balanced scorecard
DESCRIPTION
Balanced Scorecard. Alan Edwards Risk Manager, State of Utah [email protected]. Objective of the DAS Balanced Scorecard Project. Increase efficiency and productivity within the Department of Administrative Services through the creation of a balanced scorecard - PowerPoint PPT PresentationTRANSCRIPT
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Objective of the DAS Balanced Scorecard Project
Increase efficiency and productivity within the Department of Administrative Services through the creation of a balanced scorecard
• Identify or reassess “value drivers” that are key to achieving the mission of the department and division
• Enable leadership to manage more effectively and respond to trends more quickly
• Focus attention on the few activities that will most affect results
• Improve performance of the DAS
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What is the balanced scorecard?
• A balanced scorecard is a management tool that allows managers to lead through monitoring the performance of an organization on the few but vital set of activities and measures the drive enterprise success
Why is balance essential?
• A scorecard is ‘balanced’ when it focuses not just on financial dimensions but also other vital areas such as employees, customers, processes, and any other area crucial to the success of the organization
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Guiding principles for effective scorecards
• KPIs must have strong and clear linkage with organization vision, strategy and goals
• KPIs must be owned by those who will be accountable
• Must be measurable with available data that is easily trackable
• KPIs must be balanced to include financial and non-financial metrics as well as leading & lagging metrics
• Performance should be assessed on the ‘vital few’, not the ‘trivial many’ KPIs
• Targets must be set appropriately so that they are a stretch but achievable; they should be reviewed frequently
• Must cascade up/down so that achievement of lower level KPIs ensures company reaches its corporate goals
• Organization buy-in is critical and requires that metrics and targets are accepted by each organization
Linked
Controllable
Measurable
Balanced
Focused
Appropriate targets
Cascaded
Buy In
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After identifying candidate metrics linked to division strategy, filter down to ‘vital few’
• Metric owner influences/controls outcome measured
• Input data available, objective and comparable over time
• Duplication and “non-priority” metrics removed
• Leading and lagging financial and non-financial metrics
Initial set of metrics (50+ potential metrics)
Controllable
Measurable
Focused
Mix
‘Vital Few’(target <15 metrics per scorecard)
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Key learnings from past balanced scorecard projects
• Focus on the few metrics that will have the highest practical impact
• Learn by doing: continue to refine metrics and replace as needed
• Engage people from multiple levels of the organization in developing metrics to ensure buy-in
• Develop a plan early on for collecting relevant data
• Don’t be afraid of red: the scorecard is your friend
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Utah State Risk Management
Balanced ScorecardMission: Deliver risk management services needed by customers at a below-market cost of risk while exceeding customer expectations.
Metric Metric Definition
Customer Satisfaction
Customer satisfaction survey Level of customer satisfaction (scale of 1 to 5)
Level of participation in the Risk Management Fund when participation is optional
Percentage of all state school districts voluntarily participating in the Risk Management Fund
Financial
Savings in customers’ insurance rates when compared to commercial market prices
Risk Management’s average discount percentage from commercial market rates
Financial strength of the Risk Management Fund (ability to pay claims)
Percentage of Retained Earnings as a Percentage of amounts allowed by federal guidelines
Cost of risk Comparative Results
Employee Satisfaction
Employee satisfaction survey Level of employee satisfaction (scale of 1 to 5)
Process Excellence – Effectiveness
Use of best practices, timeliness and quality of claims handling by our internal adjusters
Overall best practices grade from outside audit.
Level of compliance by covered entities with Risk Management’s risk control guidelines
Percentage of entities receiving full credits for risk control activities
Process Excellence – Efficiency
Average budget of covered entities handled by each Risk Management FTE
Dollars of covered entities’ budget divided by Risk Management FTE’s
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State of Minnesota– Operational Plans
STRIMA Conference
September 18-22, 2005
Presented by: Phil Blue, Director
Risk Management - Minnesota
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PurposeDiscuss Operational Goals
established by Risk Management
Division of Minnesota Department
of Administration
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Topic of Discussion
Go over selected operational goals which have the dual objective of
1) keeping the Risk Management Division on track to achieve its objectives, and
2) keeping management apprised of goals and what was actually accomplished.
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Operational Goals
Revenue & Expense Staffing Marketing Objectives Expense Ratio vs. Industry Subrogation Recovery vs. Industry Claim Count Non-Insured Tort Claims
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Budget vs. ActualBudget by Fund –Revenue & Expense
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey
Issues
Budget 100 220 200 250 770
Actual 80 180 210 240 710 XXX
Var. ($) -20 -40 10 -10 -60
Var. (%) (20%) (18%) 5% (4%) (8%)
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Budget vs. Actual (cont’d) If, in any measurement
category, the variance is equal to or greater than plus or minus 5%, an explanation is required.
These results are also graphed.
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Budget vs. Actual (cont’d)Marketing Calls Plus New Business
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey
Issues
Target 8 14 14 14 50
Actual 8 13 14 14 49 XXX
Var. 0 (1) 0 0 (1)
Var. (%) 0% (7%) 0% 0% (2%)
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Budget vs. Actual (cont’d)Budget by Fund – Expense vs. Industry
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey
Issues
Target 55% 60% 60% 60% 60%
Actual 49% 54% 42% 49% 51% XXX
Var. 6% 6% 18% 11% 9%
Var. (%) 11% 10% 30% 18% 15%
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Budget vs. Actual (cont’d)Budget by Fund – Subrogation vs. Industry-APHD
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey
Issues
Target 200% 200% 200% 200% 200%
Actual 200% 205% 192% 204% 200% XXX
Var. 0% 5% (8%) 4% 0%
Var. (%) 0% 2% (4%) 2% 0%
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Budget vs. Actual (cont’d)Budget by Fund – Maintain average ratio of
claims closed to new claims at 100%
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey
Issues
Target 100% 100% 100% 100% 100%
Actual 96% 96% 94% 104% 98% XXX
Var. (4%) (4%) (6%) 4% (2%)
Var. (%) (4%) (4%) (6%) 4% (2%)
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Budget vs. Actual (cont’d)Non-Insured Tort Claims – Maintain average ratio of claims closed to new claims at 100%
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTDKey
Issues
Target 100% 100% 100% 100% 100%
Actual 96% 96% 94% 104% 98% XXX
Var. (4%) (4%) (6%) 4% (2%)
Var. (%) (4%) (4%) (6%) 4% (2%)
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Auto Liability GraphAverage Claim Cost
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
1998 1999 2000 2001 2002 2003 2004 2005
Fiscal Year
Cla
im A
vera
ge
& T
ota
l In
curr
ed
0
1,000
2,000
3,000
4,000
5,000
6,000
Cla
im C
ou
nt Fiscal Year
Total Incurred
# of claims
Average
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Always strive for better and more meaningful operational measurements
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Other Measurements
Accidents per million miles driven Percentage of claims in suit Customer service - response time New system implementation goals Succession planning
Good luck in establishing your goals.
Examples
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Division of Risk ManagementDivision of Risk ManagementFlorida Department of Financial ServicesFlorida Department of Financial Services
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Overview of State of Florida Overview of State of Florida Risk Management ProgramRisk Management Program
The Division of Risk Management administers the state’s self-insurance program and training for the safety/loss control coordinators of each state agency in the program 0 employees – all offices in Tallahassee Receives approximately 18,000 -20,000 new claims
each year all lines Current annual program revenues of $169 million
dollars administered through the State Risk Management Trust FundFunded on a “cash flow” basis so that only the
estimated cash needs of the program are funded each year with no reserve funding to cover any portion of the total estimated ultimate liabilities of the program
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Division of Risk Management Division of Risk Management Program ResponsibilitiesProgram Responsibilities
Provides six major types of “insurance” coverage to State of Florida agencies by administering a self–insurance pool Processes claims filed against state agencies for these
coverages Collects premiums from participating state agencies
to pay claims Purchases private insurance as necessary to control
risk exposure of state agencies Provides assistance to state agencies in the areas of
loss preventionloss control
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Major Coverage Lines ProvidedMajor Coverage Lines Provided
Workers’ compensation state employee injuries Property state owned buildings and contents General liability state agency premises and
operations Auto liability state employees on state business Federal civil rights actions of state officials alleged
to have violated someone’s civil rights Employment discrimination actions of state
employees violating employment discrimination laws
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DEVELOPING PERFORMANCE DEVELOPING PERFORMANCE MEASURESMEASURES
DIVISION MISSION:
The mission of the State of Florida Risk Management Program is to ensure that participating State agencies are provided quality workers’ compensation, liability, federal civil rights, auto liability, and property insurance coverage at reasonable rates by providing self-insurance, purchase of insurance, claims handling, and technical assistance in managing risk.
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BUREAU MISSIONSBUREAU MISSIONS
Bureau of Property, Financial and Risk Services Mission: To provide property claims adjusting services to participating
state agencies, to provide financial and cash management services to the Division of Risk Management, and to provide risk management training and consulting services to participating state agencies.
Bureau of State Employees’ Workers’ Compensation claims
Mission: To provide quality claims service to injured state employees at a reasonable cost to state agencies.
Bureau of State Liability Claims Mission: To provide quality claims service to our customers.
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DEVELOPING PERFORMANCE DEVELOPING PERFORMANCE MEASURESMEASURES
GOALS/OUTCOMES
* Flow from the Mission and are more specific
*Example: Process and pay 95% of all workers’ comp. medical bills and indemnity benefits timely
ACTIVITIES
* Actions that lead or move toward the achievement of a goal.
*Example: Processing benefits on workers’ compensation claims
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DEVELOPING PERFORMANCE DEVELOPING PERFORMANCE MEASURESMEASURES
OUTPUTS
* Specific products or services that are being delivered through actions.
*Example: Number of benefit payments made timely in accordance with statutory requirements and Division of Workers’ Compensation Rules.
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DEVELOPING PERFORMANCE DEVELOPING PERFORMANCE MEASURESMEASURES
OUTCOME/PERFORMANCE INDICATORS
* Allows an organization to determine if it is successful in achieving its goals.
*Example: At least 95% of Workers’ Compensation claim benefits are paid within statutory requirements and Division of Workers’ Compensation rules.
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DEVELOPING PERFORMANCE DEVELOPING PERFORMANCE MEASURESMEASURES
*Inputs: The resources needed/used to produce outputs
* Efficiency: The cost effectiveness of the inputs in relation to the outputs
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DIVISION OF RISK MANAGEMENT PERFORMANCE MEASURES
The Bureau of Property, Financial & Risk Services MISSION: The mission of the Bureau of Property, Financial & Risk Services is to provide property claims adjusting services to participating state agencies, to provide financial and cash management services to the Division of Risk Management, and to provide risk management training and consulting services to participating state agencies.
CAS/Excel Spreadsheet.locations.made.notifications.coordinators
at targetednotificationscondition analysis to agency safety
in claims reportedhazardous conditionand hazardousand provide loss trend
Percent reductionNumber of Loss trend analysisAnalyze agency claim data
III. Risk Services Section:
CAS/Excelrate.timeframe.Issue checks.IAW FS 215.422
complianceprompt payment Process all payments
Prompt paymentissued within
Number of checks
II. Financial Section:
property insurance policy.Rate on Line.coverage obtained.insurance.excess property insurance.
Broker of Record/Excess property insuranceexcess property Purchase most beneficial
Amount of excessPurchase
I. Property Section:
INFORMATION SOURCEOUTCOMEOUTPUTACTIVITYGOAL
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The Bureau of State Employees' Workers' Compensation Claims
MISSION: Provide quality claims service to injured state employees at a reasonable cost to state agencies.
CAS and data from previous years
Maintain a constant claim cost rate as a percentage of state payroll, thereby stabilizing program cost to state agencies.
Workers' Compensation Benefit Cost RateHandling WC claims
Maintain the WC Benefit Cost Rate within 10% of the average of previous three fiscal years.
CAS
At least 95% of WC claim benefits are paid within statutory requirements and Division of WC Rules
Benefit payments made timely in accordance with statutory requirements and Division of WC Rules
Processing benefits on WC claims
Process and pay 95% of all medical bills and indemnity benefits timely.
Customer Satisfaction Survey
The average score of the Customer Satisfaction Survey indicates that our overall claims adjustment service is "good" or "excellent".
1. Number of WC claims worked 2. Customer Satisfaction Survey resultsHandling WC claims
To provide quality claim services to our customers.
Information SourceOutcomeOutput'sActivityGoals
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The Bureau of State Liability Claim
MISSION: Provide quality claims service to our customers.
Goals Activity Output Outcome
To adjust (investigate, evaluate, settle, deny and defend) claims efficiently and economically.
To provide quality claims adjustment services to our customers, state of Florida
agencies.
Claims handling. Claims handling. Customer Satisfaction
Survey.
Number of claims closed during fiscal year as compared to the number of new claims received.
Total claim expenditure for fiscal year.
Number of Customer Satisfaction Surveys sent to state of Florida agencies.
The number of claims closed during a fiscal year will equal or exceed the number of new claims received.
At least 90% of respondents to the Customer Satisfaction Survey indicate
that our overall claims adjustment service is “good” or “excellent”.
The total liability claim expenditure for each fiscal year is reduced, or any increase will not exceed the increase in the Consumer Price index, resulting in a reduction of cost to state of Florida agencies.
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Risk Management Program Performance Measures
Michael M. Kaddatz, CPCU, ARMARM Tech/Aon Risk Consultants
Irvine, California
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…Executive management needs perspective
Executive
Is it justus experiencing
significant change?
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…Risk managers need perspective
Risk Manager
Are underwriters singling
us out?
What have others done to find solutions
to market pressures?
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…The search for best practices
Why not use data rather than hearsay to find out who may be doing better?
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..Helps set priorities
Given limited time and resources, where
is the low hanging fruit in achieving better cost efficiency?
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…Supports needed change
If our state’s rate of loss exceeds the norm, we need to initiate
action
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Two Surveys Completed The learning
has begun!
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Data for
COST of RISK is readily available
CAFR
Actuarial Study
Insurance Schedules
Budget
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Cost of Risk …
Definitions can be set to approach an
apples-to-apples comparison
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… VOLUME-ADJUSTS itself by using denominator specific to each participant
… is risk-specific (Tort, WC, Auto, Property, etc.)
Cost of Risk …
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Expense Categories
Paid Losses
Insurance / Reinsurance Premiums
Claims Administration Costs
Other Costs
• Risk Management Department
• Actuarial / Other Consulting
• Loss Control Tort Auto WC Prop Total
Losses
Premiums
Claims Admin
Other
Total
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Core Risk Categories
Tort Liability
Automobile Liability
Workers Compensation
Property
Tort Auto WC Prop Total
Losses
Premiums
Claims Admin
Other
Total
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Tort Auto WC Prop Total
Losses
Premiums
Claims Admin
Other
Total
State of Perfection2004 Cost of Risk
( $ Millions)
3.3 1.5 12.9 2.8 20.5
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Tort Auto WC Prop Total
Losses
Premiums
Claims Admin
Other
Total
State of Perfection2004 Cost of Risk
( $ Millions)
12.9
0
1.2
0.5
14.6
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Tort Auto WC Prop Total
Losses
Premiums
Claims Admin
Other
Total
State of Perfection2004 Cost of Risk
( $ Millions)
3.3 1.5 12.9 2.8 20.5
0.3 0.3 0 2.0 2.6
0.1 0.1 1.2 0.1 1.5
0.2 0.1 0.5 0.1 0.9
3.9 2.0 14.6 5.0 25.5
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57%
14%
8%
21%
Risk $ by Risk Category
52%
32%
6%
10%
All Participants
Property Auto LiabilityWorkers Compensation Tort
State of Perfection
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Risk $ by Expense Type
5%4%
50%
41%
All Participants
Premiums LossesOther Costs Claims Admin
State of Perfection
6%4%
80%
10%
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Risk Categories - Peripheral
Crime
Auto Physical Damage
Aircraft / Airports
All Other Coverages
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J64.5
T46.6
P30.2
R14.1
Q6.9
S5.8
N5.7
A5.2B
2.3
K2.8
C1.3
G1.1
M3.6
0
20
40
60TORT Risk Financing Costs = [Premiums] + [Paid Losses] + [Claims Admin Costs]
Tort Risk Financing Costs ($ Millions)
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Tort Risk Financing Costs as a Percentage of Operating Expenditures (%)
T.61
J.42
A.17
N.08Q
.06G
.05S
.04
P.25R
.23
C.03
M.03
B.04
K.21
.0
.2
.4
.6TORT Risk Financing Costs as Percentage of Operating Expenditures = [TORT Risk Financing Costs] / [Operating Expenditures]
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WC Total Program Costs ($ In Millions)
T76.4
P46.7S
41.4J
40.9
Q29.4
R20.8M
14.6A11.6
N11.5
B10.6
C16.3
G2.7
K2.6
0
25
50
75
100WC Total Program Costs = [Risk Financing Costs] + [Actuarial or Other Consulting Costs] + [Loss Prevention Costs] + [Central Risk Management Costs] + [All Other Costs]
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WC Risk Financing Costs as a Percentage of Operating Expenditures (%)
T.999
A.386R
.333C
.309S
.301J.264
Q.263
K.193
B.177
P.385
M.107
G.132
N.162
0.0
0.3
0.5
0.8
1.0WC Total Program Costs as % of Operating Expenditures = [WC Total Program Costs] / [Operating Expenditures]
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WC Total Program Costs per $100 of Payroll ($)
P3.23
C3.05
T2.26S
2.01
Q2.46
J1.19
R1.07
A.92K
.53N
.50G
.49M
.46
B1.43
0
2
4
6
8WC Total Program Costs per $100 of Payroll = [WC Total Program Costs] / [Payroll / 100]
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Number of WC Claims per 100 Employees (FTEs)
S18.5
K13.9Q
13.3
N10.6
C7.8
T6.3
P8.4
A7.0
G4.8
B4.9
M5.1
R5.6
J5.6
0
5
10
15
20
Number of WC Claims per 100 Employees = [Number of WC Claims] / [Number of Employees / 100]
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Property Total Program Costs per $100 of Property Values ($)
T.188
J.169
Q.116
G.099
M.034
R.051
N.058
A.062
S.084
P.091
B.098
C.099
K.110
0.00
0.05
0.10
0.15
0.20PR Total Program Costs per $100 Property Values = [PR Total Program Costs] / [Property Values / 100]
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% of Personnel Charged to RM Budget by Primary Duty
31%
(General or multi function risk tasks)
13%
(Loss prevention)
6%
(Risk financing)
49%
(Claims handling)
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Choosing Bases
Relevant
Consistent
Readily Available
Verifiable
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Meet to Discuss Survey Content 1Develop Draft Survey 30Finalize and Mail Survey 60Receive Survey and Check Data 120Complete Data Tabulation 150Distribute Draft Results 160Review Draft 190Finalize and Distribute 210
Day
Timeline
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Tort Risk Financing Costs as a Percentage of Operating Expenditures (%)
23
60
4547
35
2830
2523
8
15
10
0
25
50
75
2001 2002 2003 2004
State MALL SYSTEMSState of Perfection
Tort Total Program Costs as Percentage of Operating Expenditures= [Tort Program Costs] / [Operating Expenditures]
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Other Risk Metrics
Limits as % of Operating Expenditures
# of Auto Claims per Licensed
Vehicle
% of WC Claims that are Lost Time
Paid and Incurred Losses
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“No States are like mine”
“Our data is different”
>> SOLUTION: Normalize !
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I”If we look bad, I may lose face with my peers”
>> SOLUTION: Masked data reporting
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“I don’t have any time to fill out the survey”
>> SOLUTION: Data shortcuts and sources
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The perfectionist …“Survey elements don’t quite fit”
>> SOLUTION: Incremental change
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Maybe no free government grants…but ANSWERS to QUESTIONS
What’s our Cost of Risk?
What direction is it headed?
What are the cost drivers?