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Balanced Scorecard Measurement + Control Charting Theory

Posted November 20, 2010 9:52 AM by Dylan Miyake

Control charts have long been used in manufacturing, stock trading algorithms, and in other process improvement methodologies like Six Sigma and Total Quality Management (TQM). The purpose of a control chart is to set upper and lower bounds of acceptable performance given normal variation. In other words, the control chart serves to "sound the alarm" when a process shifts (like a machine suddenly breaking on a factory floor) or if someone has a good breakthrough that needs to be documented and standardized across the larger organization. Here is an illustration: (citation) The Balanced Scorecard system typically uses a baseline, regular measurement and tracking against a target. Actual control charts might not be ideal for your Scorecard, however, the theory is still valuablewhen evaluating a measures behavior, either greatly up or down. Control charts at work – Examples: In industry, control charts are designed for speed: the faster the control charts respond following a process shift, the faster the engineers can identify the broken machine and return the system to producing quality products. At a factory, a lag in testing could mean that thousands of parts are produced incorrectly before anyone notices the machine is broken, resulting in wasted time, wasted materials, and angry customers. Similarly, at a non-profit organization, control charts could be used to determine when an online donation system has broken down or is receiving higher than normal usage, resulting in abnormal levels of donations. Should donations suddenly go to zero - the leadership team can quickly alert IT and ensure the system is brought back online. Alternatively, a major jump in donations means something good is happening- be it world events or a successful marketing campaign. Either way – leadership should know quickly when something is doing very well or very poorly compared to an average day. A government agency could use control charts to monitor security threats. Assuming there are between 15 and 30 threats per week, the agents know what to expect. One threat per week should be as alarming as should 75- as they both mean something is very abnormal. A school could use control charts to help evaluate attendance/absenteeism patterns. Let's assume, based on 2 years of analysis, that a school principal expects to see a certain level of student absences near holidays, with a typical range of 3% to 7% of students out. A control chart would plot along within the 3.1% to 6.9% range with no notice, but if 7.5% of students suddenly fail to show up for class, the lower control limit of 7% signals the alarm and the principal gets a call from attendance saying attention is required. Or conversely, if only 1% of students are absent, the upper control limit is surpassed, and the principal begins looking for reasons why the attendance is suddenly so much better than usual. Is there a pep rally or other event that motivates students to come to school at a time of year when they're more likely to be absent? Control Charts and the Balanced Scorecard Control charts can be used as part of the Balanced Scorecard approach to account for an acceptable range or variation of performance – it provides a more nuanced understanding of the organization's processes. There are a few key points to keep in mind when considering using control charts at your organization: Give it time Don't expect to see immediate results or instant insights from a control chart. It takes a number of months or years to understand natural variation and baseline "normal" performance (as the environment has some control on your measures and can distract from your own input). Watch for the "Big Movers" Control charts can help track and measure variation in a process over time. There is going to be a certain amount of variation as part of normal operations – small variation is nothing to worry about. Instead, focus your attention on major jumps or falls – these are the places where your organization needs to concentrate its efforts. Results matter – and results should be visible Process improvement initiatives should cause a metric to rise above the upper control limit – showing that there was a statistically significant shift in the objective's measure. Control charts give you a clear chance to see results and act on them – and if not, it might be time to try something new. Don't get bogged down. Control charts can be complicated – they were developed by engineers, after all! But your organization can keep your control charts as simple as you need them to be. Extremely complex math is still being developed in the operations research field to better understand process variation and how to account for it via control charts – but the typical leader at a service organization doesn't need to worry about going to that level of detail. Instead, try to identify the acceptable upper and lower limits for each key metric that you want to track, and keep the overall theory of limits in mind when reviewing your control charts. Develop an action plan for how to respond when the latest measure lands outside the acceptable limits. __ If you would like to learn more about how the Balanced Scorecard can help "chart" a path to success for your organization, please contact Ascendant Strategy Management Group.

Who owns your organization’s strategy?

Posted November 15, 2010 8:45 AM by Dylan Miyake

One of the first questions that public sector and non-profit leaders need to ask when embarking on a new strategy management initiative is: "Who are the Owners of the strategy?"

Who is accountable for establishing and maintaining the objectives, measures, and initiatives that will determine whether your organization's strategy succeeds? These are the Owners. And their role is one of the most important in your organization. Whether your new strategy succeeds will depend in large part on the kind of Owners you have working to implement it.

Who is an Owner?

Being an Owner of organizational strategy is not necessarily a job title or part of a job description. Owners are leaders within the organization who act as champions for certain parts of an organization's strategy (or certain measures of the organization's Balanced Scorecard), and who oversee communication and training so that the organization's strategy becomes ingrained in the overall culture of the organization. There can be plenty of layers of supporting staff and data analysts, but the Owners are the ones who are manage and are accountable for achieving certain objectives.

The four types of Owners

Every organizational strategy has four types of owners, with responsibilities for varying areas of responsibilities:

  • Scorecard Owners set the tone for the work done by the other owners. Scorecard owners work on high-level questions such as issue definition (identifying the specific strategic issues that need to be addressed), agenda setting (deciding on a course of action for the group's activities), and meeting preparation (aligning the work of various owners and marshalling the group's latest data to discuss at the next strategy meeting).
  • Objective/Theme Owners provide analysis and commentary about the specific objectives – a finer level of detail than the overall Scorecard itself.
  • Measure Owners provide performance analysis about specific measures as outlined on the organization's Balanced Scorecard.
  • Initiative Owners provide performance analysis on strategic initiatives and help evaluate whether the organization's top projects are on track and helping deliver results.

Owner and Data Analyst: Separate but Supporting Roles

One of the most important roles of Owners, especially as it relates to the organization's Balanced Scorecard, is to ensure the most accurate data is analyzed and presented at strategy review meetings. While the owner may not be specifically responsible for the day-to-day tracking, they are responsible for the data's accuracy and the value of the analysis – and ultimately for championing the required actions in the highest circles of organizational leadership.

Each owner typically has one of more "data analysts" supporting themselves. Owners are usually not ideal for this role as it is more time consuming, more focused on collection, and is not directly related to strategic analysis or action. The data analysts collect the numbers, verify they are accurate, compile any supporting documents, and ensure the owner is knowledgeable of any emerging trends.

  • "Data Analyst" – in this role, supporting staff needs to collect updates from different parts of the organization, and tabulate and graph the data for each measure. For example, a school district might need to track student test scores, graduation rates, dropout rates, or the percentage of students going on to enroll in college. Collecting and analyzing these data is a complex task, but once the numbers are in order and emerging trends identified, the data analyst passes the information the Owner.
  • "Owner and Champion" – in the role of Owners, the champions of strategy are responsible for providing recommendations for future action based on the data compiled. Owners review the graph and investigate the underlying data to understand why the measure is behaving as it is, then suggest, act upon, and ensure strategic objectives are being acted upon.

For example, if a school district's graduation rates are down and dropout rates are up, they might analyze some of the risk factors for dropouts – has the community suffered an economic downturn, leading to increased financial stress on families? Have the demographics of the district changed in the past few years, bringing a greater proportion of students who are at higher risk of dropping out of school? Then, as champion, what can they do to ensure the organization achieves its mission? Are new programs required? Should funding or resources be realigned to meet new challenges? These are the questions and resulting actions an Owner is responsible for.

While it might seem obvious, the Owner, needs to be have the right level of authority to make changes that will drive the measure towards the intent of the organizational objective. The authority should appropriate both formally (by title and job description) and informally (authority is recognized and honored by the organization) to ensure success. Owners need to be empowered and confident that they can act and to spur change within the organization. No matter the challenge, Owners ultimately have to be able to drive the organization forward in response to the findings.

The importance of reporting: managing "small things"

In addition to these higher-profile instances of managing change in response to new data, Owners also have an important leadership role in the ongoing task of enforcing behavior and sticking to a reporting calendar.

Maintaining a solid regimen of reporting is one of the most critical tasks of the Owners. If your organization is serious about performance management and staying on track with your strategy, you need Owners who will work to ensure that the Balanced Scorecard stays relevant, that the data and analysis are accurate and result in clear decision making, and that decisions are acted upon.


Balanced Scorecard Reporting

Posted November 11, 2010 2:06 PM by Ted Jackson

What makes a good Balanced Scorecard report? I have written in this blog many times about the need to have regular reporting and how to prepare for the report, but I continually get the question about what is a good one or bad one? Let me quickly state that a good report is one that provides useful information to the leadership team of an organization so that they can discuss and make decisions about their strategy. Well, if you know anything about Ascendant and the Balanced Scorecard, you have probably read or heard that answer before. This blog attempts to provide a few more details.

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