BSC Designer – Balanced Scorecard Software

Implementation of Balanced Scorecard in banks and financial institutions is a very tricky thing as there is huge temptation to focus on financial indicators only.  As known, banks, mortgage and insurance companies, credit unions and other financial institutions work with money to make more money.  So, it is very easy to disregard non-financial indicators that, however, have a direct impact on financial performance of the above mentioned organizations.

The last several decades saw a sharp increase in the number of commercial banks and financial institutions which caused a very tough competition in this market.  The traditional performance management systems turned out to be quite ineffective since very often they failed to meet specific requirements of financial organizations.  As already said above, excessive focus on financial indicators forced banks management turn the blind eye to the numerous indicators representing overall organization performance.  The problem is that financial indicators show what has already happened to the bank or insurance company while it is very important to plan ahead and know what will happen in future.  This is where nonfinancial indicators can help.  And that is why Balanced Scorecard system turned out to be a more effective tool to measure business performance of financial organizations and communicate operational management with strategic vision.

Some of the banking KPIs used to measure bank's performance

One of the key problems banks and other financial organizations faced in performance evaluation is focusing on internal processes, which is good in itself, but at the same time ignoring external environment that is changing all the time and thus endangering financial institutions.  Another common mistake is ignoring intangible assets.  In the modern age of information in intellectual resources and financial knowledge must be given due attention. So, as to implementation of Balanced Scorecard in banks and financial institutions, the process is quite typical as compared to BSC implementation in other types of organizations.  Balanced Scorecard measures key performance indicators in four perspectives: financial, customer, internal processes, learning and growth.  It is difficult to say which perspective is the most important but it is possible to say that implementation of financial goals depends on success in the other three categories.  Also, much depends on company strategy vision and strategic goals.  Some banks may have a large customer base and should focus on internal processes while other financial institutions have to concentrate on attracting new customer and improving customer satisfaction in order to achieve financial goals.

The Four Perspectives In Financial Institution Scorecard

1. Financial

As already said, although financial goals are the most important for financial institutions, focusing only on financial indicators will not represent everything happening to the organization.  That’s why due attention should be given to financial indicators, but at the same time one should remember that financial goals are achieved through implementation of other non-financial goals.  Let’s review basic financial strategic goals a bank or any other financial organization may pursue.

a)      Reduce costs.  One of the main goals here may be reducing expenses that do not lead to generating of income.  This is achieved by improving productivity, optimizing business processes etc.  As a rule, this is a 2-5 year plan that has a step by step implementation system.

b)      Improve return on spending (ROS). ROS represents efficiency of managing company’s funds.  The ultimate goal is to create wealth.  By engaging in high return activities a bank or any other financial organization increases the profit on spent funds.

c)      Increase revenues.  This is about increasing the number of valuable customers, broadening relationships with the VIP customers through sale of new products and cross-selling of existing products.

d)     Reducing risks.  This may be achieved by moving from net interest income to broadening of portfolio of fee based products.  This will caution and protect the bank or a financial organization.

2. Strategic Customer Objectives.

a)      Improving the image of a financial organization in the eyes of customers. This simple goal has a direct impact on financial performance of an organization.  More customers bring more money.

b)      Informing customers in a better way.  A greater customers’ knowledge of banking services will make it possible for bank employees and management better meet customers’ needs.

c)      Eliminate mistakes in customer service.  This refers to all operations and transactions as well as communication of customer with a bank.

3. Strategic Goals On Internal Processes

a)      Innovation. This includes identifying needs of customers who represent high profitability and analyzing of their economic background.  It is important to create new products, innovative financial services which are convenient for customers and cost efficient for the organization that offers them.

b)      Delivery of services.  This is about cross-selling of products through motivated and proactive employees of a financial organization.  Bank employees should listen to customer needs and educate customers on new services and products.  In order to achieve this goal, employees of a financial organization should have strong relationships and regular communication with an end customer.

c)      Service excellence.  A bank or a financial organization must understand the service excellence is imperative for survival in the market.  This is a key to keeping relationships with customers and gaining competitive advantage in the battle for new customers.

4. Strategic Learning and Growth Objectives

a)      Gaining competitive advantage is being much determined by extracting, manipulating and use of information.  This process consists of 2 stages: gathering information, analyzing of information and determining what information should be used in decision making.  And of course, it is imperative to improve methods of gathering and analyzing of information by introducing innovative IT support systems.

b)      Strategic jobs and competencies.  This includes the ability to cross-sell the products by focusing on customer needs.  In order to achieve this goal, employees should have a better understanding of company products and services, as well as understanding of financial markets in general.

c)      Compensation, reward and accountability system.  Only properly motivated employees would give the best work results.  Balanced Scorecard should be used to offer additional motivation for employees who manage to fulfill tasks and implement goals at their workplaces.  These goals might be different, from attracting new customers and selling new products to offering innovative ideas and techniques.

d)     Focusing on resources.  Allocation of resources should be in that areas which claim to offer the highest profitability, and setting priorities should be based on this principle. A few words must be said about information systems. We are living in the age of progressing IT technologies.  We have already had the chance to appreciate innovative banking and financial services like mobile banking, Internet banking, getting free insurance quotes, loan and deposit calculators etc.  Without any doubt, these new services and products increase competitive advantage of a financial organization if properly applied in any of the four perspectives.

Conclusion

We should repeat again that this set of goals is not an action plan to be used by any financial organization.  These are just examples, which are although very common.  Use of Balanced Scorecard in banks and financial organizations helps all employees at all levels better understand strategic vision of the company.  Statistics show that only 5% of employees have a good understanding of the company strategy, and only 25% of managerial staff participates in strategic planning.  It is especially important for financial organizations to link their budgets to the adopted strategy.  A strategy for a financial organization is something bigger than attracting as many customers as possible or opening of thousands of new accounts.  Balanced Scorecard visualizes the strategy thus making it comprehensive in easy to understand.  Through its implementation management of a financial organization will be able to reveal weak and strong points, loss making and profitable areas, efficiency of existing programs and campaigns, effectiveness of learning efforts etc.

How Balanced Scorecard works in 4 perspectives for a bank

BSC Designer

BSC Designer is a software tool that provides automatic use of the Balanced Scorecard concept and other KPI-based management systems. Its most important advantage is the ease in which it can be understood and used, as well as all of its powerful features. BSC Designer makes it possible to create projects that would support any KPI-based Management concept (including Balanced Scorecard).  It automates most implementation and maintenance processes, leading to a reduction of costs for the concept’s use and also  improving its benefits. Please read case study of how BSC Designer helped Financial Institution to improve the strategic and control efficiency.

bsc_ideas Articles, BSC implementation

Balanced Scorecard concept is one of the most popular business performance management methodology these days. Most Fortune-list companies use this method, most companies want to implement this method in their business systems. Our BSC Designer software is recognized by users as one of the most powerful and easy to use software. Becoming our partner is a chance for any business consultant to establish additional income source and help top managers and CEOs to start using BSC Designer software.

The next BSC Designer Partners seminar:

• Location: Online
• Date: 25 May, 2010
• Time: 4 PM (Central Europe Standard Time, GMT + 01:00)
• Duration: 1 hour
• Language: English
• Registration fee: free seminar

Please, specify your email below to have a link for our free Partners Seminar:

• You will have download link immediately;
• You will have e-mail with some start-up instructions;
• After the webinar you will have a download link to the recording of the webinar;
• We will send you more ideas about promoting and selling BSC products;

admin Partnership

Please, specify your email address below to download BSC Partners Toolkit:

• You will have download link immediately;
• You will have e-mail with some start-up instructions;
• We will send you more ideas about promoting and selling BSC products;

Please, note: if for some reasons you don’t want to have emails from us, but still want to use Partners Toolkit, you can just click the button without entering any email.

admin Partnership

According to Douglas Hubbard, the foremost expert in the field of business decision support,  “In a portfolio, the investment with the highest return on investment is investment in the information necessary to allocate the investment of the rest of the portfolio.” He argues that up to 5% of any portfolio can be spent on gathering the information necessary to invest the rest of the resources wisely.

This same principle applies to organizational management. A consistent commitment to investing in measurement and feedback systems within the organizations is paramount to good decision making.

But not all investment in data gathering is created equal. Information value inversion is at work. The things that we measure often and fairly precisely, typically have little impact on any crucial decisions. The things we know little about can often net a significant improvement in the decision making by us learning even a little bit more about that information.

Thus, a good Balanced Scorecard can act both as a useful tool and as a waste of money, and unfortunately is often the latter for many organizations.
There are two reasons for it:

1. The Balanced Scorecard is often an after the fact bolt on, it is not part of the core organizational thinking. This is by far the most important problem, since if it is not the key feedback loop but rather one of them, it often serves to create noise rather than reduce it.
2. We tend to measure things that we know how to measure, and more likely than not those are not the right things to measure. There is no scientific approach to determining which things are really worth measuring, we take our best guesses, and typically we are spectacularly wrong. We treat it as an art, yet expect predictably consistently good results, as though it was a science.

What can be done to solve these challenges? Indeed, are they worth solving?
I will start with the second question first. Fundamentally, if you do not solve them with this tool, or some other dashboard, broad multi-variable feedback tool, you are flying blind. While it is dangerous, it does not stand out, since everyone else is too. During the early days of flight, pilots did not have good controls and would often fly along the railroad lines, so that they could rely on the visible landscape and rail station names to navigate. This had lots of problems, but so long as everyone was flying slowly enough, low enough and in familiar enough terrain it worked. However, the circumstances changed, planes fly faster, higher, in more varied weather and can no longer orient themselves in the same way. They have to use gauges on their dashboard and should be able to take off and land without even looking out of the window. This has forever changed the aviation.
In business, until fairly recently we could afford to fly low enough, slow enough and in familiar enough landscape to avoid the need to have useful dashboards. But, not only does this doom your company to continuing to do what you have always done, it may very swiftly obsolete you as others figure out how to do this right. So, ideally, you want to implement the dashboards well because you are aiming for the stars, but if not, implement them well because you don’t want to be left behind.

What about the second question. What can be done so that the Balanced Scorecard becomes the main organizational feedback system and it measures the things that allow the company to safely take off, land, fly and navigate through its difficulties and opportunities, regardless of the outside weather conditions? That sounds like a great topic for the article that will be forthcoming in a week.

—

Oleg Tumarkin, JD, MBA, CSSBB is an Adjunct Professor of Business at Lakeland College and Concordia University of Wisconsin. His firm, FutureWorks, in partnership with Bucket Brigade and AKS-Labs provides business coaching and Balanced Scorecard implementations.  His life’s passion is the development of a universal business measurement and management system that would cause management in to the realm of a repeatable, replicable, yet humane and flexible science.

oleg_tumarkin Articles, Balanced Scorecard Theory

Find below the BSC Designer implementation strategies. BSC Designer is available in 3 editions – Standard, PRO and Online. Check the difference between editions.

	Implementation plan	Suggested licenses
	Plan: “Independent consultant”	1 BSC Designer PRO license
	Plan: “Implementation in one business unit”	1 BSC Designer PRO license for manager of business unit 1 BSC Designer Standard for each employees involved in BSC (normally 3-4 employees) Check the implementation scheme
	Plan: “Company-wide implementation”	Licenses for each business unit, as described above Additionally BSC Designer PRO license for each top-manager, CEO or investor involved in BSC implementation Check the implementation scheme

Please note: if you are managing distributed team consider using BSC Designer Online. It’s a good solution when you want your remote employees or partners to do the data input job for your Balanced Scorecard.

If you have any questions about implementation plans for BSC Designer, contact our sales using online form.

admin BSC implementation

• This pages was moved to the separate web-site focused on balanced scorecard training.

admin Training and Coaching

Weight concept in Balanced Scorecard

As known, balanced scorecard measures performance of a company to communicate operational management and strategic goals.  Every business has its own set of KPIs – key performance indicators which are known as values representing the most important aspects in work of a company.  Of course, some KPIs are more important than the others.  At the same time it is impossible to omit some less important KPIs.  Thus, there is an obvious need to set weights for indicators and categories of indicators in balance scorecard.  Weights in BSC represent importance of an indicator and influence its contribution to performance of category of indicators (perspectives), as well as total performance.

Let’s take a random example.  For instance, a call center has assigned three indicators to financial perspective: cost per call, revenue per successful call and conversion rate.  According to company strategy, the management should set weights and decide which indicator is the most important.  Conversion rate is the number of sales for 100 calls.  So, if company is interested in the increased number of sales, this indicator would be given priority.  Without weights it is difficult to balance evaluation process since less important indicators would contribute the same percentage to the total performance as most important indicators that directly influence company performance.

Weights concept in BSC Designer

First of all it needs saying that each category of indicators (perspective) has its own weight.  Indicators inside the category have their values as well.  If a category has only one indicator it doesn’t matter that all what weight it has.  So, using the above example, financial perspective may have weight 4, while the three indicators of the category would have weights 3, 3 and 4 respectively.  It should be noted that it is recommended to set weights in such a way so that their total number equals 10, 100, 1000 etc (3, 3 and 4 in our case).  This is for convenience of users to understand how performance calculation system works.

Weights are shown in a strategy tree

It is possible to amend weights for indicators and categories

Change weight of a category (perspective)

Let’s take another simple example: We have a project with 4 categories: First, Second, Third and Forth.

1) If  all the categories are equal for the project, we need to set their weights  to  be  equal  (by  default it is “1″, but it does not really matter what  number  it  is  -  it  just  needs  to be equal for every category).

2) If some categories are more important, than another ones, we need to set bigger numbers as weight values for the more important categories and  smaller  numbers  for  those  ones, which are less important. For example:

First (5) – The most important one;

Second (3) – The less important, than the First;

Third (1) – not important category, but we still need it;

Forth (1) – not important category, but we still need it.

If we use weight values, sum of which is 10 or 100, 1000  and  so  on,  it  is  easier for user to see how the performance calculation of the parent category is going:

Parent category performance (the whole project in our case) = 0.5 * (First category  actual performance) +  0.3 * (Second category actual performance)  +  0.1  (Third category actual performance) + 0.1 (Forth category actual performance).

2.2) If we use weight values, sum of which is not is divisible by 10, the program will still calculate such a thing properly, but it will be a bit harder for user to understand what every of the values actually mean, referring to the project’s calculation. For example, we have such situation:

First (9)

Second (5)

Third (3)

Forth (1)

In this case, Parent category performance = 0.5 * (First category actual performance) +  0.28 * (Second category actual performance)  +  0.16  (Third category actual performance) + 0.06 (Forth category actual performance).

The formula for a coefficient is (Weight value of the element) / (Sum of all the elements’ Weight values). For the First category it is: 9 / (9 + 5+ 3 + 1) = 9 / 18 = 0.5.

As you can see weight system in BSC Designer allows users to adjust the program and its performance calculation system to company strategy goals, priority tasks etc. Moreover, the weight system in BSC Designer is adjustable.

It is possible to set Maximum Weight limit (go to File-Document properties-Max Weight). This value is set at 10 by default. Some companies prefer to use MW = 100 instead of 10.

Set maximum weight in BSC

If necessary, values for indicators can be amended. The bottom panel contains Weight box where one can change weight value. After that strategy tree can be balanced (go to Strategy Tree-Balance tree) and the total amount of weights in the category where such an indicator weight has been amended will become divisible by 10.

Balance your strategy tree (sum of all weight values in categories will be balanced according to a maximum weight)

Watch total performance and weight value

We have changed value for 1 indicator and total performance value has automatically changed

Weights management algorithm in BSC Designer

1. Set weight for main 4 categories (or any other number of them, if applicable).
2. Set weights for indicators (if there is just one indicator in the category its weight is unimportant) and for sub-categories if any
3. Change weights for indicators and categories if necessary and balance strategy tree after that (if necessary)
4. Check out absolute weights for each element (percentage contributed by each element to total performance value)

Absolute weight chart

Absolute weight chart makes it possible for users to have a look at graphical representation of the Tree elements Weights within their category (perspective) and check out their absolute weights on an entire project’s scale. This graph is available at the side menu under the calendar. Weights chart (just like all other types of diagrams and charts) can be shown in a Strategy Tree (as a part of routine dashboard) as well as in the reports. As a part of Report’s info it visually demonstrates contribution of different elements to the total performance of the project (Scorecard).

Absolute weight chart

Summary of weight concept in BSC Designer

System of weights in BSC Designer is a flexible and well-balanced system that automatically performs necessary calculations whenever any change to an indicator or a category weight has been made. It is very important to be able to introduce amendments to the BSC system through the process of its implementation, and Weight concept offers such an opportunity. Some elements (indicators or categories) may appear more important than the others, and vice versa. Weights show the priorities of business which are individual for each company.

Weight Concept in BSC Designer makes it possible to:

• Set Weights for every element of the Scorecard;
• Change Weights after the review (if needed) and total performance will be automatically re-calculated;
• Set Maximum Weight parameter for each project, allowing to use the particular scale needed;
• Balance Strategy Tree according to Max Weight;
• Visualize the contribution of Strategy Tree elements to the Total performance through the Absolute Weights Chart (can be used both in the program dashboard and in the reports).

bsc_ideas Articles, Features, Screenshots

Over the last few weeks I have been running an interesting experiment in one of my classes. I gave each student $5 and told them to go turn it in to more. The project is evaluated on these variables:

Each variable is given a range of 1-5 with the extremes being defined

1) Internal team dynamics;
1. Don’t want to do business with this team ever again
5. Will name my kids after my business partners

2) Engage others in helping out with execution;
1. Did it all ourselves
5. An international movement came together to make it happen

3) Utilization of public and community resources (space/tools/software);
1. Just used what we had
5. Multiple community resource holders begged us to come again

4) Effectiveness of execution and repeatability;
1. We have no idea by what miracle it happened
5. We can do it consistently and have trained others to do it

5) Were the customers open to doing more business?
1. Everyone told their friends to run the other way
5. Lots of referrals and invitations to do more business

6) Was it profitable enough for the team to want to keep doing it?
1. Not even if this was the only way I could make money
5. Michael Dell, Bill Gates and the rest of college dropouts got nothing on me

7) Was everything done to minimize risks?
1. I am just glad we are not dead or in jail right now
5. Stakeholders, community and environment could possibly be harmed by this project

8) Does any of this matter in a really long run?

1. In the long run, we are all dead. – John M. Keynes
5. The impact of this project will matter even after this Universe is no more.

This has been a great success with students quickly exploring many real business ideas and one of them managing to get $80 return on the money, while most made between $7 and $30.  More importantly, they learned a lot about starting a business, mainly that it’s not a pretty theory, but rather a matter of doing something others will pay for. For the next round I have tightened up the requirements and suspect they will do even better.

These eight basic metrics could just as easily be applied to any team, working on any business. These metrics may be hard to ascertain for some businesses, and are way to subjective in other situations, yet these metrics may well be a much better guide to starting a business than many of the more highly specialized metrics that seem to abound.

—

Oleg Tumarkin, JD, MBA, CSSBB is an Adjunct Professor of Business at Lakeland College and Concordia University of Wisconsin. His firm, FutureWorks, in partnership with Bucket Brigade and AKS-Labs provides business coaching and Balanced Scorecard implementations.  His life’s passion is the development of a universal business measurement and management system that would cause management in to the realm of a repeatable, replicable, yet humane and flexible science.

oleg_tumarkin Balanced Scorecard Theory

Success rates for startup businesses are staggeringly low. Yet, everyday thousands of people around the world make the decision to engage in business or start a non-profit and believe that they will defy the odds. After all, one of the most effective ways to change our world, create value and be well-compensated is through engaging in business. An organization gives us leverage to do many things that we cannot do by ourselves.

Individuals who run successful businesses gain power to shape their own destiny. Though operating an organization can be challenging and perilous, it is often a powerful way to fulfill our God-given purpose. An organization must address both future growth and exit strategies. There are times when our purpose will advise us to dissolve the business. Though just as likely, we may get ready to move on to yet bigger and better ways of creating value.

Entrepreneurial management gives us the tools to unleash our potential. It is the discipline of consistently covering all the bases, while focusing on the important. Management is stewardship of resources on behalf of owners to the greatest benefit of everyone. Management principles can help us be effective in everything we do. But what if we need to start something new? Traditionally, this was left to the few entrepreneurial types, who, we were told, are very different from the rest of us in their innate abilities. Yet, at the current rate of technological change, it may no longer be an option to rely solely on these natural born entrepreneurs. Today, to be effective stewards, we must innovate and initiate in business and in life.

Flexibility and speed of change are forcing more and more of us to start and manage various aspects of our lives, rather than rely on someone else to do it for us. It is no longer acceptable to leave the entrepreneurial tasks to others. We must learn the skills that will help us succeed. While management is something that is traditionally taught in colleges around the world, it has proven to be a hard discipline to truly master. The fact that traditional educational system has failed to produce consistently successful managers does not negate the need for learning the discipline. Rather, it points to the need of hands-on learning that is typical of other hands-on trades.

It is possible to learn and apply management principles in order to improve business performance. At some level it is for everyone, since all of us need to manage time, money, resources and relationships. There are a few people that naturally gravitate toward making decisions and being responsible. Nevertheless, many of us need basic understanding of business subjects should we ever need to navigate the waters of business and find business partners with skills to succeed.  Studying all aspects of entrepreneurial management will help spare the headaches of learning by trial and error and allow the advance to more complicated challenges quickly.

The foundation of any business is a team of entrepreneurial managers who are willing to try new things and have a long-term vested interest in the prosperity of an organization. Ownership and management are fused in many startups, but they do not need to be. It is often practical to have people with management skills manage a business that they do not own. Much wealth in the world is managed by managers who have no or limited ownership. Owner’s interests are the same as investor’s interests, and that is generating a return on investment. Management, however, chooses how to go about generating the return.

Management team, not the owner, arranges resources for the greatest common good. Management team attracts resources and controls them day to day, while owners exercise limited control. While interests of the business typically represent interests of its owners, a manager is held to a higher standard. Beyond responsibility to the investors, management team has responsibilities to the community, customers, workers and business partners, just to name a few.

In a lot of startups there is no clear distinction between managers and workers. The problem is that when the organization gets busy doing, it has no longer any time to be thinking. Even in the startup environment it is practical to set particular time aside for specifically managerial functions – planning and making sure plans are being followed. Some organizations even rely on outside consultants to meet with the team just to keep things on track.

Management is as much about working with others as about anything else. To be successful, a manager needs to function as part of a team. Managers must gel together and work as one unit. Working as a team offers the opportunity to make business fun. It is enjoyable to add value, especially when it is done in the fellowship of your peers.

—

Oleg Tumarkin, JD, MBA, CSSBB is an Adjunct Professor of Business at Lakeland College and Concordia University of Wisconsin. His firm, FutureWorks, in partnership with Bucket Brigade and AKS-Labs provides business coaching and Balanced Scorecard implementations.  His life’s passion is the development of a universal business measurement and management system that would cause management in to the realm of a repeatable, replicable, yet humane and flexible science.

oleg_tumarkin Balanced Scorecard Theory