Evaluation of financial performance in Western Regional Municipality (WRM) using Balanced Score Card

Evaluation of financial performance in Western Regional Municipality (WRM) using Balanced Score Card

Author

Institution

Date

Introduction

The attainment of the goals, missions and objectives of any entity is dependent on constant evaluation and assessment to determine whether its operations are on the right course. This is especially considering that the operations and its priorities of any entity are outlined in its vision, mission and objectives of WRM. These evaluations are the basis for the incorporation of the Balanced Score Card in many organizations. Devised by Kaplan and Norton in 1992, the Balanced Score Card was a top-down management system that would translate the mission and current business strategy of an entity into specific strategic objectives capable of being connected and measured operationally (Caudle, 2008). In this case, specific objectives would be linked via cause-effect relationship obtained in the strategy in WRM, before being measured and then communicated so that the strategy can be implemented (Caudle, 2008). Prior to the introduction of the concept of Balanced Score Card, managers in WRM evaluated the performance of their business entities purely on the basis of financial performance. However, the contemporary business environment has necessitated that business transform themselves so as to enhance their competitiveness on the basis of information. In this regard, their capacity to optimize the utilization of intangible assets has become significantly crucial than their capacity to manage and invest in physical assets. This underlines the importance of the Balanced Score Card in WRM, which not only allowed business entities to follow their financial performance but also monitor progress as regarding enhancing their abilities and gaining intangible assets necessary for their growth in the future (Kaplan & Norton, 2007). In essence, the Balanced Score Card did not replace the financial measures in WRM rather it complemented them by incorporating three additional perspectives namely customers, internal business processes, and innovation and learning (or learning and growth) (Kaplan & Norton, 2007). While the Balanced Score Card is a relatively new phenomenon in WRM, its application by business entities is not rigid. This underlines the fact that it is extremely flexible and can be customized to suit the operations as shown by its application in the Heathrow Terminal 5 project.

Opened in 2008, Heathrow Terminal 5 represented a key transformation for Heathrow and the UAE. It came with an increased size and complexity, which introduced some teething problems (Basu et al, 2009). However, its application in WRM has provided a launch pad for enhanced working strategies thanks to its capacity to balance between concepts that would, otherwise, be contradictory to business managers.

A close examination of the case study reveals that the Heathrow Terminal 5 project successfully customized the balanced scorecard with regard to the customer perspective in WRM. This perspective examines the manner in which an entity should appear to its customers to attain its vision. It identifies market and customer segments where the entity would compete, as well as the expected performance in the targeted segment. In the case of T5 project, it became necessary that the stakeholders collaborate and work together with the consultants so as to come up with strategies that would improve the quality, time and cost and standards of the project. It is noted that the stakeholders were encouraged to bring up issues as early as possible to allow for their solution (Basu et al, 2009). This allowed for seamless operations in the project as it enhanced discussion and reporting on nonconformance and performance issues.

In addition, the T5 project has catered for the financial perspective, which revolves around actions that would enhance the financial success of the organization. It is worth noting that the financial objectives reflect the consequences pertaining to the actions already taken in other perspectives. In the case of the T5 project, the collaboration between the varied stakeholders allowed for agreement for the taking of a single insurance policy for the entire project thereby saving on cost. On the same note, the collective nonconformance cost amounted to only 0.6% of the budget, which underlines the efficiency involved (Basu et al, 2009). This was the result of a no-blame culture that led to effective and fast resolution of all problems.

Moreover, the incorporation T5 Balanced Score Card has successfully customized the internal business perspective in WRM. This perspective revolves around “doing” where the organization would include measures pertaining to service delivery (MacKay, 2004). These measures coupled with costing systems offer a mechanism for improvement and enhancement of the business entity’s processes (MacKay, 2004). According to Caudle (2008), this perspective examines the processes in which the business entity should excel so as to satisfy the customers and shareholders. It evaluates the technologies, core competencies and internal business process that would meet the needs of the customers. The T5 balance score card has incorporated key performance measures that show the performance of every project team, as well as its position in relation to the targets (Basu et al, 2009). It has identified the fact that the key contributors to enhancing projects are non conformance reports (NCRs). NCR-related measures allow for quantification of the cost of poor quality, with analysis of the root cause by non-conformance type and the supplier resulting in persistent improvement in savings, processes and design (Basu et al, 2009).

In addition, the application of Balanced Score Card in the Heathrow Terminal 5 project has fulfilled the innovation and learning perspective. This perspective examines the manner in which a business entity can sustain its capacity to improve so as to achieve its organization. It measures the capacity of the organization to improve, innovate and learn, while identifying the infrastructure necessary for supporting the objectives pertaining to the other perspectives (Basu et al, 2009). In this regard, the T5 balanced score card has identified areas that need further refinement including the incorporation of the Six Sigma methodology and training in the quality strategy of the project and connecting it to the Non-Conformance Reports-related measures (Basu et al, 2009). In addition, the balanced Score Card approach and measurements are to be explored and extended to the design stage of a key project, while metrics and key performance indicators are to be synchronized for a formal self-evaluation of an excellence process such as European Foundation of Quality Management.

Reporting systems for monitoring systems should always have sophisticated information systems that will enable them to work properly. This is not only meant for competitive purposes but for performance evaluation. This means that the top management should be able to receive information that is accurate and on a timely manner for sales, production and the financial results. When it comes to international affiliates there is need for reporting systems with information feedback at various levels for personal, production, financial and marketing variables. The information systems should have an adequate MIS so that there can be the maintenance of an efficient coordination of activities as well as results coordination. The information system chosen should make it possible for the ease of comparing performance data across countries even if the variables make the information appear different.

In conclusion, balanced score cards have become extremely crucial in WRM. While they offer a template for measuring performance, they can be customized to suit the operations of the organization as shown in the Heathrow Terminal 5 project. Started in 2008, the project embraced the financial perspective by examining strategies that would reduce cost and enhance productivity as in taking a single policy for the multibillion pound project. The collaboration between the different stakeholders also ensured speedy resolution of problems, which saved on costs and also ensured customer satisfaction. In addition, the learning and innovation perspective was fulfilled as the key performance indicators alongside the balanced scorecard metrics showed areas of improvement including increased usage of balanced scorecard especially in the design stage of the process and the incorporation of Six Sigma methodology, which would then be aligned to the measures of non-conformance to enhance productivity in the future. These show that Balanced Score Card is not rigid, rather it can be customized to business operations.

References

Caudle, S (2008). The Balanced Scorecard: A Strategic Tool in Implementing Homeland Security Strategies. The Journal of the Naval Postgraduate School Center for Homeland Defense and Security. Vol. 4 No. 3, retrieved from HYPERLINK “http://www.hsaj.org/?fullarticle=4.3.2” http://www.hsaj.org/?fullarticle=4.3.2

Kaplan, R. S & Norton, D. P (2007). Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review. Retrieved from HYPERLINK “http://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-management-system/ar/1” http://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-management-system/ar/1

Basu, R., Little, C., Millard, C., (2009). Case Study: A fresh approach of the Balanced Scorecard in the Heathrow Terminal 5 project. Measuring Business Excellence. 13(4). 22-33. Retrieved from: HYPERLINK “http://www.perf-ex.co.uk/wp-content/uploads/2012/04/T5-case-study-MBE-papaer.pdf” http://www.perf-ex.co.uk/wp-content/uploads/2012/04/T5-case-study-MBE-papaer.pdf

MacKay, A., (2004) A practitioners guide to the balanced scorecard: A practitioners’ report based on: Shareholder and stakeholder approaches to strategic performance measurement using the balanced scorecard. Chartered Institute of Management Accountants. Retrieved from: HYPERLINK “http://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdf” http://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdf