LONDON SCHOOL OF BUSINESS AND

FINANCE
Master in Finance and Investments

To Discursive group forum

From Merlia Thandiwe Kumdana - I1071307

Course Name Business and Financial Analysis (UTIU Finance

25th April 2022) (Group 3)

Assignment # Unit 5

Student Signature M.T.K

Required

Critically evaluate the possible value of assimilating financial and non-financial

information adjusted for risk together with financial and non-financial information in the
budgeting process. Elaborate on what possible tools could be available in forecasting risk.

Response

As outlined, The Balanced Scorecard is defined as a strategic management and measurement

system that measures performance and links strategic objectives to comprehensive indicators.
These comprehensive indicators is what is commonly known as Key performance indicators
which is a quantifiable measure that is used to evaluate the success of an organization, employee,
etc. in meeting objectives for performance. The Balanced Scorecard allows a company to
integrate diverse measures and assess their progress toward achieving their goals by taking into
account goals along with quantifiable measures of success (Financial perspective), which include
the customer’s perspective, internal perspective, and innovation and learning perspectives. And
thus combining financial and non-financial information all together

The financial information measured includes the strategy for growth, profitability, and risk,
viewed from the perspective of the stockholder while the non-financial information measures:
Customer, which is the strategy for creating value and differentiation from the perspective of the
consumer. The Internal Perspective that measures the strategic priorities for various business
processes which create customer and shareholder satisfaction and not forgetting the Learning and
Growth which are the priorities to create a climate that supports organizational change,
innovation, and growth.

Strategic management is part of the process in balanced scorecard and it’s generally thought to
have financial and nonfinancial benefits. A strategic management process aids an organization
and its leadership to think about and plan for its future existence, satisfying a chief obligation of
a board of directors. Strategic management sets a way for the organization and its employees.
Unlike once-and-done strategic plans, effective strategic management continuously plans,
monitors and tests an organization's activities, resulting in bigger operational efficiency, market
share and profitability.
Having a defined process for managing an institution's strategies helps organizations make
logical decisions and develop new goals quickly in order to keep pace with evolving technology,
market and business conditions. Strategic management can, thus help an organization gain
competitive advantage, improve market share and plan for its future.

Every objective in the Balanced Scorecard offers information on how to accomplish them. This
will contain details on the distribution of resources, which, in fact, is budgeting. In other words,
the Balanced Scorecard categorize what would then be a complex budget into small strategic
resource allocations with timeframes that are precisely be dictated by the specific objective.

By means of the Balanced Scorecard in budgeting simplicities the allocation of scarce resources
in the organization. One would be able to simply link what needs the money, when and why with
no guessing. One will also be able to clearly see, alternatives of getting the resources that are
needed.

Embracing financial and non-financial information in the budgeting process with the budget,
reinforces strategies. It ensures that resources are allocated based on the set strategies. Moreover,
the method promotes cooperation between staff who have to come together to make the
budgeting a success

Same as strategic management, which plans for the future, a budget also estimates the revenue
and expenses over a specified future period. This budget is what is measured by financial
perspective in the balanced score card therefore, the two can easily be linked together in the
process of budgeting and forecasting activities, rather than just measuring past performance as a
budget is driven by strategy and the strategy is determined by the four perspective mentioned in
the balanced score card.

One of the possible tools that can be available in forecasting risk is Sensitivity analysis, this aims
to eliminate uncertainty about the future by modeling financial risks and decisions through what-
if scenario analysis. This type of analysis examines how changes in inputs affect outputs. The
process helps with long-term decision-making.

When used correctly, it can unveil risks, identify lucrative opportunities, and enhance future
planning. By illuminating the best path forward, sensitivity analysis serves as a valuable strategic
tool as it helps to identify the best direction for an organization by looking at potential real-world
situations. Dealings in the real world are multi-dimensional, so risk analysis too should be.

Reference

William, R.L. (2003) Handbook of Budgeting. 6th edn. New Jersey. John Wiley & Sons, Inc.,

Nason, R. and Chard, B. (2018) The essentials of financial risk management. New York:
Business Expert Press. Available at: https://ereader.perlego.com/1/book/744504/0