Balanced Scorecard Workshop

Presented by: Matt H. Evans, CPA, CMA, CFM Public Sector Retreat on Malcolm Baldrige Performance Excellence
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Purpose of the Workshop

Introduce the Balanced Scorecard to the Organization Make sure everyone understands how the scorecard works Communicate how the Balanced Scorecard fits with the Malcolm Baldrige Model of performance excellence

Table of Contents

I. II. III. IV. V. VI.

Balanced Scorecard Basics Creating the Strategy Map Good Performance Measurements The Final Scorecard Components Case Study Exercise Some Final Points

Why the Balanced Scorecard?

The Organization will become more strategically focused over the next ten years given the recent policy directive issued by BSP (Budget & Strategic Planning). People at all levels have relied heavily on tactical performance measurements, such as number of maps submitted, number of land structures in flow, and % of supply vendor contracts in place. Need more balanced approach to looking at performance, both tactical and strategic. Only 5% of a workforce tends to understand their companys strategy. 86% of executive teams spend less than one hour per month discussing strategy.

A Major Driver is . . .
The Organizations Information Resource Planning System (IRPS): - Enterprise wide system for how we will evaluate success division read outs, data turnarounds, global partnerships, etc. - Must be integrated into all agency components (such as region and global outlet offices) - Designed around the Balanced Scorecard framework The Balanced Scorecard will be the strategic view of performance for the agency, balancing out our current tactical view of performance which is already in place.

Government Performance Results Act

Required to develop long-term Strategic Plans ("SP") Specify general Goals and Objectives Develop Annual Performance Plans ("APP") Specify measurable performance goals Annual Performance Report ("APR") Demonstrate actual results APP goals should show the expected progress toward meeting the long-term goals of the SP
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Public Sector Organizations More Strategic Focus

Where it started . . .
Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that agencies execute their strategies. Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance.

Balanced Scorecards are used as the roadmap for creating the Strategic Management System or our IRPS. And this will drive overall organizational performance for our entire agency!
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Some Basic Principles

Quantifies the Agency Strategy in measurable terms Strategy is summarized on a Strategy Map over four views of performance (perspectives). Must capture a cause-effect relationship between strategic objectives over the four perspectives on the Strategy Map. Critical Components include: - Measurements - Targets - Initiatives Everything must be linked: Goals to Objectives, Objectives to Measurements, Measurements to Targets.

Four Views of Performance

Strategic Objectives

Strategy can be described as a series of cause and effect relationships. Provides a line of sight from strategic to operational activity working on the right things.

Stakeholders
If we succeed, how will we look to our stakeholders?

Internal Processes
To satisfy our customers, at which processes must we excel?

Learning & Growth

"To execute our processes, how must our organization learn and improve?"

Agency Investments
In order to succeed, what investments in people and infrastructure must we make?

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The Importance of Alignment

Complete Framework for IRPS Strategy

Agency Departme nt Team/ Individual

Objectives

Measures

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Alignment all the Way Through

Goal: Improve environmental health Performance Gap: Less than Organization watershed water quality Initiative: Data Mining Resource
Innovation
Improved "Cause and Effect" Knowledge

Investment Management Business Processes

Improved Environmental Assessment Reports Justified Initiatives to Improve Water Quality Investments Available to be Allocated to Other Critical Areas

Financial Management
Decreased Litigation Costs

Relationship Management
Enhanced Public Confidence Increased Investment Accountability

Environmental Health
Improved Water Quality

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In order to be successful, the Agencys IRPS should . . .

Be comprised of a balanced set of a limited vital few measures; Produce timely and useful reports at a reasonable cost; Display and make readily available information that is shared, understood, and used by the Agency; and Supports the organizations values and the relationship the organization has with customers, suppliers, and stakeholders.
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Before we can map your strategy . . .

Get down to a set of quantifiable strategic objectives: Too vague More precise
Improve Customer Service Reduce average customer wait times by 30% by year end

Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.
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Table Of Contents

I. II. III. IV. V. VI.

Balanced Scorecard Basics Creating the Strategy Map Good Performance Measurements The Final Scorecard Components Case Study Exercise Some Final Points

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Strategy Map: Capture a Cause Effect Relationship from the Bottom Up

Stakeholder
More rapid and accessible services

Improved Returns on Investments

Internal Process

Economic Model Process

Reduce Re-Activities thru ABC/M

Establish Web Based Self Services

Learning & Growth

Expand Global Facility Reach

Leadership Development

Knowledge Management

Investments

Facilities and Fixed Assets

Human Capital

IT Infrastructure

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Two Special Techniques for Building Strategy Maps

General Rule of Thumb to ensure strategy map is developed both vertically and horizontally

The 4 to 5 Rule

Weak

Strong

Splitting the Perspectiv e

Way of pulling out both drivers and outcomes that match up against the core competencies of the business model Customer Perspective
Customer Growth Timely Delivery Retention Rate Pricing Quality Customer Satisfaction Service Reputation Outcomes Drivers

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Key Benefits of Strategy Maps

Articulates how the organization creates value for its constituents and legitimizing authority Displays key priorities and relationships between outcomes (the "what") and performance enablers or drivers (the "how") Provides a clear view of "how I fit in" for sub-organizations, teams, and individuals "Cascading the scorecard throughout the organization, and clearly mapping the various units and functions back to the organization or agency-wide map is critical to leveraging and ensuring alignment"

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Strategy Maps A Better Way to Communicate Strategy

Executive consensus and accountability: Building the map eliminates ambiguity and clarifies responsibility. Educate and Communicate: Build awareness and understanding of organization strategy across the workforce.

Ensure Alignment: Each sub-unit and individual link their objectives to the map.

Promote Transparency: Communicate with and educate constituents, partners, oversight bodies, and the general public.

Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan, 19 April 21, 2004, pg. 20

Multiple Choice Question Cause Effect on Strategy Map

The top perspective of the Balanced Scorecard is the final end results or outcomes we want to achieve. This perspective is called: a. Internal Processes b. Stakeholder / Customer c. Learning & Growth d. Agency Investments

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Multiple Choice Question and the answer is . . .

b Stakeholder / Customer are those who we ultimately serve and we must meet their needs and requirements. This is our final end result within the scorecard model. Balanced Scorecards tell you the knowledge, skills and systems that your employees will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific value to the market (customer) which will eventually lead to higher shareholder value (financial). Having Trouble with Your Strategy? Then Map It by Robert S. Kaplan and David P. Norton - Harvard Business Review

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Aligning the Scorecards

Once you have completed your strategy map, make sure it aligns with agencies or divisions you report up to. This overall alignment of scorecards throughout the entire Organization forms the Strategic Management System within IRPS. IRPS Organization Scorecard
Best Business Practices Expand Global Reach Expand the Skill Base

GOG Scorecard

Lean Processes

Improve Asian Footprint

Develop the Workforce

Agency Scorecard

Process Efficiency

Grow Globally

Highly Skilled Workers

Outlet Scorecard

Streamline Processes

Continue to Expand Range

Improve Employee Competencies

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Extend the Map into Measurements, Targets and Initiatives

Stakeholder

Strategy Map
Faster Service Access Detailed statement of what is critical to successfully achieving the strategy How success in achieving the strategy will be measured and tracked The level of performance or rate of improvement needed Key action programs required to achieve objectives

Internal Process

Self Service Applications

Lean Processes

Objective Description
Eliminate waste, reworks, and other errors in our processes

Measure
Number of Reworks

Target
2 per setup per month each Outlet Office

Initiative
Lean / Six Sigma

Process and Value Map Analysis

L&G

Web Enable Technologies

Investments

Invest in IT

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Alignment of Scorecard Components

Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy. Goal
Achieve Agency operational efficiencies with best practices in the private sector

Objective
Reduce Operational Service Costs by 50% over the next 5 years

Measurement
Cost per Outlet Office, Cost per Region, Cost per FTE

Target
5% - Year 1 10% - Year 2 15% - Year 3

Initiative
Activity Based Costing / Management

Reduce identified re- Waste Volume activities within Charts, Rework primary processes Tracking, Cycle by 80% over the Time End to End in next 3 years S-LX (5 of 7 Regions)

Waste stream Lean / Six Sigma reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75% 24

Multiple Choice Question Create a Tight Model

The Balanced Scorecard process captures a cause and effect relationship based on having all parts linked together. Strategic goals link down to objectives, objectives link down to measurements, and measurements link to: a. Mission b. Goals c. Budgets d. Targets

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Multiple Choice Question and the answer is . . . d Measurements should be linked to targets. We want a one-to-one relationship so that measurements are actionable to the Agency.

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Table Of Contents

I. II. III. IV. V. VI.

Balanced Scorecard Basics Creating the Strategy Map Good Performance Measurements The Final Scorecard Components Case Study Exercise Some Final Points

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The Context of Measurement

Performance Measurement is a process by which an agency / program / function / outlet office objectively assesses and evaluates the extent to which it is accomplishing a specific objective, goal, or mission. Performance measurement alone is incomplete. Performance Management is a systemic link between company strategy, Investments, and processes. Performance Management is a comprehensive management process.

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Why Measure Performance?

Enables decision making Manage by results Promote accountability Distinguish between program success and failure Allow for organizational learning and improvement Justify budget requests Optimize Investments Provide means of performance comparison Fulfill mandates Establish catalysts for change And so on

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Without Measuring, Decision Makers Have No Basis For:

Knowing what is going on in their enterprise Effectively making and supporting decisions regarding Investments, plans, policies, schedules, and structure Specifically communicating performance expectations to subordinates Identifying performance gaps that should be analyzed and eliminated Providing feedback that compares performance to a standard Identifying performance that should be rewarded

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Types of Measurements
Measure Type
Leading Lagging Input Output Outcome Objective / Quantitative Subjective / Qualitative

Definition

Example

Intermediate outcomes that Employee turnover rate predicts or drive bottom-line performance results Bottom-line performance Employee satisfaction rating results resulting from actions taken Amount of Investments, assets, Number of cashiers equipment, labor hours, or budget dollars used Units of a product or service Number of Value Meal orders rendered - a measure of yield fulfilled Resulting effect (benefit) of Customer satisfaction rating the use or application of an output Empirical indicators of Wait time performance Perceptions and evaluations Customer complaints of major customers and received as a % of total stakeholders customers served

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Examples of Measurements by Perspective

Stakeholder / Current customer satisfaction level Customer
Improvement in customer satisfaction Customer retention rate Frequency of customer contact by customer service Average time to resolve a customer inquiry Number of customer complaints

Internal Processes Number of unscheduled maintenance calls

Production time lost because of maintenance problems Percentage of equipment maintained on schedule Average number of monthly unscheduled outages Mean time between failures

Learning and Growth Percentage employee absenteeism

Hours of absenteeism Job posting response rate Personnel turnover rate Ratio of acceptances to offers Time to fill vacancy

Investment s % of facility assets fully funded for

upgrading % of IT infrastructure investments approved # of new hire positions authorized for filling % of required contracts awarded and in place

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Multiple Choice Question Appropriate Measurement

The measurement, % of employees following a supervisor approved competency model, would most likely be placed in which perspective of the Balanced Scorecard? a. b. c. d. Stakeholder / Customer Learning and Growth Agency Investments Internal Processes

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Multiple Choice Question and the answer is . . .

b this measurement relates to helping grow the workforce and this would most likely fit with the Learning and Growth perspective of the Balanced Scorecard.

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Some Basic Guidelines for Good Performance Measures

You should have at least one measurement for each objective. Measurements define or explain objectives in quantifiable terms: Vague => We will improve customer service Precise => We will improve customer service by reducing response times by 30% by year end. Measurements should drive change and encourage the right behavior. Should be able to influence the outcome.
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Selection Criteria for Performance Measurements

MEANINGFUL - related significantly and directly to organizations mission and goal VALUABLE measure the most important activities of the organization BALANCED inclusive of several types of measures (i.e. quality, efficiency) LINKED - matched to a unit responsible for achieving the measure PRACTICAL affordable price to retrieve and/or capture data COMPARABLE used to make comparisons with other data over time CREDIBLE - based on accurate and reliable data TIMELY - use and report data in a usable timeframe SIMPLE -- easy to calculate and understand

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Three Criteria Used for Agency Scorecard

1. Relevant Addresses an operational or strategic performance issue Is results- or outcome-focused Provides useful information to enable decision making Measurable Quantifiable and Objective Facilitates Analysis Can be done in a timely manner with high accuracy Data are available and collectable Actionable Can be tracked to an appropriate person or team responsible for the activity measured Measure relates to process inputs that can be controlled/adjusted to address concerns

2.

3.

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Scoring Measurements Against the Three Selection Criteria

A 0 or 1 in any column indicates that you need to revisit this measurement before implementation.

Measurement
% of Global Outlets that follow the end to end process defined in IRPS Number of score studies completed % of Region Centers using ABC Models to manage 65% of their allocation costs % of eligible employees who are participating in the Competency Model Development Program % of map points loaded and operational in GPS Tracking
0 = Does not apply 1 = Poor 2 = Acceptable

Relevant
3 3 3

Measurable
1 2 2

Actionable
2 3 3

3 = Good

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Multiple Choice Question Match the Objective to the Metric

Assume the Agency Plan has an objective: Improve the productivity of docking services at all stations. Which of the following measurements would be most appropriate for this objective? a. Number of reruns required to complete the docking service b. % of vendor contracts executed in 90 days c. Number of people completing the off-shore warranty training program d. % of supervisors who submitted budget action plans within 60 days of close-outs

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Multiple Choice Question and the answer is . . . a If we measure re-runs, this probably will give us some benchmark by which we can measure docking station efficiency and productivity.

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A Closer Look at How Things Link

Transportation Safety Example
Mission: Protect people and property

Strategic Goal #1: Reduce damage caused by motor vehicle accidents

Annual performance goal 1A: Reduce deaths per crashes to 1.10 per 100m miles traveled by 2005

Measure: Fatality rate per 100m miles traveled

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The Measurement Pyramid

Goal

Strategic/GPRA Goals End-Outcomes Longer-Term Intermediate Outcomes Shorter-Term Intermediate Outcomes & Outputs Outputs & Inputs

Outcome Performance Measures

Program
Program Performance Measures

Program Components
Program Component Performance Measures

Activities
Activity Performance Measures 42

Some Tools for Determining What to Measure

Program Logic Model
Inputs Process/ System Output Intermediate Outcomes End Outcome

Process Flow Causal Analysis

Desired Outcome
Prototype Product

Acceptable
To Market Results Of Testing

Not Acceptable
Back to Laboratory

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Top Ten Metrics in the Public Sector

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Outputs/Product Program Inputs Financial Indicators Work/Activities Timeliness of Services Internal Measures of Quality Operating Ratios Outcomes of Products or Services External Customer Service Equity of Services to Users

Source: GAO-GGD-92-65 Agency Use of Performance Measures

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Table Of Contents

I. II. III. IV. V. VI.

Balanced Scorecard Basics Creating the Strategy Map Good Performance Measurements The Final Scorecard Components Case Study Exercise Some Final Points

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How to Set Targets

Past performance trends per historical data. Performance levels of similar organizational units at a comparable level that facilitates benchmarking. Best practices across the agency, the public sector or the private sector. Must be at a preexisting high level of performance before you use this approach. For newly launched services, may have to establish a baseline per a prototype test and extend out from this point forward. For major strategic shifts, may have to set directly per the plan itself without regard for hard data.
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Checklist for Setting Targets

Targets match up with measurements, one to one. Targets require improving current levels of performance. Targets are a stretch, but achievable: they may require improvements to existing processes. Targets are quantifiable so that the target communicates if the expected performance was met. Long-term targets are established before shortterm targets. Financial/Budget related targets are established before non-financial targets.

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Examples of Targets
Average Turnaround Times at 8 days FY05 7.5 days Docking Sites FY06 Utilization Rate for Self Serve 10% FY05 Web Portal Rotation Internship Participation Rates 1,800 FY05 18% FY06 2,500 FY06 8 per sets 40% FY05 6.8 days FY07 25% FY07 3,900 FY07 10 per sets 65% FY05

Glider integration mapping tool Establish used for geo-sets baseline % of agency SES Levels 30% FY05 following IRPS from end to end for the entire year % funding through SEPCO for 30% FY05 space mapping

35% FY06

45% FY07

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Characteristics of Initiatives
Leader Sponsored Requires Investments people, funding, technology, etc. Has designated owners Includes deliverables or milestones Usually has time deadlines May be difficult to launch not resourced Could encounter obstacles people are confused, conflicts with other functions

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Initiatives should enable strategic execution

Initiatives
Value Mapping Project

Goals or Objectives
Improve identification and delivery of all agency services across the full stakeholder spectrum Improve the employee turnover and satisfaction scores Reduce agency costs and streamline our services for more direct service delivery Expand the overall knowledge base so that interfunctions can learn from one another

Employee Rotation Program Web Self Service Portal Common Knowledge Center

Customer Survey and Analysis Develop a more systematic process across the Tool Program entire agency to better connect to our customers Shared Service Center Tracking Reduce reworks and overlaps between our seven System shared service centers
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Going from Output to Outcome

When you first launch your Initiative, you probably want to use an Output Measurement. Once the Initiative is up and running, change your measurement to an Outcome to see if the Initiative is really having strategic impact.

Initiative
Lean Process / Six Sigma

Output Measurement

Outcome Measurement

Number of Projects Defined Overall reductions in errors, by Region reworks, and cycle times

Activity Based Costing / % of Service Center OutletsReductions in identified reManagement (ABC/M) with ABC Models in place activities per process study for Allocation Costs Employee Competency % of Employees who have Higher skill levels of employees Models a Competency Model in using the models place

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Strategic Themes
Describes an overall strategic direction Can improve the communication effectiveness of the Strategy Map Examples of themes: Innovative Services Lean Processes Adaptive Organization Realign our Core Competencies Reach the Stakeholder Group common set of objectives around a theme

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Multiple Choice Question Sequence Of Steps

The basic steps for creating a Balanced Scorecard include: A = Align your strategy map to other organizational units B = Create your strategic plan including goals and objectives C = Extend your strategy map into measurements and targets D = Map your strategy over four perspectives The sequence or order of these steps is (left to right): Step 1 a. A b. C c. B d. C Step 2 C A D B Step 3 B D A A Step 4 D B C D
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Multiple Choice Question and the answer is . . .

c Step 1 or B Start with your strategic plan Step 2 or D Map your strategic plan Step 3 or A Align your strategy map Step 4 or C Extend the strategy map into measurements and targets

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TABLE OF CONTENTS

I. II. III. IV. V. VI.

Balanced Scorecard Basics Creating the Strategy Map Good Performance Measurements The Final Scorecard Components Case Study Exercise Some Final Points

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Case Study Instructions

The following handout is an example strategic plan for the Western Agency Region Office (WARO). Your team has been assigned the responsibility of mapping the WARO Plan into a single strategy map. Each team will be assigned to a breakout room use post it notes on the large white template sheets Try to limit your objective boxes on the strategy map to no more than 20 per our 4 to 5 Rule. If you have time, you might want to consider arranging or grouping certain objectives together around themes. Each team will provide a 10-minute brief. You have 90 minutes to complete the case study exercise.
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TABLE OF CONTENTS

I. II. III. IV. V. VI.

Balanced Scorecard Basics Creating the Strategy Map Good Performance Measurements The Final Scorecard Components Case Study Exercise Some Final Points

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Making the connection to the Baldrige Criteria

Malcolm Baldrige Malcolm Baldrige
Leadership Leadership Human Resource Capital Human Resource Capital Business Results Business Results Process Management Process Management Strategic Planning Strategic Planning Customer Focus Customer Focus

Balanced Scorecard Balanced Scorecard

Learning & Growth Perspective Learning & Growth Perspective Learning & Growth Perspective Learning & Growth Perspective Measurements and Targets Measurements and Targets Internal Process Perspective Internal Process Perspective Strategy Map Strategy Map Stakeholder // Customer Stakeholder Customer Perspective Perspective 58

Automated System Overview - IRPS

IRPS is the Organizations Strategic Management System for creating the Strategically Focused Organization (SFO). The Strategic Management System Module within IRPS: Cascades scorecards down by folders Includes a web based training component Analytical tools include unit trends, service costing comparisons, strategy map gap analysis, alignment point scoring, and executive dashboard views sent to PDAs. IRPS Scorecard Module has the following features: - Project / Initiative Tracking with milestones - Automated Email Data Collection - Automated Report Distribution - Linking Capability to Agency Databases (such as SES, G-PAC, and Shared Service Docking Databases)
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Highlight Important Steps

Cascade and align strategy down to the Outlet level (and beyond personal scorecards) where execution takes place. Capture cause effect linkages as you cascade and align down. This will ensure that all of the Agency is moving in the same strategic direction. Identify and commit to projects and initiatives that will drive strategic execution. Establish performance outcomes in the form of measurements and targets. Review results on a regular basis within the Quarterly Leadership Briefings using the Balanced Scorecard framework.

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Additional Information
Training Slides (1) Performance Based Handbook (1) Performance Measurement Tool Kit (1) Formal Training: Offered Quarterly at the Central and Western Region Offices Annual Leadership Conference 2 Hour Workshop Web Based Training: IRPS SMS Option 6, self serve registration
(1)

Posted on the internet at: www.exinfm.com/workshop.html

Contact Information: Matt Evans, matt@exinfm.com,877-689-4097

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