Balanced Scorecard Approach with its Application in Project Portfolio Management - Coursework Example

Explanatory Note Balanced Scorecard Approach with its Application in Project Portfolio Management Overview Balanced Scorecard approach has today found wide application among organization for communication their strategic objectives and for identifying projects that ensure success of the organization. Similarly, Portfolio Project Management is significantly contributing to successful completion of projects and the effectiveness with which the projects are delivered. Nonetheless, when used independently at the strategic level, it cannot ensure that the enabling projects are effectively implemented. In addition, it cannot guarantee that the projects are aligned with the objectives and strategies of the organization (Rankins 2006). Balanced Scorecard The Balanced Scorecard (BSC) refers to a strategic management system essential for the alignment of business processes towards the corporate strategy, improvement of corporate communication and monitoring and evaluation of the performance of a business against its objectives to provide a more balanced view of the performance. Portfolio Project Management Portfolio Project Management is the centralized or integrated management of a set of projects. It is an approach aimed at attaining strategic goals through selection, prioritization, evaluation and management of projects based on their alignment to the objective or strategies of the organization. PPM Lifecycle A classic generic life-cycle is made up of three phases, including “initial, intermediate and final.” Each of the phases contains processes that once executed, proceed to the next phase. For instance, the processes contain processes that propose a project, create a scope of the project, create a plan of the project, schedule and implement the project, approve and finish the process before transition to another project. When the lifecycle and the processes detailed in each phase are clearly defined, it would enable an organization to mature the process. Essentially, maturing the processes involves application of the process improvement stages to the current process. The stages include standardizing, measuring, controlling and continuous improvement. Failures of PPM The PPM does not ensure optimal projection selection and application in line with business strategy and vision. 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 In 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 (Srivannaboon and Milosevic 2006). 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, BSC will not provide a winning strategy if it fails to translate the strategy into measurable objectives. 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. The four perspectives of business management help in defining the business strategies in order to overcome deficiencies within the company (Kaplan and Norton 2008). BSC perspectives Explaining the perspective 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. Every organization should ensure that every project helps in meeting the customers’ expectations to retain its customers. a) Learning and Growth This perspective consists of training of the workforce and nurturing organizational culture relative to the individual and organizational growth, as an integral key towards increasing the profit margins and breaking into new market frontiers. Within a knowledge-employee organization, the human resource is the primary depository of knowledge. In the present day climate f dynamic advancement in technology, it has become essential for knowledge employees to be involved in a constant learning or training mode. b) Business Process This perspective depicts the internal business processes of an organization. With this regard, balanced scorecard approach hypothesizes that an organization must be in a position to examine the processes that can greatly ensure customer satisfaction, as well as evaluate the major competences. Performance metrics that rely on this perspective informs the management of an organization of the flow of the business, and whether the mission is achieved, such as whether the products conform to customer preferences. c) Customer This perspective provides that an organization must be in a position to communicate with its customers to be informed of their expectations and requirements, as well as be in a position to measure against the customer expectations. Technically, in cases where the customers feel dissatisfied with a product, chances are they will seek other substitute products from an organization’s competitors they believe satisfies their requirements. Therefore, failure in this perspective may be an indicator of future poor performance even as the present financial outlook may be attractive. d) Financial The Balanced Scorecard also shows regard for the financial perspective of an organization just like other performance metrics approaches. However, it emphasizes that the financial performance should merely serve as a logical outcome of overall performance. 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. 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”. Alignment of BSC with PPM 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. By ensuring that the projects are aligned to the organizational objective, it can promote change management in the organization. Instead of focusing on the effects of resources, costs and schedule, every change provides an opportunity for measuring against the objective and strategies of the organization to establish if the change will ensure that the organization attains its goals, or whether it will merely serve as a distraction (Baca et al 2007). 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. BSC alignment in portfolio project management Aligned BSC to corporate strategy The BSC technique gives direction for a balanced presentation of both financial and operational measures -- such as leadership, learning and growth, business process, customer to help implement a balanced organization strategy (Amarasuriya and Jayawardane 2011). and financial measures of an organization. BSC provides a winning strategy if it translate the corporate strategy into measurable objectives. Conclusion It can be concluded that BSC is an effective project portfolio management tool as: BSC technique plays an important role in pursuing the organization’s strategy. 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. It can be customized to fit into any organizational needs to perfectly define business strategy and corporate vision. 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. In brief, it “balances the financial and the non-financial indicators” while at the same time measuring the essential business processes to ensure the corporate strategy is appropriately managed. Application of Balanced Scorecard to Portfolio Project Management ensures that an organization is able to attain maximum returns on investment (Kaplan and Norton 1992). References Amarasuriya, U. & Jayawardane, A. 2011. Balance Score Card - A Strategic Project Management Tool For Infrastructure Development Projects. (online) Retrieved [http://management.kochi-tech.ac.jp/ssms_papers/sms11-6081_ab37ce3d35e7c279233d3d274f22c813.pdf] Accessed 28 May 2013 Baca, C, Bull, L., Cooke-Davies, T and Porskrog, S. 2007. The Path to Organizational Achievement of Strategic Business Improvement. Atlanta, GA. Global Congress Proceedings 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 D.P. Norton. 1992. “The Balance Scorecard – Measure that drive Performance.” Harvard Business Review, 71-79. Kostelac, D. Vukomanović, M. & Ikonić, M. 2002. “Integrating Enterprise Project Portfolio Management With The Balanced Scorecard: A Case From The Pharmaceutical Industry.” Tehnički vjesnik. 19, 2, 303-316 Rankins, J. 2006. Aligning Projects to Strategy using Balanced Scorecards and Benefits Models. This paper was presented at the 3rd International Conference on Project Management on 29 September 2006, in Sydney, Australia. (Online) Retrieved: [http://www.goalgroup.com.au/SiteFiles/goalgroupcomau/C001_AligningProjectsToStrategy.pdf] Accessed 28 May 2013 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. Read More