Balancs Score Cards Etc

8/8/2019 Balancs Score Cards Etc

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The balanced scorecard is a strategic planning and management system that is used extensivelybusiness and industry, government, and nonprofit organizations worldwide to align business

activities to the vision and strategy of the organization, improve internal and externalcommunications, and monitor organization performance against strategic goals. It was originate

Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measuremenframework that added strategic non-financial performance measures to traditional financial met

to give managers and executives a more 'balanced' view of organizational performance. While tphrase balanced scorecard was coined in the early 1990s, the roots of the this type of approachdeep, and include the pioneering work of General Electric on performance measurement reportin

the 1950s and the work of French process engineers (who created the Tableau de Bord literal

"dashboard" of performance measures) in the early part of the 20th century.

The balanced scorecard has evolved from its early use as a simpleperformance measurement framework to a full strategic planning

and management system. The new balanced scorecardtransforms an organizations strategic plan from an attractive but

passive document into the "marching orders" for the organizationon a daily basis. It provides a framework that not only provides

performance measurements, but helps planners identify whatshould 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 previousmanagement approaches, the balanced scorecard approach

provides a clear prescription as to what companies should

measure in order to 'balance' the financial perspective. Thebalanced scorecard is a management system (not only a

measurement system) that enables organizations to clarify theirvision and strategy and translate them into action. It provides

feedback around both the internal business processes and externaloutcomes in order to continuously improve strategic performance

and results. When fully deployed, the balanced scorecardtransforms 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 storyfor industrial age companies for which investments in long-term

capabilities and customer relationships were not critical forsuccess. These financial measures are inadequate, however, forguiding and evaluating the journey that information age

companies must make to create future value through investment

in customers, suppliers, employees, processes, technology, andinnovation."

Why Implement a Balanc

Scorecard?

Increase focus onstrategy and results

Improve organizatio

performance bymeasuring what

matters Align organization

strategy with the wo

people do on a day-tday basis

Focus on the drivers

future performance

Improvecommunication of th

organizations Visionand Strategy

Prioritize Projects /

Initiatives

Also see:

The Benefits of Balanced ScorecarStrategic Planning and ManagemeReturn on investment is an importantconsideration before investing a significanamount of money to build and implement

new strategic management system.Read
http://www.balancedscorecard.org/Portals/0/PDF/BSC_Benefits_2pgs.pdfhttp://www.balancedscorecard.org/Portals/0/PDF/BSC_Benefits_2pgs.pdfhttp://www.balancedscorecard.org/Portals/0/PDF/BSC_Benefits_2pgs.pdfhttp://www.balancedscorecard.org/Portals/0/PDF/BSC_Benefits_2pgs.pdfhttp://www.balancedscorecard.org/Portals/0/PDF/BSC_Benefits_2pgs.pdfhttp://www.balancedscorecard.org/Portals/0/PDF/BSC_Benefits_2pgs.pdf


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Adapted from Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as aStrategic Management System, Harvard Business Review (January-February 1996): 76.

Perspectives

The balanced scorecard suggests that we view the organizationfrom 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 culturalattitudes related to both individual and corporate self-

improvement. In a knowledge-worker organization, people -- the

only repository of knowledge -- are the main resource. In thecurrent 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 focusingtraining funds where they can help the most. In any case, learning

and growth constitute the essential foundation for success of anyknowledge-worker organization.

Kaplan and Norton emphasize that 'learning' is more than

'training'; it also includes things like mentors and tutors within theorganization, as well as that ease of communication amongworkers that allows them to readily get help on a problem when it

is needed. It also includes technological tools; what the Baldrigecriteria call "high performance work systems."

The Business Process PerspectiveThis perspective refers to internal business processes. Metrics

based on this perspective allow the managers to know how well

More >>

A Balancing Actby InstitutePresident & CEO Howard RohmA seminal article on how to implemethe balanced scorecard.

Read More >>

Sustaining NewDirectionsby Howard Rohm anLarry HalbachSequel to A Balancing Act -- an articRead More >>

What are the PrimaryImplementation Success Factors

Click Here to Find Out

Want to learn more?Please visit the Institute'sPublic

Workshop Schedule orcontacttheInstitute abouton-site training or

consulting services. Or schedule a

live, customizedwebinarwith an

Institute consultant, or try theInstitute's newE-Learningprogram

Other Resources:

Definitions of BalancedScorecard Strategic

Planning & Managemen

Terms

Definitions of GeneralManagement Terms
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their business is running, and whether its products and servicesconform 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 notsomething that can be developed by outside consultants.

The Customer PerspectiveRecent management philosophy has shown an increasing

realization of the importance of customer focus and customersatisfaction in any business. These are leading indicators: if

customers are not satisfied, they will eventually find othersuppliers that will meet their needs. Poor performance from this

perspective is thus a leading indicator of future decline, eventhough the current financial picture may look good.

In developing metrics for satisfaction, customers should beanalyzed in terms of kinds of customers and the kinds of

processes for which we are providing a product or service to thosecustomer groups.

The Financial PerspectiveKaplan and Norton do not disregard the traditional need for

financial data. Timely and accurate funding data will always be apriority, and managers will do whatever necessary to provide it. In

fact, often there is more than enough handling and processing offinancial data. With the implementation of a corporate database, it

is hoped that more of the processing can be centralized andautomated. But the point is that the current emphasis on

financials leads to the "unbalanced" situation with regard to otherperspectives. There is perhaps a need to include additional

financial-related data, such as risk assessment and cost-benefitdata, in this category.

Strategy Mapping

Strategy maps are communication tools used to tell a story of howvalue is created for the organization. They show a logical, step-

by-step connection between strategic objectives (shown as ovalson the map) in the form of a cause-and-effect chain. Generally

speaking, improving performance in the objectives found in theLearning & 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 (thetop two rows).

Using the Balanced Scoreca

to Align Your Organizationby Howard RohmBalanced Scorecards, when developestrategic planning and managementsystems, can help align an organizatbehind a shared vision of success.

Read More >>

The Balanced Scorecard --

Just Another Projectby Paul ArvesonThe balanced scorecard managemensystem is not just another project. Itfundamentally different from projectmanagement in several respects.Read More >>

Web 2.0 and the Automated BalanceScorecardby David WilseyImprove Your Performance "News"Read More >>

The Balanced Scorecarand Measurement-Base

Managementby Paul Arveson

Improve GovernmenPerformanceRead More>>

What is a BalancedScorecard?Need more information? Sign up forwebinar or our e-learning program fomore.
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Balanced Scorecard Software

The balanced scorecard is not a piece of software. Unfortunately,

many people believe that implementing software amounts to

implementing a balanced scorecard. Once a scorecard has beendeveloped and implemented, however, performance managementsoftware can be used 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, helpstransform disparate corporate data into information and

knowledge, and helps communicate performance information. The

Balanced Scorecard Institute formally recommends the QuickScorePerformance Information SystemTM developed by Spider Strategies

and co-marketed by the Institute.More about Software >>

Professional Certification

Did you know that

the Institute'sProfessional

CertificationProgram is offered in

association withGWU?

Read More >>View Schedule >>

CloseMove

What are the Primary Implementation Success Factors?

Obtaining executive sponsorship and commitment

Involving a broad base of leaders, managers and employees in scorecard development

Agreeing on terminology

Choosing the right BSC Program Champion

Beginning interactive (two-way) communication first

Working through mission, vision, strategic results, and strategy mapping first to avoid

rushing to judgement on measures or software

Viewing the scorecard as a long-term journey rather than a short-term project

Planning for and managing change

Applying a disciplined implementation framework

Getting outside help if needed

CloseMove

Definitions of Balanced Scorecard Strategic Planning &Management Terms

Customer Value PropositionThe Customer Value Proposition is the unique added value an organization offers customers through its operationthe logical link between action and payoff that the organization must create to be effective. Three aspects of theproposition include Product/Service Attributes (Performance/ Functionality considerations such as quality, timelinor price), Image and Relationship.

Mission
https://www.balancedscorecard.org/LinkClick.aspx?link=395&tabid=61https://www.balancedscorecard.org/LinkClick.aspx?link=395&tabid=61http://www.spiderstrategies.com/http://www.balancedscorecard.org/LinkClick.aspx?link=61&tabid=55http://www.balancedscorecard.org/LinkClick.aspx?link=363&tabid=36http://www.balancedscorecard.org/LinkClick.aspx?link=71&tabid=36http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23https://www.balancedscorecard.org/LinkClick.aspx?link=395&tabid=61https://www.balancedscorecard.org/LinkClick.aspx?link=395&tabid=61http://www.spiderstrategies.com/http://www.balancedscorecard.org/LinkClick.aspx?link=61&tabid=55http://www.balancedscorecard.org/LinkClick.aspx?link=363&tabid=36http://www.balancedscorecard.org/LinkClick.aspx?link=71&tabid=36http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx#%23


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A mission statement defines why an organization exists; the organization's purpose

Performance MeasuresPerformance Measures are metrics used to provide an analytical basis for decision making and to focus attentionwhat matters most. Performance Measures answer the question, 'How is the organization doing at the job of meeits Strategic Objectives?' Lagging indicators are those that show how successful the organization was in achievin

desired outcomes in the past. Leading indicators are those that are a precursor of future success; performancedrivers.

PerspectivesA Perspective is a view of an organization from a specific vantage point. Four basic perspectives are traditionallyused to encompass an organization's activities. The organization's business model, which encompasses mission,vision, and strategy, determine the appropriate perspectives.

Strategic InitiativesStrategic Initiatives are programs or projects that turn strategy into operational terms and actionable items, provan analytical underpinning for decisions, and provide a structured way to prioritize projects according to strategicimpact. Strategic Initiatives answer the question, What strategic projects must the organization implement to mits Strategic Objectives?

Strategic ObjectivesObjectives are strategy components; continuous improvement activities that must be done to be successful.Objectives are the building blocks of strategy and define the organization's strategic intent. Good objectives areaction-oriented statements, are easy to understand, represent continuous improvement potential and are usually'on-off' projects or activities.

Strategic ResultStrategic results are the desired outcome for the main focus areas of the business. Each Strategic Theme has acorresponding Strategic Result.

Strategic ThemeStrategic Themes are key areas in which an organization must excel in order to achieve its mission and vision, andeliver value to customers. Strategic Themes are the organization's "Pillars of Excellence."

Strategy MapA Strategy Map displays the cause-effect relationships among the objectives that make up a strategy. A goodStrategy Map tells a story of how value is created for the business.

StrategyHow an organization intends to accomplish its vision; an approach, or game plan.

TargetsDesired levels of performance for performance measures

VisionA vision statement is an organization's picture of future success; where it wants to be in the future

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nt Gcom

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The matrix organization is an attempt to combine the advantages of the pure functional

structure and the product organizational structure. This form is identically suited for

companies, such as construction, that are project-driven. The figure below shows a typical

Matrix organization.

In a matrix organization, each project manager reports directly to the vice president and the

general manager. Since each project represents a potential profit centre, the power and

authority used by the project manager come directly from the general manager.

Information sharing is mandatory in such an organization, and several people may be

required for the same piece of work. However, in general, the project manager has the total

responsibility and accountability for the success of the project. The functional departments, on

the other hand, have functional responsibility to maintain technical excellence on the project.

Each functional unit is headed by a department manager whose prime responsibility is to

ensure that a unified technical base is maintained and that all available information can be

exchanged for each project.

Typical Matrix organization
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The basis for the matrix organization is an endeavor to create synergism through shared

responsibility between project and functional management. Other advantages of a pure matrix

organizational form, to project management, include:

Because key people can be shared, the project cost is minimized

Conflicts are minimal, and those requiring hierarchical referrals are more easilyresolved

There is a better balance between time, cost and performance

Authority and responsibility are shared

Stress is distributed among the team

Material Requirements Planning (MRP)

A computerized system for managing dependent-demandinventory, scheduling replenishment orders, and meeting demandfor end items as given in the Master Production Schedule.

Two basic characteristics of MRP:

1. MRP derives demand for components, subassemblies, materials, etc.,from demand for and production schedules ofparent items.

2. MRP offsets replenishment orders (purchase orders or productionschedules) relative to the date when replenishment is needed.

Information Needed for MRP Information Obtained from MRP

Demand for all products. Lead times for all finished

goods, components, partsand raw materials

Lot sizing policies for allparts

Opening inventory levels Safety stock requirements

Any orders previouslyplaced but which haven'tarrived yet

Planned orders: replenishment orders tobe released at a future time

Order release notice: notices to releaseplanned orders

Action notices: notices to expedite, de-expedite, or cancel orders, or to change

order quantities or due dates Priority reports: information regarding

which orders should be given priority Inventory status information

Performance reports such as inactiveitems, actual lead times, late orders, etc.


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MRP Inputs1. 1. Master Production Schedule2. Product Structure3. Inventory Levels

p and np Control Charts

Control Limits

Binomial Distribution

Small Sample Case

Summary

Quick Links

Greetings,

Two control charts used with yes/no type data are the p and np control charts.

We usually collect the data and then calculate the average and the control limits,

either manually or with software. But did you know that the control limit equations

for the p and np control charts are only valid under certain conditions? The

equations are not valid when you have what is called the "small sample case" for

p and np control charts. This newsletter discusses this small sample case and

how the control limits are determined.

Best regards,

Bill

p and np Control Chartsp and np control charts are used with yes/no type attributes data. These two

charts are commonly used to monitor the fraction (p chart) or number (np chart)

of defective items in a subgroup of items.

With this type of data, there are only two possible outcomes: either the item is

defective or it is not defective. For example, suppose you are using a p control

chart to track the fraction (or %) of hospital admissions that had incorrect

insurance information each week. There are only two possible outcomes: either

the admission had the correct insurance information or it did not have the correct

insurance information. This type of data is referred to as yes/no data. It either
http://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#pAndnpControlCharts%23pAndnpControlChartshttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#controlLimits%23controlLimitshttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#binomialDistribution%23binomialDistributionhttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#smallSampleCase%23smallSampleCasehttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#summary%23summaryhttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#quick%23quickhttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#pAndnpControlCharts%23pAndnpControlChartshttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#controlLimits%23controlLimitshttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#binomialDistribution%23binomialDistributionhttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#smallSampleCase%23smallSampleCasehttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#summary%23summaryhttp://www.spcforexcel.com/small-sample-case-for-p-and-np-control-charts#quick%23quick


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meets some preset specification (yes) or it does not meet the preset specification

(no). You would collect data each week on the number of hospital admissions (n,

the subgroup size) and the number with incorrect insurance information (np, the

number defective). Each week you calculate the fraction defective, p, which is

equal to np/n. The values of p are plotted over time. Once enough data isavailable, you calculate the average (pbar) and control limits (LCLp and UCLp).

For more information on p control charts, please see our July 2005 newsletter

that is available on our website.

If the subgroup size is the same each time, the np control chart can be used in

place of the p control chart. In this case, the number of defective items (np) is

plotted over time. Again, once enough data is available, you calculate the

average (npbar) and control limits (UCLnp and LCLnp).

Both these charts involve counts. You are counting items. To use a p or np

control chart, the counts must also satisfy the following two conditions:

1. You are counting n distinct items. np is the number of items

in those n items that fail to conform to specification.

2. Suppose p' is the probability that an item will fail to conform

to the specification. The value of p' must be the same for each of

the n items in a single sample.

If these two conditions are met, the binomial distribution can be used to estimate

the distribution of the counts and the p or np control charts can be used. Becareful here because condition 2 does not always hold. For example, some

people use the p control chart to monitor on-time delivery on a monthly basis.

This is not valid unless the probability of each shipment during the month being

on-time for all the shipments is the same. Big customers often get priority on their


10/18

orders, so the probability of their orders being on time is different than for other

customers and you can't use the p control chart.

Click here to access all our previous newsletters.

Control LimitsThe control limits for the p control chart are given below.

where pbar is the average fraction defective, n is the subgroup size, UCLp is the

upper control limit and LCLp is the lower control limit.

The control limits for the np control chart are given below.

where npbar is the average number of defective items, UCLnp is the upper

control limit and LCLnp is the lower control limit.

These equations for the control limits are commonly used. However, thesecontrol limits are only valid under certain conditions. The basic probability

distribution for the calculation of control limits for the p and np charts is the

binomial distribution. Under certain conditions, the binomial distribution is

symmetrical and the control limits for the p and np control charts are those given

above.

Suppose you have a process that is in statistical control with an average fraction

defective of pbar. Since the process is in control, any p values obtained should

fall between the control limits in a random fashion. The chance that p will fall

outside the control limits is approximately 3 out of 1,000. These control limits aregood as long as n*pbar is sufficiently large. In these cases, the binomial

distribution is symmetrical and the equations above provide good estimates of

the control limits.
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11/18

Our SPC for Excel software easily constructs and updates control charts. And it

automatically handles the small sample case for p and np control charts. Click

here.

Binomial DistributionIf n*pbar is not sufficiently large, the binomial distribution is not symmetrical. In

these cases, the control limit equations are no longer valid. n*pbar is not

sufficiently large if n*pbar < 5 or if n*(1-pbar) < 5. This is referred to as small

sample case for p and np charts. The figures below demonstrate how the shape

of the binomial distribution changes as n*pbar changes from 0.5 to 5.0. As can

be seen in the figures, the binomial distribution becomes more symmetrical and

approaches the shape of a normal distribution as n*pbar becomes larger. When

the distribution is symmetrical, the control limit equations are valid.
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Small Sample CaseIf n*pbar < 5 or if n*(1-pbar) < 5, the above control limit equations cannot be used

to determine the control limits. The control limits must be derived from thebinomial distribution. We have generated a table that gives you the control limits

in this small sample case. The table is available for download from the website at

this link (small sample case p and np charts download).

The table gives the upper and lower control limits for various values of pbar from

0.001 to 0.5 and for values of n from 5 to 50. These control limits are exact

solutions of the equation governing the binomial distribution with the assumption

that the probability (P) of obtaining a point beyond the control limits is less than

or equal to 0.003:

P(p = UCLp)


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LCLnp = None

A portion of the table is shown below.

n 8 9 10

pbar LCL UCL LCL UCL LCL UCL0.01 - 2 - 3 - 30.02 - 3 - 3 - 3

0.03 - 3 - 3 - 3

0.04 - 4 - 4 - 4

0.05 - 4 - 4 - 4

0.06 - 4 - 4 - 4

0.07 - 4 - 4 - 5

0.08 - 4 - 5 - 5

0.09 - 5 - 5 - 5

0.10 - 5 - 5 - 50.11 - 5 - 5 - 5

0.12 - 5 - 5 - 6

0.13 - 5 - 5 - 6

0.14 - 5 - 6 - 6

0.15 - 5 - 6 - 6

0.16 - 6 - 6 - 6

0.17 - 6 - 6 - 6

0.18 - 6 - 6 - 7

0.19 - 6 - 6 - 7

0.20 - 6 - 7 - 7

The control limits are converted from an np chart to a p chart by dividing by n:

UCLp = UCLnp/n = 3/10 = 0.3

LCLp = LCLnp/n = None/10 = None

If the control limit equations were used, the control limits would be:

The LCLp is actually -0.08 but since it is less than zero, there is no LCLp. Note

the difference between the UCLp calculated using the equations (UCLp = 0.1)

and that obtained from the table (UCLp = 0.3). This difference is simply due to


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In the case when n*pbar < 5 or n*(1-pbar) < 5, the actual binomial distribution

must be used. A table has been provided for pbar = .001 to .5 and n from 4 to 50

that provides these control limits.

Attachment Size

small sample case for p and np charts.xls 68 KB

Quick LinksVisit our home page

SPC for Excel Software

What is it: The NP-Chart is used for monitoring the number of

times a condition occurs, relative to a constant sample size,

when each sample can either have this condition, or not have

this condition. The Np-Chart monitors the number of times a

condition occurs, relative to a constant sample size, when each

sample can either have this condition, or not have this condition.

For our example, we would sample a set number of transactions

each month from all the transactions that occurred, and from this

sample count the number of transactions that had one or moreerrors. We would then track on the control chart the number of

transactions with errors per month.

Why use it: The Np Control Chart is used to determine if the

rate of nonconforming product is stable, and will detect when a

deviation from stability has occurred. There is a difference

between a "P-Chart" and an "Np-Chart". A P-Chart is one that

shows the fraction defective (p), whereas the NP-Chart shows

the NUMBER of defectives (Np). They are practically the same

thing with the exception that an NP-Chart is used when the sizeof the subgroup (N) is constant, and a P-Chart is used when it is

NOT constant.

Where to use it: In industrial statistics, the NP-Chart is a

type of control chart that is very similar to the P-Chart except

that the statistic being plotted is a number count rather than a
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sample proportion of items. For example, an NP-Chart often

shows the number of nonconforming items in each sample.

Since we are counting failures or successes, clearly the

appropriate data for NP-charts need to be attribute data. Thesubgroup size must be constant, as comparisons of counts

would otherwise be meaningless.

When to use it: To measure the number of defective items

along a time sequence.

How to use it: NP-Chart overview:

1. The "NP" stands for the number of nonconforming items,

which can be expressed as n (sample size) times P

(proportion of nonconforming items)

2. Need a good definition of nonconforming items usually

a categorical definition

3. Subgroup size must be constant

4. Normally need large subgroups can even be up to total

for the period

Control limits for the NP-Chart are calculated on the basis of the

binomial distribution and an approximation based on the central

limit theorem.

Steps In Constructing a NP-Chart

1. Collect the data recording the number inspected (N) and

the number of defective products (NP). Divide the data

into subgroups.

2. Record the number of defectives on a chart or

spreadsheet, along with the subgroup size.

3. Record the number of defectives for each subgroup and

record on the data sheet. Then total both columns.

4. Compute the Control Limits.5. Draw in the Control Limits and plot the number of

defective parts listed in our chart above. Connect the

dots and observe the chart to determine if there are any

points out of the control limits.


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