Balance Score Card Diana Rodriguez PID # 1941693 Professor: Dr Lee. Fall 2007 EIN 5322 Engineering Management

Balance Score CardBalance Score Card

Diana RodriguezDiana RodriguezPID # 1941693PID # 1941693

Professor: Dr Lee.Professor: Dr Lee.

Fall 2007 Fall 2007

EIN 5322 Engineering EIN 5322 Engineering ManagementManagement

ContentContent1.1. Definition and HistoryDefinition and History

2.2. Perspectives and key performance indicatorsPerspectives and key performance indicators

1. Financial

2. Customer

3. Internal Business Processes

4. Learning & Growth

3.3. Problems associated to KPIProblems associated to KPI

4.4. ImplementationImplementation

1.1. Strategy focus (step 1)Strategy focus (step 1)

2.2. Assessment (steps 2-5)Assessment (steps 2-5)

3.3. Change planning and implementation (step 6)Change planning and implementation (step 6)

4.4. Continuous improvement (steps 7-8) Continuous improvement (steps 7-8)

ContentContent

5. Actual use of balance scored cards5. Actual use of balance scored cards

6.6. Software application for BSCsSoftware application for BSCs

1.1. Software products and prices Software products and prices

Definition & HistoryDefinition & HistoryBalance Score CardBalance Score Card

A new approach to strategic management was A new approach to strategic management was developed in the early 1990's by Drs. developed in the early 1990's by Drs.

Robert Kaplan (Harvard Business School) Robert Kaplan (Harvard Business School) and David Norton. They named this system and David Norton. They named this system

the 'balanced scorecard'. Recognizing the 'balanced scorecard'. Recognizing some of the weaknesses and vagueness of some of the weaknesses and vagueness of

previous management approaches, the previous management approaches, the balanced scorecard approach provides a balanced scorecard approach provides a clear prescription as to what companies clear prescription as to what companies should measure in order to 'balance' the should measure in order to 'balance' the

financial perspective. financial perspective.

Definition & HistoryDefinition & History

Balance Score CardBalance Score Card

a concept for measuring whether the a concept for measuring whether the activities of a company are meeting its activities of a company are meeting its

objectives in terms of vision and objectives in terms of vision and strategy. By focusing not only on strategy. By focusing not only on

financial outcomes but also on the financial outcomes but also on the human issues, the balanced human issues, the balanced

scorecard helps to provide a more scorecard helps to provide a more comprehensive view of a business comprehensive view of a business which in turn helps organizations to which in turn helps organizations to act in their best long-term interests act in their best long-term interests


Since the original concept was

introduced, balanced scorecards have become a fertile field of theory

and research, and many practitioners have diverted from the

original Kaplan & Norton articles. Kaplan & Norton themselves

revisited the scorecard with the benefit of a decade's experience

since the original article.


A balanced scorecard is a central list of numbers, which show each

key part of an organization's success, such as financials,

people, operations, suppliers, customers, and support systems.

The numbers should measure not just important outcomes, but also the factors which influence,

or drive, those outcomes.

Definition & HistoryDefinition & HistoryThe point of a balanced scorecard is to:

• Align all members of an organization around common goals and strategies

• Link initiatives to the strategy, making prioritization easier

• Provide feedback to people on key issues - notably, areas where they can have an impact

• Be an essential decision-making tool for everyone in the organization

PerspectivesPerspectivesThe balanced scorecard suggests that we view the organization The balanced scorecard suggests that we view the organization

from from fourfour perspectives, and to develop metrics, collect data perspectives, and to develop metrics, collect data

and analyze it relative to each of these perspectivesand analyze it relative to each of these perspectives: :

CustomerLearning &

Growth

Financial

Processes

Vision &Strategy

Key performance indicatorsKey performance indicatorsKey Performance Indicators (KPI) are financial and non-financial metrics used to quantify

objectives to reflect strategic performance of an organization. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring. KPIs are frequently used to "value" difficult to measure activities such as the benefits of leadership

development, engagement, service, and satisfaction

PerspectivesPerspectives

The Financial The Financial PerspectivePerspective

Kaplan and Norton do not Kaplan and Norton do not disregard the traditional disregard the traditional need for financial data. need for financial data.

Timely and accurate Timely and accurate funding data will always funding data will always

be a priority be a priority

Key performance indicatorsKey performance indicatorsThe Financial PerspectiveThe Financial Perspective

Key performance indicatorsKey performance indicators

Cash flow ROI Financial result Return on capital employed Return on equity


The Business Process PerspectiveThe Business Process Perspective

This perspective refers to internal This perspective refers to internal business processes. Metrics based on business processes. Metrics based on this perspective allow the managers to this perspective allow the managers to

know how well their business is know how well their business is running, and whether its products and running, and whether its products and

services conform to customer services conform to customer requirements (the mission).requirements (the mission).


The Business Process PerspectiveThe Business Process Perspective

Key performance indicatorsKey performance indicators Number of activities Opportunity success rate Accident Ratios Defect Rates

PerspectivesPerspectivesThe Customer The Customer

PerspectivePerspectiveRecent management Recent management philosophy has shown philosophy has shown

an increasing an increasing realization of the realization of the

importance of importance of customer focus and customer focus and

customer satisfaction customer satisfaction in any business. in any business.


The Customer PerspectiveThe Customer Perspective

Key performance indicatorsKey performance indicators Delivery performance to customer – by date Delivery performance to customer – by quantity Customer satisfaction rate Customer retention


The learning and growth PerspectiveThe learning and growth Perspective

This perspective includes employee training and This perspective includes employee training and corporate cultural attitudes related to both corporate cultural attitudes related to both individual and corporate self-improvement.individual and corporate self-improvement.

Key performance indicatorsKey performance indicatorsThe learning and growth PerspectiveThe learning and growth Perspective

Key performance indicatorsKey performance indicators Investment rate Illness rate Internal Promotions % Employee Turnover Gender/Racial Ratios

Problems Problems Key performance indicatorsKey performance indicators

It is difficult or impossible to measure the It is difficult or impossible to measure the performance indicators exactly required to a performance indicators exactly required to a particular business or process objective. particular business or process objective.

Often a rough guide rather than an exact Often a rough guide rather than an exact measurementmeasurement

Once a KPI is created, it becomes difficult to Once a KPI is created, it becomes difficult to change them as your yearly comparisons with change them as your yearly comparisons with previous years can be lostprevious years can be lost

If it is too inhouse, it may be extremely difficult If it is too inhouse, it may be extremely difficult for an organization to use its KPIs to get for an organization to use its KPIs to get comparisons with other similar organizations.comparisons with other similar organizations.

ImplementationImplementation

The approach to change focuses attention on the critical The approach to change focuses attention on the critical few performance measures that drive success, few performance measures that drive success, eliminating non-essential metrics that add complexity eliminating non-essential metrics that add complexity and cost through a four-phase and cost through a four-phase balanced scorecardbalanced scorecard

This approach present 8 steps to develop an strategic This approach present 8 steps to develop an strategic implementation of balance score cards in a companyimplementation of balance score cards in a company

ImplementationImplementation

ImplementationImplementationI. Strategic FocusI. Strategic Focus

Step 1. Define Strategy SpecificsThe specific strategy is the foundation for performance measures

What are the most important business objectives for the organization to achieve?

What “driver” results — for example, employee commitment, retention of high performers, and customer focus — are critical to achieve these objectives?

What “drivers” — for example, leadership, training, diversity, and values — impact performance on these driver results?

ImplementationImplementationII. AssessmentII. Assessment

Step 2. Audit existing measures

• Assessment of the fit between strategy and the existing measures.• Examination of the measurement processes in your organization.


Step 3. Develop new driver and performance measures

•Develop new measures as needed; Using tools like: employee survey.•Wherever possible, existing measures are incorporated to ensure continuity.


Step 4. Apply new balanced scorecard

Use tools that make them easier to understand and to implement; Examples: balanced scorecard's dashboard of performance metrics.


Step 5. Analyze and report

Analysis is a critical element of strategic assessment. At this step in the process, a linkage analyses can be performed to identify the relationships between the employee data and the performance in key areas such as customer satisfaction, productivity, employee retention, and financial performance.

ImplementationImplementationIII. III. Change planning & ImplementationChange planning & Implementation

Step 6. Implement improvement plans

This process embeds the balanced scorecard and its measures in the day-to-day working life of the organization, spreads awareness of the impact of effective people management, and initiates the necessary change processes.

ImplementationImplementationIV. Continuous Improvement IV. Continuous Improvement

Step 7. Track improvement with balanced scorecards

Leading organizations continuously track performance on their people measures. Ongoing tracking measures the short-term impact of improvement efforts and identifies emerging issues quickly.

ImplementationImplementationIV. Continuous Improvement IV. Continuous Improvement

Step 8. Continuous improvement through balanced scorecards

By re-embarking on the cycle once again, and cascading it down (or across, or up) to other levels, while continuing to track key measures and re-set goals, organizations can create and support continuous improvement programs which will provide a long-lasting competitive advantage

Actual usage of the balanced Actual usage of the balanced scorecardscorecard

Companies are using the scorecard to:

• Clarify and update budgets • Identify and align strategic initiatives • Conduct periodic performance reviews to learn about and improve strategy.

Software ApplicationsSoftware ApplicationsSoftware packages are available that provide some ability to automate the reporting of Balanced Scorecard information. Meanwhile, many firms choose to use standard office software (such as spreadsheets, word processors, presentation software) to provide the same

functions as are provided by commercial software packages - trading the time taken to develop the appropriate templates in the packages and then use them against the typically high cost of commercial Balanced Scorecard software packages / services.

Software ApplicationsSoftware Applications

• Crystal Decisions Balanced Scorecard Solution

Key Features : Cause and effect diagrams. Multiple-level scorecard support, from the individual to the enterprise. Data and text driven from industry-standard RDBMS. Integration with the data warehouse and many other data sources. Identification of potential problems and opportunities using the Highlighter view. Weighted scores view (high-level performance overview based on achievement). Multi-dimensional access to textual commentary. Powerful Performance Indicator Engine (PI Engine) for practical data-handling issues.


Host Scorecard

•Key Features : This web-architected Balanced Scorecard and Dashboard software provides the ability to: - Easily access the organizational strategy, vision, and mission - Add and Link Objectives and Key Performance Indicators - Weight measures/objectives/scorecards - Add Initiatives (Action Plans) and track progress on projects - Enter feedback and notes related to any measure, initiative, or objective - Create and view multiple hierarchies for scorecards – ex. Corporate Scorecards and Strategic Business Unit (SBU) Scorecards


•KPI Scorecard Enterprise Edition

Key Features : - Monitor all your financial and non-financial KPIs. - Instantly determine performance levels with Traffic Light reporting. - Produce easily interpreted and actionable one page scorecard reports. - Automatic graph, text and table development. - Export your reports into pdf, MS Word, MS Excel and even MS PowerPoint. - Extremely easy to use.


•Microsoft Office Business Scorecard Manager

Key Features : Optimizing Business Performance and Strategic Decision-Making Business Scorecard Manager is a comprehensive scorecard and dashboard application that provides knowledge workers with deep contextual insight into business drivers. Information is delivered in a collaborative environment for effective business management and action in the performance-driven organization. A Microsoft Office product, Business Scorecard Manager empowers employees to build, manage, and use their own scorecards, reports, and visual resources using familiar tools.


• Power*Scorecard

Key Features : Fully automates the process of Balanced Scorecarding. Web-Enables the administration and the viewing of Scorecards. Provides a Scorecard page at every level of the organization. Ensures that individual objectives are in support of departmental and corporate objectives. Provides quick access to supporting data. Provides ability to graph organizational performance and to drill-down on the

Documents

Balance Score Card Diana Rodriguez PID # 1941693 Professor: Dr Lee. Fall 2007 EIN 5322 Engineering Management