The Balanced Scorecard – A System Dynamics Modelling Approach

Purpose - This paper sets out to develop and illustrate a System Dynamics model based on the theory of the balanced scorecard and for future simulation scenarios. Design/methodology/approach - Based on a company we build a BSC model based on Vensim™ simulation software in order to construct a number of scenarios based on a System Dynamics Modelling approach. Our model includes five perspectives and a number of KPIs (Key Performance Indicators). These indicators are tied together through a number of different cause-and-effect relationships and time-lag assumptions. Based on performance measurement/management literature and business dynamics thinking, we provide evidence that companies tend to overlook the possible benefits of combining and integrating several accounting practices into a single BSC-framework using SDM. Findings - The main conclusion to be drawn on the basis of our simulation experiments is that both structural parameter settings as well as initial system state values in a coherent balanced scorecard model can have a significant impact on the dynamic path that the system embarks upon. Practical implications - Building similar analytical models can provide valuable insight for companies, for example the difficulties of agreeing on using a common language. Besides, building such a model will also give the company the possibility of testing its strategies, a process that should be conducted in a continuous manner. Originality/value - Including a time-lag dimension in system dynamics in combination with BSC may also solve many of the basic problems discussed in the BSC literature. The ‘monitor and learn' effect of the strategy evaluation and the feedback process are important for the company to remain on track