Throughout the years, many studies have examined the use of the balanced scorecard (BSC) in a board’s performance evaluation. Why is this important and how can this be implemented?
The modern business landscape is characterized by fast-changing trends, an expanding weight from the competition, and risks emerging from new trends. This is why a good corporate governance system is what can help companies achieve high business performance despite uncertainties. Having a control mechanism will help managers carry out business activities that can maximize profits for shareholders. Board members represent an important internal control mechanism.
BSC, designed by Robert Kaplan and David Norton, is primarily made of financial and non-financial benchmarks. The BSC model starts from a defined mission, vision, goals, and strategy of the company and identifies specific goals, tasks, benchmarks, and initiatives from four basic causal relationships: financial perspective, stakeholder perspective, internal business process perspective, and learning-growth perspective.
The BSC component in a board’s performance context
In 1996, Kaplan & Norton suggested that the vision and strategy of a company be more specifically defined from four basic, interconnected perspectives:
Financial Perspective – how to implement a strategy that will maximize profits for equity owners.
Customer Perspective – how to achieve customer satisfaction and loyalty.
Internal business process – how to achieve an effective and efficient business process.
Learning and Growth Perspective – how to gain human capital competitive advantage.
Later, in 2004, Kaplan & Michael E. Nagel proposed a three-part BSC program:
Enterprise Scorecard – synchronized list of results at company level
Board Scorecard – synchronized list of Board results
Executive Scorecard – synchronized list of executors’ scores
Synchronized lists at the company level ensure that top managers, starting from a well-defined company strategy, goals, tasks, benchmarks and initiatives through the four outlined perspectives. This process converts the company’s strategy into operational terms.
It is necessary to build a synchronized list at the board level. That is, the board of directors should evaluate and approve the corporate strategy map and the corporate level’s harmonized list. According to Kaplan and Nagel, a synchronized list at the board level also has four perspectives:
Financial Perspective – Similar to the company level, the goal is to maximize value for equity owners.
Stakeholder perspective – This is a broader perspective than at the company level because it is now important to respect the interests of all stakeholders.
Perspective on internal business processes – This explains how the board contributes to achieving shareholder goals and relates to performance monitoring, reward systems, etc.
Learning and Growth Perspective – This captures human capital as a source of competitive advantage, related to the specific skills and the knowledge and capabilities of board members.
Application of the BSC to a board’s performance evaluation
According to research published in the Managerial Auditing Journal, studies that have suggested the possibility of using the BSC in evaluating the board performance recognize the financial dimension, the stakeholders’ dimension, the internal processes dimension, and the learning and growth dimension in the BSC.
The framework of the board’s BSC is based on identifying four basic elements in each dimension: the objectives, the performance drivers, the measures, and the targets:
The objectives reflect the board responsibilities;
The performance drivers are actions taken by the board to achieve the objectives. Each performance driver should be linked to specific measures and targets;
The performance measures are used to control the performance drivers and assess whether the board has achieved the goals;
The targets reflect the best practices of the industry.
Using BSC in a board’s performance evaluation can help define strategic contributions of the board; provide a tool to manage the composition and the performance of the board and its committees; clarify the strategic information required by the board, and help monitor the structure and performance of the board and its committees.
The evaluation process: agents and contents
According to the study “Evaluating Boards and Directors”, evaluating board performance may be done by an internal party represented by the chairman of the board. In some cases, it may be appropriate to delegate the evaluation process to a non-executive member, a lead director, or a committee of the board. Also, the evaluation process may be carried out by an external party who has experience in corporate governance and performance evaluation.
The self-evaluation method is a common way to evaluate board performance. Even though this method is characterized by confidentiality, biases can still occur. The close work relationship between chairman or the non-executive member and the board members can affect the objectivity of their point-of-view. The lack of skills and time in conducting performance evaluation can be a major influence on the evaluation results.
Through a nominating committee or an audit committee, a higher degree of objectivity and independence can be achieved; however, the bias risk will remain.
Hiring an external advisor is applicable for the non-availability of the necessary skills for the evaluation process and achieving greater transparency and objectivity. The external counselor may be a professional advisor. Several enterprises use a trusted adviser as the board prefers to deal with people whom they know and trust, but it is better to use a professional advisor that has a proven technical skill in their past experiences and a high degree of independence.
– The responsibilities element aims to evaluate the fulfillment of the board’s responsibilities.
– The operations element aims to assess the board’s relationship with the management.
– The structure element aims to assess the board’s composition.
– The board membership element aims to assess the overall board’s skills and knowledge, experience, competence, ethics, diligence, and independence.
Image source: The KPI Institute
The BSC is an advanced performance management tool that supports organizations to transform vision and strategy into short-term and long-term targets and specific measuring rules. The application of a balanced scorecard in evaluating a board’s performance has been proven through many studies as an effective performance management tool. It also helps a board’s direction to be more aligned at the company and operational level.
Using a BSC in a board’s performance evaluation requires skillful and independent evaluation agents to maximize its potential. To gain the right skills and learn how to implement a balanced scorecard management system in your organization, sign up for The KPI Institute’s Certified Balanced Scorecard Management System Professional course.
The Balanced Scorecard is one of the most important performance management tools used to improve business functions and their outcomes. This tool is used not only at the organizational level but also at the departmental level.
By using departmental scorecards, managers are able to get detailed insights into the performance of their departments. The scorecards can also determine the responsibilities of the employees in terms of achieving strategic objectives.
To implement an effective balanced scorecard for the departmental level, organizations should take into consideration these best practices.
1. Develop the right template.
Employees are often asked to collect data since every manager knows that it is essential in generating qualitative insights. However, the different performance reports could easily lead to different interpretations. A well-designed template leads to a clear, structured reporting and improves communication through standardization.
The template should contain four perspectives that meet the organization’s strategic needs. The most commonly used perspectives are Financial, Customer, Internal Processes, People Learning, and Growth.
Moreover, the template should also display the objectives associated with each perspective and the KPIs associated with each objective. For each KPI, the target and thresholds, the trend, and the previous and current result should also be presented.
2. Choose the right objectives.
When preparing a departmental scorecard, one of the most important steps is to select the right objectives for the different categories, and those objectives should align with the organizational and departmental strategy. Through the cascading process, the organizational objectives and KPIs are translated from the strategic level down to the departmental level.
The departmental scorecard must contain some specific objectives depending on the activities of the operations team. The same objective can be cascaded to more departments, each of them measuring it through different KPIs. Some organizational objectives may not be cascaded to lower levels.
For example, the objective of the Financial perspective is to Increase profit. This organizational objective can not be directly cascaded to the human resources department since the human resources department has no direct influence on the revenue of the organization. However, they could reduce their spending in order to increase organizational profit. Therefore, the objective for the human resources department could be to minimize operational costs. Since the sales department is responsible for profit generation, they can cascade down this organizational objective without any modification.
Figure 1: Objective cascading example
3. Choose the right KPIs to measure the objectives.
As mentioned before, it is recommended not to cascade all objectives and KPIs from the organizational level to the departmental level, but organizations may add specific ones that represent the department. The most important attributes in KPI selection are relevance, clarity, and balance.
In many cases, organizational and departmental scorecards may not be enough to communicate the organizational strategy to all employees. Therefore, individual scorecards should also be created for them.
Data sources for a scorecard
During the scorecard development process, organizations may find it hard to determine the right objectives and KPIs. Objectives and KPIs must be based on relevant data. There are two types of sources of data to consider: primary and secondary.
Feedback from internal stakeholders can be considered as an internal primary data source, while feedback from external stakeholders is an external primary data source. Secondary internal sources could a company’s previous reports and strategy plans, while smartkpis.com and academic articles are external secondary sources.
Figure 2: An example of a marketing departmental scorecard
Project management is no longer just viewed as an end-to-end process, but it is also an area in which skills are in high demand. The Project Management Institute’s “Pulse of the Profession” report shows that senior management increasingly places a high value on project management.
It is also becoming a new culture for nearly half of the organizations. Meanwhile, those who do not consider project management a strategic competency posted 67 percent more of their projects failing.
Today, project managers are compelled to think more strategically as they adapt to the uncertainties brought by the pandemic. That’s on top of dealing with multiple stakeholders and changing market dynamics.
For instance, construction companies and laborers face new disruptions as they execute their projects. A report from Markets and Markets highlights the growing awareness about antibacterial construction materials, volatility in raw material prices, and changes in the supply chain particularly for the residential construction sector.
Given the ever-changing business landscape, how can organizations manage projects successfully and get the most out of their teams to meet deadlines, achieve high productivity levels, and drive results?
They can start with selecting and using the right Key Performance Indicators (KPIs) to achieve clarity, focus, and improvement as they go through the stages and elements involved in managing a project.
Why use KPIs in project management?
A KPI expresses the achievement of the desired level of results in an area relevant to the evaluated entity. In terms of project management, KPIs mirror the quality of the implementation processes, quantitative outputs, and project outcomes.
Based on a survey of over 200 contractors and trade professionals conducted by Dodge Data and Analytics and commissioned by the software company Autodesk, contractors can obtain data by employing digital technology to manage projects, but they do not have a system to process their information and utilize it meaningfully. Having identified the most useful KPIs in the field to interpret overall performance, the study concludes that “by adopting specific processes for project management, contractors can reduce risk, thus minimizing downstream problems and improving performance.”
KPIs are applicable across multiple industries and functional areas. However, they are not the same for every industry or for every company. They are selected based on an organization’s environment, activities, and objectives. You can sign up for the live online course offered by The KPI Institute to learn how to implement a KPI Measurement Framework in your organization.
To give you an overview of the KPIs used in project management, the Top 25 Project Management KPIs – 2020 Extended Edition presents the most viewed KPIs based on the information from smartKPIs.com, a database of over20,000 documented KPIs.
The top 25 KPIs belong to four crucial facets of project management:
Project Budget involves the number of resources allocated to the project.
% Project budget variance
% Project or program budget spent on training
$ Project budget size
Project Assessment refers to the reviewing process of the development of projects and their outcomes.
% Project resource utilization
$ Profit per project
# Cost Performance Index (CPI)
# Project issues addressed ratio
% Requirements changed during project execution
% Project budget overruns rate
# Projects issues identified
# Projects per project manager
$ Project cost savings from innovation
Project Timeline relates to the use of schedules or charts used to plan and subsequently report project progress.
% Overdue project tasks
% Project milestones missed
% Project schedule variance
# Requests for time extension submitted
% Time spent on new projects development
$ Estimate at Completion (EAC)
% Delivery deadlines met
# Time per project task
# Project delay
% Timely production of management reports
% Project completion predictability
Project Team Performance refers to the performance that meets the needs and expectations of company colleagues.
In today`s economic environment, a business`s ability to monitor and measure performance, in all its dimensions, is essential for fostering organizational growth and profitability. This requirement becomes even more challenging within one of the worldwide highest performing industries in the last few years, namely the mobile game industry.
To measure a game’s success before and after its release, gaming studios need to prioritize several areas for optimization and decide what data is the most relevant for decision making. In other words, a game studio should focus on selecting and using Key Performance Indicators (KPIs)that best reflect how they’re performing with meeting their goals.
What success implies can be different from one mobile game to another; however, three essential categories stand out as areas for optimization:
User acquisition – reflecting on how to improve targeting new users
User retention – focusing on how to keep users engaged the most
App monetization – conveying how to increase revenues to sustain further business development
For each of the above categories, there are some essential KPIs a mobile game studio needs to track.
KPIs to monitor mobile game user acquisition
Determining the amount of new daily and weekly users allows the company to discover the number of game installations every week and observe its progress. These KPIs can help the gaming studio team to discover what engagement strategies are or aren’t working promptly.
# Monthly Active Users (MAU) and # Daily Active Users (DAU) are KPIs that allow a business to follow up on its user base over time.
# Monthly Active Users (MAU) – reflects the number of unique users who engaged with the game in the past month
# Daily Active Users (DAU)– measures the number of unique users that participate in at least one session of a game each day
# K-factor – is another fantastic metric that keeps track of the effectiveness of a business’ customer referral strategy. A game’s K-factor represents the number of invites sent by each application customer multiplied by the conversion of each invite. It becomes a quantifiable metric that can afterward be monitored at specific times in the studio’s game development process.
# Invites sent / DAU – isan offshoot of the K-factor metric, which provides a thorough sample of how well a business’ referral program is retaining players that have downloaded and played the mobile game.
% Users acquired virally (virality metric) – reflects how a gaming development business segment its customers, thusmeasuring the percentage of users generated by referrals from its overall existing users.
Monitoring this KPI can also provide insightful data to support an effective marketing strategy, one that works best for increasing a studio’s chances of its game going viral. After observing the virality metrics, a business will be able to segment the information even further, and the segmenting can be done by source, by geographical location, by the time of day or year, etc.
% Conversion rate – measures the proportion of players who decide to invest money into the game, either by acquiring the full game from the demo or lite app version or simply buying an in-game item in the case of the Free to Play title. The conversion rate for each paid object in the game can be calculated so that the business can find out which ones sell the best.
KPIs to monitor mobile game user retention
What KPIs can help mobile game studios develop a long-term strategy that will encourage players to keep playing their game?
% Retention rate – measures the percentage of users who came back to the game after several days in a row
% Churn rate –As opposed to % Retention rate, the % Churn rate of a mobile game app measures the proportion of users who stopped playing during a specific period.
% Average Session Length per User – monitors the proportion of users who play for a long time in comparison to those who leave the game fast. For instance, the distribution of the session length can show what proportion of game sessions lasts less than 10 minutes and how many last for more than 10 minutes.
# Starts, # Fails, and # Successfully level completions – are three metrics that are useful in determining the learning curve of the game. By understanding how difficult the game is in practice, a business could properly adjust their user engagement and boost their retention.
While # Starts emphasizes how many times a player has started a new level, the number of # Fails measures how many times a player has started a level without being able to complete it. Meanwhile, a KPI such as # Successfully level completions measures how many times a user has successfully completed a game`s level.
Gaming studios may come up with different strategies for monetizing their app, and using KPIs can help determine which model can maximize their revenue and suit their audience’s preferences.
$ CPI (cost per install) – measures the amount of money invested in acquiring a new user from paid advertisements.
$ LTV (lifetime value) – measures the total earnings from a relationship with a user who installed and paid for the game over that customer’s life span.
$ Return on Investment – measures how much profit was generated out of the total cost of an investment, reflecting on the difference between $ LTV (lifetime value) and $ CPI (cost per install). If the value of this metric falls in the negatives, it denotes that the studio is keeping the game alive at a loss.
$ Average Revenue per User (ARPU) – measures the amount of income generated by each active user.
To better understand how the game’s revenue-generating potential is best achieved, two similar KPIs should be monitored, namely: $ Average Revenue per Paying User (ARPPU) and $ ARPDAU (Average Revenue per Daily Active User).
A game studio’s ability to visualize the relationship between acquisition, retention, and monetization KPIs can provide extraordinary insights into a game’s growth and profitability. By combining the acquisition and retention measurement results, powerful trends can be observed and lead to customer satisfaction and customer stability.
By combining retention and monetization, a business will quickly discover what kind of user behavior translates into its most profitable users.