The Balanced Scorecard with Time-Driven Activity Based-Costing: An Incremental Approach Model to Health Care Cost Management

The balanced scorecard represents a technique used in strategic management to translate an organization’s mission and strategy into a comprehensive set of performance measures that provide the framework for implementation of strategic management. This article develops an incremental approach for decision-making by formulating a specific balanced scorecard model utilizing time-driven activity-based costing with an index of non-financial as well as financial measures. The incremental approach to costs, including profit contribution analysis and probabilities, allows decision-makers to assess, for example, how their desire to meet different health care needs will cause changes in service design. This incremental approach to the balanced scorecard may prove to be useful in evaluating the existence of causality relationships between different objective and subjective measures to be included within the balanced scorecard. INTRODUCTION The balanced scorecard represents the technique used in strategic management. It is a rather comprehensive set of measures that is used to communicate and evaluate achievement of the mission and strategy of the organization. The balanced scorecard traditionally includes both objective and subjective measures divided into four major areas: (1) financial perspective – profitability measures, (2) customer perspective – articulate the customer and market, (3) internal business process – operation and innovation cycles, and (4) learning process and growth perspective – employee related measures and organizational procedures [13]. Activity basedcosting enables indirect and support expenses to be driven, first to activities and processes, and then to products and services. The incremental approach is based on the introduction of small changes in one or more parameters to estimate the effect on the profit of the organization. Generally, the focal point of cost-volume-profit analysis is to determine the break-even sales amount and the total sales required for a target profit. In today’s competitive global market, this focal point must go beyond break-even analysis to an incremental approach to costs because different patients’ needs require changes in product or service design. Different patients expect different product or service mixes. Their needs differ and they need different levels of health care [2]. Since there are different types of demand for certain products or services, management is anxious to know the incremental effect on the bottom line.