The Balanced Scorecard is a performance management framework.
Design of a Balanced Scorecard ultimately is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'.
The idea behind this is that by alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organization they lead.
Kaplan & Norton's writing on the subject in the late 1990s, where they assert four steps as being part of the Balanced Scorecard design process:
- Translating the vision into operational goals;
- Communicating the vision and link it to individual performance;
- Business planning; index setting
- Feedback and learning, and adjusting the strategy accordingly.
The major design challenge faced with this type of Balanced Scorecard is justifying the choice of measures made. “Of all the measures you could have chosen, why did you choose these?”
It presents a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report.
The measures and targets are chosen to support the corporate strategy.
Categorie is also known as section of perspective.
Accordingly, initial designs were encouraged to measure three categories of non-financial measure in addition to financial outputs - those of:
- Internal Business Processes
- and Learning and Growth.
These categories are not so relevant to non-profits or units within complex organizations (which might have high degrees of internal specialization) and then other may be used.