Strategic scenario analysis combining dynamic balanced scorecards and statistics

Abstract Purpose – The purpose of this paper is to explore the way in which system dynamics (SD) can enhance some key success factors of the balanced scorecard (BSC) model and support decision-makers, specifically in analyzing and evaluating the results of hypothetical scenarios. Moreover, the paper aims to emphasize therole played by statistics not only in validating the SD-based BSC, but also in increasing managers’ confidence in the model reliability. Design/methodology/approach – The paper presents a case study, developed according to an action research perspective, in which a three-step approach to the BSC implementation was followed. Specifically, the first step requires the development and implementation of a “traditional” BSC, which is refined and transformed into a simulation SD model in the second step. Last, the SD-based BSC is combined with statistics to develop policy making and scenario analysis. Findings – The integration of BSC and SD modeling enables the development of a comprehensive approach to strategy formulation and implementation and, more importantly, provides a more reliable basis upon which to build and test sound cause-and-effect relationships, within a specific BSC. This paper exemplifies how an SD-based BSC can be used – and perceived reliable – to evaluate different scenarios and mutually exclusive policy effects in a multidimensional approach. In particular, this study illustrates how to forecast and depict trends for financial and non-financial indicators over the simulation period, with reference to three different scenarios. Originality/value – This paper contributes to the ongoing debate on the BSC by exploring whether a combination of SD and statistics may enhance the BSC system’s advantages and facilitate its implementation process and use for decision-making and scenario analysis.