Balanced Scorecard Training 26042014

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The Balanced Scorecard The Balanced Scorecard Approach Approach Pradyut Mohan Dash Program Manager 26-April-2014 Something that can be measured can be done..

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Balanced Scorecard Concept for Pre-sales.

Transcript of Balanced Scorecard Training 26042014

Page 1: Balanced Scorecard Training 26042014

The Balanced Scorecard ApproachThe Balanced Scorecard Approach

Pradyut Mohan DashProgram Manager

26-April-2014

Something that can be measured can be done..

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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.

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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.

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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

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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

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4 Business Perspectives4 Business Perspectives

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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?

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Balance Scorecard MeasurementsBalance Scorecard Measurements

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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

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Steps in Implementing BSCSteps in Implementing BSC

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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

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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

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Balance Scorecard Generic Strategy MapBalance Scorecard Generic Strategy Map

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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.

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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)

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Scorecard Potential Pitfalls & CriticismsScorecard Potential Pitfalls & Criticisms

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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.

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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.

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Balanced ScorecardBalanced Scorecard

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