EVA and BSC

EVA and Balanced Scorecard
30 January 2006
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of this presentation may be reproduced or transmitted in any form or by any means, electronic or mechanical,
including photocopy, recording, or any information storage and retrieval system without the express written
consent of Stern Stewart & Co. EVA is a registered trademark of Stern Stewart & Co.
Copyright 2006 by Stern Stewart & Co. All rights reserved
Printed: 1/26/2006 2:20 PM
Agenda
EVA and EVA Governance System
Executing Strategy Using Balanced Scorecard
Integrating Balanced Scorecard with EVA
Copyright 2006 by Stern Stewart & Co. All rights reserved. EVA is a registered trademark of Stern Stewart & Co.
Printed: 1/26/2006 2:20 PM
-1-
EVA AND EVA GOVERNANCE SYSTEM
Stern Stewart is the originator of EVA and EVA Governance System
Stern Stewart & Co. is founded in 1982 as a management development and consulting firm
Developed EVA as a measure of economic profit, which is now globally recognized to be the internal
performance measure most closely aligned with shareholder value creation
Developed the EVA Governance Framework
Focuses on behavioural & organisational change

Operationalizes shareholder value and good internal governance
Objective, fact-based, value-anchored approach to

advisory services is our hallmark.
We transfer the knowledge, technology & tools developed from 20 years of experience and hundreds
of EVA implementations worldwide to our clients
Stern Stewart's principals have written three leading business books: "The Quest For Value", "EVA: The
Real Key to Creating Wealth", and "The EVA Challenge"
-2-
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Stern Stewart developed EVA as a measure of economic profit

EVA measures economic profit - a real profit for shareholders. This is
different from accounting profit because it charges revenues for the cost
of all capital employed, including the cost of shareholders' funds.
Illustrative
2,000
1,720
Trading
Trading profits,
profits, as
as ifif allallequity
equity financed,
financed, after
after
paying
paying cash
cash taxes
taxes
A
A "rental
"rental charge"
charge" for
for
using
using all
all the
the assets
assets of
of
the
the business
business
OPERATING
EXPENSES
AND
TAX
REVENUE
280
250
NET
OPERATING
PROFIT
AFTER
TAX
(NOPAT)
CAPITAL
CHARGE
Revenue
- Operating Expenses
- Economic Tax @ 30%
= NOPAT
Invested Capital
Cost of Capital
- Capital Charge
30
=
2,000
1,600
120
280
2500
x 10%
250
= EVA
30
EVA
Bars in graph are not to scale

Note: *Capital charge includes total cost of operating asset funding from both debt and equity. Interest expense is part of capital charge.
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-3-
Stern Stewart believes that the primary focus of the firm is to create
wealth for its shareholders by maximizing MVA
Wealth creation
MVA
Total Value
Cash out
Market
Enterprise
Value
Invested
Capital
Market Value Added

(MVA) measures
shareholder wealth
created
Investment
Cash in
Can
Can shareholders
shareholders get
get their
their money
money out
out more
more than
than they
they put
put in?
in?
-4-
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EVA (Economic Value Added) measures economic profit it is a single

period measure of performance
EVA
Net
Operating
Profit
After
Tax
(NOPAT)
Capital
Charge
Residual income
after all operating
and capital costs
Cost of Debt
Capital
+
Cost of Equity
Capital
... and managing for EVA ensures the clear focus on wealth creation
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-5-
MVA is equal to the present value of all future EVA this key identity is
the basis of the EVA Governance System
EVA4
EVA3
EVA2
EVA1
MVA
Years
Discounting
Market
Value
Maximizing wealth creation means

maximizing MVA
Capital
Employed
The operational way to do this is to focus on

maximizing the present value of future EVA
This is very different to trying to maximize
the current year's EVA
EVA improvements are the basis for sustainable wealth creation

-6-
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The economic relationship of risk and required return will dictate how to
state enterprises invests or undertake initiatives to increase MVA
Required
Return
Return on
Capital
1. Creating Value (MVA
Cost of
Capital
Risk
Free
Rate
2. Neutral (MVA ~)
3. Destroying Value
(MVA )
Risk
Assets/Projects
Retail Developer
RoA,
RoA, RoE,
RoE, RoIC,
RoIC, RoCE,
RoCE, IRR
IRR can
can mislead
mislead toward
toward value
value destroying
destroying behaviors
behaviors
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-7-
EVA is a measure of period-by-period value created by managers
Wealth Creation
MVA
Market
Value
Invested
Capital
Value Creation
Net
Operating
Profit
After
Taxes
(NOPAT)
EVA
Cost
of Capital
X
Capital
Shareholders and MVA
Managers and EVA
The shareholders objective is to

increase wealth. Wealth equates
to MVA, which is the present
value of all future EVAs
EVA measure managers like owners.

If managers are rewarded for improving
long-term EVA, their interests will be
aligned with those of the shareholders
-8-
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EVA System is an integrated and value-aligned system of internal

corporate governance
1.
Focus Performance Measurement on the

underlying economics of value and wealth
creation, i.e. measure performance in terms of
economic profit (EVA), because NPV (wealth) =
Present Value of future EVA.
2.
Redesign the Management Systems so that

strategic planning, capital budgeting, resource
allocation and performance management focus
on creating value, i.e. make decisions based on
whether the resultant present value of future EVA
is positive
3.
Motivate managers to create value by tying their

rewards to value creation, i.e. reward managers
for increasing the present value of future EVA
4.
Reshape the corporate Mindset through training,

coaching and communication to make managers
more entrepreneurial, capital conscious, and
value-focused
See the Value
Understand
Value Creation
Manage for
Value
Encourage
Value Creation
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-9-
Many state enterprises around the world have adopted EVA to

improve their economic performance and internal governance
See the Value
Understand
Value Creation
Manage for
Value
Encourage
Value Creation
- 10 -
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In Thailand, these leading organizations have also used EVA in

managing their organization
See the Value
Understand
Value Creation
Manage for
Value
Encourage
Value Creation
PTT Public Company Limited
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- 11 -
From our experience, EVA Implementation Project is typically

divided into five modules: Mobilization, Measurement,
Management, Motivation, and Mindset
See the Value
Manage for
Value
Understand
Value Creation
Encourage
Value Creation
To reshape the mindset of all stakeholders, including employees and investors,

such that they understand why the EVA Framework is being applied, what it is
and how it will lead to value creation within the organisation.
Mindset
Mindset Module
Module
Mobilization
Mobilization
Module
Module
Management
Management
Module
Module
Measurement
Measurement
Module
Module
Motivation
Motivation
Module
Module
To mobilize the project

To ensure that
To redesign strategic
To motivate senior
team for implementation
performance
planning, capital
managers to change
of EVA System and refine measurement focuses on
budgeting, resource
mindset, make decisions
the work plan based on an the underlying economics
allocation, and
and take actions that
performance management improve overall long term
assessment of current
of value and wealth
situation
creation, and provides
systems to drive and
performance, and to retain
high caliber employees
support long-term value
insights into where and
how value is being created creation
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See the Value
The first step in implementing EVA Governance is to identify sources

of value creation and destruction
Understand
Value Creation
Manage for
Value
Encourage
Value Creation
Illustrative
Million Baht
EVA Performance by EVA Center in FY2002
600
35
500
-40
-32
73
-5
-4
438
138
400
300
257
200
G
ro
up
In
ve
st
m
en
tA
In
ve
st
m
en
tB
U
H
or
p
C or
en a
te te
r*
F
B
E
U
B
C
U
B
U
B
100
Note: * Corporate Center includes corporate function units such as planning, finance & accounting, human resource and IT
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- 13 -
See the Value
The next step is to plan strategies and allocate resources to improve

EVA in future
EVA
= NOPAT
CoC
x Capital
100
10%
200
Encourage
Value Creation
1,000
(1) Improve Operating Efficiencies

+5
Understand
Value Creation
Manage for
Value
EVA VALUE CREATION MATRIX
+5
=
205
10%
Positive
1,000
Economic Profitability
105
(2) Enhance Asset Management

+5
105
195
10%
-100
10%
900
(3) Increase Profitable Growth
3
Increase
Profitable
Growth
1
Improve
Operating
Efficiency
2
Enhance
Asset Management
Negative
Low
+5
105
215
10%
+100
10%
1,100
% of Invested Capital
High
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See the Value
Value-enhancement strategies are mapped to performance targets

through the Integrated EVA Scorecard
Airline Illustrative
Understand
Value Creation
Manage for
Value
Encourage
Value Creation
Passenger
Passenger
Revenue
Revenue
Cargo
Cargo Business
Business
Other
Other revenue
revenue
Fuel
Fuel Expense
Expense
Labour
Labour Cost
Cost
NOPAT
NOPAT
Operating
Operating Expense
Expense
Maintenance
Maintenance Expense
Expense
Operational
Drivers
For example:
RPK
Other
Other Expense
Expense
EVA
EVA
Depreciation
Depreciation
Share of route
RASK
Yield
Economic
Economic Tax
Tax
Load factor
Customer satisfaction
Net
Net Working
Working Capital
Capital
Invested
Invested Capital
Capital
Fixed
Fixed Assets
Assets
Capital
Capital Charge
Charge
CASK
Accident rates per
100,000 departures
Cost
Cost of
ofEquity
Equity
Cost
Cost of
of Capital
Capital
Cost
Cost of
ofDebt
Debt
Debt
Debtto
to Equity
Equity Ratio
Ratio
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- 15 -
See the Value
The performance targets are linked to rewards, such as EVA Bonus,

to motivate managers to create shareholder wealth
Business &
Financial
Planning
Resource
Allocation
Understand
Value Creation
Manage for
Value
Encourage
Value Creation
Reward
Management
Performance
Measurement
What gets rewarded, gets done!

Straight line
Tied to value creation,
decoupled from budgets
Unlimited upside, but

with downside risk
Bonus banking
Self-financing
Multi-year targets.
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See the Value
The implementation is supported by a tailored program for mindset

changes, consisting of training and internal/external communications
Training
Training
Web-based
Web-based training
training program
program
Internal
Internal Communication
Communication
CEO
CEO Messages
Messages
Awareness
Awareness building
building program
program
Internal
Internal newsletters
newsletters
Workshops
Workshops Know
Know How
How
Train
the
Trainer
Sessions
Train the Trainer Sessions
"Role
"Role Play"
Play" Exercises
Exercises and
and
Games
Games
Encourage
Value Creation
Communications
Communications
Formal
Formal Training
Training Program
Program
Workshops
Workshops Know
Know Why
Why
Understand
Value Creation
Manage for
Value
Library
Library of
of Case
Case Studies
Studies
Layered
Layered Problem
Problem
External
External Communication
Communication
Financial
Financial reports
reports
Public
relations
Public relations
Analyst
Analyst meeting
meeting
Investor
Investor road-shows
road-shows
Solving
Solving Workbooks
Workbooks
Intranet
Intranet Website
Website
Resources
Resources
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- 17 -
The EVA Governance System integrates the key management

processes with clear accountability for improving EVA and
maximising shareholder value
EVA-based Management Platform
Enterprise Value
Performance
Performance Mandate
Mandate
Define
Mission and
Measures of
Success
Define
Define Desired
Desired Outcomes
Outcomes
3.
3. Performance
Performance
Management
Management Process
Process
1.
1. Strategic
Strategic Planning
Planning Process
Process
Set
Set goals
goals
Develop
Develop and
and value
value alternative
alternative strategies
strategies
Select
Selectbest
best strategy
strategy
Develop
Strategies
Set Targets,
Milestones and
KPIs
Year
Year11
Year
Year22
Year
Year33
Year
Year44
Year
Year55
Assign
Assign decision
decisionrights
rights
Define
Define accountabilities
accountabilities
Monitor
Monitor and
andreport
report
performance
performance
Adjust
Adjust strategies
strategies or
or
management
management to
to achieve
achieve
outcomes
outcomes
BU 1
BU 2
BU 3
Others
Total
EVA Improvement
2.
2. Resource
Resource Allocation
Allocation Process
Process
Year
Year11
Allocate
Resources
Year
Year22
Year
Year33
Year
Year44
Year
Year55
Link
Link rewards
rewards to
to performance
performance
outcomes
outcomes
Base
rewards
on
Base rewards on cumulative
cumulative
performance
performance to
to balance
balance
shortshort- and
and long-term
long-term
performance
performance
Prepare
Preparebudgets
budgets&&fund
fundprojects
projects
to
toachieve
achievestrategy
strategy
Execute
Strategy
Inputs
4.Rewards
4.Rewards
Management
Management Process
Process
Outputs
2002
2003
2004
2005
2006
2007
- 18 -
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Organizations that have fully adopted Stern Stewarts EVA System

have realized very high returns
Total Return from Market Peak
5-Year Total Shareholder Return
(March 2000 June 2002)
(July 1997 June 2002)
18.5%
- S&P Peers
- EVA Measurement
- S&P Peers
- EVA
Measurement
20.2%
- EVA Compensation
58.0%
Source: Stern Stewarts Empirical Research, October 2002
7.2%
16.1%
- EVA
Compensation
64.5%
Source: Stern Stewarts Empirical Research, October 2002
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- 19 -
PSA Corporation is one of the good examples of organization which

adopted EVA as a platform for transformation
PSA is the worlds single largest container terminal, handling about 10% of the worlds
container throughput. In 1996 PSA produced operating income of S$2.048 billion and
surplus after tax of S$994 million on net assets of S$8.077 billion. PSA employs about
7,000 people, of which about 1,000 are in senior and middle management
PSA has four main business units: Container Terminals, Warehousing and Logistics,
Properties, and International Business
The Port of Singapore Authority was corporatized on 1 October 1997, and became PSA
Corporation. The corporatization process transformed PSA from a statutory board into
a commercially-run organization.
Chairman of PSA Corp. has used
EVA informally as a management
principle since 1994
In 1998, PSA Corp. decided to adopted
EVA formally throughout organization
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Stern Stewart helped PSA implementing EVA Governance System.

The implementation program was divided to three phases
1998
Jun
Jul
Aug
1999
Sep
Oct
Nov
Dec
Jan
Feb
Mar
PHASE 1 - EVA DEFINITION

Information Gathering
EVA Calculation
EVA Reporting
Draft Phase 1 Report
PHASE 2 - DESIGN EVA TOOLS & INCENTIVES

Eva-Based Operating Decisions
EVA-Based Strategic Decisions
EVA-Based Investment Decisions
EVA-Based Cash Incentive Design
PHASE 3 - COMMUNICATION & TRAINING

Documentation
Strategy & Implementation Plan Development
Training
Communications
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- 21 -
EVA Governance System has transformed PSA to be a commercial-oriented

company which being responsive to customers and the market
As a firm believer and champion of EVA, the former chairman, Dr Yeo

Ning Hong, led Port of Singapore Authority transforming itself from a
government agency into a world-class corporation through EVA
Governance System during the last decade
(Dr. Yeo) championed a strong business-minded culture built on the
Economic Value Add (EVA) concept, putting in place a focus on valueenhancement and cost consciousnessTestimony to Dr Yeo's highly
effective leadership over the past eight years is the improving trend of
Economic Value Add (EVA)...
PSA Corp.s PortView August 2002
PSA had to transform itself from a government agency into a valuefocused corporation
"PSA focuses on Economic Value Added, or EVA. Our compensation
system puts emphasis on the long-term EVA performance of the
company thus giving consistent returns to the shareholder.
Grace Fu, Deputy Group President
PSA Corp.s PortView June 2002
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while creating value for Temasek Holdings, its only shareholder, from
grassroots level to the top of organization
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Agenda
- 24 -
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BALANCED SCORECARD
In the past, manages have been challenged executing strategy
Less than 10% of strategies effectively formulated are effective executed.

Why CEO Fail Fortune Magazine, June 1999
77% of executives believe their managers do more operations than strategy.

Bain & Company, April 2000
Strategies most often fail because they arent executed well.

Execution: The Discipline of Getting Thing Done
Source: Balanced Scorecard Collaborative

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- 25 -
BALANCED SCORECARD
Four barriers to strategy execution
The Vision Barrier

Only 5% of the workforce
understand the strategy.
The People Barrier

Only 25% of managers have
incentives linked to
overall strategy.
The Management Barrier
9 of 10 companies fail to
execute strategy.
85% of executive team spend

less than one hour a month
discussing strategy.
The Resource Barrier

60% of organizations do not
link budgets to strategy.
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BALANCED SCORECARD
Translating Strategy Building the Balanced Scorecard
At the highest level, the Balanced Scorecard is a framework that help organization
translate strategy into operational objectives that drive both behavior and
performance
In Strategy-Focused Organization, Balanced Scorecard is Change Program, not

Measurement Program

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BALANCED SCORECARD
The Balanced Scorecard converts strategy into an integrated system

defined across four business perspectives
The Strategy
Financial Perspective
Measures
Targets
Objectives
Financial
To satisfy our shareholders, what financial
objectives must we accomplish?
Growth
Shareholder Value
Customer Perspective
Measures
Targets
Objectives
Customer
To achieve our financial objectives, what
customer needs must we serve?
Initiatives
Image
Service
Price/Cost
Internal
Internal Perspective
Measures
Targets
Objectives
To satisfy our customers and shareholders, in

which internal business processes must we
excel?
Initiatives
Profitability
Initiatives
Cycle time
Quality
Productivity
Learning & Growth Perspective

Objectives
Learning & Growth

To achieve our goals, how must our
organization learn and innovate?
Measures
Targets
Initiatives
Market Innovation
Continuous Learning
Intellectual Assets

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BALANCED SCORECARD
The Balanced Scorecard (BSC) uses measurement in a unique way:

measurement to communicate, not to control
Financial
Customer
Things that the organization delivers
Internal
Learning & Growth
Things that the organization does

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- 29 -
BALANCED SCORECARD
A good Balanced Scorecard contains themes that tell the story of your
strategy
Vision/Destination
We will maximize profits through revenue growth and reducing our cost per customer
for the bank, growing PBIT to $800MM in 2004.
Add and Retain

High Value
Customers
Increase
Revenue Per
Customer
Reduce
Cost Per
Customer
Add & Retain Theme
Revenue Theme
Cost Theme
- 30 -
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BALANCED SCORECARD
Strategic objectives form a theme through a set of cause and effect

relationships
Add & Retain Theme
Maximize
profit
Financial
Perspective
Grow
revenue
Add and retain

high value and high
potential customers
Customer
Perspective
Internal
Perspective
Maximize
reliability
Learning &
Growth
Perspective
Attract and
retain key players
Develop/execute
effective marketing
programs
Increase managerial
and functional skills
Develop
superior service
capability
Continue to
develop culture

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- 31 -
BALANCED SCORECARD
Natural Cause-and-Effect logic
And realize the Vision

Financial Results
to drive financial success
Customer Benefits
to deliver unique sets

of benefits to customers
Internal Capabilities
to build the strategic

capabilities
Knowledge, Skills, Systems and Tools
Equip our people

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BALANCED SCORECARD
A good Balanced Scorecard communicates not only expected outcomes,

but also the specific performance and strategy requirements to drive
those outcomes
Lag Measures
Financial Perspective
Objectives
PBIT
Maximize profit
Revenue by Product/Service
Grow non-branded revenue
% Active Online Customer
Reduce cost per customer
Customer Satisfaction Survey
Add and retain high value

customers
Number of customers online
Migrate customer online
Lead Measures
Customer Perspective
% Weighted Internal Availability
Increase efficiency
Response time (on screen)
Bill claim ratio
Develop superior service

capability
Telephone service factor

(% customer service within 40 sec)
Key job retention rate
Attract and retain key

players & staffs
Top recruit hit rate
Strategic job coverage
Enhance bench strength

and succession planning
Hours training per employee
Internal Perspective
Learning & Growth

Perspective
Each objective require a lag measure. Not every objective requires a lead measure
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- 33 -
BALANCED SCORECARD
Linking initiatives is a critical final step in translating strategy into

operational terms for the organization
Initiatives are defined to help close the Performance Gap

OBJECTIVE
Improve Order
Fulfillment
MEASURE / TARGET
Measure
Objectives articulate the components

of our strategy
Time
(Hours)
INITIATIVE
18
Time from
order to shipment
12
Performance
Gap
Target
Upgrade internet
connectivity
12 hours
Actual
Target
Measures track our progress toward achieving

and communicating the intent of the objectives
Initiatives help close the Gap

between our current and
desired performance
- 34 -
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BALANCED SCORECARD
A good Balanced Scorecard has
Executive Involvement
Cause-and-Effect Relationships
A balance of outcome measures and leading measures facilitates anticipatory management
Linked to Financials
Every objective selected should be part of a chain of cause-and-effect that represents the
strategy
Performance Drivers
Strategic decision makers must validate and own the strategy and related measures
Every objective can ultimately be related to financial results
Change Initiatives
Aligned to strategic initiatives that change the behavior of the organization
A GOOD BALANCED SCORECARD WILL TELL THE STORY OF YOUR STRATEGY

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BALANCED SCORECARD
A good Balanced Scorecard connects the strategy map objectives to

measures, targets, and initiatives
Strategy Map: Diagram of the cause
and effect relationships between
strategic objectives
Strategic Theme:
Revenue Growth
F2 Grow
targeted
client base
F1 Grow
financial base
& margin
C1 Provide
personalized
service
P1 Deliver
a personal
experience
P2 Keep
client
informed
Statement of
what strategy
must achieve
and whats
critical to its
Success
How success
in achieving
the strategy
will be
measured
and tracked
The level of
performance
or rate of
improvement
needed
Objectives
Measurement
Target
Keep client
informed
Service level
spot check
rating
2004
2005
2006
3.5
4.0
4.3
Key action
programs
required to
achieve
objectives
Initiative
Customer
service
training
L1 Understand
& deliver on
strategy
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Agenda
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- 37 -
INTEGRATING BALANCED SCORECARD WITH EVA
Balanced Scorecard and EVA Governance System have been frequently

misunderstood or misrepresented as two different systems
Reality
Myth
EVA
EVA and
and BSC
BSC are
are two
two new
new
management
management systems
systems that
that are
are
different
different from
from each
each other
other
EVA
EVA and
and Balanced
Balanced Scorecard
Scorecard
both
both focus
focus on
on the
the same
same thing
thing
creating
wealth
through
creating wealth through
successful
successful strategies
strategies
EVA
EVA focuses
focuses on
on finance.
finance. BSC
BSC
will
help
me
balance
will help me balance
between
between four
four different,
different, equally
equally
important
important perspectives
perspectives
BSC
BSC ultimately
ultimately focuses
focuses on
on
Financial
Financial Performance.
Performance. Each
Each
perspective
perspective is
is hierarchically
hierarchically
subordinate
to
subordinate to the
the one
one above
above
and
is
causally
linked
and is causally linked to
to itit
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- 38 -
How EVA can overcome some drawbacks of BSC?
Why using BSC alone does not work?
BSC does not prioritize importance

and define magnitude of 4 aspects:
financial, internal process,
customer, and learning and growth
perspectives
Some measures have weak

linkages with shareholder value
Some non-financial measures can

be subjective
How EVA can enhance BSC?
EVA links non-financial and

operational measures with
financial measures and
shareholder value
EVA provides strong linkages with

Total Shareholder Return as it
focuses on value creation
Improve efficiency
Enhance asset management
Invest in profitable projects
EVA calculation is more objective

and mathematically precise
Printed: 1/26/2006 2:20 PM
- 39 -
Kaplan and Norton recommend EVA as the overarching objective of the

balanced scorecard
We start with the destination. What are we trying to achieve?

We feel that what for-profit companies should be delivering is
great financial performance.
...we're certainly very comfortable with the newer financial metrics
like EVA as the overarching objective. If you were just using
earnings per share or net income, you'd run into problems of over
investment--investing too much in capital to generate earnings or
net income
Robert S. Kaplan - co-founder of Balanced Scorecard concept
CFO Magazine February 2001 (emphasis added)
Printed: 1/26/2006 2:20 PM
- 40 -
Making long term EVA growth the overarching objective can maximise the
effectiveness of the BSC
EVA
FINANCIAL
Goals
Strategies Drivers Measures
CUSTOMER
Goals
Strategies Drivers
INTERNAL BUSINESS PROCESS
Vision
and
Strategy
Measures
Goals
Strategies Drivers
Clarity of purpose
Flexibility in altering strategy

and measures
LEARNING AND GROWTH

Goals
Measures
Objectivity and transparency

required for incentive link
Printed: 1/26/2006 2:20 PM
- 41 -
Clarity of Purpose: Making long term EVA growth the overarching

objective reduces the importance of getting weightings 100% right
EVA
FINANCIAL
Goals
Strategies Drivers
How can customer be weighted more highly

than learning and growth and vice versa?
Why should one measure within a sector get

a higher weighting? How much is appropriate?
Integrated with EVA
Vision
and
Strategy
Measures
What weightings should be applied to

balance the scorecard?
CUSTOMER
Goals
Goals
Frees managers to focus on the business,

rather than the weightings
Helps implementation of Balanced Scorecard

as reduced emphasis on weightings
Where relationships can be mapped, Du

Pont style analysis can describe linkage
between sectors & measures and long term
EVA growth
LEARNING AND GROWTH

Goals
Strategies Drivers
Measures
- 42 -
Printed: 1/26/2006 2:20 PM
The combined EVA and Balanced Scorecard will make increasing EVA the
overarching goal and measure of success
Balanced Scorecard Perspectives

Financial
Financial
Customer
Customer
Process
Process
Learning
Learning
Embed EVA into Balanced Scorecard
EVA
(Revenue
Value Added, EVA

and financial
value drivers
Drive revenue
and/or customer
premium margin
Cost)
Drive total costs
through process
effectiveness &
efficiency
x Capabilities
Drive learning,
change and growth
EVA will also help the managers focused on improving the EVA
when there are some conflicting scorecards/KPIs
Printed: 1/26/2006 2:20 PM
- 43 -
Flexibility: Making long term EVA growth the overarching objective

increases flexibility
EVA
How frequently should scorecard be reset?
What if poor strategy?
Inflexibility exacerbated by any link to

compensation.
FINANCIAL
Goals
CUSTOMER
Goals
Strategies Drivers
Vision
and
Strategy
Measures
Goals
Integrated with EVA
Scorecard can be fine tuned as required
Allows front-line managers to adapt quickly

to changes in competitive position
No need for one size fits all across every

business unit
LEARNING AND GROWTH

Goals
Strategies Drivers
Measures
Printed: 1/26/2006 2:20 PM
- 44 -
One of our clients, Singapore Food Industries, has been success in integrating
BSC, EVA, Six Sigma, and Learning Organization together
Source: Singapore Food Industries Website

Printed: 1/26/2006 2:20 PM
- 45 -
In summary, integrating Balanced Scorecard into EVA Governance

System will focus the organization toward shareholder value creation
EVA Governance and Balanced Scorecard both focus on creating shareholder wealth
You can develop an integrated EVA scorecard through the following steps:
Develop valuation targets & strategies to achieve the targets

Value each strategy by forecasting EVA drivers
Embed drivers is scorecards
Create accountability & track performance
Link rewards to outcomes
The advantages of this integrated scorecard are:
Explicit link with valuation

Annual EVA the ultimate target/measure
Clear link between valuation, strategy and operations
No problems rolling up measures
- 46 -
Printed: 1/26/2006 2:20 PM
Should you have any question ?
Anotai Adulbhan
Country Manager
Stern Stewart & Co.
11Flr CRC Tower, All Seasons Place,
87/2 Wireless Road, Lumpini,
Phatumwan, Bangkok 10330, Thailand
Phone:
Mobile:
Fax:
E-mail:
Website:
(662) 685-3614
(661) 344-3314
(662) 685-3618
aadulbhan@sternstewart.co.th
www.eva.com
Printed: 1/26/2006 2:20 PM
- 47 -

EVA and BSC

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EVA and BSC

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EVA and Balanced Scorecard

Copyright 2006 by Stern Stewart & Co. All rights reserved

Printed: 1/26/2006 2:20 PM

EVA and EVA Governance System

Executing Strategy Using Balanced Scorecard

Integrating Balanced Scorecard with EVA

Printed: 1/26/2006 2:20 PM

EVA AND EVA GOVERNANCE SYSTEM

Stern Stewart is the originator of EVA and EVA Governance System

Developed the EVA Governance Framework

Focuses on behavioural & organisational change

Objective, fact-based, value-anchored approach to

Printed: 1/26/2006 2:20 PM

EVA AND EVA GOVERNANCE SYSTEM

Stern Stewart developed EVA as a measure of economic profit

Bars in graph are not to scale

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EVA AND EVA GOVERNANCE SYSTEM

Market Value Added

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EVA AND EVA GOVERNANCE SYSTEM

EVA (Economic Value Added) measures economic profit it is a single

Printed: 1/26/2006 2:20 PM

EVA AND EVA GOVERNANCE SYSTEM

Maximizing wealth creation means

The operational way to do this is to focus on

EVA improvements are the basis for sustainable wealth creation

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EVA AND EVA GOVERNANCE SYSTEM

1. Creating Value (MVA

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EVA AND EVA GOVERNANCE SYSTEM

EVA is a measure of period-by-period value created by managers

Shareholders and MVA

Managers and EVA

The shareholders objective is to

EVA measure managers like owners.

Printed: 1/26/2006 2:20 PM

EVA AND EVA GOVERNANCE SYSTEM

EVA System is an integrated and value-aligned system of internal

Focus Performance Measurement on the

Redesign the Management Systems so that

Motivate managers to create value by tying their

Reshape the corporate Mindset through training,

See the Value

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Many state enterprises around the world have adopted EVA to

See the Value

Printed: 1/26/2006 2:20 PM

In Thailand, these leading organizations have also used EVA in

See the Value

PTT Public Company Limited

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From our experience, EVA Implementation Project is typically

See the Value

To reshape the mindset of all stakeholders, including employees and investors,

To mobilize the project

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See the Value

The first step in implementing EVA Governance is to identify sources

EVA Performance by EVA Center in FY2002

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See the Value

The next step is to plan strategies and allocate resources to improve