The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The “new” balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the “marching orders” for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.

This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to ‘balance’ the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

Adapted from The Balanced Scorecard by Kaplan & Norton

Perspectives

The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people — the only repository of knowledge — are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.

Kaplan and Norton emphasize that ‘learning’ is more than ‘training’; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call “high performance work systems.”

The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.

The Customer Perspective
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the “unbalanced” situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

Strategy Mapping

Strategy maps are communication tools used to tell a story of how value is created for the organization.  They show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-and-effect chain.  Generally speaking, improving performance in the objectives found in the Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process perspective Objectives (the next row up), which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).

Sample KPIs courtesy of hrvinet.com

• Cost of solved safety non-conformances for the month
• Employee perception of management commitment
• Health and safety prevention costs within the month
• Lost time (in hours) due to accidents (including fatalities) per e.g. 100,000 hours worked
• Lost time (in hours) due to non-fatal accidents per e.g. 100,000 hours worked
• Number of fatalities per e.g. 100,000 hours worked
• Number of non-conformance with legal or internal standards in safety inspections
• Number of reportable accidents per e.g. 100,000 hours worked (including fatalities)
• Number of reportable non-fatal accidents per e.g. 100,000 hours worked
• Number of safety inspections for the month
• Number of solved safety non-conformances for the month
• Percentage of attendance at occupational health and safety (OHS) committee meetings
• Percentage of corrective actions closed out within specified time-frame
• Percentage of fatal accidents relative to all accidents (non-fatal and fatal) per e.g. 100,000 hours worked
• Percentage of health and safety representatives (HSR) positions filled.
• Percentage of issues raised by H&S Reps actioned
• Percentage of occupational health and safety (OHS) committee recommendations implemented
• Percentage of products/services assessed for health & safety impacts
• Percentage of significant products and services categories subject to procedures in which health and safety impacts of products and services are assessed for improvement
• Percentage of staff with adequate occupational health and safety (OHS) training
• Total of hours in safety and health training in the mont

Sample KPIs courtesy of hrvinet.com

• Accounting costs
• Accounts Payable
• Accounts Payable Turnover
• Accounts Receivable Collection Period
• Accounts Receivable Turnover
• Average value of overdue invoices
• Cash Flow Return on Investments (CFROI)
• Common Stock Equity
• Corporate credit rating
• Cost Income Ratio
• Cost per payslip issued
• Creditor days
• Creditor days
• Cumulative Annual Growth Rate (CAGR)
• Cycle time for expense reimbursements
• Cycle time to perform periodic close
• Cycle time to process payroll
• Cycle time to resolve an invoice error
• Cycle time to resolve payroll errors
• Days Payable
• Debtor days
• Direct costs
• EBIT
• EBITDA
• Enterprise Value / Takeover Value
• Equity ratio
• Expenses claims processed per FTE
• Fixed costs
• Gearing
• Indirect costs
• Invoicing processing costs
• Long-Term Debt
• Marginal costs
• Net Change in Cash
• Number of invoices outstanding
• Number of overdue invoices
• Other Current Liabilities
• Other Non-current Liabilities
• Payment errors as Percentage of total payroll disbursement
• Percentage of bad debts against invoiced revenue
• Percentage of electronic invoices
• Percentage of expense report exception line items
• Percentage of financial reports issued on time
• Percentage of invoices disputed
• Percentage of invoices requiring special payment
• Percentage of invoices under query
• Percentage of low value invoices
• Percentage of manual payroll payments
• Percentage of payable invoices that have not been matched to a purchase order
• Preferred Stock Equity
• Profit per customer
• Profit per employee (FTE)
• Profit per product
• Profit per project
• Receivables against Product,
• Region, Sales office
• Return on capital employed (ROCE)
• Return on Equity (ROE)
• Short-Term Debt
• Cost of payroll process as Percentage of total payroll cost
• Total Assets
• Total Current Liabilities
• Total Equity
• Total Liabilities
• Total sum of monetary value of outstanding invoices
• Total value of overdue invoices
• Variable costs

So if you are at a loss for what to start measuring, then try these 5 basic performance measures. Spend as little time as possible tailoring them to your business; spend more time pilot testing them. You’ll learn tonnes more about the best measures for your business through getting started with something, rather than waiting until you’ve designed the best way to measure.

measure #1 is customer satisfaction

This first is probably the most important of the 5 basic measures. It’s the only measure that will connect you with the relevance of the work you’re doing. If customers aren’t happy, then everyone is wasting at least a portion of their time. Measure how your customer judges the outcome of your product or service, through surveys or at the end of each transaction with the customer. You can ask them directly, give them a survey form, or send them to a website form.

If you also collect data about what aspects of your product or service are most important to customers, it will give you clues about more specific things that might be important to measure also e.g. easy access to support staff or accuracy of bills.

measure #2 is product/service defects

Defects is a measure of quality, and a translation of what the customer expects your product or service to do, into something you can count to assess how often the product or service actually does what is expected.

Your customer satisfaction measure is a companion to this one. And the extra data collected about what is most important to customers about your product or service will help you define what constitutes a defect (e.g. something breaks, something doesn’t operate correctly, a delivery deadline was missed, an invoice has errors).

measure #3 is cycle time

The time it takes to produce or deliver your product or service for your customer is a surprisingly useful thing to measure. It’s not just about meeting the time commitments you made to your customer. It’s just as importantly about focusing everyone on the things that make the cycle time what it is. And this is usually dead time between hand-offs in the process, waste and rework due to errors or lax standards, and even things that didn’t need to be done at all.

An alternative or companion measure to cycle time might be on time delivery, which links it more to the customer’s experience. Just remember the value of measuring cycle time for internal benefit too.

measure #4 is productivity

Productivity is a measure of your process efficiency, and is essentially the rate at which you can produce outputs, relative to the input it takes to do so. A great measure to focus you on eliminating waste and rework in delivering your products and services to your customers.

For example, one way to think about productivity is to compare how much you’re producing relative the time it takes, such as number of work hours. Another way to think about productivity is about quantity versus cost – how much are you producing, relative to what it costs in resources and labour.

measure #5 is innovation (or improvement) ideas

Even if you’re not ready to call it innovation (call it improvement instead), this fifth basic measure is about stimulating one of the behaviours that support a performance culture, namely making active suggestions about how to improve performance.

Particularly when the first 4 basic measures are shared and discussed among the team, actively measuring something as simple as the number of improvement ideas suggested, or the number of targeted improvements tested or implemented, encourages everyone to deepen their understanding about performance, and how they can influence it.

The 5 basic measures are a springboard, not a solution

Remember, don’t try to get it perfect before you begin measuring anything. It’s not until you start using measures that you discover new questions and clearer information needs. Use these five basic measures as a springboard to get used to measuring and through their use, get closer to understanding what you really do need to measure.

1. Delivery on time

• Formula: the number of delivery on time / total delivery.
• Apply this formula to each provider and entire company every month.

2. Delivery is not enough quantity, quality

• Formula: with the total number of delivery with enough quality/ quantity / the number of total delivery .

3. Quantity bought over required

• This rate determine the number of products using in actual in comparison with quantity planned.
• This rate determines the effectiveness of the purchasing order.
• The rate may be identified in quantity or money.

5. Purchasing cost

• By value of purchasing / sales value
• Compare this with the percentage rate as planned.

6. Cost of purchasing units

• This rate is total purchase cost / total sales.

7. Transaction cost unit of purchasing

• Formula = (Total cost of purchasing – a total cost of goods) / sales turnover.
• You can compare this rate with different goods in order to view transaction costs a high or low

8. Suppliers rating.

• Number of suppliers accounting for 80% of the value of goods
• The number of suppliers of goods per year
• Number of suppliers be removed per year..
• Number of new suppliers per year..

Sample KPIs courtesy of hrvinet.com

• Time from call for maintenance to time of repairing.
• You should maintain work log to summarize this rate.

2. % of preventive maintenance cost

• Formula: % preventive maintenance cost / total maintenance costs
• Preventive maintenance are activities for the purpose of maintaining equipment and facilities in satisfactory operating condition by providing for systematic inspection, detection, and correction of incipient failures either before they occur or before they develop into major defects.

4. Mean Time to Repair (MTTR)

• Mean Time to Repair is average time between the occurrence of an incident and its resolution.

4. Preventive maintenance hours

• Formula: total hours of preventive maintenance per year.

5. Schedule Completion Effectiveness (%)

• Formula: actual maintenance hours planned / maintenance hours planned to complete scheduled tasks.

6. Critical Equipment availability

• Number of critical equipment availability / total breakdowns

7. Number of breakdowns

• Formula: Total breakdowns per year or per department.

8. MTBF

• MTBF is Mean Time Between Failures.
• It is total time of failures and it is almost costs to my company

9. % of maintenance rework

Maintenance action that is a repeat of a previous, ineffective effort relative to all maintenance work.

10. Total maintenance cost per year.

• Total maintenance cost = total preventive and corrective maintenance costs.

11. Maintenance cost per unit

• Formula: Total maintenance cost / number of produced units.
• This rate is used to compare to last period or competitors in same business field.

12. % of maintenance hours of operating time

• Maintenance hours is the actual maintenance hours spent maintaining an item of equipment (or plant).
• Maintenance hours includes preventive and corrective maintenance hours.

13. % of corrective maintenance cost

• Formula: % corrective maintenance cost / total maintenance costs.
• Corrective maintenances are activities to carry out on a defect which has caused equipment to be taken out of service.

14. Budget compliance

• Formula: Total budget implemented / budget planned

1. The percentage must do it again – rework

• The rework rate is number of defect products must be rework as requirements.
• This rate reflects the loss of the company by the workers to do the products, processes.

2. The types of rework rate:

a> Rework rate of workers in a department.

• This rate reflects skills of workers or the “care“ level of workers.
• There are workers with their productivity is very high but their rework rate also very high.

b> The rework rate of a department:

Using this rate let you level of reword and the management ability of managers / supervisors.

c> Compare rework to other departments.

You should not compare in terms of value that you just compare in terms of quantity.

d> Rework rate of entire company.

e> The amount lost due to rework.

• Time loss due to remake the products including time of product made + preparation time + time to rework – standard time.
• Lost value = time lost due to rework * productivity * price.

3. The rate of defect goods

The rate of defect goods are all products damaged by the department or individual that made.

a> The rate of defect goods of individual
• The rate of damaged goods by individuals can be calculated by product or step in manufacturing process.
• You should have a policy of reward / punishment to encourage reduce this rate.
•
b> The rate of defect goods of department

• With the total number of damaged / total number of products / order.
• You can create policies such as the penalty / award in 3.b.

1. Company productivity

• Formula: Total sales turnover / total employee.
• You should compare this rate of your company to competitors in same business field.

2. Order productivity by time:

• Formula: Order productivity by week or day.

3. Productivity by individuals:

• Personal Productivity is the amount produced by each individual work in a unit time.
• Through this criteria, you will know what workers do effectively.
• Note: the number of products are product quality. Workers with high rates also may be high defect products.

4. Productivity by department:

• Productivity by departments are products made in a time unit.
• Productivity of a department is a target to evaluate effectiveness of departments and department managers.

5. Compare productivity:

Compare productivity help you know you’re standing where to find a suitable solution for your company.
You should compare the efficiency of any angle?
• Among individuals with different
• Between the departments together
• Between companies with competitors in the industry and other companies in the world.