Balanced Scorecard Workshop Presented by: Matt H. Evans, CPA, CMA, CFM Public Sector Retreat on Malcolm Baldrige Perfor

1. Balanced Scorecard Workshop Presented by: Matt H. Evans, CPA, CMA, CFM Public Sector Retreat on Malcolm Baldrige Performance Excellence

2. 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

3. Table of Contents • Balanced Scorecard Basics • Creating the Strategy Map • Good Performance Measurements • The Final Scorecard Components • Case Study Exercise • Some Final Points

4. 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 company’s strategy. • 86% of executive teams spend less than one hour per month discussing strategy.

5. A Major Driver is . . . • The Organization’s 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.

6. Government Performance Results Act • Required to develop long-term Strategic Plans ("SP") • Specify general Goals and Objectives • Develop Annual Performance Plans ("APP") • Specifymeasurableperformance goals • Annual Performance Report ("APR") • Demonstrate actual results • APP goals should show the expected progress toward meeting the long-term goals of the SP

7. Public Sector Organizations –More Strategic Focus

8. 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!

9. 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.

10. 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. Four Views of Performance “If we succeed, how will we look to our stakeholders?” “To satisfy our customers, at which processes must we excel? "To execute our processes, how must our organization learn and improve?" “In order to succeed, what investments in people and infrastructure must we make?” Stakeholders Internal Processes Learning & Growth Agency Investments Strategic Objectives

11. The Importance of Alignment Complete Framework for IRPS Strategy Objectives Measures Agency Department Team/ Individual

12. Alignment all the Way Through Goal: Improve environmental health Performance Gap: Less than Organization watershed water quality Initiative: Data Mining Resource Investment Management Innovation Justified Initiatives to Improved "Cause Business Improve Water Quality and Effect" Processes Knowledge Investments Available to Improved Environmental be Allocated to Other Assessment Reports Critical Areas Financial Management Environmental Decreased Litigation Health Costs Relationship Improved Water Quality Management Enhanced Public Confidence Increased Investment Accountability

13. In order to be successful, the Agency’s 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 organization’s values and the relationship the organization has with customers, suppliers, and stakeholders.

14. Before we can map your strategy . . . • Get down to a set of quantifiable strategic objectives: Too vague More precise • Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values. Improve Customer Service Reduce average customer wait times by 30% by year end

15. Table Of Contents • Balanced Scorecard Basics • Creating the Strategy Map • Good Performance Measurements • The Final Scorecard Components • Case Study Exercise • Some Final Points

16. Strategy Map: Capture a Cause Effect Relationship from the Bottom Up More rapid and accessible services Improved Returns on Investments Stakeholder Reduce Re-Activities thru ABC/M Economic Model Process Establish Web Based Self Services Internal Process Expand Global Facility Reach Leadership Development Knowledge Management Learning & Growth IT Infrastructure Facilities and Fixed Assets Human Capital Investments

17. Two Special Techniquesfor Building Strategy Maps General Rule of Thumb to ensure strategy map is developed both vertically and horizontally Weak Strong The 4 to 5 Rule Way of pulling out both drivers and outcomes that match up against the core competencies of the business model Splitting the Perspective Customer Perspective Customer Satisfaction Customer Growth Retention Rate Outcomes Drivers Timely Delivery Pricing Quality Service Reputation

18. 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"

19. Strategy Maps – A Better Way to Communicate Strategy Educate and Communicate: Build awareness and understanding of organization strategy across the workforce. Executive consensus and accountability: Building the map eliminates ambiguity and clarifies responsibility. Promote Transparency: Communicate with and educate constituents, partners, oversight bodies, and the general public. Ensure Alignment: Each sub-unit and individual link their objectives to the map. Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan, April 21, 2004, pg. 20

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

21. 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

22. IRPS Expand the Skill Base Expand Global Reach Best Business Practices Organization Scorecard Develop the Workforce GOG Scorecard Improve Asian Footprint Lean Processes Highly Skilled Workers Process Efficiency Grow Globally Agency Scorecard Outlet Scorecard Streamline Processes Continue to Expand Range Improve Employee Competencies 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.

23. Extend the Map into Measurements, Targets and Initiatives Strategy Map 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 Stakeholder Faster Service Access Self Service Applications Objective Description Measure Target Initiative Lean Processes Internal Process Lean / Six Sigma Eliminate waste, reworks, and other errors in our processes 2 per setup per month each Outlet Office Number of Reworks Process and Value Map Analysis Web Enable Technologies L&G Invest in IT Investments

24. 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.

25. 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: • Mission • Goals • Budgets • Targets

26. 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.

27. Table Of Contents • Balanced Scorecard Basics • Creating the Strategy Map • Good Performance Measurements • The Final Scorecard Components • Case Study Exercise • Some Final Points

28. 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.

29. 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…

30. 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

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

32. Examples of Measurements by Perspective Internal Processes Stakeholder / Customer • Current customer satisfaction level • 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 • 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 Investments • % 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 • Percentage employee absenteeism • Hours of absenteeism • Job posting response rate • Personnel turnover rate • Ratio of acceptances to offers • Time to fill vacancy

33. 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. Stakeholder / Customer b. Learning and Growth c. Agency Investments d. Internal Processes

34. 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.

35. Some Basic Guidelines forGood 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.

36. 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

37. Three Criteria Used for Agency Scorecard • 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

38. Scoring Measurements Against the Three Selection Criteria A “0” or “1” in any column indicates that you need to revisit this measurement before implementation. 0 = Does not apply 1 = Poor 2 = Acceptable 3 = Good

39. 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

40. 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.

41. A Closer Look at How Things Link Transportation Safety Example

42. The Measurement Pyramid Goal Outcome Performance Measures Program Program Performance Measures Program Components Program Component Performance Measures Activities Activity Performance Measures Strategic/GPRA Goals End-Outcomes Longer-Term Intermediate Outcomes Shorter-Term Intermediate Outcomes & Outputs Outputs & Inputs

43. Some Tools for Determining What to Measure Prototype Product Acceptable Not Acceptable Results Of Testing Back to Laboratory To Market Program Logic Model Process/ System Intermediate Outcomes End Outcome Inputs Output Process Flow Causal Analysis Desired Outcome

44. Top Ten Metrics in the Public Sector • 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”

45. Table Of Contents • Balanced Scorecard Basics • Creating the Strategy Map • Good Performance Measurements • The Final Scorecard Components • Case Study Exercise • Some Final Points

46. 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 pre-existing 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.

47. 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 short-term targets. • Financial/Budget related targets are established before non-financial targets.

48. Examples of Targets

49. 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

50. Initiatives should enable strategic execution