Developing a Balanced Scorecard with System Dynamics

Abstract

The Balanced Scorecard (BSC) is a popular concept for performance measurement, because it focuses attention of management on just a few measures and bridges different functional areas (both financial and non-financial measures are included in the BSC). But, the BSC has also received some criticism. In this paper five limitations of the use of the BSC are discussed: BSCs focus on unidirectional causality, are unable to distinguish delays between actions and their impact on performance, have a dearth of validation capabilities, integrate insufficiently strategy with operational measures and suffer from internal biases. We propose a system dynamics approach to develop a BSC in order to overcome these limitations. We present a case study from the insurance sector where this approach is applied. The results suggest that developing a BSC with system dynamics is a promising approach to supplement existing BSC frameworks.