Risk Assessment and the Balanced Scorecard
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Balanced scorecard analysis can only provide a manager with ideas that can lead to the company’s success. However, it is by conducting risk assessment on those ideas, can the manager know whether they are financially feasible or not.
The concept of a balanced scorecard was first proposed by Dr. Robert S. Kaplan, of Harvard Business School, and his colleague David Norton. Since its inception in 1992, it has found great success in the working of all organized business environments. It is basically a strategic performance management tool. It is uses proven design methodologies and automation programs. The end report is useful for managers who can use it keep a track of all the activities of their employees, as well as monitor the results produced by those activities. It is the most actively used performance management tool in almost the entire English speaking world.
The only tool that this strategic planning solution lacks is the risk assessment feature. This even Dr. Kaplan accepted at SearchCIO.com, saying, “If I had to say there was one thing missing that has been revealed in the last few years, it’s that there’s nothing about risk assessment and risk management. My current thinking on that is that I think companies need a parallel scorecard to their strategy scorecard — a risk scorecard.” However, what the tool lacks in design can be incorporated by practice.
Designing a Balanced Scorecard for Strategic Planning
The design of the balanced scorecard has evolved a lot since its first model. The earlier architecture comprised of four sections – financial, customer, internal business processes and learning & growth. The newer model, on the other hand, involves listing various financial and non-financial parameters that tend to affect a company’s growth. Such parameters are then reviewed to check whether they meet the desired standards or not. Based on the result, necessary steps are taken. All this reflects the original vision of the creators, which was to:
- Translate vision into operational goals.
- Describe the vision so that it can be carried out by employees.
- Help in business planning.
- Learn through regular feedback.
Using the Balanced Scorecard for Risk Assessment
Risk assessment has evolved into a working force in almost every business atmosphere. This, however, was not an integral part of the balanced scorecard design.
There are three outputs of a balanced scorecard analysis report:
- Strategy: The game plan for achieving the vision.
- Target: The desired level of performance or results.
- Vision: The desired vision of future success.
Risk assessment analysis can be applied to all the three finer points to ensure investment in the right direction.
The strategic plan that has been created by conducting scorecard analysis can still put the company in a financial dilemma. This is what happened in the case of a reputed firm in Ohio. One of its managers, after conducting balanced scorecard analysis, found that his team could be more productive if they started working on a different end product; which was in high public demand. The proposed project was forwarded to the top brass, who ordered for a risk assessment of the plan. The report showed a very high quotient of risk as this paradigm shift could have led to loss of credibility and would also have taken the company into a highly competitive market, in which success was not guaranteed.
This case only goes to show that strategic planning is incomplete without proper risk assessment.
