Thursday, December 15, 2011

Use Existing Reporting Frameworks

Wherever possible, KPIs should be aligned with organizational outcomes and the underlying management systems used to track and report these.  Indeed there are few cases where they would not be.

In the absence of an existing framework, however, the Balanced Score Card (BSC) by Kaplan and Norton is a useful measurement framework.  Robert S. Kaplan and David P. Norton introduced the BSC in 1992 to help determine whether the activities of an organization were meeting its objectives or not. It focuses not just on financial measures, but also the human issues, and helps provide a comprehensive view of an organization’s working in order to ensure alignment of their activities with the achievement of stated goals.

Not only is it ideal for our purposes, but there is also a well established body of literature to guide risk management professionals in the adaptation and application of this concept to their environment. The graphic in the blog entry "One thing in common..." illustrates at a simple level, how the Balanced ScoreCard can be aligned with other KPIs and KRAs.

You can do it in much more depth however if you look at the full breadth of organizational management systems. An enterprise level scorecard should include basically as many systems as possible to generate a detailed picture.
Figure 1: Example of linking risk management systems to a BSC Framework
At its simplest level, BSC provides a framework of Learning & Growth, Internal Processes, Customer Satisfaction and Financial metrics to identify, analyze, improve and report on organizational performance.  Part of the underlying principle is that appropriate learning, growth and staff development will support the correct application of internal processes that in turn leads to happy customers, thus providing financial success.  It is of course a much richer framework than this simple overview provides but readers are encouraged to seek out the books and articles on this topic for more detailed information, particularly those but Kaplan & Norton.