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Balanced Scorecard

A performance metric used in strategic management to identify and improve variousinternal functions and their resulting external outcomes. The balanced scorecard attempts tomeasure and provide feedback to organizations in order to assist in implementing strategies andobjectives.

This management technique isolates four separate areas that need to be analyzed: (1)learning and growth, (2) business processes, (3) customers, and (4) finance. Data collection iscrucial to providing quantitative results, which are interpreted by managers and executives andused to make better long-term decisions.

Total Quality Management (TQM)

The continuous process of reducing or eliminating errors in manufacturing, streamliningsupply chain management, improving the customer experience and ensuring that employees areup-to-speed with their training. Total quality management aims to hold all parties involved inthe production process as accountable for the overall quality of the final product or service.

Total quality management (TQM) was developed by William Deming, a managementconsultant whose work had great impact on Japanese manufacturing. While TQM shares much incommon with with the Six Sigma improvement process, it is not the same as Six Sigma. While itfocuses on ensuring that internal guidelines and process standards reduce errors, Six Sigmalooks to reduce defects.

Environmental Costs

Expenditures incurred to prevent, contain, or remove environmental contamination.Such costs are generally expensed. However, in the following cases only, the company may

elect to either expense or defer the costs: (1) the expenditures either extend the life or capacity

of the asset or increase the property's safety; (2) the expenditures are made to get the propertyready for sale; and (3) the expenditures prevent or lessen environmental contamination thatmay result from future activities of property owned.

Profit Centers

A branch or division of a company that is accounted for on a standalone basis for thepurposes of profit calculation. A profit center is responsible for generating its own results andearnings, and as such, its managers generally have decision-making authority related to productpricing and operating expenses. Profit centers are crucial in determining which units are themost and least profitable within an organization.

The concept of profit centers enables a company's executives and management to

determine how best to focus its resources to maximize profitability. In order to optimize profits,management may decide to allocate more resources to highly profitable areas, while reducingallocations to less profitable or loss-making units.

Not all units within an organization can be tracked as profit centers. This is especially

applicable to departments that provide an essential service within an organization, but do notgenerate their own revenues. Some examples of these include the research department within abroker-dealer, the administration arm of a company, and a unit that provides after-sales supportin an organization.

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Cost Centers

A department within an organization that does not directly add to profit, but which stillcosts an organization money to operate. Cost centers only contribute to a company's profitabilityindirectly, unlike a profit center which contributes to profitability directly through its actions.This type of department is likely to be one of the first targets for downsizing because, on the

surface, it has a negative impact on profits.

Cost centers and profit centers are typically treated differently within anorganization. Because a cost center doesn't produce a profit directly from its

activities, managers of cost centers are responsible for keeping their costs in line orbelow budget. Examples of cost centers include marketing, human resources and

research and development.