balanced scorecard training 26042014
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The Balanced Scorecard ApproachThe Balanced Scorecard Approach
Pradyut Mohan DashProgram Manager
26-April-2014
Something that can be measured can be done..
What is a Balanced Scorecard?What is a Balanced Scorecard?
The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.
BackgroundBackground
• Was first published in 1992 by Kaplan and Norton, a book followed in 1996.
• Traditional performance measurement that only focus on external accounting data are obsolete.
• The approach is to provide 'balance' to the financial perspective.
Why use Balance Scorecard?Why use Balance Scorecard?• Improve organizational performance by measuring what
matters
• Increase focus on strategy and results
• Align organization strategy with workers on a day-to-day basis
• Focus on the drivers key to future performance
• Improve communication of the organization’s Vision and Strategy
• Prioritize Projects / Initiatives
4 Business Perspectives4 Business Perspectives
• BSC Model suggests we view the organisation from 4 Perspectives
– Financial
– Internal Business Process
– Learning & Growth
– Customer
• Then Develop metrics, collect data and analyse it relative to each of these perceptive
4 Business Perspectives4 Business Perspectives
4 Business Perspectives Questions4 Business Perspectives Questions• Financial
– What must we do to create sustainable economic value?
• Internal Business Process– To satisfy our stakeholders, what must be our levels of productivity, efficiency,
and quality?
• Learning and Growth– How does our employee performance management system, including feedback
to employees, support high performance?
• Customer– What do our customers require from us and how are we doing according to
those requirements?
Balance Scorecard MeasurementsBalance Scorecard Measurements
Steps in Implementing BSCSteps in Implementing BSC1. Assess the mission and culture of the group
2. Focus on customer needs
3. Define the organization's intent
4. Map out the process
5. Develop performance measures
6. Assign initiatives
7. Implement the process
8. Cascade the scorecard
9. Evaluate the scorecard and the process
10.Adjust the balanced scorecard as needed
Steps in Implementing BSCSteps in Implementing BSC
Key implementation Success FactorsKey implementation Success Factors• Obtaining executive sponsorship and commitment
• Involving a broad base of leaders, managers and employees in scorecard development
• Choose the right Scorecard Champion
• Beginning interactive (two-way) communication first
• Viewing the scorecard as a long-term journey rather than a short-term project
• Getting outside help if needed
STRATEGY MAP BALANCED SCORECARD
MEASUREMENTPROCESS: MANUFACTURING EXCELLENCETHEME: ROCE > xx%, VOLUME = xx,xxx units OBJECTIVES TARGET
ACTION PLAN
INITIATIVE BUDGET
FINANCIALPERSPECTIVE
Improve Productivity
OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY
and LOW-COST
Long-Term Shareholder Value ROCE > xx%
GrowRevenue
CUSTOMERPERSPECTIVE
•Operating Cost & Efficiency
•Capacity Utilization
•Capability Utilization
•Brand / Image
• Cost/Unit, Efficiency
•% Utilization
• Monthly Monitoring
• Weekly/Monthly Monitoring
• Monthly Monitoring
• Weekly/Monthly Monitoring
•Low Cost Manufacturing
•World-Class Quality Standards
•World-Class Delivery Timing
•Knowledgeable & Skilled Partner
•High Customer Satisfaction
•Reinforce Brand Image
• Man-hour per Unit
• Defect per Unit
• Sales Delivery
• Direct Pass Rate
• Market Feedback
• Sales Volume
• Weekly Monitoring
• Daily Monitoring
• Daily Monitoring
• Daily Monitoring
• Weekly Monitoring
• Monthly Monitoring Prod. & Sales Mtg.
LowCost
WorldClass
ENSURE OPERATIONAL EXCELLENCE WITHINNOVATION AS WELL BEING SOCIALLY
RESPONSIBLE
INTERNALPERSPECTIVE
CustomerSatisfaction
EnhanceBrand
OperationalExcellence
ProcessInnovation
Alliances withSBUs
Socially Responsible
•Productivity
•Delivery
•Continuous Improvement
•NPI
•Safety & Health
•Environment
• Cycle Time
• Meet Daily Plan• WIP• KAIZEN• ICC
• Timely Introduction
• Industrial Accident• Commuting Accident• Toxic Waste Disposal• ISO 9002
• Hourly Monitoring
• Daily Monitoring• Daily Monitoring• Monthly follow-up• Specific Programmed
• Weekly Follow-up
• Cross Audits• Defensive Driving• Facility Readiness• Certification
STRATEGIC JOB & SYSTEMS
LEARNING & GROWTHPERSPECTIVE
Skills Info. System
•Develop the Necessary Skills
•Information Systems Availability
•Strategic Awareness
• R&D & Development
• ALC, Procurement, Financial
• Alignment
• Training and Skill Build-up• Set-up, Test and Validation• Communication Programmed
• Trial Prod.• Spare Parts Prod
•Warranty Cost t
OPEXRM XX M
CAPEXRM xx M
Balance Scorecard ExampleBalance Scorecard Example
Balance Scorecard Generic Strategy MapBalance Scorecard Generic Strategy Map
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case StudyVisionTo establish GNPOC as a Premier Petroleum Operating Company. Mission •Maintain High Health, Safety and Environmental Standards •Maximize Shareholders' Return on Investment •Contribute Towards Achieving Sudan's National Aspirations as a Net Oil Exporter •Develop a Competent Sudanese Workforce •Optimize Operations Through Technology, Teamwork and Synergy
ObjectivesTo fully explore, develop and produce the reserve potential in Blocks 1, 2 and 4 , and to transport the crude oil to the Red Sea Coast for export in a safe and cost effective manner.
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
ReduceOperating CostsStrategy
Objectives
Value Driver
ProductionIncrease
New FieldDevelop.
ExplorationProgram
Improve Operating Efficiency
AddReserves
ManpowerGrowth(Add Value)
Deliverables 50 MMbbl RSRR
To be The Premier Petroleum Operating Company
120kbwpd of water injection in unity
Vision
IncreaseRevenue
Initiatives20 Wildcat4 Appraisal
2D/3D Seismic
Diffra+ Neem Area
87 wells drill, 95well Comp,95 well tie- in
Neem FPF expansion & co2
removal
Bioremediation at other fieldsFacility
Improvement
88 MMbblDeveloped Reserves
250 KBOPD
(Average)
Margin(Optimize NPV)
Including Contractors in HSE Program
Competent Workforce
Transportation Volume Increase
HSE Oriented
Sudanization , Training and
Quality Culture
Development Effort
EOR Study & Infill- Satellite
Program
Capability Devt & Experience Sharing
0
1
12 MMbbl RSRR
Optimize operation
cost (UPC,UFC,U
DC)
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Business Objectives
Pipeline throughput GNPOC 252.3 WNPOC: 25.4
RevenueUSD 2.78 vs 2.23 billion target
Reserves added25.1 of 62 mmstb
annual target
Reserves dev.45 of 77 mmstb
annual target
Production252.3 vs 240 kbopd
Cash Margin : USD 11.7/bbl vs 8.9 planned
44 producers tied in and commissioned
Exploration: from Alful & Neem S-3 wells
Development: From Unity 87 and 89
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Actual 2006
Target 2007
2007 Mid Year
ActualRemarks
1 Reserve Replacement Ratio 2P (%)0.97 0.68 N/A Calculated on annual basis
2 Reserve Addtion-EV(mmstb) 89.2 62.0 25.1 From Exploration & Development-Exploration 26.7 50.0 19.1 Alful & Neem S-3 wells -Development 62.5 12.0 6.0 From Unity 87&89
3 Reserve Developed (mmstb) 136.0 77.0 45.0 44 producers tied-in & commissioned
4 Production (mbopd) 252.9 240.0 252.3 44 new wells put in production
5 Revenue (MM$) 5,710 4,271 2,78265% of 2007 forecast revenue. Annual target based on 87 MMbbl annual production & 50$/bbl average FOB price ( forecast)
6 Lost Time Injury Frequency (#) 1.68 1.50 1.05 LTIF improved with HSE mitigation measures on road & operational safety
7 Budget Performance (%) 99% 95% 96%
KEY PERFORMANCE INDICATOR
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study2006
Actual2007
Target
2007 Mid year
Actual Justication
1 Unit Finding Cost ($/bbl) 1.22 1.33 1.31 Underspent - Block 2A WC delayed
2 Unit Development Cost ($/bbl) 1.73 1.98 1.88 Higher cumulative production
3 Unit Production Cost ($/bbl) 3.30 3.70 3.20Higher daily production rate + Chemical optimization .Lower ESP rental due to negotiation effort with contractor.
4 Unit Transportation Cost ($/bbl)0.72 0.77 0.65Opex included accredit of $8.9M received from PDOC. If excluded, UTC is 0.82
5 Lost Production Index (%) 3.3% 3.2% 3.0%Higher availability of Power Plants Engines and improved reliability of equipments
6 Well Cost ($/m)
- Exploration Well 1055 1150 1143 11 wells were drilled up to end Q2
- Development Well 780 830 813 40 wells were drilled up to end Q2
7 Cash Margin ($/bbl) 9.80 8.9 11.70Lower government take with the cost recovery from block 4 after Neem production
KEY PERFORMANCE INDICATOR
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Blk 1A
Blk 2A Bk 4 Blk
1BBlk 2B
2007 Revision
Total Exploration
2D Seismic Hl (km) 1,268 754 1000 1,268 0 2D Seismic TZ (km) 670 646 750 920 250 3D Seismic(km²) 200 113 113 113 -87 Wildcats(well) 13 8 5 2 12 1 20 7 Appraisals(well) 7 3 0 0 4 4 -3Development
Well Drilling (no) 58 40 23 13 11 18 22 87 29Well Completion (no) 58 40 26 11 20 19 19 95 37Tie-in New Well (no) 77 44 27 6 19 18 25 95 18
Production
ESP Services (no) 296 268 314 18Production (kbopd) 240 252.4 96.6 12.9 43.7 51.5 45.0 250 10
Road Construction
Main Road (km) 60 30 30 30 -30
268170
2007 Revision Plan 2007 Mid year
Actual Description +/-
2007 Orig Plan
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Item Value UnitProduction 250 KbopdExpenditure 1,130.50 $MM
Upstream 1,035.90 $MMDownstream 94.60 $MM
Anticipated FOB Oil Price 61.7 $/bblSensitivity / Oil Price 55,61.7,65,70$/bbl Discount Rate 12 %
4,983
935
5,594
1,085
5,895
1,160
6,351
1,272
010002000300040005000600070008000
55 61.7 65 70Oil Price $/bbl
NCF Revenue
3,058.4 60.4%
1,115.4 19.4%
516.68.1%
747.512.1%
Capex Opex GNPOC Govt
2007R Revenue & NCF @Price Sensitivity2007R Cash Flow Assumption
2007R Revenue Split $5,594 MM
* 2007R anticipated $61.7/bbl Average
Tariff
Cost Oil
Profit OilTotal
0
500
1000
1500
2000
2500
Cash
Inflo
w (U
S$ M
illio
n)
Total Profit Oil Cost Oil Tariff2,217.7 880.2 993.1 344.3
2007R PARTNER’S CASH INFLOW
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Data input
Finance Executive Head Section / manager
Verification & Publish Report• Net Adjusted Production• Revenue• Unit Cost• Oil Blend price
Drilling Engineer
Development planner
Head Section / manager • Total meterage drilled• Total NPT days
Head Section/ manager • Reserve to be developed• Reserve added
Direct key in of data (manual input) by executives in charge
Single Source reports
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Exploration Executive Head Section / manager• 2D seismic • 3D seismic• Wildcats wells• Appraisal wells• Testing wells
Pipe line Executive Head Section / manager • Demurrage
Data input Verification & Publish Report
Single Source reports
Direct key in of data (manual input) by executives in charge
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Data input Report
Multiple Source reports
Verification & PublishReserve developed
– manual input Head Section Business Info, Planning Dept
Formulated calculation
• Development target• Unit Development Cost
ERP
Multiple data from various sources (system or departments) combined and calculated in EIS
Exploration Reserve addition (manual input) Head Section Business
Info, Planning DeptFormulated calculation
• Unit Exploration Cost
ERP
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Through put volumes (fieldview) Head Section Business
Info, Planning DeptFormulated calculation
• Unit Transportation Cost
ERP
Multiple Source reportsData input ReportVerification & Publish
Production data: Fieldview
Head Section Business Info, Planning Dept
Formulated calculation
• Unit Production Cost
ERP
Multiple data from various sources (system or departments) combined and calculated in EIS
BSC in Practice – GNPOC as Case StudyBSC in Practice – GNPOC as Case Study
Cross department KPI calculation
Reserve Addition From Exploration
Reserve AdditionFrom Development
Production Data
Data Input VerificationHead Section / manager Exploration Department
Head Section / managerDevelopment Department
Head Section / manager Production Department
Report
• RRR For Exploration• RRR for Development• RRR 2P• RRR 2P Average
Formulated calculation
Field View System
Scorecard Potential Pitfalls & CriticismsScorecard Potential Pitfalls & Criticisms
Scorecard Potential Pitfalls & CriticismsScorecard Potential Pitfalls & Criticisms• Lack of a well Defined Strategy
– The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objectives and metrics. Without this foundation the implementation could fail.
• Too much focus on the lagging measures– Focusing on only the lagging measures may cause a lack of
priority or opportunity for the leading measures.• Use of Generic Metrics
– Don’t just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position .
• Self-serving managers– Managers whose goal is to achieve a desired result in order
to obtain a bonus or other self reward.
BSC BenefitsBSC Benefits• Helps align key performance measures with strategy at all
levels of an organization
• Facilitates communication and understanding of business goals and strategies at all levels of an organization
• Strategic initiatives that follow "best practices" methodologies that cascade through the entire organization
• Transforms an organization’s mission statement and strategic plan from a passive document into the "marching orders" for the organization on a daily basis.
• It enables executives to truly execute their strategies by identifying what should be done and measured.
Balanced ScorecardBalanced Scorecard
Recipe of good decision is 90% information & 10% inspiration
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