COBIT INFORMATION COBIT, which stands for Control Objectives for Information and Related Technology, is an audit framework adopted by the Federal Reserve Bank and by the Internal Audit Departments of many banking IT groups. It was developed by the IT Governance Institute as an open, business-oriented standard for control over IT. COBIT is not a typical audit framework. It is an IT-specific model that is organized around 34 key IT processes. It integrates Balanced Scorecard and Capability Maturity Model (CMM) philosophies along with the control objectives you would normally expect from an audit standard. COBIT anchors its approach in the concept that an IT organization's ability to execute its strategies and control its processes is critical to an enterprise's success and health. If IT does not have adequate control over its objectives and its Critical Success Facotrs (CSFs), the business will be at risk. We can assess and guide improvements to IT's control over its objectives and CSFs with key indicators - metrics. Further, our ability to measure and improve our performance will mature over time - along a CMM continuum. Most IT groups are attempting to improve their overall COBIT maturity in order to reduce risk and improve processes. In the COBIT Kit you will find reference materials, a glossary, training materials, metrics information, and numerous other support tools to help in that work. Process-specific materials are accessible via the listing of the 34 individual processes. Just click on the process of interest to delve into the available materials.

STS Balanced Scorecard KitFAQ - What is a Balanced Scorecard?

According to Robert Kaplan and David Norton, the Harvard business school professors who created it, The Balanced Scorecard is a “Strategic Management System.”

The Balanced Scorecard is a methodology for translating strategy into action. It is a purposeful way to manage, using, among other things, metrics. The Balanced Scorecard defines strategic goals, states the initiatives you intend

to undertake to accomplish the goals, identifies metrics and targets to measure progress against those initiatives, and, in the course of regular (usually monthly) reviews, cues up corrective action for managers to take.

It is focused in scope. It is a means of means of creating exceptional performance.

FAQ - What is the Balanced Scorecard NOT?

Not simply a rearrangement of the same old metrics into a trendy new format Not a “controlling” system Not comprehensive in scope Not a means of conducting business-as-usual

FAQ - Why does STS need to use the Balanced Scorecard?

Because it’s a good thing to do.

Only 33% of the Fortune 1,000 execute their strategies, though 90% have strategic plans. Why?

Typically, only 5% of employees understand the company strategic plan Usually only 25% have incentive plans linked to their long-term strategies 60% do NOT link their budgets to their strategies 85% of managers spend no more than 1 hour/month on strategy

Blame it on CobiT.

Banks are regulated by the Federal Reserve Bank Feds use the CobiT IT Process framework to gauge process maturity and

performance CobiT associates use of BSC with levels of process maturity which your group

may want to achieve (beyond “ad hoc”)

FAQ - Who should use the Balanced Scorecard?

According to Robert Kaplan and David Norton (creators of the Balanced Scorecard), each “strategic business unit” should use a Balanced Scorecard to manage to its strategy.

FAQ - How do the Balanced Scorecards of line organizations relate to the overall Balanced Scorecard?

Group Balanced Scorecards should “cascade” from the overall Balanced Scorecard in the strategic sense - the Objectives of line-level groups should be based on organization-level strategy.

There does not need to be a "mathematical" link from the line-level metrics up to the organization level.

Results at the line-level should be seen as driving results at the organization-level.

Resources - The Four Balanced Scorecard Perspectives

The four Perspectives are the conceptual core of the Balanced Scorecard. They put the "Balanced" in Balanced Scorecard. With Strategies and Objectives relating to each of the Perspectives, an organization can enjoy some assurance that its strategic focus is balanced, and that its Balanced Scorecard can function as a management system.

The Perspectives enter into the Balanced Scorecard development process over and over again. They are used as a framework for developing Strategy, Objectives, Initiatives and Metrics. When the Balanced Scorecard is in production, they are also used to organize the display of results and analysis.

Following are the four Balanced Scorecard Perspectives accompanied by short descriptions.

Financial - The Financial Perspective serves as the focus for the Objectives and Metrics in all the other Perspectives. When creating Strategy, for instance, one begins with Financial Objectives and then moves downward through the other Perspectives.

Objectives within the Financial Perspective should answer the question, "In order to achieve financially, how should we appear to our shareholders or contribute to shareholder value?"

Customer - The Customer Perspective serves as the focus for the Internal Process and Learning & Growth Perspectives. In other words, the things we do for our employees (Learning & Growth) and for our Internal Processes, should drive success in pleasing our Customers.

Objectives within the Customer Perspective should answer the questions, "In order to achieve our vision, how should we appear to our customers?" and "What can we do for them?"

Internal Process - This Perspective is just what it says. One develops Objectives in the Internal Process Perspective after creating Objectives for the Financal and Customer Perspectives.

When developing Objectives in the Internal Process Perspective, be sure to consider the entire scope of what your group does. Begin with Innovation - identifying current and future Customer needs and developing new solutions for these needs. Then proceed through Operations - delivering existing products and services to existing customers. And conclude with Maintenance - what can you offer "post-sale" that would add real value?

Objectives within the Customer Perspective should answer the question, "In order to satisfy our customers, at what core processes must we excel?"

Learning & Growth - Also known as "the Employee Perspective." In this Perspective, we seek to improve employee capabilities, information systems, and to increase employee motivation, empowerment and alignment with strategic goals. It is important to remember that the Objectives within Learning & Growth are the core drivers for achieving excellent outcomes in the other three Perspectives.

Objectives within the Customer Perspective should answer the question, "In order to achieve our vision, how will we sustain our ability to change and improve?"

Resources - Strategy and Process Terminology

Like any other business methodology, the Balanced Scorecard has its own lingo. Common terms are listed in alphabetical order and defined on this page.

Action - Action is the ultimate goal of the Balanced Scorecard. All the rest - the strategizing, the objectives, the metrics and targets - together comprise a great big lens for focusing and directing our action. Our action can take the form of projects, programs, management-by-objectives and escalations. Also see Initiative.

Balanced Scorecard - A methodology for translating strategy into action. It is "balanced" because it requires that our strategies cover the four perspectives. It is a "scorecard" because it demands the regular review of metric results against explicitly defined targets and strategic objectives.

Capability Maturity Model (CMM) - A widely accepted model to enable efficient process improvement across disciplines The model is based on the belief that the quality of a process' output is directly related to the quality of the process itself.

Control Objectives for Information and Related Technology (CobiT) - A business oriented standard for control over Information Technology, adopted by Schwab's Internal Audit Department and the Federal Reserve Bank. CobiT supports management needs in determining and monitoring the appropriate level of IT security and control.

Critical Success Factors (CSF) - The most important things to do in order to achieve a strategic goal. Can be strategic, technical, organizational, process or procedural in nature. Example: critical success factors to provision of seamless client service might include faster recovery from outages and reduction in the volume of outages.

Driver - "Driver" is a way to describe an objective or metric that is focused on the achievement of an intermediate step, rather than on the end result. For example, let's say we want to improve our process performance. In order to do that we may have to improve particular skills among our employees. So we set up a training program. The objective of improving employee skills may be described as a "driver" of the objective to improve process performance. Likewise, any metric associated with the improvement of employee skills, say "percentage of employees trained in Remedy," may be described as a "driver" metric. Also see "Result."

Indicator - The same thing as a metric, in the context of the Balanced Scorecard. Often used in conjunction with "lagging" or "leading," as in a "leading indicator."

Initiative - After we have set our strategic goals and objectives, we decide which Initiatives we are going to undertake in order to achieve those objectives. Initiatives are STRATEGIC projects or programs - they are explicitly identified as serving our strategy.

Lagging - A metric or indicator is described as "lagging" when, as soon as we know its result, there is no time for us to do anything about it. A lagging metric is often the same thing as a result metric. Market Client Service Availability is a lagging metric with which we are all familiar. By the time the daily, monthly or yearly MSCA result is calculated, it is too late for us to do anything about it. Because availability is very important to us, we will probably want to watch some "leading" metrics...

Leading - A metric or indicator is described as "leading" when its result is predictive of lagging results. A leading metric is often the same thing as a driver metric. For an example of a leading metric, think about Market Client Service Availability (MSCA) again. If our

ultimate objective were to improve MCSA, we would need to undertake some more focused Initiatives. We might seek to increase the currency of our database software. We might perform disaster recovery exercises. We would do these things in the belief that improved performance in those areas would ultimately result in an improvement in MCSA. The metrics we would use to gauge our performance against those objectives might include "Average # of DB Software Versions from Current" and "Time to Disaster Recovery (Test)," both of which would be good examples of "leading" metrics.

Metric - A Metric is a measure applied to a key process whose improvement is critical to the success of the organization. A metric is a STRATEGIC measure.

Mission - A statement of an organization’s long-term vision objectives. A mission usually communicates fundamental values and an entity’s core product. Example: To be recognized by our service quality, market wisdom and client relationships as the most trusted firm in the financial services business within 5 years.

Objective - A specifically stated target with measurable results. Generally there are several to many strategic objectives. Example: To standardize on fewer computing environments (e.g. 80% environments compliant with standards by 12/31/2003) (Supports our strategic goal for high availability, as streamlining to fewer platforms facilitates availability with simpler maintenance and less risk).

Perspective - One of four categories to which the designers of the Balanced Scorecard say we must relate our strategy. Used properly, the four perspectives - "Financial," "Customer," "Internal Process," and "Learning & Growth" - ensure that our scorecards are, in fact, balanced.

Program - A related series of projects grouped together in support of a common objective. Also see Initiative.

Project - A work effort with a defined end. Also see Initiative.

Result - A value returned for a given metric. Example: Our monthly Market Client Service Availability result for November was 99.65%.

Strategic Goal - Consistent with the mission, but more specifically focused. Provides a roadmap for achieving the mission. May be one of several strategic goals. Can be measured with a metric. Examples: 1) To pursue the affluent investor market segment (e.g. increase share in this niche 15% by 2003); 2) To create seamless client service, achieve 99.8% availability for 2003 (Supports our mission to be trusted and to provide high service quality).

Strategy - A means to obtain an end. Strategy is all the things we do to obtain a desired goal. It encompasses everything from the high level mission down to the individual projects and processes that we take on in order to succeed. This diagram, which places Strategy components in a hierarchy, may help.

Strategy Map - A graphical depiction of Balanced Scorecard objectives showing the driver linkages among objectives. Objectives are placed in a perspective-based format (in the proper order: Financial perspective at the top, then descending to Customer, Internal Process and Learning & Growth), and driver linkages are represented by arrows point from top to bottom. Starting with objectives in the Learning & Growth perspective, link them to

the objectives in the Internal Process perspective whose success they drive. Repeat the process upward, concluding with the Financial perspective.

Target - An explicitly desired result for a given metric, to be achieved by a stated time. A target is an absolutely indispensable and integral attribute of any metric to be used in the Balanced Scorecard. Without a target, there is no way to judge whether or not metric results are good or bad. And when we do not know whether they are good or bad, we cannot act on them. Example of a target: Our monthly Market Client Service Availability target is 99.8%.

Vision - Vision encompasses an understanding of what we are now, what we should become in the future, and a plan to reach our desired condition.

Balanced Scorecard Development Process

Resources - Balanced Scorecard Development Process

Use this list of development steps as a guide to implementing your own groups' Balanced Scorecard.

1. Review proposed strategies of “parent” organization (STS)

Technology Innovation Organizational Effectiveness Measuring Success

2. What are your Objectives that relate to the STS Strategies? - Refine the wording of the objectives to gain commitment from the participants while also keeping in mind:

Follow the Balanced Scorecard perspective Structure – create Financial Objectives first, then go to Customer Objectives, then Internal Process, concluding with Learning & Growth.

Resources - The Four Balanced Scorecard Perspectives

The four Perspectives are the conceptual core of the Balanced Scorecard. They put the "Balanced" in Balanced Scorecard. With Strategies and Objectives relating to each of the Perspectives, an organization can enjoy some assurance that its strategic focus is balanced, and that its Balanced Scorecard can function as a management system.

The Perspectives enter into the Balanced Scorecard development process over and over again. They are used as a framework for developing Strategy, Objectives, Initiatives and Metrics. When the Balanced Scorecard is in production, they are also used to organize the display of results and analysis.

Following are the four Balanced Scorecard Perspectives accompanied by short descriptions.

Financial - The Financial Perspective serves as the focus for the Objectives and Metrics in all the other Perspectives. When creating Strategy, for instance, one begins with Financial Objectives and then moves downward

through the other Perspectives.

Objectives within the Financial Perspective should answer the question, "In order to achieve financially, how should we appear to our shareholders or contribute to shareholder value?"

Customer - The Customer Perspective serves as the focus for the Internal Process and Learning & Growth Perspectives. In other words, the things we do for our employees (Learning & Growth) and for our Internal Processes, should drive success in pleasing our Customers.

Objectives within the Customer Perspective should answer the questions, "In order to achieve our vision, how should we appear to our customers?" and "What can we do for them?"

Internal Process - This Perspective is just what it says. One develops Objectives in the Internal Process Perspective after creating Objectives for the Financal and Customer Perspectives.

When developing Objectives in the Internal Process Perspective, be sure to consider the entire scope of what your group does. Begin with Innovation - identifying current and future Customer needs and developing new solutions for these needs. Then proceed through Operations - delivering existing products and services to existing customers. And conclude with Maintenance - what can you offer "post-sale" that would add real value?

Objectives within the Customer Perspective should answer the question, "In order to satisfy our customers, at what core processes must we excel?"

Learning & Growth - Also known as "the Employee Perspective." In this Perspective, we seek to improve employee capabilities, information systems, and to increase employee motivation, empowerment and alignment with strategic goals. It is important to remember that the Objectives within Learning & Growth are the core drivers for achieving excellent outcomes in the other three Perspectives.

Objectives within the Customer Perspective should answer the question, "In order to achieve our vision, how will we sustain our ability to change and improve?"

What “Pain” do you need to reduce or eliminate? What "Gain" do you wish to achieve? Will your proposed Objectives serve the STS Strategies?

Use the Strategy Development Worksheet - one worksheet for each STS Strategy - to document your Balanced Scorecard Objectives and Metrics as you develop them.

3. Review Objectives for completeness

Ensure that all BSC perspectives are represented. For each Perspective, identify the key linkages among the Objectives within the

Perspective as well as between this Perspective and other Balanced Scorecard Perspectives. Attempt to identify how each Objective influences the other.

The BSC term for this work is “Strategy Mapping” and is intended to display the effect an Objective in a Balanced Scorecard has on other Objectives.

4. Quantify the Objectives - example: Improve trouble ticket quality by reducing rework by 10% by 12/31/2003.

5. Specify the Initiatives you will perform/sponsor that support the Strategy - This is where you specify the actual work (e.g. programs, projects) that will be performed that will result in improvement.

6. Identify the Metrics you will use to measure the impact of the Initiatives

For each Objective, identify the metric or metrics that best capture and communicate the intention of the Objective. Select the metrics that are most sensitive and relevant to your improvement objective.

Example: x% improvement as measured by… For each proposed metric identify the source of the necessary information

and/or the actions that may be required to make the information available. Do not consider the project completion as the metric. The project is an activity,

the benefit of which will be seen in your metric.

Once complete, you should have the following:

Documentation of the Objectives for each Perspective, accompanied by a detailed description of each Objective. This documentation may take the form of completed Strategy Development Worksheets (MS Word).

A description of the metric(s) for each objective. An illustration of how each metric can be quantified and displayed, and A graphic model (Strategy Map) of how the Objectives are linked within the

Perspective and/or to Objectives in other Perspectives.

Balanced Scorecard Forms and Format

Resources - Balanced Scorecard Development Process

Use this list of development steps as a guide to implementing your own groups' Balanced Scorecard.

1. Review proposed strategies of “parent” organization (STS)

Technology Innovation Organizational Effectiveness Measuring Success

2. What are your Objectives that relate to the STS Strategies? - Refine the wording of the objectives to gain commitment from the participants while also keeping in mind:

Follow the Balanced Scorecard Perspective Structure – create Financial Objectives first, then go to Customer Objectives, then Internal Process, concluding with Learning & Growth.

What “Pain” do you need to reduce or eliminate? What "Gain" do you wish to achieve?

Will your proposed Objectives serve the STS Strategies?

Use the Strategy Development Worksheet - one worksheet for each STS Strategy - to document your Balanced Scorecard Objectives and Metrics as you develop them.

3. Review Objectives for completeness

Ensure that all BSC Perspectives are represented. For each Perspective, identify the key linkages among the Objectives within the

Perspective as well as between this Perspective and other Balanced Scorecard Perspectives. Attempt to identify how each Objective influences the other.

The BSC term for this work is “Strategy Mapping” and is intended to display the effect an Objective in a Balanced Scorecard has on other Objectives.

4. Quantify the Objectives - example: Improve trouble ticket quality by reducing rework by 10% by 12/31/2003.

5. Specify the Initiatives you will perform/sponsor that support the Strategy - This is where you specify the actual work (e.g. programs, projects) that will be performed that will result in improvement.

6. Identify the Metrics you will use to measure the impact of the Initiatives

For each Objective, identify the metric or metrics that best capture and communicate the intention of the Objective. Select the metrics that are most sensitive and relevant to your improvement objective.

Example: x% improvement as measured by… For each proposed metric identify the source of the necessary information

and/or the actions that may be required to make the information available. Do not consider the project completion as the metric. The project is an activity,

the benefit of which will be seen in your metric.

Once complete, you should have the following:

Documentation of the Objectives for each Perspective, accompanied by a detailed description of each Objective. This documentation may take the form of completed Stategy Development Worksheet.

A description of the metric(s) for each objective. An illustration of how each metric can be quantified and displayed, and A graphic model (Strategy Map) of how the Objectives are linked within the

Perspective and/or to Objectives in other Perspectives. Here's a blank Visio template.

Developing Strategy and Objectives

Resources - Developing Strategy and Objectives

Developing Strategy is the most important step in the Balanced Scorecard process, because everything else flows from it.

Some initial considerations:

Strategy is more than simply a theme or slogan. Strategy describes not only what your Mission is, but also how you intend to

accomplish your Mission. Strategy is inclusive of Objectives. Though we mention them separately,

Objectives are actually an integral part of a Strategy, in that they describe in greater detail how you intend to achieve the Strategy.

Steps in developing Strategy for the Balanced Scorecard:

1. Review Strategies of the organization (STS).

o Make sure that they make sense to you. If not, ask your supervisor to explain them.

o Relate the STS Strategies to the perspectives of the Balanced Scorecard - which Perspectives do they touch?

2. Develop your own Objectives relating to the STS strategies. Refine the wording of the Objectives to gain commitment from the participants while also keeping in mind:

o The BSC perspectives Structure – start with Financial Objectives first, then create Customer Objectives, then Internal Process, concluding with Learning & Growth.

o What “Pain” do you need to reduce or eliminate? o What "Gain" do you wish to achieve? o Will your objectives serve the STS Strategies?

3. Review Objectives for completeness

o Ensure that all BSC perspectives are represented. o For each Perspective, identify the key linkages among the Objectives

within the Perspective as well as between this Perspective and other Balanced Scorecard Perspectives. Attempt to identify how each Objective influences the other.

o The BSC term for this work is “Strategy Mapping” and is intended to display the effect an Objective in a Balanced Scorecard has on other

Objectives. Here is a mock-up Strategy Map.

4. Quantify the Objectives - Make sure that the Objective states how much improvement you plan to achieve and by when. Example: Improve trouble ticket quality by reducing rework by 10% by 12/31/2003.

Choosing Metrics

Resources - Choosing Metrics for the Balanced Scorecard

STS has no shortage of measures from which to choose. In fact, we have way too many. No person or group could possibly be effective in monitoring all the measures our organization produces. The Balanced Scorecard is designed to focus our attention. It does this by including only those metrics by which we can evaluate the performance of the initiatives we are undertaking specifically to achieve our strategy.

Here are some tips to consider when choosing metrics for the Balanced Scorecard:

Choose no metric before its time - Have a look at the Balanced Scorecard Development Process. Please notice that choosing metrics is the final step. If you have yet to go through steps 1 through 5, you are not ready to choose metrics.

Develop Strategy and Objectives properly - Follow Steps 1 through 5 carefully. It is particularly important to ensure that linkages flow through your Balanced Scorecard, from mission to strategy to objectives to initiatives.

Focus on Initiatives - What exactly are you going to do to achieve your strategy? What action are you going to take? Before even thinking about metrics, you should already have spelled out what actions, projects or programs you're going to undertake to achieve your strategy. And when it comes to choosing metrics, focus on only those metrics which allow you to gauge the penetration and performance of the particular initiatives you are undertaking.

Let go of monitoring - Do not try to be comprehensive. Consider the purpose of the Balanced Scorecard - it is designed to achieve strategy, not to keep the lights on. Even though you are using a Balanced Scorecard, you will undoubtedly continue to use metrics which will not appear on it, and that's perfectly okay. The Balanced Scorecard was never intended to provide a comprehensive, tactical view.

Balance between "driver" and "result" / "leading" and "lagging" - In order to create a Balanced Scorecard that is truly "Balanced," you will need both leading and lagging indicators, also known as driver and result metrics. This is one of the most slippery of the Balanced Scorecard concepts, but also one of the most important to understand. An example should help.

Let us imagine we have chosen an objective most of us can relate to: "Improve Retail Web Trading (RWT) Availability." And let us say that, as one of the initiatives we are going to undertake in order to achieve this objective, we have decided to increase the currency of our database software. Here is how this particular initiative might look in a portion of the Balanced Scorecard:

We would want to select RWT Availability as one of our metrics. After all, an improvement in RWT Availability is the very result we are driving at. And so, RWT Availability becomes our result metric.

We generally refer to a result measure as lagging in time because at the point when we have measured the result, there is nothing we can do to change it.

Now think about the initiative itself. In this case, we have chosen to Increase DB Software Currency. We will want to know how well we are doing at executing this initiative. We could choose the metric Average Number Versions Behind Current, which would tell us how successfully our initiative to Increase DB Software Currency is performing. Relative to the objective to Improve RWT Availability, we would have to describe Average Number of Versions Behind Current metric as a driver - because we believe that success in increasing DB software currency will drive improvement of RWT Availability.

We generally refer to a driver metric as leading in time because performance against such a metric gives us a prior, or leading indication of performance in our result metrics. If we see unacceptable performance in a driver metric, we may be able to turn it around before it has effected our result. For this reason, leading or driver metrics are very important to have.

Result metrics are also important because they ground our driver results in reality - if results in both metrics actually bear the driver-result hypotheses out, we can enjoy some assurance that we have chosen the correct actions to take in support of our strategies.

Use compensating metrics - It's one thing to be effective in improving performance. It's another thing to improve the right performance. For any candidate metric, play the devil's advocate by considering ways in which the metric might be gamed or improved at the expense of other performance. Some metrics require that we monitor compensating metrics as well, in order to avoid adverse effects.

For example, let's say that one of our objectives is to to improve our operational efficiency. And let's say that we have decided that one of our initiatives under that objective is to improve our performance against our service level agreement (SLA). Now let's imagine that we assign this initiative to a manager who is clever enough to realize that it may be easier to negotiate a new, more easily obtainable SLA with our customer than it would be to actually get more or better work out of the same small group of people. Now, without improving actual efficiency at all, the manager can demonstrate "success."

But it's not efficiency success. Because the SLA has changed, the "improvement" is not really based on an apples-to-apples comparison of performance over successive periods. To avoid a situation like this, in addition to monitoring performance against the SLA, it would be useful to continue to monitor the actual result as well.

Use the Balanced Scorecard as a system - This is a fairly complex notion which presupposes that you understand the way the Balanced Scorecard functions. In order to choose the right metrics - metrics which are effective in gauging our success against the Initiatives we have created in order to effect our strategy - each metric must become an integral part of the Balanced Scorecard system. Of each metric, you should ask the following questions: Is it a driver or result metric? Does it require a compensating metric? Is the compensating metric in place? Does it relate well to its objective, i.e. does success in this metric really drive success in its primary objective? Does it drive success in secondary and tertiary objectives? Overall, do the Learning & Growth metrics drive success in the Internal Process metrics? Do the Internal Process metrics drive success in the Customer metrics, the Financial metrics? Does this metric enable me to make constructive adjustments and to take effective action?

Good objectives and good metrics function in the system as a whole, enabling the success of the other objectives, metrics, and of the Balanced Scorecard as a whole.

Attributes of Good Metrics

Resources - Attributes of Good Metrics

Metrics are the measures applied to key processes whose improvement is critical to the success of the organization; they are STRATEGIC measures.

Good Metrics:

Have targets Are relevant to our strategy and efforts to change for the better Are within our control/influence Are actionable Are simple Are documented and unambiguous (well defined)

o Example: No more than 3% of our products shall be delivered late, where late is defined as…calculated by dividing Y into X for a 3 month moving average, and data to be collected from source Q

Resources - Common Pitfalls in Implemented the Balanced Scorecard

The following list of common pitfalls in implementing the Balanced Scorecard illustrates that much of the burden for the successful implementation of the Balanced Scorecard rests on the managers setting the strategy. If strategy and objectives are not well conceived and communicated, very little can be done downstream to salvage the effort.

Mission and strategies poorly defined or understood Strategy not actionable Strategy not linked to performance drivers Strategy and objectives not linked to departmental, team and individual goals -

incentives! Budget and planning processes not linked Treating performance measures as an “end," rather than a “means” Too many metrics Performance targets set too high or too low Feedback that is tactical, rather than strategic Lack of meaningful employee involvement

Productivity Measurement ABCs

DefinitionProductivity measures how much you do with the assets at your disposal. What you "do" can be a product or a service. Assets at your disposal might include cash, fixed assets, people, systems, or whatever does the work to generate your product.

What do I measure?To improve productivity, you will typically try to do more than you have been doing in the past, with no increase in resources; alternatively, you will try to do the same as you have been doing in the past, but with fewer resources. The measures typically take one of two forms:

Cost: the average cost per product (total cost / volume of product)

Volume: the average output per asset (volume of product / # assets

As you manage your productivity, assume that all other things should remain the same (unless those things are expressly negotiated as not critical). For example, if you lower the cost/unit, keep quality and volume steady, or improve them. If you increase production/asset, keep quality and costs steady, or improve them.

One more comment. All roads lead to Rome, aka, all productivity measurements - cost or volume - lead to money. The higher your volume productivity metrics, the less money you

are likely to spend.

What can I do?To control costs, you will probably manage in one or more of the following areas:

Lower variable costs - costs per unit are the same, regardless of volume. Total monthly cost varies with volume. (from a pay phone, unit cost is always 50 cents; total cost will vary depending on how many calls I place)

Lower fixed costs - costs per period are the same, regardless of volume. Cost cacluated per unit will vary with volume, e.g. monthly depreciation expense. (depreciation is $100 per month; if I place 20 calls, that's $5.00 of depreciation per call; if I place 200 calls, that's 50 cents/call)

Share resources with other business units - a way to allocate fixed cost

To improve asset utilization, you might try to manage in the following areas:

Follow more conservative asset acquisition or disposal procedures - buy it cheaper or make it last longer

Improve the efficiency of a process - consume fewer resources doing the same work

Rarely are all the components influencing a cost under our control, e.g. trade volume. Most productivity measures are amalgams of variable and fixed costs. However, we can usually control components here and there well enough to make a positive contribution to a given productivity measurement.

ExampleOne STS productivity measure might be the cost/web transaction. Let's look at some of its fixed components. Each web transaction has overhead allocated to it - depreciation for the mainframes and SEntry, hardware maintenance, licenses, the cost of raised floor space, etc. These are the fixed costs that are allocated to each transaction based on the total cost divided by the monthly volume (the more transactions, the lower the cost per transaction per month). To manage these costs, we might:

1. Lower fixed costs - reduce the cost of CPU by replacing retiring assets with cheaper, lower maintenance processors, thus reducing allocated overhead

2. Follow more conservative asset acquisition or disposal procedures - overhaul a server so that its useful life is extended

3. Share resources (costs) - redirect transactions from more expensive channels to web channels, spreading our indirect costs over more transactions.

4. Improve efficiency - use fewer MIPS per average transaction, freeing assets for

more productive work or reducing maintenance expense

Now let's look at one of our variable costs per web transaction. All web channel activities require ISP access. One of our ISP provider costs is variable, based on samples of our bandwidth consumption. So if our bandwidth (volume) requirements were to decline, so would our costs. To manage the direct cost/web transaction we might look at:

1. Lower variable costs - negotiate lowest possible rate for bandwidth 2. Improve efficiency - write applications to consume less bandwidth (optimize on

pictures, etc.); alternatively, streamline customer interactions so that they are are inclined to generate fewer ISP connections OR so that the average interaction is shorter OR both.

When productivity metrics might not be helpfulIronically, productivity measurements will not always be productive! Productivity metrics are most informative when you measure work that is generated uniformly, and in volume. With insufficient volume, such measures are misleading. With insufficient uniformity, such measures are uninformative.

If your work is not uniform, see if you can divide your work into meaningful subcategories that can be constructively analyzed together, e.g., things in similar cost ranges, things of similar duration, etc.