Balanced Score Card Approach with Its Application in PPM and as Used to Align PPM Activities - Research Paper Example

Balanced Score Card Approach with its application in PPM and as used to align PPM activities to the Vision and Strategy of the Organization Name: Course: Presented to: Date: TABLE OF CONTENTS Definitions 3 Introduction 4 Research question 5 Aims and Objectives 5 Research scope 5 Problem statement 5 Literature review 7 Figure 1: The Principles of strategy focused Organization 8 Balance score card as a tool for strategic alignment 9 Figure 2: Using the Balanced Scorecard as a Strategic Management System 9 Figure 3: Project Portfolio Management cycle. 12 Market Analysis 12 Advantages and disadvantages 12 Strengths and weaknesses 13 Comparison and evaluation in United Arabs Emirates (UAE) vs. International level 14 Research Methodology 14 Data Analysis 14 Trends, perspectives, recommendations 15 Conclusion 15 References 16 Appendix-1 17 Questionnaire: 17 Definitions BSC is a strategic planning and management system used by organizations to align business activities to the strategy and vision of the organization, improve both external and internal communications and finally to monitor organization performance against strategic goals PPM is a strategic methodology employed by organizations to prioritize, analyze and manage current or future projects. In addition, PPM determines the best combination of projects to achieve desired organizational goals. A strategy is a plan or method that helps to achieve the desired future. An organization is an entity where two or more persons work together to achieve a common purpose. Introduction In the face of globalization, organizations are deemed to select the right combination of projects in order to achieve corporate strategies and also, maintain a competitive edge in the market. Due to limited resources and present dynamic business environment, selection of right projects has been a big challenge for many organizations. In this light, academicians and business practitioners have developed numerous techniques and tools for use in project selection and application. Nevertheless, most of these theoretical frameworks do not ensure optimal projection selection and application in line with business strategy and vision. Several present studies indicate that many organizations continue to implement projects that are not linked to the corporate vision and strategy. In this light, selection of the right mix of projects is one of the critical tasks that an organization must take in order to attain its corporate strategy. As echoed by Barney (1991), selection of the right project portfolio is necessary for implementation of the corporate strategy. In addition, other literatures indicate the presence of numerous tools and techniques used by different organizations for selection and implementation of corporate projects. In this regard, organizations should determine appropriate tools and techniques that enhance optimal project selection and implementation. As organizations continue to deal with the challenge of selection and implementation of the right projects, they should also ensure that such projects help in creating and sustaining their competitive advantages. In this vein, this research seeks to explore how the Balanced Score Card (BSC) can be applied in Project Portfolio Management (PPM) and alignment of project portfolio activities to the vision and strategy of an organization. Research question How is the BSC approach applied in the project portfolio management and in ensuring project portfolio management activities align to the organization’s vision and strategy? Aims and Objectives The aim of this research is to explore how BSC approach is applied in PPM and in aligning PPM activities to the organization’s vision and strategy. Further, this research constitutes the following objectives: to understand the BSC approach and secondly, to explore how BSC aligns project portfolio management activities to the company’s vision and strategy. Research scope As widely recognized in project management discipline, project portfolio management is all about doing the right project. Nevertheless, it is beyond doubt that to carry out the right project, one has to select the right project portfolio. This study sought to analyze the role of BSC approach in the project portfolio management. In so doing, it examined the how PPM activities align to the overall organization’s vision and strategy. Problem statement The study recognizes the important role balance score card play in aligning the PPM activities to the vision and strategy of the organization. Though several studies about project management exist, little effort has gone into studying the balance score card and its application. Most of the theoretical and empirical research has never discussed the issue of balance score card. This neglect exists despite the fact that Balance scorecard approach is a very important component of any business. According to Levine (2005), every project has a clearly defined scope, cost and schedule. However, to implement effective projects that lead to the positive impact on social and economic environments, project managers must use the appropriate tools and techniques. Every project undertaken by a company should not only contribute in driving the organization’s profitability and overall industrial sustainability, but should also reflect the company’s vision and align to the organization’s overall strategy. Nevertheless, not all techniques align projects to organization’s vision and strategy leading to implementation of costly projects that do not contribute to achievement of the overall corporate goal. Literature review Project portfolio management centralizes management of several projects and is applied by businesses in pursuing strategic goals through selection, assessment and prioritizing management of projects based on their contribution and alignment to organizations overall strategy (Porter 1996). On the other hand, the balanced score card, concept conceived by Robert Kaplan and David Norton in 1992, is a strategic management and planning system that align project portfolio to the core strategy and vision of the business, enhance internal and external communications and monitor organizational performance against strategic goals. According to Srivannaboon & Milosevic (2006), when integrated to project portfolio management, the balanced score card can transform the way in which organizations conducts their businesses. Most modern literatures indicate project performance as highly vulnerable to market trends such as industrial, economic and social environments. In addition, change in customer needs and satisfaction levels, income patterns and living standards have proved vital in any project success. Figure 1: The Principles of strategy focused Organization Adapted from Kumar, 2008 Without limiting to the internal environment, industry rivalry also determines the budgets which maintain the firm’s development on course. To identify the importance of corporate vision and strategy in project management, it is also important to look at the common failure in portfolio project management which according to the recent analysis includes; lack of projects role in attainment of organizational objectives, management view of project management as incapable to facilitate achievement of organization’s strategy, lack of coordination mechanism for resources and lastly, lack of connection between project goals and organizational goals. Nevertheless, Kumar (2008) stressed that the project success is based on the alignment of the project objectives with the organization’s strategy. Balance score card as a tool for strategic alignment The BSC technique gives direction to managers on balanced presentation of both operational and financial measures. However, no matter how excellent a set of BSC is, it does not provide a winning strategy if it fails to translate the strategy into measurable objectives. Notably, BSC allow managers to see the company’s performance in four different perspectives including; the financial perspective that concerns how the organization looks at the shareholders, customer perspective that concerns how the customer views the organization, internal processes perspective that deals with organization’s success and lastly innovation and learning perspective that determines if the organization is able to continue creating and improving value to stakeholders. Figure 2: Using the Balanced Scorecard as a Strategic Management System Adapted from: Robert S. Kaplan and David P. Norton, “Harvard Business Review (January-February 1996): 76”. As a concept, BSC outlines the four perspectives of business management which helps to clearly define business strategies in order to overcome deficiencies within the company (Kaplan and Norton 2008). With respect to customer perspective: every organization should ensure that every project helps in meeting the customers’ expectations. This will ensure that the organization retains its customers as any form of customer dissatisfaction will make them look for alternative suppliers who can satisfy their needs. The financial perspective emphasizes that financial performance should be logical and to the interest of the shareholders. In this regard, Porter (1996) stresses that management should only engage in projects that have favorable net benefits to the shareholders. Learning and growth perspective includes corporate culture and employee training that enables the organization to penetrate new markets and increase profits. Basically, when an organization launches a given project, it should not only be the role of management to implement, but also the other workers. In this case, it is critical to offer the necessary training to equip the staff with necessary skills to implement the project. In addition, for the project to be in line with the corporate strategy, it should be designed in such a way that it fits within the organization’s culture. Lastly the business perspective concerns the internal processes that examine core competencies and impacts on customer satisfaction. Metrics relating to this perspective enable managers to understand how well the project is running and whether it helps in meeting the customer’s expectations. Since projects are means by which organization’s strategies are fulfilled, integrating BSC with the project portfolio management is therefore, critical. In this case, rather than using other projects as a benchmark when evaluating projects, BSC helps to determine if the project in question is moving in line with the organizational strategy. As a measure of strategic alignment, BSC starts with taking inventory of the entire organization’s projects, which are then mapped to BSC. This helps to identify any projects left out which if any are also incorporated while at the same time dropping those that does not match the organization’s strategy. Thereafter, BSC framework helps in prioritizing the chosen projects based on their strategic importance. To align the Project portfolio management activities with the organization’s vision and strategy, Barney (1991) advises implementation of BSC in all levels of the organization. In this case, projects alignment to the corporate strategy would help in change management and implementation of tactical decisions. Considering that not all projects reflect the overall organizations strategy, application of BSC facilitates operational efficiency where projects are evaluated based on how they contribute to attainment of strategic goals. Jacob & McClelland-Jr (2001) observed that evaluating project portfolio by use of BSC ensures that management does not suffer frustration as the projects chosen moves in line with the company strategy. Figure 3: Project Portfolio Management cycle. Adapted from Srivannaboon & Milosevic, 2006 In addition, fewer if no project fails since all projects are properly evaluated while in the feasibility phase to ensure they are in line with the organization’s strategy and requires resources that the organization can afford. Market Analysis Advantages and disadvantages BSC as an incredibly popular framework for project evaluation and strategy monitoring has some pros and cons, strength and weaknesses. To begin with, the four aspects of BSC technique help in understanding if the project assists the company in meeting all its objectives. In addition, the technique also helps in showing if the project in question helps in improving the financial wellness of the organization, customer satisfaction, and if the processes put in place are the right ones. More importantly, the technique helps the management in making the decision on which projects to prioritize. However, even though BSC has proven to be one of the best approaches of project evaluation, there still lack qualified individuals with the ability to handle BSC software. Another problem facing implementation of BSC technique is lack of elaborate organizational strategies. Since BSC helps to rank projects according to how best they contribute in achievement of the organizational strategy, lack of such strategies leads to failure in implementation of BSC. Finally, the other challenge faced by the market is the presence of ineffective BSC software. In this sense, with too many software available in the market, it becomes imperative to acquire the best. Strengths and weaknesses A properly implemented BSC helps to identify process deficiencies within as well as outside the organization. In this case, the organization is able to monitor the progress of its projects by identifying the aspects of the company as wells as understanding the link between them. However, one of the notable weaknesses of BSC approach is the participation. In this regard, it takes considerable time to define key areas of business and their casual link. Therefore, presence of any lackluster in implementation of this technique leads to failure. Other weaknesses include suppliers’ exclusion, lack of social and environmental concern and finally ignoring the impact of competition. Comparison and evaluation in United Arabs Emirates (UAE) vs. International level Though the BSC technique is mostly associated with the private sector, it is quite different in United Arabs Emirates where BSC is used in evaluating government projects and monitoring its strategies. According to recent surveys, many Saudis believed that adoption of the BSC methodology helps to achieve higher revenues both in medium and long term. In this vein, many proponents argue that organizations should adopt BSC approach as a more flexible and execution oriented technique for project management. Notably Madrid’s Palladium Group Inc, one of the global leaders in projects implementation ranked the Abu Dhabi governments as one of the organization that achieved success through use of the BSC technique. Research Methodology With respect to intended findings, the study was done by selecting a sample of thirty two individuals selected from organizations engaging in infrastructural developments who were issued with structured questionnaires comprising of four questions (Appendix 1). Basically, the four questions were structured in such a way to evaluate the sample on the following basis: question 1: to establish respondent’s knowledge of BSC technique, question 2: to find out if the respondents’ organizations have any PPM activities, question 3: to find out if respondents’ organizations have business strategies and laid out corporate vision, question 4: to study comparison between BSC technique and the existing systems. Data Analysis Thirty two respondents who were sampled performed different managerial roles in their companies. Section wise analysis was performed to study the respondents’ results. In this regard, descriptive statistics of question one indicated 67% of the respondents had knowledge of BSC technique. This was a good measure as it indicated the sampled responses were valid to the study. In question two, the respondents indicated 68% of the organizations had PPM activities going on, and therefore, a good indication that most organizations had exposure to PPM activities. 75% of the responded indicated that their organization had in place elaborate business strategies that were in line with their corporate vision. Lastly, as shown by 80% response, majority of the respondent appreciated the fact that BSC technique could be used at par with their existing systems. Trends, perspectives, recommendations The BSC technique has over time become one of the highly recognized management tools with the ability of enhancing organization performance. It has widely been linked with “best practices.” Further research on this technique continues to be carried out as many people continues to believe that BSC represents one of the most important developments in management accounting history. However for effective implementation of BSC technique, the following are some of the recommendations: Senior management should be fully involved, formulation of articulate business vision and strategy, identifying link between vision and strategy to desired results, developing effective measures and meaningful standards when implementing the technique and lastly deploying appropriate resources for implementation. Conclusion In conclusion, BSC technique plays an important role in pursuing the organization’s strategy. Notably, BSC takes care of the organizational concerns such as learning, innovation and internal perspective and finance have stronger weight in the evaluation on strategic business projects. Besides that, this system can be customized to fit into any organizational needs to perfectly define business strategy and corporate vision. Other strengths associated with BSC technique is that unlike other approaches; it does not only consider individual view of the project, but also considers the impact of projects on other stakeholders. Finally, BSC provides a proper guide for project outline such that after proper structuring of BSC measures they help in facilitating quick decisions whenever quick solutions are needed. Nonetheless, the research concludes that BSC is an effective project portfolio management tool. References Barney, J. B. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17.1: 99-120. Jacob, D. B. & McClelland-Jr, W. T. 2001. Theory of Constraints, Project Management: A Brief Introduction into the Basics. New Haven, USA: The Goldratt Institute. Kaplan, R.S. and Norton, D. 2008. Mastering the Management System, Harvard Business Review, 4.3: 2-16 Kumar, R. 2008. Research Methodology. 2nd edition, India: Dorling Kindersley (India) Pvt) Ltd. Levine, H. A. 2005. Project Portfolio Management: A Practical Guide to Selecting Projects, Managing Portfolios and Maximizing Benefit. USA: Pfeiffer Wiley. Porter, M. 1996. What is strategy? Harvard Business Review, 1.6: 62-77. Srivannaboon, S. & Milosevic, D. Z. 2006. A Two-Way Influence between Business Strategy and Project Management, International Journal of Project Management, 24.6: 493-505. Appendix-1 Questionnaire: 1. Have you ever heard of Balance d Score Card technique? Yes No If yes, give a brief description of what it entails 2. Has your organization ever had any Program Portfolio Management? If yes, did you play any role? Yes No 3. Doe your organization has stipulated elaborate business strategies and corporate vision? Yes No 4. Based on your comparisons, can BSC technique supplement the current existing systems in projects evaluation? Yes No Read More