Annex 9: Ministry of Defence Balanced
Scorecard (2005)
Performance management in the Ministry of Defence
(MoD) continues to be based on the Balanced Scorecard approach.
The Defence Balanced Scorecard sets out the Department's top level
strategic objectives, including our PSA targets. It enables the
Defence Management Board (DMB) to monitor performance, both current
and forecast, in pursuit of these objectives. The scorecard approach
has formed the basis of performance management in MoD for around
five years. During this time, it has evolved into a highly sophisticated
and well-regarded management tool, providing the DMB with an extremely
reliable insight into the Department's ability to achieve the
Defence Vision.
The Balanced Scorecard is based on a management theory
expounded by Professor Robert Kaplan and Dr David Norton of the
Harvard Business School. Following detailed studies, they argued
that a characteristic of failing organisations is a tendency to
focus too much management attention on a narrowly confined set
of objectives, most commonly associated with maximising short-term
financial gain. By contrast successful organisations concentrate
their attention across a balanced range of key strategic activities
thereby safeguarding their long-term health. Kaplan and Norton's
Balanced Scorecard approach provides a systematic framework in
which to achieve this. It encourages management boards to view
their business from a number of different perspectives which,
when allied to a systematic performance reporting process, ensures
that boards can keep track of how well the organisation is translating
its high-level strategy into action.
The original Kaplan and Norton scorecard was devised
with the needs of private sector organisations in mind. As a public
sector organisation, we have adapted their model so that it better
serves our own requirements. The Defence Balanced Scorecard has
the four perspectives of Purpose, Resources, Enabling Processes
and Future Capabilities as shown in the figure below.
There are four key strategic objectives in each perspective.
Looked at collectively they cover the whole of the MoD's principal
areas of business. Performance against each of the objectives
Is assessed on a quarterly basis. To allow this process to operate
to best effect, targets setting out required levels of performance
primarily over the coming four years, are agreed with those in
the Department who are responsible for achieving the objectives.
A series of detailed performance indicators and metrics, the means
by which we measure performance, is also agreed. The performance
indicators we use are a mixture of lag indicators (which inform
the Board about actual achievements) and lead Indicators (where
the focus is on assessing the effectiveness of current progress).
The metrics we use are tailored to provide the best available
information about performance levels. In some cases, this means
drawing on factual and statistical data, for others it may mean
using written assessments, either provided by objective sources
or subjected to lower level scrutiny and audit. Agreeing the objectives,
targets, performance indicators and metrics is the subject of
an annual exercise, conducted prior to the publication of the
Departmental Plan.
The DMB receives a detailed performance report four
times a year. The report uses a four colour traffic light coding
system to illustrate which objectives are on track and where weaknesses
of varying significance lie. In general, the report will include
an assessment of actual performance from the previous and current
quarter and a forecast of performance against planned activity
over the coming three to four years. High level strategic analysis
of the issues underpinning the performance assessments also features
in the report, together with an assessment of the key risks that
could jeopardise the achievement of objectives. The information
they receive is used to inform board discussion and decision —
it may, for example, lead to adjustments in strategic direction
and priorities, or the reallocation of resources. And as the Department's
performance against PSA targets is assessed In the Defence Balanced
Scorecard, the data collected is also used to inform reports to
Parliament, No. 10, HM Treasury and the Cabinet Office.
Our performance management approach has been subject
to thorough review over the last three years, first in 2002 by
the Department's internal auditors and then in 2003-04 by the
NAO, who conducted an external review of our PSA reporting arrangements.
Both reviews provided favourable assurance. During 2004-05, the
NAO conducted a further review, this time looking specifically
at our systems for assessing and reporting military readiness.
They concluded that the Department has a good system for reporting
readiness levels that is continuously improving. They also noted
that recent operations have largely validated the accuracy of
the readiness reporting system.
Our performance reporting approach continues to attract
interest from wider audiences, including other Government Departments,
local authorities and international Defence Departments. MoD performance
management experts are regularly invited to address performance
management events. And the work we have been conducting to explore
the potential for selling our performance management tool into
the wider commercial market is now at an advanced stage.
Taken from Annex D to the Ministry of Defence
Annual Report and Accounts 2004-05, HC 464.
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