BSC Designer – Balanced Scorecard Software

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According to our surveys, one of the most important BSC Designer’s functions for our clients is reporting. Visualizing data and exporting it into convenient format makes it possible for employees to easily present the information to the higher level of management as well as to investors and shareholders. The latest version of the tool allows users to create: several types of HTML – based reports (Export to HTML, HTML report for selected item, Overview report, Dashboard report for the whole project and for selected item, Strategy Map report), MS Excel report and MS Power Point report. Common HTML report is already available for BSC Designer Standard. In the previous article called “Reports with BSC Designer” a common HTML report was described; it actually is still available in BSC Designer Standard and Pro. But now BSC Designer Pro allows to customize this report using its special HTML Report Builder.

But our program’s development had not stopped on this wide range but created feature to improve the tool’s report functioning even more!

We are glad to introduce you the function of customizing the HTML report! Now with BSC Designer Pro you are available to:

• Set maximal number of characters in description length for Overview report (so even long element’s descriptions will fit to the Overview report);
• Select the location of graphs, presented in HTML report separately for categories and for indicators (select between placing graphs in one or two columns; you can choose different orders for categories and for indicators);
• Select what types of graphs to present in HTML report separately for categories and for indicators (select the order of different types of graphs placement and specify what exact types of graphs you need to present data separately for categories and for indicators).

How to work with Report settings (Report builder)

Let’s see how to set up reports using BSC Designer Pro. A real example of creating HTML reports, which are set up in different ways will be described and shown.

Launch BSC Designer Pro and open one of the projects (the default one will be used in our case). The next step to be recommended is filling the project with random values. This function allows the reports to show all its functionality by filing the project with values for the selected period of time. If you already had a chance to use time points in your project (if your project is already filled with values for different dates), it would be better for you to skip this step. Check out the article called “How to manage time points with BSC Designer” to learn more about the calendar function and time points management, it provides. To fill the project with random values, click on “Tools” button on the top menu and select “Fill with random values” sign. All right, we have just filled our project with values for different time points within the selected period.

When we have got values of indicators for different dates, the dynamics appeared for the project, so it could be presented in report. Now let’s try to create HTML report without changing anything in report settings. Click on “Reports” button on the top menu and select “Export to HTML” sign. The new dialog window will appear; select a time period of one week and make the report advanced. Check out the article called “Reports with BSC Designer” to learn how to work with pre-settings of the HTML report and what every option presented here actually mean. Opening the report, which has just been created, we will see HTML file, which includes information for all the elements starting with Balanced Scorecard (the whole project) and finishing with the indicators. As for graphs, presented in this report, we will see the following:

Diamond diagram, Time chart, Pie diagram and Absolute Weight chart
are presented for the categories

Time chart, Optimization chart, Absolute Weight chart and Gauge diagram
are presented for the indicators

Here you may check out the full report for the default project filled with random values and time points with default HTML report settings.

Opening Report Builder

But using Report Builder, available in BSC Designer Pro, we can now change the order of placement and the types of graphs appeared in the HTML report! To enter the Builder click on “Reports” button on the top menu and select “Report Options” sign. The following window will appear:

Report builder of BSC Designer Pro, default configuration

The configuration, the Report Builder shows when you open it for the first time, is default one. According to these settings, the previous HTML report was created and it also is the only configuration, available in BSC Designer Standard (Standard version does not include this Builder).

Now the builder options will be described and the examples of different configurations will be shown.

“Max description length in Overview Report” option

“Max description length in Overview Report” option does not change HTML report somehow – its purpose is to make an Overview report (find more information about Overview Report in the article “Reports with BSC Designer: Overview and Dashboard”) to present all the text of descriptions for project tree elements (both the categories and the indicators). The number, you will input to this field, will be the maximal number of characters of description, presented in Overview Report.

Let’s try to change max description length in Overview report so such description as “All the financial and accounting related data, showing the financial situation in company. The values of indicators of this category help informing the answer to the question “How do we look to shareholders?” for the category named “Financial Perspective” will fit in Overview report. Our example for description contains 196 characters, when the default configuration is set up to maximum of 80 characters. Input “196” (or bigger number) instead of “80” into “Max description length in Overview Report” field in the Report Options dialog field and click “OK” button to apply changes. Now let’s try to create the Overview report (“Reports” -> “Overview Report”), all the description text should now be presented:

Overview report now presents all the description’s text

Here you may check out the full version of the Overview Report for the project.

1 or 2 columns placement

The choice between 1 column and 2 columns placement is a choice of the order for graphs to be placed in HTML report. By default it is configured for the two columns placement (which could be more convenient to view on a computer’s display) but it could be changed to one column placement (which could be more convenient to view in printing version or in some other cases). As you can see on the image above, there are separated options for categories and for indicators, so you are able to select one column placement for categories but two columns placement for indicators or otherwise. Customize the appearance of graphs, presented for elements in the HTML report the way, you actually want!

Let’s change the order of graphs placement this way: leaving 2 columns placement for the indicators but selecting 1 column placement for the categories. Click on “OK” button in the Report Options dialog field to apply changes and create HTML report (“Reports” -> “Export to HTML”).

Configuration of HTML Report with different orders of graphs placement for the categories and the indicators

Charts placement order for the categories have been changed, it is now 1 columns placement order

Charts placement order for the indicators have not been changed, it is still 2 columns placement

Here you may check out the full version of the HTML Report for the default project, filled with random data and time points, with Report Option configured this way.

Selecting types of graphs and the order of diagrams and graphs appearance

The most useful function, Report Builder provides is selecting types of diagram to appear in reports. Actually at the moment the tool offers 6 diagrams and charts to present different aspects of project’s data. Find more details about any of the diagrams in the articles: “How to visualize data with BSC Designer: diagrams and charts” and “Gauge diagram added! HTML reports updated!”. Here we will just mention the list of the diagrams and charts available in BSC Designer:

• Time chart presents data both for the categories and for the indicators. Available in both Standard and Pro BSC Designer versions;
• Optimization chart presents data only for the indicators. Available in both Standard and Pro BSC Designer versions;
• Pie diagram presents data both for the categories and for the indicators. Available only in BSC Designer Pro version;
• Absolute Weight chart presents data both for the categories and for the indicators. Available only in BSC Designer Pro version;
• Gauge diagram presents data both for the categories and for the indicators. Available only in BSC Designer Pro version;
• Diamond Chart presents data only for categories, which include at least three elements (indicators or subcategories). Available in both Standard and Pro BSC Designer versions.

Now let’s reconfigure the HTML report so it could show some other types of diagrams and charts, than it was with the default settings. Open the Report Builder (“Reports” -> “Report Options”) and select some types of diagrams and charts separately for the ceategories and for the indicators. Let it be Pie diagram, Time chart, Optimization chart and Gauge diagram for indicators and Diamond chart, Time chart, Absolute Weight chart and Gauge diagram for the categories. When the types of diagrams and charts are selected, click “OK” button to apply changes. After the configuration is applied, create the HTML report to see how it looks (“Reports” -> “Export to HTML”).

Configuration of HTML Report with different types of graphs appearance for the categories and the indicators

The HTML report, created with this Builder configuration: graphs for the categories

The HTML report, created with this Builder configuration: graphs for the indicators

Here you may check out the full version of the HTML Report for the default project, filled with random data and time points, with Report Option configured this way.

Expert_KPI Articles, Features, Screenshots

Summary

Bridgeport Hospital, a private, not-for-profit hospital in Connecticut, needed to improve its financial management.  The hospital had been operating at a loss despite being adequately funded, and also needed to find a way to make excellence in customer care and employee retention relevant to financial goals. The Balanced Scorecard approach helped Bridgeport to improve fiscal responsibility while improving in key service delivery areas.

Introduction

Bridgeport Hospital, located in Bridgeport, Connecticut, is part of the Yale New Haven Health System. This private, not-for-profit acute care hospital has 425 licensed beds, more than 2,600 employees and 550 active attending physicians representing more than 60 subspecialties.

Bridgeport Hospital provides nearly 250,000 patient care visits annually, including 20,000 admissions; nearly 230,000 total outpatient visits to the hospital (including more than 72,000 emergency department visits and 35,000 clinic visits); 7,200 same-day surgery visits, and 38,000 outpatient rehabilitation visits.

The Challenge

Financial pressures, including federal funding changes and an overall shift towards outpatient care has resulted in widespread downsizing and closures among hospitals in the U.S. Operating margins at U.S. hospitals were, on average, 20% lower in 2001 than they were four years earlier.  These challenges are forcing hospitals to attend more rigorously to the financial aspect of their business.  However, patient care is still at the core of what they do, and they must find ways of building patient care metrics into their management models.

Bridgeport Hospital, a member of the Yale New Haven Health System, needed to address the financial realities of a challenging funding and operational environment while maintaining an ongoing commitment to excellence in patient care.  Quality, patient satisfaction and staff retention were key areas that the hospital wanted to improve, and they needed to find a way to connect those pursuits to financial outcomes.

Additionally, Bridgeport knew that they had not been completely efficient in allocating funding towards their operations; despite being adequately funded, they were operating at a loss. They needed to find a way to use their capital more effectively and make it stretch further towards organizational excellence.

The Solution

The Balanced Scorecard gave Bridgeport a framework for connecting quality clinical outcomes, expert clinical care providers, satisfied patients, doctors and staff, volume and market share growth to financial measures.

The hospital began by bringing together management groups to map a course to financial health.  The leadership team, along with the board of directors and medical and administrative staff crafted three scenarios for future success.  Clinical priorities that fit these scenarios were further refined with the help of external community physicians, and ultimately the three scenarios were merged to create a single vision for the future.  The vision was supported by four perspectives: organizational health, quality and process improvement, volume and market share growth and financial health.

As part of the quality initiative, Bridgeport tasked Employee of the Month Award winners to craft an accountability system that translated excellent customer service into a series of simple, measurable activities known as the Service Contract. The contract was made up of seven daily commitments, such as, “I will introduce myself to patients 100% of the time,” “I will be sensitive and aware of cultural diversity,” and, “I will keep patients and families informed.” Adherence to the Service Contract was taken into consideration during employee evaluations, and accounted for 50% of the merit increase they could be given.  This gave employees a clear and performable set of behaviors that are directly linked to compensation.

The Balanced Scorecard was also instrumental in helping the hospital to collaboratively prioritize capital budget items.  In the first year, the leadership team used the Scorecard to set budget items, but in year two, they were able to tabulate specific scores for budget items listed under each of the four perspectives.  Items with weaker scores were given lower funding priority.

This process has allowed clinicians and senior management to increase their understanding of the clinical and other dimensions of care.  It has also transformed a fairly political process into one that is team-oriented and goal-driven, bringing physicians, clinicians and lay managers together in an open collaboration towards common goals.  What used to be determined behind closed doors by the finance department is on openly evaluated in a transparent and understandable process.

The Result

The Balanced Scorecard has given the organization a shared language, which is especially crucial for an organization made up of so many highly skilled, diverse and strong-willed professionals.  Clinicians are now able to think in terms of financial impacts, and non-clinicians are able to better understand the clinical measures required for excellence in patient care.

Annual strategic planning takes far less time since the implementation of the Balanced Scorecard, because only the metrics change.  The plan remains essentially unchanged from year to year.

After one year of Balanced Scorecard implementation, Bridgeport had achieved significant improvements in several key areas.  They were able to lower the turnover rates among registered nurses and overall staff to exceed the human resources target they had set. Bridgeport met their goals for providing a certain volume of care in all care areas, and exceeded their goal for cardiovascular surgery and diagnostic cardiac catheterization. And perhaps most importantly, patient satisfaction and customer preference increased.

While achieving improved performance in a number of areas, the hospital also met its financial goals.   They were able to increase the price of their managed care services, stay below the allocated staffing budget and achieve supply chain savings of $750,000 in excess of their goal.

Trademarks mentioned in this article belongs to the respective owners.

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Balanced Scorecard experts, people who do Balanced Scorecard design and implementation shares their opinion about Balanced Scorecard.

CEOs of large companies and small companies are unified by their common need to execute strategy. It has been reported that nine out of ten companies fail to execute their strategy. Much of this problem has been due to the fact that companies typically do a poor job communicating and translating the strategy to managers and frontline employees…

For performance measurement, companies can always turn to dashboards. However, what must be understood about dashboards is that they report tactical (not strategic) business information. In other words, dashboards measure the performance of business processes and typically do not have a clear link to the organizational strategy…

Read more insights about Balanced Scorecard in interview with Henry Killackey, Jr., Managing Partner and Educational Services Manager at Global Institute for Management.

All companies large and small need to have scorecards that lead to the 3 Rs of business; i.e., everyone doing the Right things, and doing them Right, at the Right time…

…it is important to have a natural balance rather than a forced balance; e.g., don’t want to sacrifice quality for improved on-time delivery…

Find more ideas about Balanced Scorecard in interview with Forrest W. Breyfogle III, Smarter Solutions, Inc.

What is clear from our experience is that Balanced Scorecard serves a slightly different purpose in a small firm compared to a large one – and this affects how you go about designing the Balanced Scorecard and subsequently how you use it…

Many Balanced Scorecard implementations fail to deliver the value their sponsors hoped for.  The most common reason appears to be a simple one – that the managers within the organisation simply don’t use the Balanced Scorecard.  If it isn’t used, it is hard to see how a Balanced Scorecard is going to do any good…

Detailed analysis of balanced scorecard concept as is exists today in interview with Gavin Lawrie, Managing Director at 2GC Active Management.

The most important factor for BSC success is the executive leader’s support of the balanced scorecard as a critical tool for strategy management and as a way of life…

The balanced scorecard is for everyone in the organization. This means that the balanced scorecard should be cascaded to all departments/business units and teams – both operating and support units. This is the only way to ensure successful strategy execution…

Sandy Richardson, BSc, MEd;  President and Managing Consultant at Strategy Focused Business Solutions Inc. shares ideas about Balanced Scorecard in interview with us.

• Find more interviews with Balanced Scorecard experts in “Interviews” section

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10 questions to Balanced Scorecard Expert Henry Killackey, Jr., Managing Partner and Educational Services Manager at Global Institute for Management

1.    Please, summarize in few words what is your expertise and background with Balanced Scorecard.

I have instructed large and small companies on how to construct strategy maps and Balanced Scorecards. I have created e-learning courses covering the fundamentals of strategic planning and establishing performance measures. I have authored several articles describing the role of the Balanced Scorecard in improving business process management and risk management. Also, I served as a conference producer for the Palladium Group / Balanced Scorecard Collaborative.

2.    It is known that Balanced Scorecard is used by more than 50% of Fortune companies. Do you think this concept is for big companies only?

Absolutely not. CEOs of large companies and small companies are unified by their common need to execute strategy. It has been reported that nine out of ten companies fail to execute their strategy. Much of this problem has been due to the fact that companies typically do a poor job communicating and translating the strategy to managers and frontline employees. The Balanced Scorecard is a tool that facilitates strategic execution through serving the organization as a management system, a means of communicating business results and a process of change.

3.    While BSC concept is popular now, what other business performance measurement concepts can you recommend for companies to consider?

For performance measurement, companies can always turn to dashboards. However, what must be understood about dashboards is that they report tactical (not strategic) business information. In other words, dashboards measure the performance of business processes and typically do not have a clear link to the organizational strategy. The Balanced Scorecard, in contrast, is tied directly to strategy. The strategy is articulated through a strategy map which shows the direct linkages between strategic objectives within the four perspectives (financial, customer, internal process, learning/growth) of the Balanced Scorecard. Performance measures, targets, and initiatives emerge out of each of the strategic objectives of the strategy map.

4.    Please, share your opinion about key ideas that should be kept in mind for successful implementation of BSC?

First, upper management has to fully support and sponsor the BSC. If their support for this system is lukewarm, then its implementation will fail. Second, management needs to take the time to articulate and translate the organizational strategy. Patience is required with building and establishing consensus around the strategy map. There is often a temptation to shop around for a reporting tool right away but the problem with rushing to the process of building measures is that hastily built measures do not have a firm strategic foundation to stand on. A properly constructed strategy map is a solid foundation on which to build meaningful performance measures and initiatives that effectively assess the organization’s progress in executing its strategy.

5.    The BSC is a business performance measurement concept, but should only top managers and CEO use it? Or should it be used company-wide? Should BSC be implemented in all departments or for instance only in HR?

For the BSC to be effective in facilitating the execution of strategy, it needs to be cascaded throughout the organization. Cascading requires the participation of managers at all levels of the organization to translate the strategy and articulate the relevance of strategic objectives to each department, team and individual. Cascading can and should result in the alignment (or connectivity) of the corporate, departmental, and individual levels of the organization. It is important to remember that strategy is communicated from top to bottom (executives to frontline employees) and that execution begins with the individual.

6.    While there are certain benefits of BSC, do you see there any limitations or possible problems? Some areas where BSC does not work properly or is inefficient.

Over the last three years, the topic of initiative management has gained importance. The BSC has been brought into many organizations where other management systems such as lean, Six Sigma and TQM are used. When multiple management systems come together, there can be a problem with information overload amongst employees. This clash of management systems, in many instances, can result in a growing list of initiatives for driving business performance. Each of these management systems can drive action, but they do not always integrate to ensure organizational alignment. Integration can cause confusion at times because operations and process managers who work with Six Sigma have to get used to monitoring the Balanced Scorecard. Senior managers who use the Balanced Scorecard for assessing strategy execution have to understand Six Sigma as a means of achieving strategic objectives. While the BSC does lead the organization to generate strategy-focused initiatives, it does not provide a consistent method for prioritizing initiatives. Executives and managers have to take responsibility in organizing and prioritizing initiatives which is something the BSC cannot do on its own.

7.    The BSC concept is discussed widely. What do you think, if most companies understand the importance of BSC development? Are they willing to invest in BSC? Is it hard to get decisions makers to conclusion that it is necessary to use BSC?

The process of buy-in takes time. Without buy-in, there can be no successful implementation or usage of the BSC. From an organization’s executives and managers, there has to be a realization that there is a need to execute strategy.

Leaders have to ask themselves why they are truly considering the BSC. Has the organization lost its competitiveness through following an outdated strategy? Has strategy become too complicated for the organization to understand? Or does the organization simply need to better understand the performance of its business processes to diagnose problems? If an organization truly understands its strategic needs, then buy-in for the BSC has a higher likelihood. But if the organization is looking to fix its business processes and is not sure of its strategic needs, then buy-in for the BSC does not have a favorable likelihood. There is no purpose in selling the BSC to a company that really needs a dashboard for gauging process performance. An organization truly has to understand its own needs.

8.    The practical implementation is always as important as theory itself. There are a lot of ways to implement BSC from simple Excel files to software, web-based services and full integration with company business system. What do you think is the best implementation strategy in terms of quality/price? What type of tools would you use to do implementation?

The type of tool that is used should be determined by the size and budget of the company that is having its BSC implemented. A small company, for instance, with 100 employees and a very limited budget can use Excel or it can purchase one of the many affordable web-based services that have emerged in the last two to three years. Many of the web-based services have monthly “pay-as-you-go” subscription plans that spare the client from the obligation of a contract. What I’ve noticed about some of the web-based services is that they have a high level of user friendliness (data can be easy to find and objectives can be easily built) which is ideal for a small company that may have limited experience with business performance management solutions. A Fortune 500 company, on the other hand, has more options at its disposal. This type of company is going to be concerned with such issues as cascading scorecards and having access to real-time performance information to name a few. The name brand software solutions are going to offer more choices in terms of scorecard adaptability, integration, and performance reporting.

9.    There are companies that already use BSC, we read about them in business magazines, we read their case-studies and success stories.  What advice would you give companies that just start considering the implementation of Balanced Scorecard concept?

My advice to companies that are just starting out with a BSC implementation is to not just perceive the BSC as a reporting tool. Your BSC will do more for the organization than just show business results. It is a management system that gets managers and stakeholders focused on action through initiatives. It is a process of collaboration that requires feedback from managers, business units, and individual employees for the formulation of strategic actions and initiatives. The BSC is also a facilitator of change. A company cannot move toward achieving objectives unless it is willing to adapt and evolve. If you can think of the BSC as something more than a reporting tool, you will realize that the BSC is worth the effort required with implementation.

10.    Thank you very much for your answers. I think our readers would like to know more about your company and service you provide. If possible share also your detailed experience with Balanced Scorecard here.

The Global Institute for Management (GIM) is the leading provider of educational services that enable organizations to overcome the challenges that prevent the achievement of optimal performance. Our core competencies include strategy management, risk management and organizational leadership. We provide educational products that come in a variety of formats which include e-learning, live workshops and in-house training.

Here are a few samples of our thought leadership:

The Balanced Approach to Managing Risk (featured in Information Management)

Seeing Red: Integrating Balanced Scorecard and Six Sigma (featured in iSixSigma)

Bringing the Balanced Scorecard Back to Life (featured in iSixSigma)

We are able to help you build your BSC. Visit us at www.gimanagement.com

• Find more interviews with Balanced Scorecard experts in “Interviews” section

Expert_KPI Interviews

Summary

Facing a new competitive landscape, Rockwater, a deep-sea engineering and construction company, needed to find ways of building closer relationships with their customers and providing better service while maintaining profitability.  The Balanced Scorecard helped them establish customer feedback channels, boost service levels and identify ways to reduce the cost of doing business.

Introduction

In 1993, Rockwater was a global leader in underwater engineering and construction and a wholly-owned subsidiary of Brown & Root/Halliburton.  The company’s service offerings included commercial diving, scour and erosion, underwater coatings and installation of marine structures, and their customer base was the oil companies whose deep-sea oil rigs they serviced on a regular basis.

The Challenge

Having grown from a small and relatively low-tech deep-sea repair and construction diving company, Rockwater had weathered keen competition in the 1980s and emerged in a strong position.  However, they were now facing a changing competitive landscape, in which the offshore oil-drilling companies who made up their customer base were now seeing the benefits of establishing long-term partnerships with their suppliers, instead of choosing them based on competitive pricing alone.Rockwater had to align themselves with these new expectations with a renewed focus on customer service and building robust customer relationships.  The winning formula for customer loyalty needed to be articulated and translated into tangible goals and actions.

The Solution

Rockwell used the Balanced Scorecard to develop a new vision statement that made customer relationships the focus.  The CEO and senior management team developed the following vision: “As our customers’ preferred provider, we shall be the industry leader in providing the highest standards of safety and quality to our clients,” and created five strategy elements in support of that vision:

• Services that surpass customers’ expectations and needs
• High levels of customer satisfaction
• Continuous improvement of safety standards, costs and effectiveness
• High-quality employees
• Realization of share-holder expectations

These five strategy elements were then expressed in four different perspectives: financial, customer, internal and growth.  Each perspective was translated into a clear set of performance measures that could be supported through co-ordinated organizational activities at all levels.

To support the financial perspective, the senior management team developed three measurements geared towards long- and short-term shareholder value: return-on-capital-employed and cash flow monitored short-term returns, which forecast reliability showed the company’s commitment to predicting and managing longer-term performance.

To support the customer perspective, the team established a two-tiered system for customer management and recognition.  The two-tier approach addressed the realities of staying cost-competitive, while allowing the company to deliver more value to customers looking for a deeper, more stable relationship. Tier 1 represented customers who wanted to build long-term relationships with suppliers, and who placed the value of services rendered above cost.  To cater to these customers, they engaged an independent organization to conduct monthly and annual customer satisfaction surveys. Tier 2 was made up of customers who chose services solely on the basis of cost.Rockwater made sure they were still able to attract these customers by using an in-depth price index.

To ensure internal processes were optimal, the team tracked the life cycle of a project, from launch (recognizing the customer’s need) to completion (meeting that need successfully), and developed measures to evaluate five phases in each cycle: identify, win, prepare, perform, close out.  Linking internal processes along a life cycle continuum was a significant departure from the way Rockwell perceived their internal processes.  Formerly, they had established performance levels for each department separately, instead of integrating key business processes and establishing overall performance measurements.  This helped them to refine the metrics used for identification stage, and to highlight the importance of this time-intensive stage for project success.

The growth perspective included product and service innovation as well as improvement in financial, customer and internal process performance.  The effectiveness of product and service innovation was measured by the percentage increase in revenue from new services.  Financial, customer and internal processes were measured using an index of a range of improvements in safety and repeat business.  The Rockwater team recognized that success in both areas relied on empowered and motivated employees.  To support this, a staff survey was conducted to measure attitude, along with metrics that tracked the number of employee suggestions submitted. And to hook employee motivation back into a clear performance metric, the revenue generated per employee measured the outcomes of these employee commitment and training programs.

The Result

Implementing a Balanced Scorecard showed Rockwater that they needed to move from a department-based to a process-based view of operations and helped them recognize the need for customer feedback metrics.  It also helped them to become a high-value, service- and results-driven organization, focused on fostering close relationships with long-term customers, but also able to compete on a pure cost basis. The customer surveys, in particular, gave Rockwater a deeper more responsive relationship to their customer base. And by creating better feedback on the cost of doing business, Rockwater uncovered the significant, hidden, indirect costs of safety incidents, which they addressed with an integrated Scorecard safety index.  The Balanced Scorecard was acknowledged by the company CEO as an invaluable tool in helpingRockwaterbecome number one in their industry.

Trademarks mentioned in this article belongs to the respective owners.

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Cascading: conclusion

Indicative and Imperative KPIs

It is not a secret that in practice the system of budgetary management receives unflattering recalls and censures for the completely avoidance a company strategy, i.e. there is no direct connection of the budget of development (constituted on three – five years for fulfillment of KPIs of the Innovation and Learning and Internal Process Perspectives) and the master budget (the system of the interconnected budgets approved for no more than a year). At the same time, if the process of construction of budgetary management model is performed in coordination with the strategy, formulated in terms of KPIs, such system is really capable to solve the problems facing to top management of the company, referring to the corporate administration. To implement the model of KPIs to the multi level companies’ management systems (with the need of organizing cascading: the process of distribution of authorities and responsibilities for indicators among the lower hierarchy level subsystems’ managers and specialists) it is rational to divide KPIs into the following groups:

• “Indicative” indicators;
• Imperative (control) indicators.

The quantity indicative KPIs correlates with the purposes and processes of the services and divisions, associated with them. Examples of such KPIs could be: “Quantity of document circulation per week”, “Quantity of specialized exhibitions per season” and others. So “indicative” indicators can be both leading, and lagging.

Imperative (control) indicators are creating by the top hierarchy levels of management and their quantity is the same as the quantity of Perspectives, the top level categories, including the overall sum of the subcategories and KPIs. All the imperative indicators are actually lagging ones. These indicators are needed for top management (it also can be a management company) to control the performance of lower level management (it also can be an enterprise or a factory). Thus it is supposed that target values of control indicators are formed by the higher level management (or company) in an exclusive order and “lowers” them downwards for fulfillment. The purpose of lower level management is to form the target values of indicative KPIs the way, so: on the one hand, their achievement will be directly connected and aimed to achieve the imperative KPIs target values; from the other hand, they could direct the resources (Human, Financial and others) to full-scale realization of strategic goals. At the same time, to maintain of integrity of the management system, the overall set of indicative and control KPIs needs to be determined for all chain of management beforehand. such managerial technique promotes realization of a principles of Management by objectives (МВО). MBO concept’s important statement is all levels of management hierarchy to be involved in process of achieving strategic goals, using the language of KPI as all – fits – one to organize well functioning cascading and both ways feedback (for example, orders <-> reports).

The map of the article

• Part 1: This part introduces the basic statements of KPI based management. Also it defines the term KPI;
• Part 2: BSC management system’s methodology;
• Part 3: Leading and Lagging indicators concept as an inherent part of KPI based management;
• Part 4: This part presents the basic criteria of what KPI to include in the map;
• Part 5: Cause and effect relations between KPIs;
• Part 6: The beginning of Cascading description: classification of indicators for management according to their importance
• Part 7: Conclusion of Cascading description: Indicative and Imperative KPIs

Expert_KPI Articles, Balanced Scorecard Theory

Cascading

One of the most important purposes of management is performing well organized cascading. Cascading could be determined as the process of distribution of authorities and responsibilities for indicators among the lower hierarchy level subsystems’ managers and specialists.

It needs to be mentioned that the cause and effect relations between indicators, presented in the map of KPIs, are mostly not function (can not be presented in a way of mathematical formulas). For example, the achievement of desired performance value for such budgeting indicator as “the percentage of innovation investment” (a part of Innovation and Learning perspective) does not cause directly improvement of the value of such indicator as “Cleanliness of metal fusion” (Internal Process

Perspective), but it creates «strategic base» to achieve this improvement. It means, it usually needs a lot of managerial work to focus human resources as well as other type of resources (and for example, financial) to achieve the target value of some indicator.

Classification of indicators for management according to their importance

While creating a model of KPI based management for the certain company, it needs KPIs for management to be divided into the following groups according to their importance*:

• KPI of strategic type;
• KPI of standard type.

KPI of strategic type are linked directly with the company’s strategy. The achievement of target values of such indicators cause significant changes in the whole company. It needs for managers to initiate and monitor the set of complex activities, usually in different hierarchy levels, to achieve the target values. It needs active management’s initiatives: the actions leading to essential “break” of one of process aspects (for example, product’s quality, automation, department and operation group management system construction, and others). Strategic KPIs usually show the nature of Strategic Plan referring to the language of measurement, being whole company’s first – priority. The last but not the least is that Strategic KPIs’ target values present the competitive advantage, the company is aimed to.

As for standard type of KPIs, its values could be supported by managers to be frozen within some particular interval in short term period. Oppositely to strategic KPIs, standard ones are linked directly neither to the strategy, nor to operational management. A good example of such KPI could be “current liquidity coefficient” indicator; its value could easily be supported by managers to be limited within the interval from 2 to 2.25.

In needs to be noticed that considering indicator to belong to standard or strategic depends on the strategic plan, top managers created and approved. The more important the KPI is, referring to strategic plan, the closer it comes to be considered strategic. The process of division the indicators into those two groups is an important company’s activity, because it needs a well optimized resources distribution for the strategy to be realized. Considering every indicator to be strategic, the company might face shortage of resources when it comes up to realize the strategic goals via directed operational activities. A good example of the importance of resources distribution according to the company’s strategic goals could be a work of subsystem of budgeting. Read more about cooperation of BSC (a type of KPIs based management concept) and the subsystem of budgeting in the article: “BSC and the systems of management: BSC and the Budgeting system”.

Plans (budgets) in the given context are meant as plans in the quantitative expression, displaying achievement of KPIs. Since the model of the interconnected plans and budgets needs to guarantee the consistency of the information in budgets, this instrument should be implemented to the process of balancing target values in model KPI. Thereupon the expanded demands are needed to be made to a planning and budgeting subsystem, integrated in the company: this subsystem should become the basic instrument of quantitative planning and modeling within the whole company. For example, the standard indicator of the “turn-around time of a debt receivable” can be calculated on the basis of the given operating budgets. In turn, it is necessary to form a special development budget, in addition to basic types of budgetary management subsystems, for the monitoring of KPI’s values of strategic type (for example, “The market share”, “Cleanliness of metal fusion”) could be performed as well. This special development budget (for example, the budget of investments, the budget of capital investments) needs to be aimed to realization of long-term projects with the established budgets (in contrast with achievement of certain target significances of data KPI).

(*) The importance of KPIs could also be presented and measured using a weight value parameter. Most of dashboards, aimed to support KPI and BSC management concept, provide weight values management as a necessary attribute of KPIs. Knowing weights of indicators, presenting on the dashboard or some type of report, helps resource distribution (for example, budgeting plan) to proceed according to the strategic plan, providing most important activities with more assets. Also weight values presence on a dashboard directs the attention of managers to the indicators, important for the priority strategic goals to be achieved and makes them to provide more initiatives to the activities, associated with those indicators.

The map of the article

• Part 1: This part introduces the basic statements of KPI based management. Also it defines the term KPI;
• Part 2: BSC management system’s methodology;
• Part 3: Leading and Lagging indicators concept as an inherent part of KPI based management;
• Part 4: This part presents the basic criteria of what KPI to include in the map;
• Part 5: Cause and effect relations between KPIs;
• Part 6: The beginning of Cascading description: classification of indicators for management according to their importance
• Part 7: Conclusion of Cascading description: Indicative and Imperative KPIs

Expert_KPI Articles, Balanced Scorecard Theory

Cause and effect relations between KPIs

While building a map of KPIs for the departments and the responsibility centers, the process of defining cause and effect relations between KPIs is also performing. Those relationships could be divided into two groups: clear (the ones that might be calculated) and unclear (hidden) ones. Clear (computational) cause – effect relationships can provide the way to calculate a higher level KPIs on the basing on lower level KPIs’ values. Unclear (hidden) indicators present cause – effect relationships between KPIs, which belong to different categories or subcategories. While building the conceptual map, it needs the quantity of KPIs, which refer to management level, to be limited by 15 – 20 ones for one level of management. It is urgent for big companies with sophisticated hierarchy; it is aimed to prevent the KPIs to be mixed up and present conflicting information. This suggestion of limitation of the KPIs is based on concept called “necessary minimum provides the best way to present the achievement of goals”, which appeared as a result of practical repots of companies in different business sectors and locations. It is certainly is not an absolute rule, but the logic of preventing the map of KPIs to be overloaded by the quantity of measures needs to be understood by top management.

The process of establishing cause and effect relations between KPIs, which form the structure of the system, is actually the process of balancing the scorecards. While performing the relations’ determinations and formalization, strategic hypothesis, related to the way on how one indicator’s performance value dynamics depends on another KPI’s performance value dynamics, appear as well as relatively redundant indicators are determining. Usually each hypothesis has a formalized nature, i.e. it actually represents the certain stable assumption, which usually is one of the strategic points (for example: «Achievement of the set market share promotes share price persistent growth»).

The presence of hypotheses, related to cause and effect relations of strategic goals between each other, can be revealed on the following basic points:

• Evidence of logical interrelation between indicators;
• The function relations between indicators exist and can be presented in a way of mathematical formulas;
• The correlation linking between the indicators existence is proved by the correlation coefficient, which had been determined as a result of the analysis and research (this point highly increases probability of existence of a cause and effect relation).

The process of balancing scorecards is the last stage to complete the creation and forming KPIs’ map. When the dynamics of KPI’s values, referring to the strategic management is defined, it needs the stability of cause and effect relations between indicators to be verified in an operative mode with the purposes of formation of more exact cause and effect hypotheses.

The map of the article

• Part 1: This part introduces the basic statements of KPI based management. Also it defines the term KPI;
• Part 2: BSC management system’s methodology;
• Part 3: Leading and Lagging indicators concept as an inherent part of KPI based management;
• Part 4: This part presents the basic criteria of what KPI to include in the map;
• Part 5: Cause and effect relations between KPIs;
• Part 6: The beginning of Cascading description: classification of indicators for management according to their importance
• Part 7: Conclusion of Cascading description: Indicative and Imperative KPIs

Expert_KPI Articles, Balanced Scorecard Theory