Balanced Score Cards

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Aligning Prioritizing Projects With Corporate
Strategy Using Balanced ScoreCards Pankaj
Bhawnani Senior Consultant, Project
Management Fujitsu Consulting (Canada) Inc.
PMI Dinner October, 2007
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Outline
Introduction
Observation
Problem
Case Study
Why?
Solution

• Introduction

• What are we trying to solve?

• Why?

• How?

• Case Study

• Observations

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Contact Information

• Pankaj Bhawnani
• Pankaj.Bhawnani_at_ca.fujitsu.com
• P_bhawnani_at_yahoo.com
• Blog
• http//pbhawnani.blogspot.com/

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Introduction

• Doing the right projects vs. performing projects
  right
• Which projects should I do so that
• Achieve alignment with Corporate Strategy
• Balance various stakeholder opinions
• Optimal use of resources and budget
• Take into consideration interdependencies between
  projects
• Minimize Risk Profile
• Maximize Return on Investment
• Achieve Transparency in Decisions

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Problem
Projects
Prioritize
Corporate Strategy
Stakeholders
Resources and Budget
Interdependencies
Risk Profile
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Why Do We Care?

• Survey on 507 companies on their management
  practices
• 53 of the CIOs say that their project
  prioritization is politically driven
• Only 68 agree that all the necessary business
  stakeholders are involved in setting project
  priorities
• Only 40 of the CIOs say that their companies use
  a portfolio management approach
• Source CIO Insight Research Study on Project
  Management, 2004

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Why Do We Care?

• Alignment with strategic objectives
• Inefficient use of Resources
• Avoidance of low value projects
• Consensus needed for executing a project
• Sarbanes Oxley Act ? Transparency of Financial
  Decisions
• What to decide?
• Who decides?
• How to decide? (in the best interest of the
  company and their stakeholders)

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Value of a Disciplined Process
0
20
40
60
80
100
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What did I do?
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Solution
Measure Each Project
Evaluate alternatives
Bi-objective Release Planning Model
No
Yes
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Choose Plan
END
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Balanced Score Card

• A strategic Measurement and Strategic Management
  System which attempts to reconcile traditional
  financial measures with more forward looking,
  non-financial measures
• Employees can only implement a strategy when they
  clearly understand it, and whats their role in
  achieving companys strategic objectives
• Balanced Score Card was developed to bring
  strategy down to employees and help the whole
  organization in Alignment
• Top-down guidance with bottom-up execution

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Balanced Score Card Contd.
Vision Strategy
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Financial?
What should our balance sheet look like?
To succeed financially, how should we appear to
our shareholders?

• Revenue growth rates
• Cost reduction
• Asset utilisation
• Project profitability

Growth
Maturity
Harvesting
Financial objectives tend to be influenced by the
organization's position on the life-cycle curve.
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Customer?
To achieve our vision, how should we appear to
our customers?

• Product / ServiceAttributes
• Customer Relationship
• Image and Reputation

What do our customers value most?
Organisational sub-units may have internal
clients.
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Internal BusinessProcesses?

• Improve quality
• Reduce cycle times
• Maximise production
• Maximise throughput
• Reduce cost per process
• Reduce cost per transaction

corecompetencies
To satisfy our shareholders and customers, what
business processes must we excel at?
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Learning andInnovation?
To achieve our vision, how will we sustain our
ability to change and

• Employee capabilities
• Information system capabilities
• Motivation
• Empowerment
• Alignment

Internal External RD
Highlight gaps in employee skills and information
systems.
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Optimization
Graph of Project Portfolios
Projects
Objective criteria

P3
P1
P2
P1


P2

P3
P5
P4
P4
P7
P6

Project Dependencies




Subjective Criteria

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Strategy Map
The Revenue Growth Strategy
The Productivity Strategy
Improve stability by broadening the sources of
revenue from current customers
Improve operating efficiency by shifting
customers to more cost-effective channels of
distribution
Financial Perspective
Customer Perspective
Internal Perspective
Learning Perspective
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Case Study - Transportation
Strategy Map
Strategic Theme Operating Efficiency
Financial
Profitability
Increase Revenue
Lower Costs
Customer
Flight is on time
Lowest prices
Internal
Fast ground turnaround
Learning
Ground crew alignment
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Case StudyDefine Score Card

• Financial 40 of the balanced approach
• ROI 20 of financial Criteria
• 1 out of 5, ROI lt 14.99
• 2 out of 5, ROI 15 24.99
• 3 out of 5, ROI 25 44.99
• 4 out of 5, ROI 45 64.99
• 5 out of 5, ROI gt 65
• NPV 20 of financial criteria
• 1 out of 5, NPV negative
• 3 out of 5, NPV 1 to 500,000
• 5 out of 5, NPV gt 500,000
• Pay Back Period 20 of financial criteria
• 1 out of 5, PBP gt3 years
• 2 out of 5, PBP 2 3 years
• 3 out of 5, PBP 1 2 years
• 4 out of 5, PBP 6 months 1 year

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Define Score Card - Financial

• Supports Incremental Revenue 20 of financial
  criteria
• 1 out of 5 , no incremental revenue
• 3 out of 5 , 0 5 RASM over and above natural
  growth
• 5 out of 5 , gt 5 RASM over and above natural
  growth
• Supports Cost Reduction 20 of financial
  criteria
• 1 out of 5 , no cost reduction
• 3 out of 5 , adjusted CASM stays the same through
  natural growth.
• 5 out of 5 , decreases CASM

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Define Score Card- Customer

• Customer 20 of balanced approach
• Project delivers sustained improvement to the
  customer experience
• weighted at 40 of Customer Criteria
• 1 out of 5 negative impact to guest experience
• 3 out of 5 maintains guest experience or not
  applicable
• 5 out of 5 improves guest experience
• Project provides improvement to consistency of
  customer experience and consistency of service
• weighted at 30 of customer Criteria
• 1 out of 5 project splits service (creates
  channel inconsistency, inconsistent guest
  experience across touch points)
• 3 out of 5 project maintains status quo or not
  applicable
• 5 out of 5 project aligns improves service
  offering (channel consistency, aligns experience
  across touch points)
• Project implementation gives access to new
  markets and/or new customers
• weighted at 30 of customer Criteria
• 1 out of 5 No
• 5 out of 5 Yes

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Define Score Card Internal Process

• Internal Business Process 20 of balanced
  approach
• Project improves service/product delivery
  processes, ie. Customer experience, safety,
  sales, route scheduling, OTP etc.
• Weighted at 60 of the Internal Process criteria
• 1 out of 5 negative impact to processes
• 3 out of 5 no impact or not applicable
• 5 out of 5 improves processes
• Project improves corporate support processes i.e.
  hiring, accounting, etc.
• Weighted at 40 of the Internal Processes
  criteria
• 1 out of 5 negative impact to processes
• 3 out of 5 no impact or not applicable
• 5 out of 5 improves processes

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Define Score Card

• Learning Innovation 20 of balanced approach
• Project supports recruitment and retention of
  people
• Weighted at 30 of Learning Growth Criteria
• 1 out of 5 negative impact to recruitment and
  retention
• 3 out of 5 maintains current or not applicable
• 5 out of 5 positive impact to recruitment and
  retention
• Project improves alignment of corporate success
  with personal success (rewards and recognition )
• Weighted at 30 of Learning Growth Criteria
• 1 out of 5 negative impact to alignment of
  success
• 3 out of 5 maintains current or not applicable
• 5 out of 5 positive impact to alignment of
  success
• Project provides our people with tools required
  to do the job
• Weighted at 40 of Learning Growth Criteria
• 1 out of 5 negative impact, manual or
  inefficient processes
• 3 out of 5 maintains current or not applicable

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Case Study -Optimization

• Demo

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What-if Analysis
What amount of resource would be needed to allow
execution of top projects?
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What-if Analysis
Which projects seem to be most attractive?
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What-if Analysis
Which projects are most attractive for
stakeholders?
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What-if Analysis
Stakeholder Similarity Analysis
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Observations

• By connecting balanced score card directly with
  project management, were directly linking
  strategy with tactical execution
• Helps communicate the value of operational
  activities
• Make strategy a continuous process
• Bringing stakeholders together for consensus
• Effective leadership
• Strategic planning is at best about posing
  questions more than attempting to answer them
• Balanced Score Card should be implemented as a
  project and buy-in is critical
• If you cant measure it, you cant manage it

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Key References

• Alleman, Glen B., Using Balanced Scorecard to
  Build a Project Focused IT Organization
• (CH2M HILL), 2003
• Benson, Robert J., Bugnitz, Thomas L., Walton,
  William B., From Business Strategy to IT
• Action Right Decisions for a Better Bottom
  Line, John Wiley Sons, 2004
• Bower, Joseph L., Gilbert, Clark G., From
  Resource Allocation to Strategy, Oxford
  University Press, 2006
• Cokins, Gary, Performance Management Finding the
  Missing Pieces (to Close the
• Intelligence Gap) (SAS Institute Inc.) John
  Wiley Sons, 2004
• Kaplan, Robert S. and Norton, David P.,The
  Balanced Scorecard Measures that Drive
• Performance, Harvard Business Review, 1992
• Kaplan, Robert S. and Norton, David P., Putting
  the Balanced Scorecard to Work", Harvard Business
  Review, 1993
• Kaplan, Robert S. and Norton, David P.,Using the
  Balanced Scorecard as a Strategic
• Management System, Harvard Business Review,
  1996

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Questions?
A Final Thought One of the most dangerous forms
of human error is forgetting what one is trying
to achieve.
- Paul Nitze