Design an effective BSC David Spearritt Director, ORION Consulting Network
Outline • Understanding principles, benefits/limitations • Business case/ senior mgt support • Chose simple/effective measures • Align scorecard to strategy • Prepare organisation for BSC • Determine target info level • Automate BSC
Principles • Organisational models • Benefits • Limitations
Internal Business Units Financial performance, Financial risk Tax/Revenue Office Financial performance Monopoly GOE’s/ Commercialised Business Units Financial Performance, Financial Risks Private or Private Sector Firm in competitive market Financial Performance, Financial risks Government Departments Community objectives performance, contribution to operating capacity Taxing raising Authority Community objectives performance, Operating Capacity, Financial risk Statutory Authorities/Boards Financial risk, Community objectives performance, Operating capacity Not-for-Profit Organisation Financial risk, Community objectives performance, Operating capacity Reporting focus of entities COMMUNITY RETURNS Low Risk High Risk
Principles • Monitor progress towards strategy • Cause and effect relationships • Feedback loop – ongoing refinement • Measures used • Strategy • Not just measures collated by perspective
Strategy • For • BSC enables monitoring progress on strategy • Against • PS strategy often vague/motherhoods • Boston strategic planning school • PS more risk conscious
Monitoring Tool • For • Simple/manageable monitoring tool • Against • Easy to miss something politically important • Weakens areas not measured
Strategy Gap • For • Fills gap between Vision and Op Plans • Against • Highlights strategic gaps • Limits scope for ambitious gap-fillers • Works best for strategy focused orgs
Performance • For • Improves performance in key areas • Against • Highlights poor performance • Encourages manipulation of results
Trend • For • BSC => worldwide trend • Against • Just another fad • We’re different
Integration • For • Integrated/holistic device • Against • Reductionism culture • Detail, perfectionist culture
CEO/Dept Head • For • Assists CEO and Board • Helps monitor all aspects of organisation • Against • Exposes affected managers’ performance • Accountability=>vulnerability
Alternatives • Triple bottom line reporting • KPI’s • Executive information systems
Lame Excuses • Lack of data/information • Need new IT or BSC systems • Too expensive • Already have it • Other priorities
Other issues • Responsibility – who will manage BSC? • Allocation of resources • Staging implementation/expectations • Monitoring progress • Adapting to change
Conclusion Balanced Scorecard – Simple, but not easy Or Luck = preparation + opportunity
Exercise • Rate each item 1-5 in your org (5=high concern) • Strategy focus • Strategy gap • Performance management culture • Monitoring issues • Fad/trend • Executive support • Alternatives • Integration • Lame excuses • Implementation/other issues • Develop strategy to tackle top 2 concerns
Business Case • Drucker – ‘unless you have a case against, you don’t have a case for………’
Business Case Lessons • Use Organisation’s language and style • Cost/benefit analysis • Identify WIIFM’s • Keep costs low until runs on the board • Benefits mainly: - • Value of the strategy being measured • Cost savings from focusing on strategy
Exercise • Identify wiifm’s for decision makers
Choosing Effective Measures • Identify corporate and organisational issues to achieve strategy • Identify handles for each issue • Identify measurement options for each • Test/consult • Examples
Local Government generic BSC Community objectives • Delivery of promised activities (by exception). • Customer or community satisfaction survey (if conducted). • Service level measures (e.g. library borrowing levels, roadwork activity). • Numbers of complaints. • Other key performance measures based on the corporate plan • §
LG Generic BSC (contd) Financial Risk • Liquidity (working capital or current ratio). • Solvency (debt ratios). • Revenue ratio. • Overall budget variances (for operational revenue, operational expenditure, capital revenue, capital expenditure). • Revenue sustainability (revenue forecasts compared to expenditure trends). • Unrestricted reserve levels.
LG Generic BSC (contd) Operating Capacity/Internal Processes • Corporate overheads as % of total expenditure. • Rate arrears ratio. • Percentage of bills paid on time. • Percentage of funded depreciation. • Internal and external auditor report issues. • Operating expenditure per capita (excluding depreciation) compared to similar councils.
LG Generic BSC (contd) Competencies, learning and innovation • Employee indicators: • average sick days per employee; • absenteeism; • leave liability balances. • Average training days per employee. • Innovative changes in the organisation. • Percent of revenue from innovative functions (special-purpose grants, private works, etc).
Align BSC/Strategy • Check each measure against strategy • What if not achieved – how would it affect the strategy?
Exercise • Identify one people/learning issue relevant to the strategy • Develop measurement options
Prepare Org for BSC • Business case • Executive support (champion) • Target audience • Data preparers • Systems and collation
Exercise • Identify target audience and their current imperatives
Determine Target Level • Top down • Bottom up (pilot study) • Cascading BSC’s • Key considerations: • Executive support • Data • Resourcing • Greatest need
Executive support Available data Resource for project Greatest need Exercise
Automate BSC • Data mapping • Data warehousing/EIS • Data capture->colation->presentation • Focus on data/knowledge management • Avoid gee-whiz stand alone systems • Start manually if necessary • Business driven not systems driven
Exercise • Identify one BSC measure and map data sources • Outline process to obtain and collate that data
Parting thought • It’s simple, but not easy!!
Contact details David Spearritt, Director, Orion Consulting Network email@example.com Ph: 1300 767 466