THE BALANCED SCORECARD

Ellen Shew Holland, ARM,

Director, Office of Risk Management

University of Denver

10.27.2011

Denver, CO ChapterRisk & Insurance Management Society

(RIMS)

http://www.balancedscorecard.org/BSCResources/TheNineStepstoSuccess/tabid/58/Default.aspx

Definition

The history and background

Examples

Case Study-Excerpt

Resources

The Balanced Scorecard Approach

Balanced Scorecard Objectives• The Balanced Scorecard is a Performance Management System

that links the strategic plan to day-to-day performance measures

• Aligns Vision and Mission with:

• Customer Requirements• Monitors Operation Efficiencies• Evaluates Business Strategy• Communicates Progress to employees• Can be applied to any organization or any size

Balanced Scorecard History• Developed by Dr. Robert Kaplan and Dr. David Norton of The Harvard

Business School in the 1990’s

• Initially applied as a performance measurement tool

• Combined strategic quantitative metrics with qualitative goals

• Based off of the French Engineering technique of “Tableau de Bord” or “dashboard” of multiple metrics needed to achieve a strategic goal

Balanced Scorecard-Basic Design

Strategy

Customers Financial

Internal Processes & Capacity

Innovation

Balanced Scorecard-Development

① Assessment of Core Vision, Mission, Values and Goals

② Development of Business Strategy - Long Term

③ Development of Business Goals - Short Term

④ Create Strategic Map to Tie Strategy & Goals

⑤ Apply Performance Measures

⑥ Identify Innovation and Initiatives

Step 1: Core Mission Example

University loss prevention activities within several division and departmental areas including Risk Management, Campus Safety, Facilities, Technology, Human Resources, Student Life, University,

Controller, Counsel, EHS, etc. help support the institutional mission

Assessment and monitoring of these activities internally and through 3rd party insurers improves ratings assigned by insurers, and minimizes costs

associated with potential risk including insurance premiums and monetary loss due to the cost of managing claims losses

Prevention and mitigation of losses results in preservation of funds and reputation

Funding + positive reputation = desired student experience

DU Mission

Step 1: Mission, Vision9

Vision Support the University’s mission to be a great private University for the Public Good

Mission Protect the life safety, reputation, financial, operational and property risks associated with the University by utilizing techniques of risk identification, risk transfer, risk retention and risk controls

Values Conduct our processes and meet our goals through utilizing the highest level of integrity, respect, ethical values and best practices in collaboration with our community members and key outside stakeholders

Goals Provide Risk Transfer and Risk Financing instruments consistent with the current risk landscape and our risk appetite, by utilizing the University’s resources efficiently and effectively

Provide clarity to our stakeholders in terms of policies and procedures that improve the effectiveness of risk management efforts

Collaborate with our key stakeholders both internally and externally in order to provide the greatest positive impact to our stakeholders

Step 2, 3, 4: Strategy Map ExampleStakeholder

Financial

Internal

Innovation

Risk Transfer/Retention

*•Provide appropriate coverage for exposures and identify new potential exposures

Claims Process

•Manage claims in a manner consistent with best practices including legal and ethical integrity

Risk Assessments•Provide training and appropriate risk assessment tools to manage risk

Adequacy of Reserves

Sufficient Insurance for Exposures

Risk Controls

Support Institutional Mission

Mitigate Risks for Life Safety, Reputation,

Finance, Operations

Risk Landscape identified,

monitored and updated

Collaborate with stakeholders to provide effective mitigation tools

Risk Transfer/Retention

• Enhanced reporting guidelines

• Retain actuary to conduct regular and ad hoc assessments regarding risk financing

• Assess retention vs. premiums

Risk Controls

• Risk Management Information System or “RMIS” obtained for efficient claims management, asset management and broader Enterprise Risk Management impact

Risk Toolkit

• Reporting Requirements• Collaboration with

departments for risk assessments

• On-line Risk and Liability in Event Training

10

*Please refer to Appendix IV for Glossary of commonly used terms

Step 5: Application from Risk Management Context

① Strategic Plan Long-Term

Risk Transfer Risk Retention Risk Controls/Regulatory Compliance

② Business Goals Short –Term

Objectives Industry or Internal Measures/Metrics Target Metric Initiatives to get there

Step 5: Application from Risk Management ContextRisk Transfer Risk Retention Risk Control /

Regulatory

Stakeholder

Financial

Internal

Innovation

12

Step 5: Applied Strategic Goal of Risk Transfer

13

OBJECTIVES MEASURES TARGETS INITIATIVES

Monitor exposure base

Provide coverage consistent exposures and risk appetite

Renew all policies on time with no gaps

STAKEHOLDER

Renew all insurance within budget

Analyze cost of risk, loss ratios, NCCI ratings

Manage claims reporting

FINANCIAL

Identify new exposures and coverage needs

Collaborate with external stakeholders in a transparent and effective manner

INTERNAL

Provide greater transparency for insurer policy reporting and resources

INNOVATION

Step 5: Applied Risk Retention

14

OBJECTIVES MEASURES TARGETS INITIATIVES

Provide guidance regarding potential loss vs. risk appetite

Monitor losses by frequency, severity, and stratification

STAKEHOLDER

Manage adequacy of reserves

Monitor reserves

FINANCIAL

Allocate losses through the recharge process

Manage claims within retention

INTERNAL

Review retentions and deductibles versus premiums for optimum program design through actuarial analysis

INNOVATION

Step 5: Applied Risk Control15

OBJECTIVES MEASURES TARGETS INITIATIVES

Provide loss control services including claims management, training and inspections

STAKEHOLDER

Analyze losses to target training

Monitor asset valuation, types and count

FINANCIAL

Collaborate with stakeholders to mitigate potential loss

Continued staff training

INTERNAL

Data ManagementINNOVATION

Case Study

University Risk Management & Insurance Association (URMIA)

URMIA Step 1: Define Mission & Vision

① Mission: To advance the discipline of risk management in

higher education

Vision: URMIA is the preeminent source of innovation and

effective risk management ideas and solutions to the challenges facing institutions of higher education in the pursuit of their academic, social and economic goals.

.”

URMIA Step 2: Strategic Initiatives

② Strategic Initiatives:

Organizational Sustainability URMIA Brand Awareness Risk Management Education Influence Public Policy in Higher Ed Risk Management Expand URMIA’s Boundaries Internationally

.”

URMIA Step 2: Long-Term Goals

③ Long-Range Goals:

To protect the reputation through sound risk management practices

To make available risk management information for institutions of higher education risk management

To provide professional development opportunities

URMIA Step 3: Business Plan Goals-Short Term

① 11 Committees

Each has 5-10 annual goals

② 3 Task Forces

Each has 3-5 annual goals

University Risk Management & Insurance Association

Strategy MapCore Purpose: To advance risk management in higher education.

Core Competenci

es

Recognized voice and crediblesource of information and knowledge in advancing

the awareness of all levels of risk managementin higher education.

Indispensable resource for risk management education, professional development, and

networking.

National Meetings

Speaker’s Bureau

URMIA Insights

Goal A• Build strategies to increase membership and participation.• Research members’ needs and expectations.• Develop a program to introduce new products, programs, and services.• Form strategic relationships with third-party organizations.• Re-establish mentoring program for new members and new risk managers.

Product-Service

Portfolio

ListServ

Website

Regional MeetingsOnline Content Library

Networking

Target Markets

Higher Education Market B Market C

Goals & Tactics

Sub-Market A Sub-Market B Sub-Market A Sub-Market B Sub-Market A Sub-Market B

Goal B• Brand URMIA with a consistent marketing effort.• Promote URMIA to target audiences.• Develop URMIA’s Risk Management Alerts• Elevate recognition of URMIA throughout industry.

Goal C • Create 5-year financial plan• Develop contingency account funding plan.• Design spending policy for annual retained earnings/revenue surplus.• Revise current investment policy.

What’s the Strategy?

(Top down or Bottom up?)

Possible ways (routes) to get URMIA from point A to point B

1. Map out and better understand URMIA’s “Strategic Ecosystem (members, partners, competitors, etc.).2. Define the target market and articulate the business case for risk management in higher education.3. Identify “tier 1” member needs, preferences, expectations, and levels of satisfaction. 4. Optimize the URMIA product-service portfolio to deliver “value” effectively, efficiently, and affordably.

URMIA Step 5: Apply Business Plan GoalsBusiness Goal Sustainability Brand Education Public Policy International

Stakeholder

Finance

Internal

Innovatio

n

URMIA Step 5: Apply Business Plan GoalsBusiness Goal Sustainability Brand Education Public Policy International

Membership Retention Stakeholder

Provide new programs

Enhance services to broader scope of institutions

Increase education opportunities

Provide comment on DOE efforts

Broaden membership scope

Manage within budget

Strategic Use of Funds

Finance

Dues and Members

Use of funds to enhance image and services

Provide opportunities for members

Address new initiatives

Provide global outreach opportunities

Create guidelines for internal staff

Enhance technology

Internal

Ensure internal staff training and capacity are sufficient

Internal efforts Staff training Aware of laws, regulations

Support efforts

Annual report

New programs

Innovation

Development & Implement formalized report

Brand report Submit to all members

Use of brand strategically

Highlight URMIA’s unique resources

URMIA Step 5: Business Plan SustainabilityObjective Measure Target Initiative

Provide value Stakeholde

r

Provide value to membership consistent with dues

Dues vs. Services Baseline 2011 Create $ value for each service feature

Manage budget and strategic initiatives

Finance

Manage within set budget and goals

Conference Revenue to cover operating costs

30% Reassess if sufficient

Evaluate staffing and services

Internal

Provide efficient and effective staff/services within capacity

Staff budget vs. needs;Services within budget

See financial plan

Review with change in staff

Use of funds for new initiatives

Innovation

Use of funds consistent with new programs consistent with strategy

Value for cost Use 5% unallocated net assets annually

International Fellowship Program

Conclusion① The Balanced Scorecard is effective:

Aligns strategy and business objectives

② The Balanced Scorecard improves communication: Senior Staff Line managers and staff

③ Maintains consistency in the strategic mission and vision for all involved

④ Resources The Balanced Scorecard Institute Harvard Business School