Developing an IT Scorecard Using the Balanced Scorecard Approach
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This document discusses developing an IT scorecard using the balanced scorecard approach. It begins with an overview of the balanced scorecard and its key components, including perspectives, objectives, measures and targets. It then covers how to develop an IT scorecard by identifying perspectives, defining objectives and measures, setting targets, and developing initiatives. Examples of IT scorecards for different areas like operations and projects are also provided. The document emphasizes selecting measures that are relevant to business strategy and translating IT performance into business outcomes.
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Developing an IT Scorecard Using the Balanced Scorecard Approach
- 1. 1 Senaka Ariyasinghe 21st February 2013 Developing an IT Scorecard using the Balanced Scorecard Approach
- 2. 2 Agenda ▪ Balanced Scorecard (BSC) Background ▪ BSC components ▪ Business Case and BSC positioning ▪ Strategy Map ▪ Anatomy of an IT Scorecard ▪ Developing an IT Scorecard ▪ Sample Metrics ▪ Summary & conclusion ▪ Q&A
- 3. 3 Balanced Scorecard (BSC) - background ▪ A profound measurement and management tool to transform organisations – both from business and IT perspectives ▪ Developed by Kaplan and Norton in the mid 90s ▪ Successfully adopted by many global organisations ▪ BSC helps translate strategy in to action…whilst communicating it across the organisations from top to bottom Strategy Action
- 4. 4 So why use a Balanced Scorecard approach? ▪ Many organistations tend to use Financial Metrics (like RoI, RoE etc) to measure company performance ▪ Concentrating solely on Financial metrics can give a short-term focus for the organisation Short-term focus: Cutting costs, increasing revenue Creating long term value: What will be our next “billion dollar” product and how to get there before the competition? ▪ BSC adds non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organisational performance
- 5. 5 BSC helps align IT with Business ▪ Not all IT investments pay off in the form of tangible business benefits ▪ Most IT investments are preceded by a Business Case – however, they are sometimes flawed due to invalid assumptions ▪ Not many tools available to measure real value of post-investment benefits thus realised ▪ Post investment, BSC helps articulate realisable business benefits of IT in an objective manner 30-year IRR = 7.04% Business Case IT Investment Decision NPV = $300mil IRR = 22% RoI = 300% Business Case Balanced Scorecard Benefits Realisation
- 6. 6 BSC translates an organisation's strategy into 4 perspectives How do we appear to shareholders? What business processes should we excel at? How do our customers perceive us? What should we learn to grow and prosper?
- 7. 7 BSC Components – Perspectives, Measures & Objectives Financial Perspective Process Perspective Customer/User Perspective Learning/Development (People) Perspective “Financial Performance Metrics” “Efficiency Metrics” “Knowledge/Innovation Metrics” “Customer Satisfaction Metrics” Objectives Measures Revenue Growth % revenue increase from new products Cost Containment % operation & maint. cost reduction Objectives Measures Order-to-Cash cycle efficiencies % reduction in cycle time Improvement in product time to market % reduction in time Objectives Measures Improve Customer Satisfaction % increase of customer satisfaction rating YoY Customer Retention % sales from repeat customers Objectives Measures Well trained staff % increase in class- room training Innovation in IT & Systems % increase in IT user satisfaction
- 8. 8 Balanced Scorecard Flow-on Effect Investment in L&D (People) leads to profitable growth 5% growth in staff training… …will lead to a 3% decrease in handling errors …resulting in a 6% increase In customer satisfaction …that will translate into a 10% increase profitability Learning&Development Perspective Process Perspective Customer Perspective FinancialPerspective
- 9. 9 Balanced Scorecard – Strategy Map Trained ground staff Improved Turnaround Time Target Marketing Trained Marketing team On-Time Flights Lowest Prices New budget travelers Lower Costs Increased Revenue Improved Profitability Learning & Development Internal Customer Internal Process Financial ▪ Strategy Map is used to visually represent an organisation’s strategy across four perspectives: ▪ Financial ▪ Customer ▪ Internal Processes ▪ Learning & Development ▪ Strategy Map illustrates the long-term strategy adopted by an organisation to achieve increased profitability Strategic Theme: Operating Efficiency …Strategy Map applied to a budget airline
- 10. 10 Developing a Balanced Scorecard (example) Trained ground staff Improved Turnaround Time Target Marketing Trained Marketing team On-Time Flights Lowest Prices New budget travelers Lower Costs Increased Revenue Improved Profitability Learning & Development Internal Customer Internal Process Financial Strategic Theme: Operating Efficiency Objectives Measures Targets Revenue Growth Cost reduction Revenue per Passenger 2% per year O&M costs Increase in On-time flights Customer Satisfaction On time arrival rating % of repeat customers 3% per year 90% ± 5% Improved ground turnaround Improved ground staff performance Formal training & OTJ training time 20 hrs classroom + 30 hrs buddy time On ground time <30 mts On-time departure 95% 5% per year
- 11. 11 So what is an IT (Balanced) Scorecard? ▪ A scorecard used within the IT department ▪ Help senior IS managers understand their organisation’s performance, and measure it in a way that supports its business strategy ▪ Helps CIOs better articulate business value of IT ▪ The IT scorecard is linked to the corporate scorecard, by ensuring that the measures used by IT are those that support the corporate goals
- 12. 12 Business BSC IT Scorecard Network Scorecard Security Scorecard Network Scorecard Cascading Scorecards – help align IT strategy with Business Strategy
- 13. 13 Anatomy of an IT Scorecard ▪ Perspectives ▪ Strategic Objectives ▪ Measures ▪ Targets ▪ Initiatives Perspectives
- 14. 14 Steps in creating the IT Scorecard ▪ Identify Perspectives ▪ Draw a Strategy Map (optional) ▪ Define the Objectives ▪ Define Measures ▪ Set Targets ▪ Develop Initiatives
- 15. 15 Identifying Perspectives ▪ Perspectives Views of organisation’s strategy - how IT is going to support and enable the business ▪ How many perspectives? No magic number, but not too many! Idea is to get a balanced set of perspectives ▪ Which perspectives? Use default BSC perspectives: Financial, Process, Customer/User, Learning & Development (People) Or be creative: Green, Quality, Process, People
- 16. 16 A Strategy Map can help visualize linkages between perspectives Trained IT staff Improved IT Response Streamlined Systems New Orders Lower Costs Increased Revenue Improved Profitability Learning & Development Customer Internal Process Financial Faster Shipments X functional Teams
- 17. 17 Defining Objectives ▪ Objectives Define objectives for each perspective Use SMART guideline to define objectives Perspectives Objectives Financial Reduced costs Customer/User Increased customer satisfaction Process Reduced problem resolution times Learning & Development Improved IT Staff Competencies
- 18. 18 Defining Measures ▪ Measures Observable parameters used to measure progress toward achieving objective Selecting the right measures will determine the success of the scorecard to a large extent Perspectives Objectives Measures Financial Reduced costs % reduction in costs Customer/User Increased customer satisfaction % increase in customer satisfaction Process Reduced problem resolution times % increase in closed cases per day Learning & Development Improved IT Staff Competencies No of trained staff in ITIL service management
- 19. 19 Example IT Measures Dimension Description Example IT Measures Financial Perspective Measures to indicate contribution of activities to the bottom-line IT project ROI, NPV, IRR, cost/benefit, TCO, ABC Customer Perspective Measures that reflect factors that really matter to customers Customer satisfaction, Customer complaints Business Process Perspective Measures of what the company must do internally to meet customer expectations IT process metrics, project completion rates, system operational performance metrics Learning & Development Perspective Measures of the company’s ability to improve and learn IT R&D, New technology introduction success rate, training metrics
- 20. 20 Why Metrics & Measures are important Cisco’s VSEM Framework... Source: http://www.cisco.com/en/US/services/ps2961/ps2664/collaborative_imperative.pdf Vision: Communicates a team’s shared view of success Strategy: Represents important decisions for where and how to apply resources to accomplish the vision Execution: Outlines critical initiatives, programs, or actions that support each strategy Metrics: Shows how the team measures success and agrees to be held accountable to the execution plan
- 21. 21 Defining Targets ▪ Targets Set realistic target values to measure each objective Perspectives Objectives Measures Target Financial Reduced costs % reduction in costs 10% Customer/User Increased customer satisfaction % increase in customer satisfaction 5% Process Reduced problem resolution times % increase in closed cases per day 20% Learning & Development Improved IT Staff Competencies No of trained staff in ITIL service management 10
- 22. 22 Develop Initiatives ▪ Initiatives Activities/programs that must be initiated to achieve objectives Perspectives Objectives Measures Target Initiatives Financial Reduced costs % reduction in costs 10% Communicate cost reduction initiative Gain executive sponsorship Customer/User Increased customer satisfaction % increase in customer satisfaction 5% Improve customer survey system Process Reduced problem resolution times % increase in closed cases per day 20% Invest in new case management system Learning & Development Improved IT Staff Competencies No of trained staff in ITIL service management 10 Identify ITIL training courses Obtain budget
- 23. 23 IT Scorecard Example PBX replacement with IPTel for a hospital Perspective Strategic Objective Measures Target Before After Financial Cost savings % reduction in maintenance charges 15% Financial Control IT Budget IT spend as a percent of Revenue 3% Process Improved processes will lead to more innovation, less fire fighting % increase in IT-hours spent on new projects 10 Customer Improved Customer Satisfaction (e.g. IT staff attending to MAC requests faster) % increase in customer staff satisfaction rating 10% Customer Improved efficiency (e.g. due to extension mobility) % increase in closed cases per day 5% Learning Personal Development of IT support staff No of Telephony CCIEs 3 Learning IT Staff Satisfaction (i.e. opportunity to learn new technology) % increase in IT staff satisfaction rating 20%
- 24. 24 Other Scorecard Examples IT Operations Scorecard ID Strategic Objective Metric Value Target V1 Manage to the IT budget Actual vs. budget variance 0% 0% V2 Strategy alignment % of project aligned with a strategic objective 85 90% V3 Improved efficiencies % of budget allocated to nondiscretionary expense 67 65% U1 Improved user satisfaction Index of user satisfaction 7.7 7.5/10.0 U2 Improved user satisfaction % of SLAs that meet or exceed targets 95 98% OE1 Improve release management • Time to provision known good builds 2 1 day • Percent of systems that match known good builds 80 98% • Percent of builds that have security sign-off 100 100% • Number of turns to a known good build 1.1 1.2 OE2 Improve change management • Number of changes authorized per week 8 < 10 • Number of actual changes made per week 5 < 5 • Percent of unauthorized changes 0 0% • Change success rate 97 100% • Number of service-affecting outages 0.8 < 1/week OE3 Improve resolution times • MTTR 0.75 < 1 hour • MTBF varies by system FO1 Improve staff effectiveness Billable/utilization rate 92 98% FO2 Improve staff development Percent of staff with completed personal development plan 88 95% FO3 Improve teamwork # of documented best practices 15 25/month
- 25. 25 Other Scorecard Examples IT Project Scorecard
- 26. 26 Other Scorecard Examples IT Project Scorecard
- 27. 27 Common mistakes in creating IT scorecard ▪ Taking an IT-centric view of IT performance ▪ Lacking business relevance ▪ Selecting measures that don’t matter ▪ Lack of standard metrics definitions ▪ Over-reliance on tools ▪ Lack of drill-down capability hindering interpretation ▪ Too many metrics Think strategic...yet keep it simple!
- 28. 28 IT scorecard lacking business relevance IT-centric view of IT performance
- 29. 29 Summary & Conclusion ▪ BSC – a profound measurement &management tool for the business ▪ High-level understanding of BSC concepts will help define the IT scorecard ▪ Select a balanced set of perspectives that closely represents strategy ▪ Brainstorm and develop objectives and measures! ▪ The selection of the right measures will make or break the IT scorecard! ▪ Set targets ▪ Develop and execute initiatives
- 30. 30 Additional Reading Thanks for your time!