Running head: BALANCED SCORECARD FOR PROJECT MANAGEMENT

PORTFOLIO OPTIMIZATION 1

Balanced Scorecard for Project Management Portfolio Optimization

Dr. Matthew D. Gonzalez, PMP

Tony M. Ramirez, Jr.

Ruby Rendon

University of Incarnate Word

School of Graduate Studies and Research

Information Systems Seminar

BINF
 Balanced Scorecard for Project Management Portfolio Optimization

Firms can categorically observe that project management in most Information Technology organizations

ranges from undisciplined to chaotic. Few organizations are armed with the necessary infrastructure,

education, training or management disciplines to bring project initiatives to successful completion.

Furthermore, research indicates that more than half of all IT projects exceed their budgets and timetables

while failing to deliver the expected outcomes. Managing complex IT initiatives is challenging, even when

measures of success are known and understood. In order for companies to survive and excel in today’s

global environment, the corporate IT portfolio-planning function needs to plan IT initiatives strategically.

Organizations must efficiently measure criteria that will enhance the performance of the overall strategies

of their business.

IT Project Management Challenges

Evaluating the contribution of IT to organizational performance has always been a major problem for both

the information systems professional and research communities. While importance corresponds to the IT

evaluation problem, it is well known that compared to other types of investments, IT projects are

inadequately or not at all evaluated. This can be partly explained by insufficient IT evaluation methods

and tools. From a theoretical point of view, previous studies suggest that one explanation of the now-

famous productivity paradox lies in the inadequacy of measurement methods and tools (Uwizeyemungu &

Raymond, 2009, p. 251-252).

In William Ingersoll’s article “IT projects: Doomed to fail?”, he suggests four culprits. First, the

development of a new IT system may be based on conversations among senior executives about features

and functions as opposed to being based on a series of in-depth discussions about the true problem that

needs to be solved, such as reducing operating costs. Second, many IT projects are started without a

clear understanding of what true objectives are and without the expected end results clearly defined.

Third, many IT projects risk breakdowns due to a failure to communicate; for instance, people developing

the new system and the people who will use it do not work as a team. Last, if you are enhancing an

existing system, make sure the problems in that existing system are examined (Ingersoll, 2007, p. 1). Bad
project management decisions not only cause the misuse of valuable funds, they create an environment

where strategic products take a backseat while certain “pet” projects are given higher priority (Melik,

2008).

Bottom line: IT managers must be able to show their CIO or CFO (in hard numbers) what kind of a

return they can expect on their IT investment ("Business Value ", 2000, p. 1). Implementing a

methodology that is best suited for a company is the best strategy to choose projects that will add value

as well as a return on investment. Choosing the methodology to implement is the challenge every

company is faced with when analyzing what is the best practice for their company.

Balanced Scorecard: What is It?

The question most commonly asked by a corporation is, “How do we evaluate and prioritize projects to

best suit our needs?” The balanced scorecard is a strategic planning and management system that is

extensively used in business and industry, government and nonprofit organizations worldwide to align

business activities to the vision and strategy of the organization. It also improves internal and external

communications and monitors organizational performance against strategic goals.

It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance

measurement framework that added strategic non-financial performance measures to traditional financial

metrics to give managers and executives a more balanced view of organizational performance. While the

term “balanced scorecard” was coined in the early 1990s, the roots of this type of approach are deep and

include the pioneering work of General Electric on performance measurement reporting in the 1950s and

the work of French process engineers (who created the Tableau de Bord-literally, a “dashboard” of

performance measures) in the early part of the 20 th century ("Balanced Scorecard Basics", n.d., p. 1).

Balanced Scorecard: Methodology

To develop an effective strategy, multiple perspectives are taken into consideration to complete the

accurate vision and strategy. The learning and growth perspective consists of employee training and

corporate cultural attitudes related to individual and corporate self-improvement. The business process

perspective refers to internal business process and how well business is running. The customer
perspective focuses on the importance of the customer and customer satisfaction. The financial

perspective consists of timely and accurate financial data. Once the vision and strategy is realized, the

processes are pulled together for the management of the strategic plan (Dumitrescu & Fuciu, 2009, p.

39).

The balanced scorecard brings together processes that are integrated in strategic management. The

integrated processes are translating the vision, communicating and linking, business planning and

feedback and learning. Translating the vision relies on measurement and forces managers to come to

agreement on the metrics that will used to operationalize company visions. Communicating and linking

ensures that the scorecard is disseminated up and down the organizational chart so that strategy

becomes a tool available to everyone. As the high-level scorecard cascades down to individual business

units, overarching strategic objectives and measures are translated into objectives and measures

appropriate to each particular group. Business planning ensures that financial budgets do indeed support

strategic goals. After agreeing on performance measures for the four scorecard perspectives, companies

identify the most influential “drivers” to the desired outcomes and then set milestones for gauging

progress they make with these drivers. Feedback and learning offers the ability to reflect on inferences

and adjust theories about cause-and-effect relationships. All this information can be fed into the

scorecard, enabling strategic refinements to be made continually. Thus at any point in the

implementation, managers can know whether the strategy is working--and if not, why (Kaplan & Norton,

1996, p. 1).

Managing Strategy: Four Processes

Translating
the Vision

Communicating Clarifying the vision Feedback and

and Linking Learning
Gaining consensus
Communicating and Articulating the shared vision.
educating
Balanced Scorecard Supplying strategic feedback
Setting goals
Facilitating Strategy review
Linking rewards to and learning
performance measures Business Planning

Setting Targets

Aligning Strategic
Initiatives

Allocating Resources

Establishing Milestones
 (Kaplan & Norton, 1996, p. 5)

Balanced Scorecard: A Wise Investment

Mobil Oil (now Exxon Mobil) leaped from last to first in profitability within its industry from 1993 to 1995 (a

rank it maintained for the next four years). Cigna Insurance was losing $1 million a day in 1993, but within

two years it was in the top quartile of profitability in its industry. Then in 1998, it spun off a $3.5 billion

division. What’s the key to these dramatic turnarounds? These companies attribute at least part of the

solution to having implemented the Balanced Scorecard (Berkman, 2002, p. 1).

At FirstEnergy’s $5 billion utilities division in Morristown, N.J. (Formerly GPU Energy), one strategic goal

is to create “raving fans” among its customers. Its other value drivers are reliability, finance and creation

of a winning culture. For First Energy’s IT group, “raving fans” means internal customers, so CIO Rick

Fidler and Senior Process Analyst Mel Brinkman (who is in charge of First Energy’s IT Scorecard) have

devised three metrics to determine whether they are meeting customer demand. These metrics include:

percentage of projects completed on time and on budget, percentage of projects released to the customer

by the agreed-upon delivery date and client satisfaction as indicated by surveys completed at the end of a

project. FirstEnergy evaluates project managers based on how well they achieve their target percentages.

Brinkman says that has increased customer experience. Brinkman states, “The Balanced Scorecard puts

our project managers under a microscope and forces them to look more closely at themselves and their

methodology.” (Berkman, 2002, p. 2).

Linda Bankston, Dupont Director and Head of Information Technology Applications, states, “You should

see vastly improved alignment between business and IT. We’re now seeing real joint decision-making

around what we do or don’t do because of how it fits in around the work of the scorecard.” (Berkman,

2002, p. 4).
At Veolia Water, the balanced scorecard is designed to boost organizational performance; break down

communication barriers between business units and departments; increase focus on strategy and results;

budget and prioritize time and resources more effectively; and help the company better understand and

react to customer needs. After successfully implementing the balanced scored in its business unit, Veolia

Water started integrating the balanced scorecard deeper into its organization, using an e-learning tool

developed to train key staff. The e-learning course has helped familiarize employees with the balanced

scorecard and demonstrate how they contribute to the company’s objectives when they achieve their

personal objectives ("Balanced Scorecard Basics", n.d., p. 1).

The balanced scorecard retains traditional financial measures. However, financial measures tell the story

of past events, an adequate story for industrial age companies for which investments in long-term

capabilities and customer relationships were not critical for success. These financial measures are

inadequate, however, for guiding and evaluating the journey that information age companies must make

to create future value through investment in customers, suppliers, employees, process, technology and

innovation ("Balanced Scorecard Basics", n.d., p. 1).

Using a balance scorecard as the strategic planning and management framework allows a company to

focus on metrics that are both financial and non-financial. More specifically, the balanced scorecard

model offers a way for a corporation to gain a wider perspective on its strategic decisions by considering

the impact on finances, customers, internal process and employee learning. Again, the analysis takes into

account financial and non-financial measures, internal improvements, past outcomes and ongoing

requirements as indications of future performance (Sarkar, 2003, p. 1).

Conclusion

The ability for a corporation to improve processes and add business value is critical in today’s global

marketplace. A company must implement various strategies and criteria in a manner that allows it to work

more efficiently and effectively. Normalizing the prioritization of projects by using the balanced scorecard
has numerous benefits that can bring value and efficiency to a company including (but not limited to):

keeping project managers on task, meeting project budgets and deadlines, and increasing shareholder

value. The use of a balanced scorecard in an organization will enable the project unit to run smoothly and

achieve optimal results. This methodology can also be used in other parts of the organization with

endless possibilities.
 References

Balanced Scorecard Basics. (n.d.). Retrieved from

http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/

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Berkman, E. (2002). Balanced scorecard demonstrates IT value. Retrieved February 20, 2011, from

http://www.cio.com/article/31069/Balanced_Scorecard_Demonstrates_IT_Value?

page=1&taxonomyId=3154

Business Value an introduction to the rapid economic justification (rej) framework. (2000). Retrieved from

http://www.crmodyssey.com/Documentation/Documentation_PDF/REJ_White_Paper.pdf

Dumitrescu, L., & Fuciu, M. (2009, December). Balanced scorecard-a new tool for strategic management.

Buletin Stiintific, 14, 37-42. Retrieved from http://web.ebscohost.com/ehost/detail?

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Ingersoll, W. (2007, March 26). IT Projects: Doomed to Fail?. Traffic World, 1. doi: 1275667751

Kaplan, R. S., & Norton, D. P. (1996, January-February). Using the balanced scorecard as a strategic

management system. Harvard Business Review, 1-13. Retrieved from

http://portal.sfusd.edu/data/strategicplan/Harvard%20Business%20Review%20article

%20BSC.pdf

Melik, R. (2008). Juggling school for project management. Security, 45(1), 58-59.

Sarkar, P. (2003). Applying the Balanced Scorecard in the IT Organization. Retrieved from

http://www.information-management.com/issues/20031201/7762-1.html

Uwizeyemungu, S., & Raymond, L. (2009). Exploring an alternative method of evaluating the effects of

ERP: a multiple case study. Journal of Information Technology, 24(3), 251-268. doi:

10.1057/jit.2008.20