Does Integrating Strategic Risk Information in the Balanced Scorecard Affect Managers’ Strategy Evaluations and Recommendations

Sep 4, 2026

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Managers increasingly frame strategic choices within strategic risk assessments, and performance management systems such as the balanced scorecard (BSC) are proposed as mechanisms to integrate strategic risks with performance information. This study runs an experiment testing whether presenting strategic risk information—either as a standalone list or embedded in the BSC—along with a strategy’s risk profile changes managers’ evaluation and recommendation decisions. Results show less favorable decisions when performance driver risks exceed performance outcome risks, with the integration effect stronger for recommendation decisions.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages36

Reading Time1 h 31 min

AccessFree to download

Abstract

INTRODUCTION

Strategic risk and performance management

Strategic risk information presentation and decision impacts

Research gap and study focus

Does integrating strategic risk information in the balanced scorecard affect managers’ strategy evaluations and recommendations? Mandy M. Cheng The University of New South Wales Kerry A. Humphreys The University of New South Wales Yichelle Zhang The University of New South Wales Preliminary Draft May 2014 Please do not quote Does integrating strategic risk information in the balanced scorecard affect managers’ strategy evaluations and recommendations? Abstract Managers are increasingly aware that strategic decisions need to be made in the context of strategic risk assessments. It has been proposed that performance management systems, such asthe balanced scorecard (BSC), are useful frameworks for integrating strategic risks with performance information, to allow managers a more comprehensive overview of their strategy. In this study, we conduct an experiment to investigate whether integrating strategic risk information in a BSC and the risk profile of a strategy affect managers’ strategy evaluation and recommendation decisions. Specifically, we provide participants with strategic risk information either as a stand-alone list, or incorporated in the BSC (an integrated approach) . We also manipulate whether the strategy has relatively higher risks associated with performance drivers (performance driver risks) or relatively higher risks associated with performance outcomes (performance outcome risks) . Our results show that participants make less favorable decisions when performance driver risks are higher than performance outcome risks. Further, this difference is greater for strategy recommendation decisions when the strategic risks are integrated in the BSC. Our results contribute to our understanding of the decisional impacts of integrating strategic risks with performance information in a BSC. Does integrating strategic risk information in the balanced scorecard affect managers’ strategy evaluations and recommendations? INTRODUCTION An important challenge faced by organizations is to connect strategic risk management with performance management. As strategy execution inevitably involves risks, analyzing strategic risks allow managers to get a better understanding of the performance and viability of their strategies (PricewaterhouseCoopers 2009) . Consequently, organizations internationally are focusing attention on simultaneously improving their measurement, management and reporting of risks and strategic performance (Kaplan 2009, Ernst & Young 2012; Hall, Mikes and Millo 2013) . A strategic risk is an “unintended event or set of conditions which reduce the ability of managers to implement their intended business strategies” (Simons 2000: 255) . Examples of strategic risks include changes in competitors’ behavior, critical errors in internal processes, and loss of technological capabilities. Unless these risks are effectively managed, they have potentially significant negative impacts on organizational performance 1. Hence, strategic risks have relevance to both the evaluation of a strategy’s performance and the prediction of the continued success of a strategy. In particular, an understanding of strategic risks allows managers to evaluate the performance of the existing strategy in light of its effect on the organization’s overall risk exposure, as well as to appraise potential impediments when deciding on whether to continue a strategy in the future (Ittner and Larcker 2009; Kaplan 2009) . 1 It is sometimes argued that strategic risks also include ‘upside risks’ – that is, opportunities for upside gains, as well as threats that have potentials adverse consequences. Upside risk identification is particularly important for developing new strategic plans or new product markets. As the focus of the current study is on evaluating an existing strategy, we limit our discussion only to the more common definition of strategic risks – risks that represent threats to the successful implementation of b

FAQs

What is the core research question of the study?

The study examines whether integrating strategic risk information into the balanced scorecard affects managers’ strategy evaluation and recommendation decisions.

How does the study represent strategic risk information to participants?

Participants receive strategic risk information either as a standalone list or incorporated into the balanced scorecard using an integrated approach.

What strategy risk profile condition leads to less favorable decisions?

Decisions are less favorable when performance driver risks are higher than performance outcome risks, and this difference is greater for strategy recommendation decisions when risks are integrated in the BSC.

Sep 4, 2026

Upload by Noah