Design an effective BSC

1. Design an effective BSC David Spearritt Director, ORION Consulting Network

2. 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

3. Principles • Organisational models • Benefits • Limitations

4. 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

5. Public sector organisational management cycle

6. Principles • Monitor progress towards strategy • Cause and effect relationships • Feedback loop – ongoing refinement • Measures used • Strategy • Not just measures collated by perspective

7. Strategy • For • BSC enables monitoring progress on strategy • Against • PS strategy often vague/motherhoods • Boston strategic planning school • PS more risk conscious

8. Charlotte BSC

9. Monitoring Tool • For • Simple/manageable monitoring tool • Against • Easy to miss something politically important • Weakens areas not measured

10. 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

11. Performance • For • Improves performance in key areas • Against • Highlights poor performance • Encourages manipulation of results

12. Trend • For • BSC => worldwide trend • Against • Just another fad • We’re different

13. Integration • For • Integrated/holistic device • Against • Reductionism culture • Detail, perfectionist culture

14. CEO/Dept Head • For • Assists CEO and Board • Helps monitor all aspects of organisation • Against • Exposes affected managers’ performance • Accountability=>vulnerability

15. Alternatives • Triple bottom line reporting • KPI’s • Executive information systems

16. Lame Excuses • Lack of data/information • Need new IT or BSC systems • Too expensive • Already have it • Other priorities

17. Other issues • Responsibility – who will manage BSC? • Allocation of resources • Staging implementation/expectations • Monitoring progress • Adapting to change

18. Conclusion Balanced Scorecard – Simple, but not easy Or Luck = preparation + opportunity

19. 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

20. Business Case • Drucker – ‘unless you have a case against, you don’t have a case for………’

21. 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

22. Exercise • Identify wiifm’s for decision makers

23. Choosing Effective Measures • Identify corporate and organisational issues to achieve strategy • Identify handles for each issue • Identify measurement options for each • Test/consult • Examples

24. 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 • §

25. 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.

26. 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.

27. 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).

28. Align BSC/Strategy • Check each measure against strategy • What if not achieved – how would it affect the strategy?

29. Exercise • Identify one people/learning issue relevant to the strategy • Develop measurement options

30. Prepare Org for BSC • Business case • Executive support (champion) • Target audience • Data preparers • Systems and collation

31. Exercise • Identify target audience and their current imperatives

32. Determine Target Level • Top down • Bottom up (pilot study) • Cascading BSC’s • Key considerations: • Executive support • Data • Resourcing • Greatest need

33. Executive support Available data Resource for project Greatest need Exercise

34. 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

35. Exercise • Identify one BSC measure and map data sources • Outline process to obtain and collate that data

36. Parting thought • It’s simple, but not easy!!

37. Contact details David Spearritt, Director, Orion Consulting Network david@orionco.net Ph: 1300 767 466