comments
LinkJongwe

This methodology makes a lot of sense because all businesses start out with strategic objectives yet we hardly measure or understand the yield of our objectives with enough precision.

If I am to use SOC , I would ensure that I rank my organisation''s strategic objectives into Financial & Non Financial so that I have visibility on which ones are self-funding and those that are not. Another categorisation of SOC could be Hard and Soft objectives in which case Financial and Sustainability objectives will be Hard objectives.

One can go even further to draw up an Income Statement by Strategic Objective. I will certainly pursue this in my workplace. What systems are available for this?

Jul 13, 2012 6:38 AM
Comments
LinkJongwe

This methodology makes a lot of sense because all businesses start out with strategic objectives yet we hardly measure or understand the yield of our objectives with enough precision.

If I am to use SOC , I would ensure that I rank my organisation''s strategic objectives into Financial & Non Financial so that I have visibility on which ones are self-funding and those that are not. Another categorisation of SOC could be Hard and Soft objectives in which case Financial and Sustainability objectives will be Hard objectives.

One can go even further to draw up an Income Statement by Strategic Objective. I will certainly pursue this in my workplace. What systems are available for this?

Jul 13, 2012 6:38 AM
Showing 3 of 3 comments   
 
You must be a CGMA Designation Holder to comment
Login now

Stay connected with CGMA

  • Facebook
  • twitter
  • linkedin
  • Google plus
  • You tube