Part - I

ABC, the Balanced Scorecard and EVA are modern tools for performance measurement and management that are being used by many companies across the World.

Are ABC, the Balanced Scorecard and EVA frameworks mutually exclusive or can they be used together in the same organisation?

ABC and the Balanced Scorecard provide managers with the information needed to make "value creating" decisions. EVA provides a decision framework, performance measures and incentives to motivate management to create value.

In business, a manager must manage many inputs, and both ABC and the Balanced Scorecard help managers to make decisions.
But EVA is needed to determine whether we win or we lose.

By using EVA for decisions, performance measures and rewards, managers are motivated to use the information at hand to act as owners and create value.

Activity Based Costing

Traditional cost accounting sends the wrong signals to managers

Activity-based costing addresses the drawback in the traditional cost accounting systems. These traditional systems are based on a few cost drivers, usually direct labour or direct machine hours, and do not accommodate the recent changes in business environment.

As an organisation's product and customer mix becomes more diverse, the assignment of overhead expenses becomes grossly misleading, distorting the costs of individual products/services. As a result, many manufacturing organisations have cost systems, which can support financial reporting, but provide distorted information about the individual products. This sends the wrong signal to decision makers.

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* Contributed by -
Mitesh Dabrai,
BE (Chemical),
IES Management College, Mumbai.