1. Corporate Performance Management Introduced to: Prof. Dr. Ahmed Fahmy Galal Prepared by: Ali El Khouly Steps In Linking BSC To Budgets

2. Balanced Scorecard Initiatives—The Glue that Binds Budgets to Strategy Budget is determining appropriate investments in people, processes, technology, and the like? Ensuring that initiatives you decide to fund are strategic in nature and will help you achieve the goals

3. STEPS IN LINKING BALANCED SCORECARDS TO BUDGETS Ensure the budget reflects your strategy. Scorecard introduces a whole new framework for management that places strategy, at the center of the organizational universe General rule, you need a high-level Scorecard and a series of cascaded Balanced Scorecards to effectively execute the budget/Balanced Scorecard link. This can often be accomplished during year two of your implementation.

4. Step 1: Plan Ahead Use budget process to get the word out about the “new” budgeting process that is driven by the Balanced Scorecard. Generate budgets that align spending with your strategy. Step 2: Develop or Refine the High-Level Organizational Balanced Scorecard The organizational Balanced Scorecard sets priorities for the company as a whole, describing to everyone the key objectives and measures that signal success.

5. Step 3: Build Cascaded Balanced Scorecards Business units develop Scorecards that demonstrate how they can influence higher-level objectives and outline the specific indicators they will track. Each initiative appearing on the Scorecard should include a reference to the associated strategy it supports. Initiatives should also provide clearly stated resource requirements. Should typical budget line items, such as salaries, benefits, supplies, travel, and the like, be split up among the initiatives appearing on the Balanced Scorecard?

6. Step 3: Build Cascaded Balanced Scorecards ‘Cont.’ Different schools.: Kaplan and Norton suggest that organizations should follow a method of dynamic budgeting, which represents the combination of operational and strategic budgeting. Others suggest that only one budget be used and that it should contain the entire mix of operational and strategic elements. Using an activity view of organizational expenses may facilitate the allocation of current operations to strategic initiatives. “One budget” school also suggests that simply thinking in terms of the linkage between current expenses and strategy will foster important conversations within the organization. How can you ensure that senior management will fund initiatives aimed at improving the leading indicators of performance, the often “softer” measures such as employee retention and customer satisfaction? Every initiative should be supported by a valid business case that includes how the initiative impacts a strategic goal, as well as the cost, timing, resources, and dependencies involved

7. Step 3: Build Cascaded Balanced Scorecards ‘Cont.’ “One budget” school also suggests that simply thinking in terms of the linkage between current expenses and strategy will foster important conversations within the organization. How can you ensure that senior management will fund initiatives aimed at improving the leading indicators of performance, the often “softer” measures such as employee retention and customer satisfaction? Every initiative should be supported by a valid business case that includes how the initiative impacts a strategic goal, as well as the cost, timing, resources, and dependencies involved

8. Step 3: Build Cascaded Balanced Scorecards ‘Cont.’ “One budget” school also suggests that simply thinking in terms of the linkage between current expenses and strategy will foster important conversations within the organization. How can you ensure that senior management will fund initiatives aimed at improving the leading indicators of performance, the often “softer” measures such as employee retention and customer satisfaction? Every initiative should be supported by a valid business case that includes how the initiative impacts a strategic goal, as well as the cost, timing, resources, and dependencies involved

9. Step 4: Compile Results The budget process generates a lot of paper. Even in this so-called era of the paperless organization. Hundreds of spreadsheets producing reams of analysis and countless iteration of budget submissions. Budget preparers must be provided with templates they can complete to make the ultimate job of compiling all spending requests a little easier. Preparing budgets should become increasingly comfortable with methods of filing Scorecard-related budget submissions electronically.

10. Step 4: Compile Results ‘Cont.’ Exhibit 9.2 displays a simplified template that groups may use to record their budget submission. Exhibit 9.3 summarized specific Balanced Scorecard strategies or objectives.

11. Step 5: Finalize the Budget To finalize the budget, each business unit leader should make a formal presentation to fellow executives outlining the budget submissions from his or her group. Everyone in attendance during these presentations will be aware of the gap that exists between desired and possible spending. The process becomes iterative, with executives reviewing and questioning the proposals, attempting to determine which are worthy of inclusion in the budget.

12. Benefits of Using the Balanced Scorecard to Drive the Budgeting Process Reinforces key strategies Rather than taking last year’s budget and adding a certain percentage, the Balanced Scorecard puts strategy at the center of the budget cycle. Your organization is a double winner. In order to prepare effective budgets, managers and employees must develop a firm grasp of the essence of the strategy, thereby increasing organizational knowledge and learning. Second, and equally important, the budgets submitted demonstrate how individual groups plan to have a real impact on the strategy.

13. Benefits of Using the Balanced Scorecard to Drive the Budgeting Process ‘Cont.’ Reduces game playing Forcing everyone to demonstrate a direct link between their spending plans and the strategy puts all the cards on the table, so to speak Leads to cooperation Managers must switch their mindset away from trying to hit their own personal budget numbers and toward a team approach focused on meeting the organization’s strategic objectives.

14. Benefits of Using the Balanced Scorecard to Drive the Budgeting Process ‘Cont.’ Facilitates learning Review should be conducted to determine whether the anticipated effect on Scorecard targets from a certain initiative did in fact produce the expected benefit

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