Enterprise Risk Management
Defining objectives using the Balanced Scorecard
Divisions and units within the campuses and locations will sometimes need to define goals and objectives as a first step in their implementation of ERM. The Balanced Scorecard, developed by Kaplan and Norton at Harvard University, provides an excellent framework for defining goals and objectives and translating them into specific measures. Objectives defined using this framework are “Balanced” in that they are defined from four perspectives:
- The Customer Perspective emphasizes satisfying the needs of customers.
- The Financial Perspective emphasizes the stakeholder concern about how efficient and effective the unit is at using its resources.
- The Internal Business Perspective emphasizes excellence at performing internal processes and in employee competencies.
- The Innovation & Learning Perspective emphasizes continuous improvement and the creation of value.
The “Scorecard” measures the achievement of objectives. Begin by making a list for each objective of what is measured currently and what else could be measured. Select those measures that present the most complete indication that the objective is being achieved. Try to limit the number of measures to no more than six per objective and be sure to measure results and desired outcomes, rather than processes. The measures you select will be your “Key Performance Indicators.”
- The Customer Perspective measures often include customer service factors important to the customer, such as time to provide service, quality, and customer perceptions on meeting their needs.
- The Financial Perspective measures include increases in funding from different sources, reductions of cost and risks, and enhanced use of assets.
- The Internal Business Perspective measures include service delivery, core competencies and productivity.
- The Innovation & Learning Perspective measures include time to create change, maturity of improvements, growth and competitive success.