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Master in Business Information Technology
April 2011
Balanced ScoreCard Administrative Engineering
Ing. Oswaldo Cabrera López
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
1
Index
1. Introduction: Balanced ScoreCard, BSC 2
2. History 4
3. Benefits 4
4. Balanced Scorecard Perspectives 5
4.1. Financial Perspective 5
4.2. Customer Perspective 5
4.3. Internal process perspective 6
4.4. Formation and growth perspective 6
5. Definition of Indicators 7
6. Good Performance Measures 8
7. Building & Implementing a Balanced Scorecard 8
8. Nine steps to a successful implementation 9
8.1. Step One: Apply Assessment 10
8.2. Step Two: Strategy 10
8.3. Step Three: Objectives 11
8.4. Step Four: Strategy Map 11
8.5. Step Five: Performance Measures 11
8.6. Step Six: Initiatives 12
8.7. Step Seven: Automation 12
8.8. Step Eight: Cascade 12
8.9. Step Nine: Evaluation 13
9. Feedback and strategic learning 13
10. Typical goals of a BSC 14
11. Balanced Scorecard Software: Business Intelligence, Dashboards and Performance
Management Systems 15
12. Balanced ScoreCard Vs Six Sigma Management 15
13. 5 Steps to Find the Right Measures 16
13.1. Step 1: Begin with the end in mind. 17
13.2. Step 2: Be sensory specific. 17
13.3. Step 3: Check the bigger picture. 17
13.4. Step 4: What's the evidence? 18
13.5. Step 5: Name the measure. 18
14. The Strategic Management Maturity Model 19
15. Cascading a Balanced Scorecard: Creating Alignment 19
16. The Balanced Scorecard: Not Just Another Project 20
17. Conclusions/Abstract 21
18. Reference List 21
19. List of figures and tables 21
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
2
1. Introduction: Balanced ScoreCard, BSC
The BSC is a management tool that translates business strategy into a coherent set of indicators.
The vision and business strategy dictate the way you should aim for the individual and collective efforts of
a company.
The corresponding challenge to identify exactly what needs to be monitored, to communicate at
all levels of the company, whether strategies are being achieved through very specific actions.
Balanced Scorecard is the main methodological tool that translates the strategy into a set of
performance measures, which provide the structure for management and measurement system.
It is balanced because it seeks a balance between financial and nonfinancial indicators, the short-
term and long-term performance indicators and process and a balance between the environment and inside
the firm, that is the key and novel concept on which is based the name "Balanced Scorecard" balanced
system of indicators. The important thing here is that the performance indicators of a company are
balanced, ie there are both financial and nonfinancial indicators, outcome and process and so on.
Is a strategic tool because it is to have indicators that are related to each other and have the
strategy of the company through a map of links
cause and effect (outcome indicators and indicators
drivers). Most have separate indicators, defined
independently for each area of the company, which
always seek to strengthen the power of the same,
getting stronger islands or functional silos.
The BSC allows control of corporate health and how
they are moving the actions to achieve the vision. Figure 1. Vision and Strategy
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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2. History
The first balanced scorecard was created by Art Schneiderman (an independent consultant on the
management of processes) in 1987. Art Schneiderman participated in an unrelated research study in 1990
led by Dr. Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during
this study described his work on Balanced Scorecard. Subsequently, Kaplan and David P. Norton included
anonymous details of this use of balanced scorecard in their 1992 article on Balanced Scorecard. Kaplan
and Norton's article wasn't the only paper on the topic published in early 1992 but the 1992 Kaplan and
Norton paper was a popular success, and was quickly followed by a second in 1993. In 1996, they
published the book The Balanced Scorecard. These articles and the first book spread knowledge of the
concept of Balanced Scorecard widely, but perhaps wrongly have led to Kaplan and Norton being seen as
the creators of the Balanced Scorecard concept.
3. Benefits
The Balanced Scorecard creates a series of results that favor the company's management, but do not
need to implement the methodology and application to monitor and analyze the indicators obtained. Some
advantages are:
• Aligning employees to the company's vision.
• Communication of objectives and compliance to all staff.
• Redefinition of the strategy based on results.
• Translating the vision and strategies into concrete actions.
• It helps in this future value creation.
• Integration of information from various business areas.
• Analytical skills.
• Improved financial indicators.
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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4. Balanced Scorecard Perspectives
The 4 perspectives that traditionally identify a BSC may exist in a business model is not restrictive
but are most common and should be pursued.
Figure 2. BSC Perspective
4.1 Financial Perspective
Financial indicators have been the most used because they reflect what is happening with
investment and economic value, in fact, all measures which form part of the cause-effect relationship,
culminating in the best financial performance.
4.2 Customer Perspective
As part of a business model, you identify the market and the customer which is directed towards
the service or product. The customer perspective is a reflection of the market in which it is competing.
Provides important information to generate, acquire, retain and satisfy customers, gain market
share, profitability, etc. "The customer perspective enables business unit managers to articulate the
strategy of market-based client, which will provide future financial yields superior." (Kaplan & Norton).
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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4.3 Internal process perspective.
To achieve the objectives of clients and financial excellence is needed certain processes that give
life to the company. Those processes that should be excellent are those that identify management and pay
special attention to be carried out in a perfect shape, and thus achieve the objectives of shareholders and
customers.
4.4 Formation and growth perspective.
It is the perspective where more needs to be heeded, particularly if they anticipate a long-term
consistent results. Here we identify the infrastructure needed to create long term value. We need to
achieve development and growth in 3 areas: people, systems and organizational climate. Usually they are
intangible, they are identifiers related to training people, software development, machinery and
equipment, technology and everything to be enhanced to achieve the objectives of the previous outlook.
Figure 3. How BSC work
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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5. Definition of Indicators.
Understood the vision and strategies of the company is possible to determine the objectives to be
met to achieve the strategy and landed on indicators. The indicators should reflect the results very specific
objectives, but also to report on progress towards achieving these objectives. That is, the balanced mix
between performance indicators and indicators of performance is what will communicate how to achieve
results and, as well as the way to achieve it. Kaplan and Norton quote: "Results are the historical
indicators, performance indicators are indicators pension."
Another aspect to highlight is the number of indicators that should be part of the main stage or
teacher. According to Kaplan and Norton, an appropriate number for this work is 7 per prospect indicators
and if less, the better. It starts from the idea that a board with more than 28 indicators is difficult to assess
fully, in addition to the message conveyed by the BSC can be diffuse and disperse the efforts to achieve
several objectives. The ideal of 7 indicators, but may be more, but those mentioned will consult often and
may, indeed, indicate the health of the company or business area.
Most of us have heard some version of the standard performance measurement cliches: “what gets
measured gets done,” “ if you don‟t measure results, you can‟t tell success from failure and thus you can‟t
claim or reward success or avoid unintentionally rewarding failure,” “ if you can‟t recognize success, you
can‟t learn from it; if you can‟t recognize failure, you can‟t correct it,” “if you can‟t measure it, you can
neither manage it nor improve it," but what eludes many of us is the easy path to identifying truly strategic
measurements without falling back on things that are easier to measure such as input, project or
operational process measurements.
Performance Measurement is addressed in detail in Step Five of the Nine Steps to Success®
methodology. In this step, Performance Measures are developed for each of the Strategic Objectives.
Leading and lagging measures are identified, expected targets and thresholds are established, and baseline
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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and benchmarking data is developed. The focus on Strategic Objectives, which should articulate exactly
what the organization is trying to accomplish, is the key to identifying truly strategic measurements.
Strategic performance measures monitor the implementation and effectiveness of an organization's
strategies, determine the gap between actual and targeted performance and determine organization
effectiveness and operational efficiency.
6. Good Performance Measures:
Provide a way to see if our strategy is working
Focus employees' attention on what matters most to success
Allow measurement of accomplishments, not just of the work that is performed
Provide a common language for communication
Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality,
expected value(targets), and thresholds
Are valid, to ensure measurement of the right things
Are verifiable, to ensure data collection accuracy
7.Building & Implementing a Balanced Scorecard
The BSC can be implemented in two ways:
Model control and monitoring. If the vision, strategies and indicators are clearly defined and agreed, the
BSC can be implemented as a traditional exception analysis model. It gives a timely follow-up on progress
in achieving the strategies with respect to the points and the BSC releases a quantity of work, the manager,
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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the analysis by excluding those known processes that eventually require more time for analysis, an
analysis that only occurs when the data do not correspond with the target.
Model of organizational learning and communication. In companies where there is no unanimous
agreement, which are growing or are to harness the potential of employees without losing control of the
company, the BSC should not be used as a model of control, but as a learning model, a model proactive
enrich the original
definitions. In this case, the
values of the indicators can
be used to adapt the
originally proposed strategy
and directions of the
company. Unlike the
control model, the strategist
needs to constantly analyze
the indicators and make
decisions to redirect efforts
to obtain maximum benefits. Figure 4. Building and Implementing a Balanced Scorecard
8. Nine steps to a successful implementation
The Institute‟s award-winning framework, Nine Steps to Success, is a disciplined, practical
approach to developing a strategic planning and management system based on the balanced scorecard.
Training is an integral part of the framework, as is coaching, change management, and problem solving.
A key benefit of using a disciplined framework is that it gives organizations a way to „connect the
dots‟ between the various components of strategic planning and management, meaning that there will be a
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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visible connection between the projects and programs that people are working on, the measurements being
used to track success, the strategic objectives the organization is trying to accomplish and the mission,
vision and strategy of the organization.
The nine points to achieve a successful implementation are:
8.1 Step One: Apply Assessment
BSC Development Plan
Strategic Elements
Change Management
Step One of the scorecard building process starts with an assessment of the organization‟s Mission and
Vision, challenges, enablers, and values. Step One also includes preparing a change management plan for
the organization, and conducting a focused communications workshop to identify key messages, media
outlets, timing, and messengers.
8.2 Step Two: Strategy
Customer Value
Strategic Themes
Strategic Results
Elements of the organization‟s strategy, including Strategic Results, Strategic Themes, and Perspectives,
are developed by workshop participants to focus attention on customer needs and the organization‟s value
proposition.
8.3 Step Three: Objectives
Strategy Action Components
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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The strategic elements developed in Steps One and Two are decomposed into Strategic Objectives, which
are the basic building blocks of strategy and define the organization's strategic intent. Objectives are first
initiated and categorized on the Strategic Theme level, categorized by Perspective, linked in cause-effect
linkages (Strategy Maps) for each Strategic Theme, and then later merged together to produce one set of
Strategic Objectives for the entire organization.
8.4 Step Four: Strategy Map
Cause-and-Effect Links
The cause and effect linkages between the enterprise-wide Strategic Objectives are formalized in an
enterprise-wide Strategy Map. The previously constructed theme Strategy Maps are merged into an
overall enterprise-wide Strategy Map that shows how the organization creates value for its customers and
stakeholders.
8.5 Step Five: Performance Measures
Performance Measures
Targets
Baselines
Performance Measures are developed for each of the enterprise-wide Strategic Objectives. Leading and
lagging measures are identified, expected targets and thresholds are established, and baseline and
benchmarking data is developed.
8.6 Step Six: Initiatives
Strategic Projects
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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Strategic Initiatives are developed that support the Strategic Objectives. To build accountability
throughout the organization, ownership of Performance Measures and Strategic Initiatives is assigned to
the appropriate staff and documented in data definition tables.
8.7 Step Seven: Automation
Software
Performance Reporting
Knowledge Sharing
The implementation process begins by applying performance measurement software to get the right
performance information to the right people at the right time. Automation adds structure and discipline to
implementing the Balanced Scorecard system, helps transform disparate corporate data into information
and knowledge, and helps communicate performance information. The automation helps people make
better decisions because it offers quick access to actual performance data.
8.8 Step Eight: Cascade
Alignment
Unit & Individual Scorecards
The enterprise-level scorecard is „cascaded‟ down into business and support unit scorecards, meaning the
organizational level scorecard (the first Tier) is translated into business unit or support unit scorecards (the
second Tier) and then later to team and individual scorecards (the third Tier). Cascading translates high-
level strategy into lower-level objectives, measures, and operational details. Cascading is the key to
organization alignment around strategy. Team and individual scorecards link day-to-day work with
department goals and corporate vision. Cascading is the key to organization alignment around strategy.
Performance measures are developed for all objectives at all organization levels. As the scorecard
management system is cascaded down through the organization, objectives become more operational and
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Master in Business Information Technology | Balanced ScoreCard
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tactical, as do the performance measures. Accountability follows the objectives and measures, as
ownership is defined at each level. An emphasis on results and the strategies needed to produce results is
communicated throughout the organization.
8.9 Step Nine: Evaluation
Strategy Results
Revised Strategies
An Evaluation of the completed scorecard is done. During this evaluation, the organization tries to answer
questions such as, „Are our strategies working?‟, „Are we measuring the right things?‟, „Has our
environment changed?‟ and „Are we budgeting our money strategically?‟
Figure 5. Example of BSC
9. Feedback and strategic learning.
In one of the most innovative, BSC does not end the analysis of the indicators. It is an ongoing
process in which feedback can be a loop, which is to correct the deviations to achieve the objectives
defined and fixed double feedback loop, where strategists question and reflect on the validity and
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
13
relevance of the theory put forth at the beginning And its possible relevance. The feedback suggests
strategic learning, which is the training capacity of the organization at the executive level, is to "learn how
to use the Balanced Scorecard as a strategic
management system."
1. The feedback system used to test
hypotheses based on that strategy.
2. Troubleshooting equipment.
3. The development of the strategy is a
continuous process.
10. Typical goals of a BSC
• Get clarity and consensus around the strategy.
• Achieving Approach
• Develop leadership
• Strategic intervention
• Educate your organization
• Set strategic goals
• Align and investment programs
• To bind the PSI
• Improve the current indicator system
• Stay focused strategically and evaluate strategic management
Clarifying and
translating vision and
strategy
Communicating
and linking
Strategic and
training feeedback
Planning and
goal setting
Balanced
ScoreCard
Figure 6. Feedfback in BSC Cicle
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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11. Balanced Scorecard Software: Business Intelligence, Dashboards and Performance Management
Systems
The automation of a balanced scorecard is addressed in detail in Step Seven of the Nine Steps to
SuccessTM methodology. In this step, the scorecard implementation process begins by applying
performance measurement software, such as the QuickScore Performance Information System, to get the
right performance information to the right people at the right time. Automation adds structure and
discipline to implementing the balanced scorecard system, helps transform disparate corporate data into
information and knowledge, and helps communicate performance information.
There are over a hundred balanced scorecard and/or performance management automation
development companies. Some of the options are specifically dedicated to performance management
and/or the balanced scorecard. Others include tools which are primarily designed for business intelligence,
analytics or data warehousing, but have modules dedicated to performance management.
12. Balanced ScoreCard Vs Six Sigma Management
While the balanced scorecard is almost always described as a strategic management system, Six
Sigma is usually defined in terms of quality improvement related to internal business processes. Six Sigma
is defined in Quality America as: "… a Quality Improvement methodology structured to reduce product or
service failure rates to a negligible level (six sigma is equivalent to approximately 3.4 failures per million
events).
To achieve these levels of quality, Six Sigma encompasses all aspects of a business, including
management, service delivery, design, production and customer satisfaction." Six Sigma was developed at
Motorola, GE and Allied Signal, and is widely used in many businesses. While the original concept has
expanded over the years to become more strategic, most balanced scorecard organizations will use Six
Sigma as project initiatives to improve the efficiency of internal business processes.
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
15
Both Six Sigma and balanced scorecard practitioners use similar best practices in management to
design and deploy these systems. They both require dedicated top-level management support, a dedicated
team of change agents, strategic alignment, implementation of improvement initiatives as projects, cultural
change management, and a combination of top-down and bottom-up development. Also, Six Sigma
practitioners often adopt the balanced scorecard as a way of deriving appropriate performance metrics.
13. 5 Steps to Find the Right Measures
How to find the right measures is the most asked question in the field of performance
measurement. Because the more meaningful measures track outcomes which tend to be less tangible than
the traditional things we've measured, like how many widgets we produced.
How do you translate results so intangible as employee morale or service quality or corporate
image into solid, robust measures?
13.1 STEP 1: Begin with the end in mind.
Performance measures are objective comparisons that provide evidence of an important performance
outcome. It is of the utmost importance to decide which outcomes are most worth tracking right now. As
the first step in deciding how to measure an outcome, write down what the outcome is, what the difference
is you are trying to create (and thus want to track using a measure). Focus on one outcome at a time.
13.2 STEP 2: Be sensory specific.
When you have the end in mind, you are ready to get a handle on what specifically about your outcome
you will measure. This is where you take care in your choice of words to describe the outcome as
concretely as possible. Use "sensory" language - the language that describes what you and others would
see, hear, feel, do, taste or smell if your outcome was happening now. Avoid those inert words in our goal
and objective statements, such as: efficient, effective, reliable, sustainable and quality.
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
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13.3 STEP 3: Check the bigger picture.
Check the bigger picture for what could happen if you measure your outcome. What level of control do
you have over achieving it? What might the unintended consequences of measuring the outcome be (both
the positive and the negative)? What behaviour would the measures drive? Which other areas of
performance might be sabotaged or limited? This is the first chance to change your mind about what's
most worth measuring.
13.4 STEP 4: What's the evidence?
Get ultra specific and figure out what the potential measures are that could let you (and everyone else)
know that the outcome is being achieved. For each of your sensory rich statements from step 2, what
could you count to tell you the extent to which it is occurring? Which of these potential measures would
be the optimal balance between objectivity and feasibility?
13.5 STEP 5: Name the measure.
Naming your performance measures marks the point at which you know exactly what you will be
measuring. Be succinct and informative and deliberate, as you need to be able to continually and easily
identify each measure as it moves through the steps of being brought to life and being used in decision
making.
Figure 7. Steps to Find the Right Measures
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
17
14. The Strategic Management Maturity Model
The SMMM Can Be Used to Assess Organizational Strategic Management Performance.
Many companies ask a similar question: where do we stand compared with other high performing
organizations? Until now, there was no clear method for answering that question. The way is the Strategic
Management Maturity Model (SMMM).
The SMMM was designed by and for busy managers who need a quick assessment of where their
organization stands in terms of strategic management, to monitor progress in improving maturity of
strategic management, and to allow benchmarking across organizations, or departments within one
organization, in order to identify best practices.
There are two basic questions to ask of management: are we doing things right, and are we doing
the right things? Operational management focuses on doing things right, and many tools have been
developed to improve this (e.g. TQM, Six Sigma, business process reengineering etc.), including many
maturity models. Process improvements alone cannot guarantee that a company will be successful, or that
an agency will achieve its mission. These two aspects of management – strategic and operational –
complement each other, so both must be assessed to determine the organization's total management
capabilities.
15. Cascading a Balanced Scorecard: Creating Alignment
Ours companies can improve its performance if you could somehow better communicate to your
employees what your strategy is? Exist employees whose hard work is actually running counter to the
organization‟s goals because they have a different understanding of what you are trying to accomplish?
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
18
The problems addressed by these questions center on the issue of organizational alignment. While
the balanced scorecard has been touted as an effective tool for creating organizational alignment, the
actual success of the system as an alignment tool can vary depending on the strategic focus of scorecard
(simple performance measurement dashboard tend to not be very helpful), the success of its
implementation and whether or not the organization successfully cascades the scorecard down to business
or support unit level and/or individual levels.
Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to as
Tier 1) down to first business units, support units or departments (Tier 2) and then teams or individuals
(Tier 3). The end result should be focus across all levels of the organization that is consistent. The
organization alignment should be clearly visible through strategy, using the strategy map, performance
measures and targets, and initiatives. Scorecards are used to improve accountability through objective and
performance measure ownership, and desired employee behaviors are incentivized with recognition and
rewards.
16. The Balanced Scorecard: Not Just Another Project
The balanced scorecard management system is not just another project. It is fundamentally
different from project management in several respects.
The first thing is the topology: the balanced scorecard management process, derived from
Deming's Total Quality Management, is a continuous cyclical process. It has neither beginning nor end. Its
task is not directly concerned about the mission of the organization, but rather with internal processes
(diagnostic measures) and external outcomes (strategic measures). The system's control is based on
performance metrics or "metadata" that are tracked continously over time to look for trends, best and
worst practices, and areas for improvement. It delivers information to managers for guiding their
decisions, but these are self-assessments, not customer requirements or compliance data.
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
19
People trained only in project management may have difficulty in figuring out how to accomplish
the BSC, simply because it is such a different kind of management paradigm. One of the key practical
difficulties is to figure out how to get the process started in the first place. If this is not a project, where
does one begin? What kind of plan is
appropriate for deployment of the
balanced scorecard system?
There needs to be a ramp-up
phase, where everyone "comes up to
speed." This includes training or
retraining of project managers, and
probably focused deployment of pilot
efforts before attempting to cover an
entire large agency. Figure 8. Integration of DataWherehouse
17. Conclusions/Abstract
The philosophy and methodology of the Balanced Scorecard requires a lot of awareness and
support by senior management of any company, as will be the main consumers of information. Personally
in my experience I can assure you that none of this will be possible without a real commitment at all
levels, from the least to generate the information, the more they will consume.
Information should be integrated, consistent and available for indicators and metrics can be safe
and secure. The tool by itself does not ensure success, as indicated in the document is more a cultural than
a way of working.
Oswaldo Cabrera López
Master in Business Information Technology | Balanced ScoreCard
20
The metrics and indicators should be useful for decision making, in addition to verify that it is
possible to obtain them.
18. Reference List
http://www.gestiopolis.com/canales/gerencial/articulos/20/bsc.htm
http://www.infoviews.com.mx/Bitam/ScoreCard/
http://www.balancedscorecard.org/
http://en.wikipedia.org/wiki/Balanced_scorecard
http://www.hr-scorecard-metrics.com/tag/balanced-scorecard
19. List of figures and tables
• Figure 1. Vision and Strategy 3
• Figure 2. BSC Perspective 5
• Figure 3. How BSC work 6
• Figure 4. Building and Implementing a Balanced Scorecard 9
• Figure 5. Example of BSC 13
• Figure 6. Feedfback in BSC Cicle 14
• Figure 7. Steps to Find the Right Measures 17
• Figure 8. Integration of DataWherehouse 20