Thursday, September 02, 2004

Guidance issued for Health Savings Accounts. The IRS has issued comprehensive guidance on the requirements for high-deductible health insurance plans (HDHPs) and health savings accounts (HSAs). The guidance should provide more certainty to employers, insurance companies and other parties, encouraging offerings of more of these plans by January 1, 2005. Families covered with HDHPs can make tax deductible contributions to an HSA, somewhat like an IRA. The earnings in the HSA are tax-deferred, and may escape tax entirely if used to pay for qualifying medical expenses. The annual contribution limits are $2,600 for individuals and $5,150 for families, based on the deductible for the HDHP. (Notice 2004-50.) 4:19:14 PM

The Balanced Scorecard Tells the Story A good balanced scorecard tells the story of the company’s strategy through a set of related objectives and measures. For most clients their strategic goal will probably include “making more money”. The question is - How can than that be achieved? Here’s a set of related objectives that might help them achieve that goal: A goal of improved profit (a financial perspective objective) could be related to increased revenue by increasing market share. That might be accomplished by achieving higher customer retention. Improved customer retention might be accomplished by improving customer satisfaction (a customer perspective objective). Increased customer satisfaction could be achieved by better customer service (an internal perspective objective). Better customer service could perhaps result from more motivated and satisfied employees (an organizational and learning perspective objective). In this scenario every objective is part of a chain of cause and effect that relates to the strategy of “making more money”. Once the set of related strategic objectives has been defined, the next challenges are: Choosing metrics: What exactly should we measure? We need to determine the metrics that best measure whether the objective is being met. We know how to measure our financial objectives, but we’re not as familiar at measuring other things. However, defining measures is usually straightforward. For example, to measure customer satisfaction the company may want to use customer surveys. To measure employee satisfaction, the measure might be trends in sickness and absentee rates. Keep in mind, there are no penalties for not choosing correctly the first time! Since the process should be a continuous process of evaluating results and making adjustments, the system can and will evolve and refine itself over time. Setting goals: How will we define success? For each measure, we need to set goals that can be achieved over time. In general, they should be stretch goals - difficult but not impossible to achieve. Avoiding over commitment: How much can be achieved given the capacity of the organization? This is probably where most organizations fail. It is better to start too small than to start too big. If company tries to accomplish too much, it runs the risk of failing and then abandoning the process completely In the fully implemented balanced scorecard system, the system would communicate to each part of the organization and potentially to each employee through separate scorecards the organizational strategy of the company. If that sounds too complicated, remember I said "the fully implemented balanced scorecard system". It seems to me that any business can benefit significantly from an executive level scorecard that could be easily implemented. Since one of the challenges of implementing any new system is over committing, it will generally be better to keep it simple in the beginning and let the system evolve over time. The next and final article of this series will discuss steps you can take to get started! Regards, Ed Wielage P.S. If you have any questions, comments or experiences with performance measurement and the balanced scorecard, send me an email, I’d like to hear from you! 4:09:05 PM