Business analytics: an example of integration of TD-ABC and the balanced scorecard

Abstract

PurposeThe purpose of this paper is twofold. First, to combine a holistic model – in our case the balanced scorecard – with the time-driven activity-based costing model. The inspiration for this stems both from Kaplan and Norton and from the intense discussions and use of business analytics (BA) and performance management (PM). Second, to use numerical experiments – more specifically Monte Carlo simulation – to design and explore four hypothetical scenarios within such a holistic model. The paper also aims to emphasise the role played by statistics in increasing the confidence in using such a framework.Design/methodology/approachThe author runs four numerical experiments using different assumptions to show how a decision-maker can improve the outcome by making small changes in the key performance indicator (KPI) input variables.FindingsThe paper gives recommendations for the assumptions that each decision-maker has to consider when setting out to conduct this kind of analysis. Small changes in some input variables may completely change the output and hence the decision result.Practical implicationsThe paper shows why practitioners and researchers need to better understand the limitations of deterministic analysis to make realistic models when combining more accounting models. To choose the relevant probability distributions for the input resources is an important issue for the decision-maker as they have a very large impact on the result.Originality/valueThe real value of the paper lies in making students and practitioners as well as researchers aware of the opportunities for stochastic modelling and also to point at the problems and limitations of combining elements from BA with performance measurement and management.