Summary by Renauri Castro
Master of Accountancy Program
University of South Florida, Fall 2004
The balance scorecard has evolved from a simple method of tracking data to a strategic tool. According to the authors 50% of the Fortune 1000 companies use a balance scorecard for strategic analysis. Balance scorecards are now being used to budget future capital asset decisions to align future actions with a strategic plan. This article provides a case study of a hospital that has used a balance scorecard to focus on its strategy in a low to no margin industry.
The balance scorecard can help managers direct their employees to certain goals since the scorecard is easy to understand. The Balance scorecard can also be used to relay company strategy to shareholders and to show how managers are steering the company to its planned strategy.
In an attempt to reach a healthy financial position Bridgeport hospital developed the following basis for creating a balance scorecard. They refer to the following table as the capital investment matrix.
|Capital Investment Matrix|
|Organizational Health||Employee Learning innovation and growth||Vacancies and turnover rates|
|Quality improvement||Patient satisfaction and outcomes||Patient satisfaction surveys|
|Process Improvement||Cycle and turnaround times||Time to admit length of stay|
|Volume and Market Share Growth||Customer perspective||Clinical services, ambulatory volumes|
|Financial Health||Maximizing revenues and managing costs||Financials|
The hospital was able to become more efficient, reduce its cost per nurse, had lower than budgeted staff and saved over 750,000 in supply chain management as a result.
Because of the positive results of the balance scorecard for the hospital they decided to apply the same approach to capital investment decisions. The following grid reflects the weights placed on the various dimensions in the matrix.
|BSC Goals||Related Capital
|Clinical weight||Nonclinical Weight||IS Weight|
|Organizational Health||Ensure patient/ employee health and safety||0.15||0.20||0.10|
|Quality improvement||Improve quality (clinical outcomes, patient satisfaction, preference)||0.25||0.15||0.15|
|Process Improvement||Improve process (cycle time, productivity)||0.20||0.20||0.35|
|Volume and Market Share Growth||Increase volume and market share||0.20||0.20||0.20|
|Financial Health||Ensure financial health||0.20||0.25||0.20|
Using the criteria above a committee meets 3 to 4 times a year and reviews all proposed projects. They assign a score to each criteria of either 1, 5, or 10 and then calculate an overall weighted average score for each project. The winning projects are then allocated based on capital availability. The following example illustrates the idea for a clinical project that received a 7.4 weighted average score out of a possible 10.
|Criteria||Clinical weight||Project score||Weighted Score|
|Ensure patient/ employee health and safety||0.15||1||0.15|
|Improve quality (clinical outcomes, patient satisfaction, preference)||0.25||5||1.25|
|Improve process (cycle time, productivity)||0.20||10||2.00|
|Increase volume and market share||0.20||10||2.00|
|Ensure financial health||0.20||10||2.00|
Not only has using the balance scorecard approach proven to be financially beneficial, the process of a committee allocating resources allows for different departments to get an understanding of the different aspects of the hospital as well bringing an openness to the committee. The process requires a good facilitator that makes sure decisions are being made for the good of the hospital as opposed to serving the interest of a particular department.
Future plans for the hospital are to use the BSC at the manager level, having the different departments create their own matrix. The hospital is also planning a separation of operating costs and capital costs to ensure that funding for capital projects is made available.
The approach to investment analysis described in this article is similar to the Multiple Attribute Decision Model (MADM) described in Chapter 7 of the CAM-I conceptual design. See the note in the investment management summary and Engwall 1988 below.
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