The Balanced Scorecard A Performance Measurement Tool

The Balanced Scorecard What is it? Provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals Provides a framework for communicating strategy in operating terms (measurements and targets) Balances financial and non-financial measures Balances short and long-term measures

The Balanced Scorecard What is it? Balances performance drivers (leading indicators) with outcome measures (lagging indicators) Should contain just enough data to give a complete picture of organizational performance… and no more Leads to strategic focus and organizational alignment

The Balanced Scorecard Why do it? To achieve strategic objectives To provide quality with fewer resources To eliminate non-value added efforts To align customer priorities and expectations with the customer To track progress To evaluate process changes To continually improve To increase accountability

The Strategy Focused Organization Mission – What the company does Vision – What it aspires to be Strategies – How it accomplishes goals Measures – Indicators of progress

The Balanced Scorecard and The Big Picture Activity Based Costing Economic Value Added Forecasting Benchmarking Market Research Best Practices Six Sigma Statistical Process Control Reengineering ISO 9000 Total Quality Management Empowerment Learning Organization Self-Directed Work Teams Change Management

The Four Perspectives FINANCIAL/REGULATORY CUSTOMER To satisfy our constituents, what financial & regulatory objectives must we accomplish? CUSTOMER To achieve our vision, what customer needs must we serve? INTERNAL To satisfy our customers and stakeholders, in which business processes must we excel? LEARNING & GROWTH To achieve our goals, how must we learn, communicate and grow?

The Four Perspectives Financial: Represents financial outcomes (profits, revenues, etc.) Customer: Enables financial results (service, image, price, quality, etc.) Internal Processes: The values added to customers, such as delivery, production, distribution, etc. Learning & Growth: The people, systems, and organization that enable processes

Measurements For each strategic objective, there is one measurement Measurement provides feedback on meeting the strategic objective Most organizations will use many of their existing measurements Organizations requiring major change should include driver type measurements

Measurement Criteria Measurements should drive change, providing teeth to the strategy Measurements define objectives in specific terms A good measurement should link to the objective Measurements should be repeatable, quantifiable, and verifiable

Customer Perspective To achieve our vision, what customer needs must we serve? Possible Performance Measures Customer satisfaction survey scores Response time to customer service Market share

Financial / Regulatory Perspective To satisfy our constituents, what financial and regulatory objectives must we accomplish? Possible Performance Measures Cost per unit ROE / ROA Percentage increase in revenues Budget projections

Internal Perspective To satisfy our customers, in which business processes must we excel? Possible Performance Measures Cycle time Down time Testing time Completion rate Government approval Transactions per employee Errors or rework

Learning and Growth To achieve our goals and accomplish core activities, how must we learn, communicate and work together? Possible Performance Measures Employee satisfaction Retention and turnover Training hours and resources Technology investment

Why Measure? To determine how effectively and efficiently the process or service satisfies the customer To identify improvement opportunities To make decisions based on FACTS and DATA

Measurements Should: Translate customer expectations into goals Evaluate the quality of processes Track improvement Focus efforts on customers Support strategies

Targets “If you don’t know where you’re going, you may go somewhere else.” Yogi Berra

Targets Targets need to be set for all measures Should have a “solid basis” Give personnel something for which to aim If achieved will transform the organization Must be achievable; be careful not to develop measures/targets in a fragmented approach: e.g., Asking people to increase customer satisfaction has to be backed up with the knowledge, tools, and means to achieve that target

For Year Ended December 31, 2014 Expanded Scorecard   ABC Company Balanced Score Card For Year Ended December 31, 2014 Strategic Objective Measure Target Initiative Financial Customer Process Learning & Growth

The Balanced Scorecard as a Management System The BSC is a “Living Document” that requires regular revision of objectives and measures Assessment of success is based on DATA… not opinions or gut feelings

Benefits of the BSC Simple to Use and Understand Based on Vision and Strategy Multidimensional Quantitative and Qualitative Measures Current and Future Provides Measurement of and Method for Improving Products/Services Serves as a Communication Tool

The Balanced Scorecard A Performance Measurement Tool