Applying the Balanced Scorecard In Project Management

Written by: Herbert W.Zagarow, Ph.D

Introduction:
For well over a decade organizations in both the manufacturing and service
industries have been working arduously at trying to bring the power, discipline
and rigor of performance measurement into their organizations. These efforts
have been partially driven by the fact that anywhere from 20% to 35% of a
manager’s time is spent in collecting, monitoring, evaluating or reporting
out data, much of which is of dubious value to the running of the organization.
These efforts are also being fueled by the desire on the part of many executives
to convert the concept of “managerial accountability” from a
much abused, tiresome slogan, which often receives lip service at best, into
an integrated cultural expectation. Over time, it has become both recognized
and accepted how a clear, valid, functional performance measurement system
can serve as a powerful vehicle to develop and communicate expectations and
priorities, align strategies with goals and enhance planning, decision making
and evaluation efforts.
Performance Measurement and Project Management:
As might be expected, it does not require a huge leap of faith to recognize
that the same benefits an organization as a whole can derive from the deployment
of a performance measurement system can also be acquired by a Project Management
Office, as well as by the managers of programs and projects who staff it.
Being able to have functional valid data on strengths and weaknesses, customer
perceptions, resource management capabilities, process performance and project
team effectiveness, can go a long way toward making those in the project
management field a more sophisticated, adroit and insightful manager of either
singular or multiple projects. Once performance measurement development and
deployment is added to the skill set of project managers, these individuals
will now be armed with a tool that will not only enable them to more accurately
assess project performance against the organization’s mission and goals,
but will also augment their ability to uncover project risks, identify fallible
processes and most importantly, determine to what level they are creating
value for project customers and stakeholders.

The Balanced Scorecard:
For those in the field of project management who have seen the value of bringing
a performance measurement system into their organization, many have chosen
the Balance Scorecard as the format and methodology of choice. This approach
to performance measurement development was introduced by Kaplan and Norton
in their seminal article “The Balanced Scorecard—Measures that
Drive Performance,” Harvard Business Review (January-February 1992).

The premise and value behind the Balanced Scorecard lies in the fact that
over the past twenty-five years the world of business has entered a new age.
In sharp contrast to the time period between the onset of the industrial revolution
and the 1970’s, we are now in a technology driven information age where
there is global competition, declining prices, increased quality standards
and complex customer requirements. In this new age, the century old traditional
approach to measuring performance is no longer adequate. Simply measuring magnitude
of output and financial results, no longer tells a leadership team how well
the organization is performing. For the complex organization of today, what
is needed is a measurement system that has a healthy balance between leading
and lagging indicators; process, output and outcome measures; as well as data
on the tangible versus invisible assets of the organization. The Balanced Scorecard
fulfills this role by pushing the management team of an entire organization,
or a specific department, e.g., Project Management Office, to develop a broad,
comprehensive set of performance measures that objectively conveys how well
it has performed in the past and more importantly, how well it will perform
in the future.

The challenge with the balanced scorecard is to translate an organization’s
mission and strategy into an integrated constellation of performance objectives
and measures. This is accomplished by developing the objectives and measures
around four themes or “perspectives”: Financial, Customer, Internal
Business Process and, Growth and Learning. The benefit of using these four
perspectives is that one is now pushed to go beyond financial and output measures
alone, i.e., project cost, milestones met, or number of projects completed
and thus delve wider and deeper to discover additional measures that demonstrate
the magnitude of contribution to overall organizational performance.

The Four Perspectives of the Balanced Scorecard:
The Financial Perspective: This perspective addresses the financial impact
of priorities chosen, plans executed, decisions made and actions taken by
the management team. For the traditional organization, measures usually include:
Revenue, profitability, sales growth, stock valuation and return-on equity.
In the realm of project management, measures from past clients include unit
cost for operating technology and gap between cost estimate and project budget.

The Customer Perspective: Here we address issues around the themes of customer
satisfaction and customer retention. Corporate level measures might include
performance data from formal customer surveys, loyalty indices, market segment
growth and performance measures against key drivers of customer satisfaction.
For project managers, performance measures in this perspective could include
project errors, delayed milestones and schedule performance.

Internal Business Perspective: In the Internal Business Perspective, measures
are developed around the key processes in the organization. It is here that
those processes that the organization must excel at because they correlate
with customer satisfaction are identified and monitored to ensure that standards
and targets are being met. For some organizations the measures will be formulated
around the purchasing and shipping processes, while for others, it might be
the design, assembly or the sales process. For the project manager, process
performance measures might be developed for requirements development, cost
estimating, system design or resource planning.

Growth and Learning: In this last perspective, the challenge of identifying
measures that link to long term growth and success are identified. For the
organization as a whole, as well as for project management managers, issues
such as new skill and competency acquisition, employee morale, process improvement
and enhanced value to the customer are all addressed in this future focused
perspective.

Conclusion:
Project management is a rapidly emerging profession. It requires a wide range
of knowledge, skills and capabilities. If those who choose this field of
endeavor are to establish themselves as well respected, valued members of
the organizational team, eventually it will be necessary to have hard, concrete,
objective data to validate level of worth and contribution. Learning the
how to build and deploy a viable performance measurements system using the
Balanced Scorecard is one definitive step to meeting this challenge.
Author:

Herbert W.Zagarow, Ph.D
Executive Vice President Performance & Productivity Services
International Institute for Learning