SOP Balanced Scorecard



Strategy and Performance Management through BALANCED SCORECARD Standard Operating Procedure (SOP)Prepared by :Strategy Management Office (SMO)Reviewed by:Director Corporate PlanningApproved by:President DirectorOBJECTIVEThis procedure is set up to describe methods, steps or work process or guidance for all levels and functions within the Company to monitor, facilitate and ensure execution of company strategy based on Balanced Scorecard framework in order to attain highly sustainable organizational performance.APPLICABILITYThis Standard Operating Procedure (SOP) shall be implemented to all unit organization within the Company as guidance in managing organization performance through Balanced Scorecard.ROLES & RESPONSIBILITIESBSC Champion (President Director and Vice President Director)Take a lead during the BSC ImplementationLead Strategic Directorate MeetingMonitors company performance score progressionDirectorLead Quarterly Directorate BSC MeetingMonitors divisions’ performance under respective areaMobilize strategic initiatives, corrective action and changesControls division performance to meet standardSMO (Strategy Management Office)Developing company-wide strategyMonitors the external dynamics and studies its impacts on organization strategyTogether with stakeholders, reviews, develops and propose organization vision, mission and strategyCommunicates organization strategy to all elements within the organizationFacilitating strategic governance processes Ensures Quarterly Directorate BSC Meeting take place. Analyze periodical (monthly, quarterly, semester, yearly) performance management reports based on BSC Score and facilitates the review of organization and Divisions performanceMonitors the progress of strategic initiatives of the organization and report regularly to BSC ChampionFacilitates strategy alignment process.Facilitates Directorates and Divisions in developing their strategies, Key Performance Indicators, targets, initiatives, and budgets.Facilitates the alignment of corporate, companies, divisions, and divisional strategy and performance (vertical and horizontal alignment) Ensures Monthly Division BSC Meeting take place.Acting as an internal consultant for the company in performance improvementsBSC OfficerEnsure proper operation of BSC portalMaintain integrity and update BSC model Administer end-users’ access rightsProvide technical support to end-users for utilizing the BSC portalProvide assistance in monitoring strategic governance processMonitor the action plan and follow-up regular BSC meetings.Prepare periodical (monthly, quarterly, semester, yearly) performance management reports. Division HeadsProvide Division directionsLead Monthly BSC MeetingSupport the systems integrity and utilizationReview KPI PerformanceEnsure strategic initiatives are conducted accordingly.Develope and implement action plan for improvementBe a Change Sponsor for respective Division KPI OfficerPreparing the KPI (if any new KPI required by respective division)Managing the operations of BSC Portal (monitor and keep update KPI Actual in BSC Portal equipped with supporting document)Reporting KPI (review and discuss dept performance based on KPI Target and KPI Actual)Evaluating KPI and continuous allignment with strategy (If any changes in company or division strategy)Be a Change Agent for respective DivisionIT DivisionEnsure the availability and reliability of all IT facilities required to support BSC system. These include :BSC Portal serverDatabase serverWeb serverNetwork infrastructureClient computers used by System Admin and End-userCommunicate with SMO for any changes in the IT infrastructure that relates to BSC System.Ensure interface between BSC Portal and other business application are working as intended.DEFINITIONSVisionVision is a desired future outcome of an organizationMissionMission is the reason of organization’s existence, what we do today to achieve visionValueValue is standard of belief and behaviors that guide people’s actionsStrategyStrategy is a deliberate process of choosing a set of activities differently from competitor, in order to deliver a unique mix valueStraegy MapStrategy Map is an interrelationship among strategic objectives in cause-effect fomatr that reflects the “journey” of an organization’s strategy.Strategic ObjectiveStrategic Objective is a concise statement describing the major activities that an organization must do well in order to execute its strategy. A cause-effect mapping of SO is termed as strategy map.Strategic InitiativeStrategic Initiative is specific projects that need to be implemented in order to support the achievement of strategic objectives. Normally it has a beginning and end points.Key Performance Indicator Key Performance Indicator often said as a measure, a quantifiable formula whose variables define what needs to be measured and monitored in order that a target is achieved. Guidelines for KPI are further governed in next Section.Balanced ScorecardBalanced Scorecard is a management system that allows organization to translate its vision, mission and strategies into actions by focusing on a “dashboard” which shows balanced measures / indicators in defining the causal-effect of the company strategies, beyond mere financial measures or in the other definition it is a tool to communicate strategy in operational terms to the stakeholders: management, employees, shareholders, customers, and communities.Balanced scorecard has four perspectives that can guide companies as they translate strategy into actionable terms. Below pictures describe the four perspectives.Figure SEQ Figure \* ARABIC 1KPI ProcedureKPI shall be well-defined and doesn’t lead to ambiguity or multi interpretationsKPI shall contain below elements:DefinitionsFormulaPolarizationsTargetWeightPeriod LevelUnit of MeasurementKPI shall have data that can be acquired on regular basis and has following criteria :SpecificKPIs need to be specific to the individual job and if possible expressed as statements of actual on-the-job behaviours.MeasurableKPIs must be measurable, that is based on behaviour that can be observed and documented, and which is job-related. They should also provide employees with continuous feedback on their standard of performance.AgreeableRealistic / RelevantSetting realistic targets means being fair on the people who will have to reach them. Make sure you only ask for performance improvements in areas that your staff can actually influence and also the the improvement of a KPI has to be relevant to the success of the organization.TimeboundWhich means the value or outcomes are shown for a predefined and relevant period, placing goal achievement in a certain time frame.KPI shall measure areas that are within our influence. In some cases, when level of influence is very low yet attention is needed, the indicator is called: monitoring KPIs which would have 0% weightingKPI ManualThe KPI Manual contains the description of each KPI in respective division. Each KPI has below description :PerspectiveStrategic ObjectiveDescription of Strategic ObjectiveDefinition of KPIDefinition of KPIFormulaStrategic Purpose of KPIUnit of MeasurementPerson In ChargeSource of DataKPI PolarizationPeriod of Data CollectionPeriodic ConsolidationWeightTable of DataSCORING SYSTEM OF BSCThere are several series of Key Performance Indicator that contribute in calculate BSC Score, they are:Annual TargetYTD TargetYTD ActualAchievementScoreWeightResultAnnual TargetAnnual Target is set based on Work Program & Budget and Annual Strategic Planning. Annual Target shall be complete by every November for subsequent year. Annual Target shall be authorized input to BSC Portal by BSC Officer only.Year To Date TargetAnnual Target shall be broken down into year to date target depend on respective period of KPI collected. If the period of KPI is monthly, YTD Target shall be provided monthly as well. This data shall be authorized input to BSC Portal by BSC Officer only.Year To Date ActualYear to Date Actual shall be input into BSC Portal in accordance with the perid of KPI collected. This data shall be authorized input by respective KPI Officer.AchievementAchievement is principally comparison between actual performance and target performance, however, the formula is subject to polarization of KPI. The polarization of KPI is determined by the behaviour of the KPI itself as originally defined. Achievement is applicable for level KPI only, not applicable for level Strategic Objective and Perspective. There are several formula of achievement calculation depend on its polarization.Maximize GeneralThe purpose of this polarization is to maximize actual data as much as possible compare to its target. The higher actual the better. Example of this type of KPI are Production, Revenue, Profit, Productivity, ROA, etc.Achievement = (Actual / Target) x 100%Achievement = (Actual / Target) x 100%Maximize AvailabilityThe purpose of this polarization is to maximize actual data as much as possible compare to its target, the higher actual the better. However, availability of 100% shall be considered excellent with achievement of 115%. Example of this type of KPI are Availability of IT Communication, availability of Power Supply, availability of critical material, etc.Achievement = 115% - 15% ( (1-Actual) / (1-Target))Achievement = 115% - 15% ( (1-Actual) / (1-Target))Minimize GeneralThe purpose of this polarization is to minimize actual data as much as possible compare to its target, the lower actual the better. Example of this type of KPI are Unit Cost, Man.hours rework, Rejection Rate, Penalty, etc.Achievement = (2- (Actual / Target)) x 100%Achievement = (2- (Actual / Target)) x 100%Minimize with Target=0The purpose of this polarization is to minimize actual data approaching its target, the lower actual the better. Example of this type of KPI are no of accident with damage>100 USD, no of audit findings, etc.Achievement = e-k. Actual x 100%, where :e : Exponantial valuek : penalty factor (0.1 – 0.2)Achievement = e-k. Actual x 100%, where :e : Exponantial valuek : penalty factor (0.1 – 0.2)Minimize FatalityThe purpose of this polarization is to minimize actual data approaching its target, the lower actual the better. Example of this type of KPI are no of accident with fatality. production shutdown, no of fire, no of employee strike, etc.IF Actual = 0 THEN Achievement = 100%, ELSE Achievement = 0%IF Actual = 0 THEN Achievement = 100%, ELSE Achievement = 0%StabilizeThe purpose of this polarization is to stabilize actual data as close as its target, the closer actual the better. Example of this type of KPI are Budget Deviation, C&B Rating.Achievement = (115% - (Actual-Target/Target) x k)k = penalty factork=1.5 for KPI of Budget Deviationk=3 for KPI C&B Rating Achievement = (115% - (Actual-Target/Target) x k)k = penalty factork=1.5 for KPI of Budget Deviationk=3 for KPI C&B Rating ScoreAchievement can be translated into Score with the following correlation.ACHIEVEMENTSCORECategoryColourAchievement > 115%Score = 4ExcellentBLUE100% < Achievement < 115%3 < Score < 4GoodGREEN 85% < Achievement < 100%2 < Score < 3FairYELLOW 70% < Achievement < 85%1 < Score < 2PoorREDAchievement < 70%Score = 1PoorREDScore for Strategic Initiative is defined as follow: Strategic InitiativesSCOREColourTimely4BLUEDelay3GREENIn progress2YELLOWNot started yet1REDTable SEQ Table \* ARABIC 2Score is also agregate for level Strategic Objective and Perspective by the following rule. nScore SO = ∑ (Score KPI i x Weight KPI i) / ∑ Weight KPI iI=1 nScore SO = ∑ (Score KPI i x Weight KPI i) / ∑ Weight KPI iI=1 nScore Perspective = ∑ (Score SO i x Weight SO i) / ∑ Weight SO i I=1 nScore Perspective = ∑ (Score SO i x Weight SO i) / ∑ Weight SO i I=1WeightWeight of KPI is determined based on degree of importance of each KPI, the more important the KPI, the higher weight of KPI. Degree of importance can be interpreted as degree of impact to overall score for respective unit organization. Total Weight of KPI for each unit organization shall be 100%.ResultResult KPI = Score KPI x Weight KPITotal Result = Overall Score of BSCBSC GovernanceBelow is the cycle process of BSC governance in one year period.The cycle process can be described as follow:StepActivity / ProcedurePerson in chargeTime frameStrategic Direction Announce strategic direction for next year regarding what the company need to focus and where it is heading to.President DirectorOctoberWork Program & BudgetCoordinate preparation of Work Program & Budget for all Units.Director Finance & ControlOctoberManpower PlanningCoordinate preparation of manpower planning and incorporate ini Work Program & Budget for all Units.SMOOctoberBSC ClinicCoordinate setting up KPI and Target for next near for all unitsSMOOctober- NovemberSetup Company GoalsApprove Company Goals for next year including objective, KPI, and Targets.President DirectorDecemberQuarterly BOD BSC MeetingLead quarterly BSC meeting to discuss strategic matters with BOD including Year To Date achievments. President DirectorMar, Jun, Sep, Dec.Monthly Directorate BSC MeetingLead monthly BSC meeting with all divisions under his/her responsibilities.All DirectorsMonthlyBSC GovernanceCoordinate the whole process strategic and performance management within the company.SMODaily.BSC CliniicSMO review and discuss with all units to coordinate YTD achievement, constraint, corrective action, and progress strategic initiative.SMO coordinate setting up KPI and Target for (Year+1).SMOOct-NovIndividual PerformanceCoordinate the whole process of individual performance evaluation.Human CapitalMonthlyStratexReview and coordinate alignment of budgeting process against strategyFinance & ControlOctBSC DivsionEvaluate Result BSC DivisonRespective directorFeb (Year+1)BSC DirectorateEvaluate Result BSC DirectoratePresident DirectorFeb (Year+1) ................
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