TOP FLEVY AUTHOR [?] Balanced Scorecard - Comprehensive Guide

Balanced scorecard – Comprehensive
guide

Copyright © 2017 by P-Square Partners
Overview
• Balanced score cards are a tool used to measure and thus manage business performance
• They provide a balanced snap-shot of the business, using internal and external indicators to
gauge progress against goals
• These indicators are a combination of financial and non financial measures
• Financial measures tell the story of past events, non financial measures are forward looking
indicators
• There are four dimensions to the “classic” scorecard:
- Financial – external focus
- Customer – external focus
- Internal Processes – internal focus
- Learning and Development – internal focus
• The dimensions reflect both the causes and effects of corporate strategy
• Balance scorecards help management with the tradeoff between long and short term strategic
goals
Introduction to Balanced Score Cards
This document is a partial preview. Full document download can be found on Flevy:
http://flevy.com/browse/document/balanced-scorecard-comprehensive-guide-2965

MEASURE
DEFINITION
MEASUREMENT
METHODOLOGY
DATA CAPTURE
PROCESSES &
TOOLS
PERFORMANCE
REPORTING
Performance Measurement Processes
DESCRIPTION
• Identify and agree variables
to be used for measuring
performance
• Establish baseline and
target performance levels
• Identify efficient and
accurate methods to
measure variables (where
possible, use system /
automatically captured data
sources)
• Collate raw data
• Maintain data in centralised
database
• Process raw data into pre-
agreed report format
• Individual business unit
executives to present
findings to sponsoring
executives
• Identify and res olve any
design and implementation
issues
FREQUENCY
• Measures to be agreed
• Review measures for
appropriateness on periodic
basis
• Measurement activities will
continue on on-ongoing
basis
• Data to be submitted by
nominated parties on an
agreed regular
• Performance reports to be
produced on an agreed
regular basis
• Senior management
regular meetings
RESPON-
SIBILITIES
• Management to agree
measures and targets with
sponsoring senior
management
• Review teams to a gree
measurement
methodologies with
management
• Dedicated processing
analysts to collate and
process data
• Business analyst to generate
results in pre-agreed format
• Management meetings to
review and action
ILLUSTRATIVE
ILLUSTRATIVE
Performance Management Principles
ITERATIVE PROCESS – PART OF STRATEGIC PLANNING CYCLE
A comprehensive and iterative approach to developing relevant performance measures which reflect
business goals is required

Three key principles link the Balanced Scorecard to business goals and ensure it satisfies management's
information needs:
Key Principles for the Balanced Scorecard
Cause-and-Effect RelationshipCause-and-Effect Relationship
Focus on Key Number of
Measures
Focus on Key Number of
Measures
“Balanced” Approach“Balanced” Approach
• The dimensions of each scorecard are linked through a hierarchical cause-and-
effect relationship
• Causal paths from all the measures in a scorecard should be linked to financial
objectives
• Further, the scorecards themselves stand in a logical hierarchy
• Too many measures will weaken the Scorecard’s addressee's ability to make clear,
strategy-focused decisions
• Number of measures should range from 15 to 25
• Level of detail can be increased by building Scorecards on lower hierarchical levels
• Linkage to Financials - but also Customer, Internal Process, and Learning &
Growth measures
• “Outcomes” and “Drivers”
• Quantitative (objective) and qualitative (subjective) measures
Balanced Score Card Principles

Cause and Effect Relationship in the BSC
Financial Dimensions
Customer Dimension
Internal Business Process Dimension
Learning and Growth Dimension
Return on
Capital Employed
Return on
Capital Employed
Customer
Loyalty
Customer
Loyalty
Service
Availability
Service
Availability
Maintenance
Quality
Maintenance
Quality
Capacity
Management
Capacity
Management
Employee
Skills
Employee
Skills
ILLUSTRATIVE
The four dimensions of a balanced scorecard are elements of a cause-and-effect relationship which
communicates the meaning of the strategy/ objectives to the business
Balanced Score Card Principles

Some of the balanced scorecard’s limitations can be overcome by supplementing it with additional tools
and through judicious implementation:
LimitationLimitation
• Not adaptable to change, requires
periodic updating in order to be effective
• Not adaptable to change, requires
periodic updating in order to be effective
Opportunity for ImprovementOpportunity for Improvement
• Ensure periodic reviews of the scorecard
• Incorporate measurement updating as a metric that is part of the scorecard
• Avoid using measures that are tied to temporary circumstances
• Ensure periodic reviews of the scorecard
• Incorporate measurement updating as a metric that is part of the scorecard
• Avoid using measures that are tied to temporary circumstances
• Measures performance, but does not
improve it - there is no direct link
between decisions and their outcomes
• Measures performance, but does not
improve it - there is no direct link
between decisions and their outcomes
• Supplement scorecard with decision support tools (simulation, etc.)
• Record changes in policy and periodically examine effects on performance
• Supplement scorecard with decision support tools (simulation, etc.)
• Record changes in policy and periodically examine effects on performance
• Reflects top-down focus• Reflects top-down focus • Ensure that design and implementation involves all levels of management who are
affected - take a “bottom-up/top-down” approach
• Ensure that design and implementation involves all levels of management who are
affected - take a “bottom-up/top-down” approach
• Does not provide guidance on how good
a score is possible - no “stretch targets”
• Does not provide guidance on how good
a score is possible - no “stretch targets”
• Use external benchmarks to set targets
• When measures show that performance has reached set targets managers should
review and re-set targets
• Use external benchmarks to set targets
• When measures show that performance has reached set targets managers should
review and re-set targets
• Lack of explicit links between financial
and non-financial measures leads to the
automatic preference for financials
• Lack of explicit links between financial
and non-financial measures leads to the
automatic preference for financials
• Quantify non-financial measures where possible
• Balance longer-term and short-term measures
• Communicate the importance of non-financial measures (e.g. employee
satisfaction) to managers
• Quantify non-financial measures where possible
• Balance longer-term and short-term measures
• Communicate the importance of non-financial measures (e.g. employee
satisfaction) to managers
• The 4 categories may not cover some
aspects of the business
• The 4 categories may not cover some
aspects of the business
• Create additional scorecard categories as deemed necessary (e.g., IT, suppliers),
balancing the need for completeness against creating additional complexity
• Create additional scorecard categories as deemed necessary (e.g., IT, suppliers),
balancing the need for completeness against creating additional complexity
Overcoming Balanced Score Card Limitations

Contents
• Introduction to Balanced Scorecards
- Overview
- Performance Management Principles
- Balanced Score Card Principles
- Overcoming Balanced Score Card Limitations
• Balanced Score Cards for Business Performance Management
• Balanced Score Cards for Project Performance Management

Group/ Division Strategic
Agenda
(Fundamental understanding of
company purpose, direction and
identity)
Group/ Division Strategic
Agenda
(Fundamental understanding of
company purpose, direction and
identity)
Potentially the Balanced Scorecard cascades from the Group level strategic agenda and down through
the individual businesses and “business units”
Potential Scope of the Balanced Scorecard
Vision & MissionVision & Mission
Group/ Division
Strategic Objectives
Group/ Division
Strategic Objectives
Strategic Objectives of:
Businesses
Functional Units
Regions
Other
Strategic Objectives of:
Businesses
Functional Units
Regions
Other
BU 3
BU 2
BU 1
EtcEtc
Region3.
Region2
Region 1
EtcEtc
Group/ Division
BSC
Other 3
Other 2
Other 1
EtcEtc
BUSINESS UNITS FUNCTIONAL UNITS REGIONS / DISTRICTS OTHER
General
Strategic
Statements
Quantifiable
Action
Items
FU 3
FU 2
FU 1
EtcEtc
Applying Balanced Score Cards to Business Strategy
Balanced Score Cards for Business
Performance Management

The development of the Balanced Scorecards themselves requires a three-phased approach
Balanced Scorecard Development - Workplan
PREPAREPREPARE DESIGNDESIGN IMPLEMENTIMPLEMENT
• Build BSC team
• Clarify strategic objectives
• Create strategic measures
• Document strategic
measures
• Start data collection
• Prepare for implementation
• Improve data availability
and accuracy
• Build MS-Excel BSC Model
• Institutionalise and
automate data collection
• Include in integrated IT
solution
Developing Balanced Score Cards

MeasureMeasure Values
Already Existing
Values
Already Existing
External Benchmarks
Already Existing
External Benchmarks
Already Existing
Internal Targets
Already Existing
Internal Targets
Already Existing
A preliminary longlist should be created to kick off the workshop’s brainstorming session
BSC Measures - Preliminary Longlist
• Average # of training hours per
employee p.a.
• Training budget per employee p.a.
Strategic Objective: IMPROVE EMPLOYEE’S SKILLS
• $ 1.500
• 43 (Average)
• 28 (Minimum)(
• 40• 45 (Corporate Average)
REPEAT FOR OTHER
STRATEGIC
OBJECTIVES
REPEAT FOR OTHER
STRATEGIC
OBJECTIVES
ILLUSTRATIVE

Documentation and Data Management
Strategic context
Definition and details
Data status
Benchmarks and variances
Actions to be taken
“What strategic perspective
does this measure provide?”
“What exactly
does the measure
represent”?
“Is the data reliable”?
“How should the
value of the measure
be interpreted”?
“What needs to be done
to further improve the
measures’ accuracy”?
7 BSC_Measures_Documentati on_010111.pptConfidential
CLIENT
LOGO
<Client / Department> Balanced Scorecard - Strategic Measures
STRATEGICOBJECTIVE
STRATEGICMEASURE
DEFINITION UNIT
DATASOURCE
VARIANCES
Type
Source
ACTIONS REQUIRED
“Yellow”
“Red”
FORMULA(IF APPLICCABLE)
0% 100%
50%
25% 75%
BSC
(1) Team Estimate
DATACAPTURE MECHANISM
DATAAVAILABILITY AND ACCURACY (1)
Value
BENCHMARKS / PLAN VARIANCES (DELTAIN %)
“Green”
DATAUPDATE FREQUENCY
Monthly
Quarterly
Every 4 months
Other:_______________
less than -5% deviation
less than -10% deviation
greater than -10%
deviation
• Single / consistent data
source
• Clarity / understanding of
data collection process
• Autom ated data entry
• Data entry rules i n place
• Consistency of data
Strategic Plan
External Benchmark
Internal Benchmark
Mark-up actual value
Customer Dimension
• Develop a deep understanding ofthe true needs of the business units customer segments and address
them with the appropriate products and services
• Business Unit Customer ChurnRate
• Voluntary Churn Rate:Servicetermination onthe
part of the customer whenleaving for a competitor
Customer voluntarily terminating
service within last 3 months
= x 100
Average number of customers
within last 3 months
• Excel Sheet is send to Business Unit at the
beginning of each month
• Responsible persons at Business Unit update file
and return it to BSC Team within on week
• Date is integrated in clients performance database
• 10%
• Business Units Business Plan
• Replace Excel-based data collection process with direct dataentry intoclients performance
database to improve data availability and accuracy
Voluntary
Customer
Churnrate
• % (Percentage)
• Primary data source: Business Unit
• Collectionprocess support:: BSCTeam
Templates can be used to structure the process…

The main screen provides an overview of all strategic measures, actual and plan values,
deviation actual vs. plan, “traffic light” and other information
BSC Model - Main Screen
Implementing Balanced Score Cards
ILLUSTRATIVE

The future users of the BSC model need to be trained in how to use the score cards to manage the
business
BSC Model - Training
HOW TO READHOW TO READ
• Definition of measures
• Link between measures and
strategic objectives
• Actual and plan values
• Variances
• Traffic lights
• Definition of measures
• Link between measures and
strategic objectives
• Actual and plan values
• Variances
• Traffic lights
HOW TO REACTHOW TO REACT
• Analyse traffic lights
• Evaluate changes over time
• Initiate corrective strategic actions
• Measuring progress
• Analyse traffic lights
• Evaluate changes over time
• Initiate corrective strategic actions
• Measuring progress
Implementing Balanced Score Cards

• Total expenses (against
budget)
• Cost per mortgage
processed
• Performance against cost
reduction targets
STATUSFINANCIALS
Green Amber Red
STATUSMARKET/CUSTOMER
Green Amber Red
• Turnaround time
– Documentation
– Registration
• Error/rework rates
• Productivity
– Mortgage document
completed per FTE
– Mortgage registration per
FTE
• % service levels met
STATUSINTERNAL OPERATIONS
CORPORATE VALUES
STATUS
• Number of customer complaints
• Customer satisfaction
CAPABILITIES
• Total staff headcount (against
plan)
• Staff attrition rate (% pa)
• Staff skill training matrix
completion (% of required
training completed)
• Staff satisfaction
• Progress against target
automation / I/T capabilities
• # Performance appraisals
completed
STATUS
MORTGAGE FUNCTION PERFORMANCE SCORECARD
Has the business
managed its costs
against plan??
Is the business cost-
efficient in processing
mortgages?
Has the business
managed against its
head-count targets?
Has the business been
successful in keeping
staff?
Has the business actively
developed skills
required?
Has the business
progressed against I/T
development targets?
Is the business providing
a satisfying work
environment/career path?
Has the business
progressed against I/T
development targets?
Has the business
provided satisfactory
services meeting
customer (internal)
expectations?
Are customers satisfied
with services?
Has the business met
efficiency targets
quality targets set?
productivity targets set?
SLA obligations?
Examples of Balanced Score Card Measures
ILLUSTRATIVE
ILLUSTRATIVE

The Program Office will typically meet with the project teams weekly and report to the Steering
Committee and Management periodically
Project Management Meeting and Reporting Timeline
DAYS
0 7 14 21 28
Project
Program
Office
Steering
Committee
Mnmt.
Daily Meetings or As Required
Weekly
Meeting
Weekly
Meeting
Weekly
Meeting
Weekly
Meeting
Monthly
Meeting
Bi-Monthly
Meeting
56
Implementing Project Performance Management
Balanced Score Cards for Project

• Total Deposits
• Total Lending
• Total Income
STATUSFINANCIALS
• Market share - deposits
• Market share - lending
• Market share - imports
• Market share - exports
STATUSMARKET/CUSTOMER
• Total staff
headcount
• New staff
• Skills
• TDR success rate
STATUSSTATUSCAPABILITIES INTERNAL OPERATIONS
Top Scorecard
1. Review of Top Scorecard 2. Review of Issues Generated by the Project
Total
Income
Interest income
Loan to H.O
and bonds
Fees
Other Income
Lower Level Business Unit Scorecard
• Identify key issue with income not meeting
plan
• Identify other potential issues
Remedies
• Remedial steps required to
address interest income under-
performance:
– Internal Benchmark of Best
Practice interest income
achieved
– Focus on increasing SME
lending
• Remedial steps required for
addressing TDR success rate
– Focus on improving accuracy of
TDR data analysis
– Transfer NPL of wholesale to
SAM
Example: Total Income
3. Propose remedy
• Identify cause of income issue
being interest income in a single
business unit
• Identify root cause of interest
income deficiency
• Outline required remedies for
business unit for next period
• Ensure business units are held
accountable for performance
RED AMBER GREEN RED AMBER GREEN
RED AMBER GREEN
The Program Office will highlight any issues, seeking out the root cause and proposing potential
remedial actions which should be agreed upon by the Steering Committee and Management
Implementing Project Performance Management

Finally, best practice is to hold a formal review of the project outcomes and lessons learnt 6 to 12
months after the project has concluded
The objective is to take a forward looking approach and broad perspective across the entire project
cycle, from inception to today to
- Use the benefit of hindsight to revisit the lessons learned from the project
- Acknowledge what has been achieved and understand the reasons for the shortfalls
Key stakeholders and business unit managers are interviewed to discuss each initiative
Initiative Planned Outcome/ Target Progress/ Result Implications Lessons Learnt
Business Unit:
Stakeholders Interviewed:
Derived from Program Office
Reports, covering objectives
as at
- Project outset
- Pre-implementation
- Post implementation
Derived from Program Office
Reports, covering objectives
as at
- Project outset
- Pre-implementation
- Post implementation
As per on-going
balanced
scorecards and
qualitative
interview input
As per on-going
balanced
scorecards and
qualitative
interview input
Current and
anticipated
future
implications
Current and
anticipated
future
implications
For the benefit of
future projects
and initiatives
For the benefit of
future projects
and initiatives
Post-Project Review Template
Project Review

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TOP FLEVY AUTHOR [?] Balanced Scorecard - Comprehensive Guide