Balanced Scorecard

Balanced Scorecard

Alan EdwardsRisk Manager, State of Utah

[email protected]

Objective of the DAS Balanced Scorecard Project

Increase efficiency and productivity within the Department of Administrative Services through the creation of a balanced scorecard

• Identify or reassess “value drivers” that are key to achieving the mission of the department and division

• Enable leadership to manage more effectively and respond to trends more quickly

• Focus attention on the few activities that will most affect results

• Improve performance of the DAS

What is the balanced scorecard?

• A balanced scorecard is a management tool that allows managers to lead through monitoring the performance of an organization on the few but vital set of activities and measures the drive enterprise success

Why is balance essential?

• A scorecard is ‘balanced’ when it focuses not just on financial dimensions but also other vital areas such as employees, customers, processes, and any other area crucial to the success of the organization

Guiding principles for effective scorecards

• KPIs must have strong and clear linkage with organization vision, strategy and goals

• KPIs must be owned by those who will be accountable

• Must be measurable with available data that is easily trackable

• KPIs must be balanced to include financial and non-financial metrics as well as leading & lagging metrics

• Performance should be assessed on the ‘vital few’, not the ‘trivial many’ KPIs

• Targets must be set appropriately so that they are a stretch but achievable; they should be reviewed frequently

• Must cascade up/down so that achievement of lower level KPIs ensures company reaches its corporate goals

• Organization buy-in is critical and requires that metrics and targets are accepted by each organization

Linked

Controllable

Measurable

Balanced

Focused

Appropriate targets

Cascaded

Buy In

After identifying candidate metrics linked to division strategy, filter down to ‘vital few’

• Metric owner influences/controls outcome measured

• Input data available, objective and comparable over time

• Duplication and “non-priority” metrics removed

• Leading and lagging financial and non-financial metrics

Initial set of metrics (50+ potential metrics)

Controllable

Measurable

Focused

Mix

‘Vital Few’(target <15 metrics per scorecard)

Key learnings from past balanced scorecard projects

• Focus on the few metrics that will have the highest practical impact

• Learn by doing: continue to refine metrics and replace as needed

• Engage people from multiple levels of the organization in developing metrics to ensure buy-in

• Develop a plan early on for collecting relevant data

• Don’t be afraid of red: the scorecard is your friend

Utah State Risk Management

Balanced ScorecardMission: Deliver risk management services needed by customers at a below-market cost of risk while exceeding customer expectations.

Metric Metric Definition

Customer Satisfaction

Customer satisfaction survey Level of customer satisfaction (scale of 1 to 5)

Level of participation in the Risk Management Fund when participation is optional

Percentage of all state school districts voluntarily participating in the Risk Management Fund

Financial

Savings in customers’ insurance rates when compared to commercial market prices

Risk Management’s average discount percentage from commercial market rates

Financial strength of the Risk Management Fund (ability to pay claims)

Percentage of Retained Earnings as a Percentage of amounts allowed by federal guidelines

Cost of risk Comparative Results

Employee Satisfaction

Employee satisfaction survey Level of employee satisfaction (scale of 1 to 5)

Process Excellence – Effectiveness

Use of best practices, timeliness and quality of claims handling by our internal adjusters

Overall best practices grade from outside audit.

Level of compliance by covered entities with Risk Management’s risk control guidelines

Percentage of entities receiving full credits for risk control activities

Process Excellence – Efficiency

Average budget of covered entities handled by each Risk Management FTE

Dollars of covered entities’ budget divided by Risk Management FTE’s

State of Minnesota– Operational Plans

STRIMA Conference

September 18-22, 2005

Presented by: Phil Blue, Director

Risk Management - Minnesota

PurposeDiscuss Operational Goals

established by Risk Management

Division of Minnesota Department

of Administration

Topic of Discussion

Go over selected operational goals which have the dual objective of

1) keeping the Risk Management Division on track to achieve its objectives, and

2) keeping management apprised of goals and what was actually accomplished.

Operational Goals

Revenue & Expense Staffing Marketing Objectives Expense Ratio vs. Industry Subrogation Recovery vs. Industry Claim Count Non-Insured Tort Claims

Budget vs. ActualBudget by Fund –Revenue & Expense

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey

Issues

Budget 100 220 200 250 770

Actual 80 180 210 240 710 XXX

Var. ($) -20 -40 10 -10 -60

Var. (%) (20%) (18%) 5% (4%) (8%)

Budget vs. Actual (cont’d) If, in any measurement

category, the variance is equal to or greater than plus or minus 5%, an explanation is required.

These results are also graphed.

Budget vs. Actual (cont’d)Marketing Calls Plus New Business


Issues

Target 8 14 14 14 50

Actual 8 13 14 14 49 XXX

Var. 0 (1) 0 0 (1)

Var. (%) 0% (7%) 0% 0% (2%)

Budget vs. Actual (cont’d)Budget by Fund – Expense vs. Industry


Issues

Target 55% 60% 60% 60% 60%

Actual 49% 54% 42% 49% 51% XXX

Var. 6% 6% 18% 11% 9%

Var. (%) 11% 10% 30% 18% 15%

Budget vs. Actual (cont’d)Budget by Fund – Subrogation vs. Industry-APHD


Issues

Target 200% 200% 200% 200% 200%

Actual 200% 205% 192% 204% 200% XXX

Var. 0% 5% (8%) 4% 0%

Var. (%) 0% 2% (4%) 2% 0%

Budget vs. Actual (cont’d)Budget by Fund – Maintain average ratio of

claims closed to new claims at 100%


Issues

Target 100% 100% 100% 100% 100%

Actual 96% 96% 94% 104% 98% XXX

Var. (4%) (4%) (6%) 4% (2%)

Var. (%) (4%) (4%) (6%) 4% (2%)

Budget vs. Actual (cont’d)Non-Insured Tort Claims – Maintain average ratio of claims closed to new claims at 100%


Issues

Target 100% 100% 100% 100% 100%

Actual 96% 96% 94% 104% 98% XXX

Var. (4%) (4%) (6%) 4% (2%)

Var. (%) (4%) (4%) (6%) 4% (2%)

Auto Liability GraphAverage Claim Cost

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

1998 1999 2000 2001 2002 2003 2004 2005

Fiscal Year

Cla

im A

vera

ge

& T

ota

l In

curr

ed

0

1,000

2,000

3,000

4,000

5,000

6,000

Cla

im C

ou

nt Fiscal Year

Total Incurred

# of claims

Average

Always strive for better and more meaningful operational measurements

Other Measurements

Accidents per million miles driven Percentage of claims in suit Customer service - response time New system implementation goals Succession planning

Good luck in establishing your goals.

Examples

Division of Risk ManagementDivision of Risk ManagementFlorida Department of Financial ServicesFlorida Department of Financial Services

Overview of State of Florida Overview of State of Florida Risk Management ProgramRisk Management Program

The Division of Risk Management administers the state’s self-insurance program and training for the safety/loss control coordinators of each state agency in the program 0 employees – all offices in Tallahassee Receives approximately 18,000 -20,000 new claims

each year all lines Current annual program revenues of $169 million

dollars administered through the State Risk Management Trust FundFunded on a “cash flow” basis so that only the

estimated cash needs of the program are funded each year with no reserve funding to cover any portion of the total estimated ultimate liabilities of the program

Division of Risk Management Division of Risk Management Program ResponsibilitiesProgram Responsibilities

Provides six major types of “insurance” coverage to State of Florida agencies by administering a self–insurance pool Processes claims filed against state agencies for these

coverages Collects premiums from participating state agencies

to pay claims Purchases private insurance as necessary to control

risk exposure of state agencies Provides assistance to state agencies in the areas of

loss preventionloss control

Major Coverage Lines ProvidedMajor Coverage Lines Provided

Workers’ compensation state employee injuries Property state owned buildings and contents General liability state agency premises and

operations Auto liability state employees on state business Federal civil rights actions of state officials alleged

to have violated someone’s civil rights Employment discrimination actions of state

employees violating employment discrimination laws

DEVELOPING PERFORMANCE DEVELOPING PERFORMANCE MEASURESMEASURES

DIVISION MISSION:

The mission of the State of Florida Risk Management Program is to ensure that participating State agencies are provided quality workers’ compensation, liability, federal civil rights, auto liability, and property insurance coverage at reasonable rates by providing self-insurance, purchase of insurance, claims handling, and technical assistance in managing risk.

BUREAU MISSIONSBUREAU MISSIONS

Bureau of Property, Financial and Risk Services Mission: To provide property claims adjusting services to participating

state agencies, to provide financial and cash management services to the Division of Risk Management, and to provide risk management training and consulting services to participating state agencies.

Bureau of State Employees’ Workers’ Compensation claims

Mission: To provide quality claims service to injured state employees at a reasonable cost to state agencies.

Bureau of State Liability Claims Mission: To provide quality claims service to our customers.


GOALS/OUTCOMES

* Flow from the Mission and are more specific

*Example: Process and pay 95% of all workers’ comp. medical bills and indemnity benefits timely

ACTIVITIES

* Actions that lead or move toward the achievement of a goal.

*Example: Processing benefits on workers’ compensation claims


OUTPUTS

* Specific products or services that are being delivered through actions.

*Example: Number of benefit payments made timely in accordance with statutory requirements and Division of Workers’ Compensation Rules.


OUTCOME/PERFORMANCE INDICATORS

* Allows an organization to determine if it is successful in achieving its goals.

*Example: At least 95% of Workers’ Compensation claim benefits are paid within statutory requirements and Division of Workers’ Compensation rules.


*Inputs: The resources needed/used to produce outputs

* Efficiency: The cost effectiveness of the inputs in relation to the outputs

DIVISION OF RISK MANAGEMENT PERFORMANCE MEASURES

The Bureau of Property, Financial & Risk Services MISSION: The mission of the Bureau of Property, Financial & Risk Services is to provide property claims adjusting services to participating state agencies, to provide financial and cash management services to the Division of Risk Management, and to provide risk management training and consulting services to participating state agencies.

CAS/Excel Spreadsheet.locations.made.notifications.coordinators

at targetednotificationscondition analysis to agency safety

in claims reportedhazardous conditionand hazardousand provide loss trend

Percent reductionNumber of Loss trend analysisAnalyze agency claim data

III. Risk Services Section:

CAS/Excelrate.timeframe.Issue checks.IAW FS 215.422

complianceprompt payment Process all payments

Prompt paymentissued within

Number of checks

II. Financial Section:

property insurance policy.Rate on Line.coverage obtained.insurance.excess property insurance.

Broker of Record/Excess property insuranceexcess property Purchase most beneficial

Amount of excessPurchase

I. Property Section:

INFORMATION SOURCEOUTCOMEOUTPUTACTIVITYGOAL

The Bureau of State Employees' Workers' Compensation Claims

MISSION: Provide quality claims service to injured state employees at a reasonable cost to state agencies.

CAS and data from previous years

Maintain a constant claim cost rate as a percentage of state payroll, thereby stabilizing program cost to state agencies.

Workers' Compensation Benefit Cost RateHandling WC claims

Maintain the WC Benefit Cost Rate within 10% of the average of previous three fiscal years.

CAS

At least 95% of WC claim benefits are paid within statutory requirements and Division of WC Rules

Benefit payments made timely in accordance with statutory requirements and Division of WC Rules

Processing benefits on WC claims

Process and pay 95% of all medical bills and indemnity benefits timely.

Customer Satisfaction Survey

The average score of the Customer Satisfaction Survey indicates that our overall claims adjustment service is "good" or "excellent".

1. Number of WC claims worked 2. Customer Satisfaction Survey resultsHandling WC claims

To provide quality claim services to our customers.

Information SourceOutcomeOutput'sActivityGoals

The Bureau of State Liability Claim

MISSION: Provide quality claims service to our customers.

Goals Activity Output Outcome

To adjust (investigate, evaluate, settle, deny and defend) claims efficiently and economically.

To provide quality claims adjustment services to our customers, state of Florida

agencies.

Claims handling. Claims handling. Customer Satisfaction

Survey.

Number of claims closed during fiscal year as compared to the number of new claims received.

Total claim expenditure for fiscal year.

Number of Customer Satisfaction Surveys sent to state of Florida agencies.

The number of claims closed during a fiscal year will equal or exceed the number of new claims received.

At least 90% of respondents to the Customer Satisfaction Survey indicate

that our overall claims adjustment service is “good” or “excellent”.

The total liability claim expenditure for each fiscal year is reduced, or any increase will not exceed the increase in the Consumer Price index, resulting in a reduction of cost to state of Florida agencies.

Risk Management Program Performance Measures

Michael M. Kaddatz, CPCU, ARMARM Tech/Aon Risk Consultants

Irvine, California

[email protected]

…Executive management needs perspective

Executive

Is it justus experiencing

significant change?

…Risk managers need perspective

Risk Manager

Are underwriters singling

us out?

What have others done to find solutions

to market pressures?

…The search for best practices

Why not use data rather than hearsay to find out who may be doing better?

..Helps set priorities

Given limited time and resources, where

is the low hanging fruit in achieving better cost efficiency?

…Supports needed change

If our state’s rate of loss exceeds the norm, we need to initiate

action

Two Surveys Completed The learning

has begun!

Data for

COST of RISK is readily available

CAFR

Actuarial Study

Insurance Schedules

Budget

Cost of Risk …

Definitions can be set to approach an

apples-to-apples comparison

… VOLUME-ADJUSTS itself by using denominator specific to each participant

… is risk-specific (Tort, WC, Auto, Property, etc.)

Cost of Risk …

Expense Categories

Paid Losses

Insurance / Reinsurance Premiums

Claims Administration Costs

Other Costs

• Risk Management Department

• Actuarial / Other Consulting

• Loss Control Tort Auto WC Prop Total

Losses

Premiums

Claims Admin

Other

Total

Core Risk Categories

Tort Liability

Automobile Liability

Workers Compensation

Property

Tort Auto WC Prop Total

Losses

Premiums

Claims Admin

Other

Total


Losses

Premiums

Claims Admin

Other

Total

State of Perfection2004 Cost of Risk

( $ Millions)

3.3 1.5 12.9 2.8 20.5


Losses

Premiums

Claims Admin

Other

Total


( $ Millions)

12.9

0

1.2

0.5

14.6


Losses

Premiums

Claims Admin

Other

Total


( $ Millions)

3.3 1.5 12.9 2.8 20.5

0.3 0.3 0 2.0 2.6

0.1 0.1 1.2 0.1 1.5

0.2 0.1 0.5 0.1 0.9

3.9 2.0 14.6 5.0 25.5

57%

14%

8%

21%

Risk $ by Risk Category

52%

32%

6%

10%

All Participants

Property Auto LiabilityWorkers Compensation Tort

State of Perfection

Risk $ by Expense Type

5%4%

50%

41%

All Participants

Premiums LossesOther Costs Claims Admin

State of Perfection

6%4%

80%

10%

Risk Categories - Peripheral

Crime

Auto Physical Damage

Aircraft / Airports

All Other Coverages

J64.5

T46.6

P30.2

R14.1

Q6.9

S5.8

N5.7

A5.2B

2.3

K2.8

C1.3

G1.1

M3.6

0

20

40

60TORT Risk Financing Costs = [Premiums] + [Paid Losses] + [Claims Admin Costs]

Tort Risk Financing Costs ($ Millions)

Tort Risk Financing Costs as a Percentage of Operating Expenditures (%)

T.61

J.42

A.17

N.08Q

.06G

.05S

.04

P.25R

.23

C.03

M.03

B.04

K.21

.0

.2

.4

.6TORT Risk Financing Costs as Percentage of Operating Expenditures = [TORT Risk Financing Costs] / [Operating Expenditures]

WC Total Program Costs ($ In Millions)

T76.4

P46.7S

41.4J

40.9

Q29.4

R20.8M

14.6A11.6

N11.5

B10.6

C16.3

G2.7

K2.6

0

25

50

75

100WC Total Program Costs = [Risk Financing Costs] + [Actuarial or Other Consulting Costs] + [Loss Prevention Costs] + [Central Risk Management Costs] + [All Other Costs]

WC Risk Financing Costs as a Percentage of Operating Expenditures (%)

T.999

A.386R

.333C

.309S

.301J.264

Q.263

K.193

B.177

P.385

M.107

G.132

N.162

0.0

0.3

0.5

0.8

1.0WC Total Program Costs as % of Operating Expenditures = [WC Total Program Costs] / [Operating Expenditures]

WC Total Program Costs per $100 of Payroll ($)

P3.23

C3.05

T2.26S

2.01

Q2.46

J1.19

R1.07

A.92K

.53N

.50G

.49M

.46

B1.43

0

2

4

6

8WC Total Program Costs per $100 of Payroll = [WC Total Program Costs] / [Payroll / 100]

Number of WC Claims per 100 Employees (FTEs)

S18.5

K13.9Q

13.3

N10.6

C7.8

T6.3

P8.4

A7.0

G4.8

B4.9

M5.1

R5.6

J5.6

0

5

10

15

20

Number of WC Claims per 100 Employees = [Number of WC Claims] / [Number of Employees / 100]

Property Total Program Costs per $100 of Property Values ($)

T.188

J.169

Q.116

G.099

M.034

R.051

N.058

A.062

S.084

P.091

B.098

C.099

K.110

0.00

0.05

0.10

0.15

0.20PR Total Program Costs per $100 Property Values = [PR Total Program Costs] / [Property Values / 100]

% of Personnel Charged to RM Budget by Primary Duty

31%

(General or multi function risk tasks)

13%

(Loss prevention)

6%

(Risk financing)

49%

(Claims handling)

Choosing Bases

Relevant

Consistent

Readily Available

Verifiable

Meet to Discuss Survey Content 1Develop Draft Survey 30Finalize and Mail Survey 60Receive Survey and Check Data 120Complete Data Tabulation 150Distribute Draft Results 160Review Draft 190Finalize and Distribute 210

Day

Timeline

Tort Risk Financing Costs as a Percentage of Operating Expenditures (%)

23

60

4547

35

2830

2523

8

15

10

0

25

50

75

2001 2002 2003 2004

State MALL SYSTEMSState of Perfection

Tort Total Program Costs as Percentage of Operating Expenditures= [Tort Program Costs] / [Operating Expenditures]

Other Risk Metrics

Limits as % of Operating Expenditures

# of Auto Claims per Licensed

Vehicle

% of WC Claims that are Lost Time

Paid and Incurred Losses

“No States are like mine”

“Our data is different”

>> SOLUTION: Normalize !

I”If we look bad, I may lose face with my peers”

>> SOLUTION: Masked data reporting

“I don’t have any time to fill out the survey”

>> SOLUTION: Data shortcuts and sources

The perfectionist …“Survey elements don’t quite fit”

>> SOLUTION: Incremental change

Maybe no free government grants…but ANSWERS to QUESTIONS

What’s our Cost of Risk?

What direction is it headed?

What are the cost drivers?

Documents

Balanced Scorecard