The document discusses the Risk Balanced Scorecard, a new approach to performance management that integrates risk management with strategic execution. It proposes expanding the traditional Balanced Scorecard to include three themes - "Survive", "Execute", and "Capitalise" - to focus on critical risks, strategy implementation, and opportunities. Key performance indicators and corrective actions are established for critical risks. Monthly reporting would track performance across the three themes using a strategy map and focus on issues affecting strategic objectives.

1. Relating Risk Measurement to Strategy Management Effective business management in volatile times N.S. Penny Managing Director, ClaritasAsia Pte Ltd July, 2010 Claritas Asia Pte Ltd 2010

4. The World has changed and we have yet to understand the full long term implications We have never seen such volatile times – every organisation and individual is impacted in some way Claritas Asia Pte Ltd 2010

6. Typically monthly budget reporting Claritas Asia Pte Ltd 2010 The standard monthly management report is neither intuitive nor predictive

7. Categorising and managing risk Claritas Asia Pte Ltd 2010 Historically organisations have assessed risk and their response to it, in a largely standalone process, reviewed separately from normal business performance reveiws

8. So where is the correlation? On one side, we have a set of financial results which reflect an ‘after the event’ statement of financial performance. On the other side we have a set of identified risks prioritised as to overall seriousness per risk. Nothing seems to integrate these two approaches, so management is left to ‘second guess’ the impact of realised risks on business results Claritas Asia Pte Ltd 2010

19. How would a strategy map look for a Risk Balanced Scorecard? Claritas Asia Pte Ltd 2009 An indicative Risk Balanced Scorecard strategy map for an IT outsourcer

21. Claritas Asia Pte Ltd 2010 The ‘Survive’ wave starts with the creation of an organization specific ‘driver tree’ from which key areas with the potential to threaten survival are identified Value driver tree for a manufacturing business FOR ILLUSTRATION ONLY

22. Using Value Driver Trees to establish risk Claritas Asia Pte Ltd 2010 Source: SAP-SEM software By developing such a value driver tree for your business it becomes possible to quantify the level of impact (effect) of various business drivers

23. Some far sighted organisations are already using driver trees to identify risk areas Claritas Asia Pte Ltd 2010 Driver trees have identified risk at an Australian government insurance organisation. With trees in place, the extent of risk in individual areas can be better assessed

24. Creating your Survive metrics Claritas Asia Pte Ltd 2010 The outputs from the value tree analysis can be grouped within the balanced scorecard’s four perspective framework Perspective Objective Measure Financial Manage cost of funding Average cost of borrowing Customer Minimise dependency on major customers % of total revenue from top 5 customers Internal Secure continuous raw material sourcing % of key parts sourced from single supplier only Learning & growth Protect key accounts Turnover rate in key account managers

25. The Survive theme on the strategy map Claritas Asia Pte Ltd 2010 Based on our prior analysis we can construct the Survive theme of our strategy map

26. Setting corrective actions Claritas Asia Pte Ltd 2010 With objectives and measures in place, you can then set critical thresholds that trigger pre determined corrective action Measure Critical threshold Corrective action Average cost of borrowing Base rate + 2% TBD % of total revenue from top 5 customers 60% TBD % of key parts sourced from single supplier only 25% TBD Turnover rate in key account managers 15% TBD

29. The Execute theme on the strategy map Claritas Asia Pte Ltd 2010 Based on our prior analysis we can construct the Execute theme. This may be done in a summarised form for high level clarity

32. The Capitalise theme on the strategy map Claritas Asia Pte Ltd 2010 Based on our prior analysis we can construct the Capitalise theme of our strategy map

35. The CMS strategy map is the guiding document for the report Claritas Asia Pte Ltd 2010 Each objective is colour coded to indicate positive or negative performance against the pre determined key performance indicators and targets

37. Claritas Asia Pte Ltd 2009 The new monthly reporting format should be supported by highly intuitive graphic delivery of information A new model for reporting Source: Metapraxis Ltd. Claritas Asia Pte Ltd 2010

40. For more information, contact us at: Claritas Asia Pte Ltd 2010 ClaritasAsia Pte Ltd 391B Orchard Road #23-01 Ngee Ann City Tower B Singapore 238874 Tel: +65 6832 8050 Mobile +65 9815 7830 www.claritas-asia.com www.nigelpenny.com email: nspenny@pacific.net.sg Material used in this workshop is based on original ground breaking work by Chan Kim and Mauborgne (Blue Ocean Strategy) and Norton and Kaplan (Balanced Scorecard). Additional material regarding strategy waves and risk balanced scorecard is based on original work by Nigel Penny. The opinions expressed in these slides and in the workshop do not necessarily represent the views of the founders of either of the business approaches referred to, neither does it imply any endorsement of ClaritasAsia Pte Ltd or Nigel Penny by any of the aforenamed or their official agents or partners.