Balanced Scorecard FAQs

Everything you need to know about Balanced Scorecard.

FAQs

Balanced Scorecard is simple in principle, but practical design and implementation require a good deal of art, craft and science.

To help others navigate the minefield, 2GC analysed questions submitted to various online discussion forums over the past few years. Here are our concise answers to the most common FAQs about Balanced Scorecard, Strategic Implementation/Control and Performance Management.

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What is a Balanced Scorecard?

The Balanced Scorecard approach to performance measurement combines traditional financial measures with non-financial measures. This provides managers with more relevant information about the activities they are managing, increasing the likelihood of organisational objectives being achieved. In this FAQ, 2GC provides an overview of the Balanced Scorecard and describes how it is designed, implemented and used.

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What are the main benefits of a Balanced Scorecard?

The potential benefits of a Balanced Scorecard depend on its application and implementation. There are two distinct uses: Management Control and Strategic Control. Although similar visually, these two applications of Balanced Scorecard require substantially different design and development processes, and provide different benefits to a management team which we summarise in this FAQ.

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What is ‘state-of-the-art’ Balanced Scorecard design?

Balanced Scorecard has developed from a tool for organising measures to a strategic management mechanism. It has evolved in terms of design characteristics, processes and usage patterns into what is now referred to as 3rd Generation Balanced Scorecard. In this FAQ, we outline the evolution and highlight the characteristics of best practice Balanced Scorecards.

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How do I successfully implement Balanced Scorecard?

The practical value of a Balanced Scorecard can only be realised if it is implemented successfully. In this updated FAQ, we discuss four things to consider when you are planning the design of a Balanced Scorecard, each of which if done well will improve the chances that your Balanced Scorecard will deliver its full potential.

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How do I create a strategic Balanced Scorecard?

In developing a Balanced Scorecard the biggest challenge is deciding the most relevant measures to include - particularly for Scorecards to be used for strategic management purposes. In this FAQ, 2GC outlines the eight steps your Strategic Balanced Scorecard design and implementation process should follow, and explores how best to deliver these steps.

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How do I create an operational Balanced Scorecard?

2GC outlines six steps that an operational Balanced Scorecard implementation should include; it also explores how best to deliver these steps - what to focus on, and who to involve in the design process.

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What is a Balanced Scorecard Audit?

This FAQ describes how the intended use of a Balanced Scorecard will influence the type of Audit approach that you should use. It also suggests ways to carry out such an audit.

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Can I apply Balanced Scorecard in my not-for-profit/public sector organisation?

Balanced Scorecard remains very relevant to the not-for-profit sector because organisations in the public and private sector need to address similar management issues. From its origins in the private sector, Balanced Scorecard has evolved to become a useful tool equally applicable to not-for-profit organisations, state owned companies, government departments and even internal functions within commercial organisations.

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Can I apply Balanced Scorecard in a small business?

The success of any business ultimately relies on its ability to deliver strategic goals. Because Balanced Scorecard helps managers articulate and track delivery of these goals, the tool is useful to businesses of any size, although there are important design differences in the implementation of Balanced Scorecard for a small organisation.

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How do I set targets in Performance Management Systems?

This 2GC FAQ looks at target setting within the context of performance management. Difficulties in setting targets are a common problem encountered during the creation of a performance management system - they are hard to resolve. Without target values the utility of a performance management system is reduced.

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How can functions benefit from Balanced Scorecard?

Staff functions are often responsible for many of the corporate initiatives selected to deliver strategic objectives; yet they have limited control over the delivery. In this FAQ, 2GC looks at the extent to which 3rd Generation Balanced Scorecard can enhance the ability of HR and other staff functions to manage the delivery of key strategic objectives.

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How do I develop, link and align multiple Balanced Scorecards (cascading)?

This FAQ looks at one of the most challenging issues of Balanced Scorecard implementation: Cascades OR how to develop more than one! The challenge is how to do the design quickly, efficiently, and in a way that ensures all the Balanced Scorecards are ‘aligned’ with each other and with the organisation’s goals.

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Can you link Balanced Scorecard with other management processes?

One of the strengths of Balanced Scorecard is its ability to work in conjunction with existing management processes such as EVA, Activity Based Costing and Budgeting. 3rd Generation Balanced Scorecard is typically used as the hub of a strategic management system because it provides an easy-to-use mechanism for the selection and co-ordination of other management tools.

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What is accountability for performance?

Clearly managers who feel accountable for results are more likely to deliver results. It is presumed that building accountability enables better performance; yet accountability remains weak in many organisations - particularly in the public sector. In this FAQ, 2GC outlines four factors that drive strong and productive accountability.

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What is Strategic Control?

Central to much of 2GC’s work is the idea that managers can control how an organisation pursues its strategic goals. This process of articulating and acting upon strategic goals is generally known as “Strategic Control”. Strategic Control theories have had a big influence on how strategic Balanced Scorecards are designed.

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What Balanced Scorecard software is available and how do I choose?

There are currently about twenty different software packages available to support the reporting of Balanced Scorecard measures, excluding general-purpose software (e.g. spreadsheets). In this FAQ, 2GC describes features and factors that should be considered, and attempts to give a broad overview of the software that is available.

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Should I use KPI databases to build my Balanced Scorecard?

When designing Balanced Scorecards, organisations often consider including measures chosen by others in the same industry. In this FAQ, 2GC examines the topic of measure selection; while organisations in particular industries are likely to select some measures that are similar (mainly process measures), they also ought to identify measures that are not (e.g. strategic measures).

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