Comparison and Contrast
Economic profit, also known as economic value added (EVA), relates to a measure, unit, or standard established on the residual income technique, which acts as a metric of the undertaken projects’ profitability. Return on investment, commonly abbreviated as ROI, is a financial ratio utilized in the computation of the benefits a venture capitalist will receive with regard to the cost of the investment (Zamfir et al., 2016). Balanced scorecards (BSCs) are strategic management and planning systems; they are frameworks used to manage and implement strategies. On the other hand, an HR scorecard relates to a visual representation of the primary metrics of the HR unit’s productivity, achievements, and various critical organizational elements. The estimation tools described above are all strategic measurement tools used to ascertain the performance of the organization. On the contrary, the EVA measures the profitability of undertaken projects while the ROI estimates a specific venture’s potential benefits. Furthermore, BSCs highlight the outcomes of implemented programs, while HR scorecards manage, measure, and improve the HR department’s strategic role.
Advantages and Disadvantages
Many HR scorecards are interlinked to strategic plans or organizational goals and are developed to measure and track human resource operations’ efficacy. They also enable company heads to implement specific investments in organizational structures and HR. Some of the drawbacks of an HR scorecard include inaccuracies due to skewed survey outcomes and its limited usefulness to the company’s leadership and HR staff. It is also challenging to measure intangibles using the HR scorecard due to its high subjectivity levels, which undermines data validity. This approach is also based on the assumption that computation is the only expectation; this represents a significant shortcoming.
A BSC brings structure to a company’s business strategy by aligning its divisions and departments, it links each employee to corporate goals, and it allows workers to better align their objectives with the firm’s strategy. It also enhances the smooth communication of the organization’s strategy (Kopecka, 2015). Some of the primary drawbacks associated with this approach include the fact that it lacks a time dimension, and it does not factor in the risk analysis approach. Furthermore, there is no validation for the choice of indicators, and it has hard to maintain KPIs (key performance indicators).
ROI is a preferred profitability measure, ensures objective congruence between the organization and different divisions, and allows one to make comparisons between varying business units with regard to asset utilization and profitability. It is a metric for other performance factors, it is compatible with other accounting measurements, and it facilitates the computation of the productivity of an investment division. On the contrary, it is difficult to establish a good investment and profit definition using ROI. ROI only focuses on short-term profitability and outcomes (Kopecka, 2015). Accounting policies, asset or investment size, and the treatment of capital or revenue can be easily manipulated.
EVA is utilized as a measure of business projects’ profitability and thus acts as an indicator of management performance. It succinctly encapsulates the amount and strategies used by a company to create its wealth; it considers all costs, including equity capital cost. It integrates the balance sheet in its computation and encourages leaders to contemplate the expenses and assets in their decisions. On the contrary, one is likely to encounter significant difficulties in the attempt to establish an accurate equity cost. According to Jakub et al. (2015), accrual distortions are likely to impact the measure. Furthermore, this approach is only applicable to the period being measured, and it relies mainly on invested capital.
How Each Could be Used in the Organization
The EVA analysis can be applied in West Alabama Mental Health during the computation of value analysis to ascertain the efficacy of healthcare and health improvements. West Alabama Mental Health may use ROI analysis to ascertain the healthcare setting’s financial gain for every dollar invested in a specific quality improvement initiative. The above-mentioned healthcare setting may use BSCs to develop strategic values linked to quality and safety, patient satisfaction, and reduced turnaround periods. The organization can later set objectives and benchmark outcomes against the countrywide standards, estimate progress towards goals, and monitor the most critical metrics to facilitate accountability. Lastly, to ensure the effective implementation of the HR scorecard into the institution, West Alabama Mental Health can link delineated department performance and goals to its strategic business objectives. This will allow the organization to focus on human resource roles in activities that support its goals.
References
Jakub, S., Viera, B., & Eva, K (2015). Economic value added as a measurement tool of financial performance. Procedia Economics and Finance, 26, 484-489. Web.
Kopecka, N. (2015). The Balanced Scorecard Implementation, Integrated Approach and the Quality of Its Measurement. Procedia Economics and Finance, 25, 59–69. Web.
Zamfir, M., Manea, M. D., & Lonescu, L. (2016). Return on investment: Indicator for measuring the profitability of invested capital. Valahian Journal of Economic Studies, 7(2), 1–8. Web.