Weighting your scorecard focus areas. You read about it, but is it imporant for your company?
In some cases, where a detailed corporate or CEO performance framework is in place, this often makes a lot of sense. The first question you need to ask is “Why?” If you don’t have a compelling reason, you’re often better off not we
It is not critical to assign weightings to your balanced scorecard focus areas. The premise of a scorecard is that total success is derived when a balanced approach is taken in managing organizational strategies. What the weighting implies is that an increased focus on strategies within a specific perspective (focus area) is applied for a period of time.
This works well for organizations that have an established strategic framework and direction. For new organizations or groups with a brand new scorecard, it is better to wait until development has been done around organizational initiatives and metric baselines have been established. Until this occurs, weighting your intents will have little to no impact as the priorities and strategies donâ€™t exist.
While it sometimes makes sense to shift weighting values in order to communicate an area of priority for action, it is critical that you donâ€™t lose sight of the fact that success occurs when the focus areas are balanced. In other words, a focus area may require more attention for the planning period, but total success for the organization still requires balanced success in each area of the scorecard.
Unless you have a good reason, hold off until you do.
I have noticed some confusion in organizations as to whether Strategic Planning or the annual ERM evaluation should occur first in the planning cycle. I’m here to tell you that if you’re using a current ERM methodology, it should certainly occur after your strategic planning session.
While ERM may have been used in the past only to identify existing risks in your environment (as a wet thumb evaluation) this methodology is no longer current or nearly as useful as strategy based ERM. ERM should be used to gauge the quality of the strategic direction your organization has created, and to determine whether the risk is acceptable.
Think of it like this: By creating your strategic direction, you are already responding to risks in your business environment. However, the direction you create as an organization (through your initiatives) create their own risks. The question is: do you want to measure and mitigate the risks associated with not acting on your environment, or would it be more effective to measure the risks associated with what you’re going to do and what you’re gambling by executing these strategies? I think the answer is clear.
By evaluating the risks associated with the DIRECTION of the organization, you are able to gauge the quality of the strategy and make changes prior to executing them. Strategy is created through consensus and expert-guessing, so having a tool that can be used to 1) confirm the direction complies within the risk tolerance of the organization, and 2) ensure the resulting risk is optimized will increase your confidence in and commitment to the plan.