Balanced Scorecard For Financial Institutions Implementation of Balanced Scorecard in banks and financial institutions is a very tricky thing
as there is huge temptation to focus on financial indicators only. As known, banks, mortgage and insurance companies, credit unions and other financial institutions work with money to make more money. So, it is very easy to disregard non-financial indicators that, however, have a direct impact on financial performance of the above mentioned organizations. The last several decades saw a sharp increase in the number of commercial banks and financial institutions which caused a very tough competition in this market. The traditional performance management systems turned out to be quite ineffective since very often they failed to meet specific requirements of financial organizations. As already said above, excessive focus on financial indicators forced banks management turn the blind eye to the numerous indicators representing overall organization performance. The problem is that financial indicators show what has already happened to the bank or insurance company while it is very important to plan ahead and know what will happen in future. This is where nonfinancial indicators can help. And that is why Balanced Scorecard system turned out to be a more effective tool to measure business performance of financial organizations and communicate operational management with strategic vision.
Some of the banking KPIs used to measure bank's performance One of the key problems banks and other financial organizations faced in performance evaluation is focusing on internal processes, which is good in itself, but at the same time ignoring external environment that is changing all the time and thus endangering financial institutions. Another common mistake is ignoring intangible assets. In the modern age of information in intellectual resources and financial knowledge must be given due attention. So, as to implementation of Balanced Scorecard in banks and financial institutions, the process is quite typical as compared to BSC implementation in other types of organizations. Balanced Scorecard measures key performance indicators in four perspectives: financial, customer, internal processes, learning and growth. It is difficult to say which perspective is the most important but it is possible to say that implementation of financial goals depends on success in the other three categories. Also, much depends on company strategy vision and strategic goals. Some banks may have a large customer base and should focus on internal processes while other financial institutions have to concentrate on attracting new customer and improving customer satisfaction in order to achieve financial goals. The Four Perspectives In Financial Institution Scorecard 1. Financial As already said, although financial goals are the most important for financial institutions, focusing only on financial indicators will not represent everything happening to the organization. That’s why due attention should be given to financial indicators, but at the same time one should remember that financial goals are achieved through implementation of other non-financial goals. Let’s review basic financial strategic goals a bank or any other financial organization may pursue. a) Reduce costs. One of the main goals here may be reducing expenses that do not lead to generating of income. This is achieved by improving productivity, optimizing business processes etc. As a rule, this is a 2-5 year plan that has a step by step implementation system.
ROS represents efficiency of managing company’s funds. Balanced Scorecard should be used to offer additional motivation for employees who manage to fulfill tasks and implement goals at their workplaces. getting free insurance quotes. The ultimate goal is to create wealth. These goals might be different. 2. employees should have a better understanding of company products and services. innovative financial services which are convenient for customers and cost efficient for the organization that offers them. employees of a financial organization should have strong relationships and regular communication with an end customer. analyzing of information and determining what information should be used in decision making. We have already had the chance to appreciate innovative banking and financial services like mobile banking. This is a key to keeping relationships with customers and gaining competitive advantage in the battle for new customers. loan and deposit calculators etc. 4. Internet banking. reward and accountability system. This includes identifying needs of customers who represent high profitability and analyzing of their economic background. A greater customers’ knowledge of banking services will make it possible for bank employees and management better meet customers’ needs. This will caution and protect the bank or a financial organization. manipulating and use of information. c) Eliminate mistakes in customer service. This includes the ability to cross-sell the products by focusing on customer needs. c) Service excellence. In order to achieve this goal. Strategic Goals On Internal Processes a) Innovation. This process consists of 2 stages: gathering information. This is about cross-selling of products through motivated and proactive employees of a financial organization. Only properly motivated employees would give the best work results. This may be achieved by moving from net interest income to broadening of portfolio of fee based products. Bank employees should listen to customer needs and educate customers on new services and products. More customers bring more money. Strategic Learning and Growth Objectives a) Gaining competitive advantage is being much determined by extracting. This refers to all operations and transactions as well as communication of customer with a bank.b) Improve return on spending (ROS). c) Compensation. broadening relationships with the VIP customers through sale of new products and cross-selling of existing products. d) Reducing risks. b) Strategic jobs and competencies. c) Increase revenues. Allocation of resources should be in that areas which claim to offer the highest profitability. This simple goal has a direct impact on financial performance of an organization. Conclusion
. Without any doubt. as well as understanding of financial markets in general. 3. b) Delivery of services. Strategic Customer Objectives. it is imperative to improve methods of gathering and analyzing of information by introducing innovative IT support systems. In order to achieve this goal. We are living in the age of progressing IT technologies. a) Improving the image of a financial organization in the eyes of customers. b) Informing customers in a better way. these new services and products increase competitive advantage of a financial organization if properly applied in any of the four perspectives. This is about increasing the number of valuable customers. And of course. By engaging in high return activities a bank or any other financial organization increases the profit on spent funds. and setting priorities should be based on this principle. A bank or a financial organization must understand the service excellence is imperative for survival in the market. It is important to create new products. A few words must be said about information systems. d) Focusing on resources. from attracting new customers and selling new products to offering innovative ideas and techniques.
Use of Balanced Scorecard in banks and financial organizations helps all employees at all levels better understand strategic vision of the company.com/use-of-balanced-scorecard-in-banks-and-financial-organizations. A strategy for a financial organization is something bigger than attracting as many customers as possible or opening of thousands of new accounts. It is especially important for financial organizations to link their budgets to the adopted strategy.We should repeat again that this set of goals is not an action plan to be used by any financial organization. efficiency of existing programs and campaigns. which are although very common. loss making and profitable areas. Through its implementation management of a financial organization will be able to reveal weak and strong points. Balanced Scorecard visualizes the strategy thus making it comprehensive in easy to understand.bscdesigner. effectiveness of learning efforts etc.htm
. and only 25% of managerial staff participates in strategic planning.
How Balanced Scorecard works in 4 perspectives for a bank http://www. Statistics show that only 5% of employees have a good understanding of the company strategy. These are just examples.