In the latest of his “Future Trends in Project Management” series Project Management advisor and lecturer, John McGrath outlines how to use a Balanced Scorecard in Project Management.
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I think that as project management becomes more associated with the execution of strategy, we’re going to see a much greater uptake and the greater integration of strategy techniques and tools being built into project management enterprise systems, and most notably, I think the Balanced Scorecard will be there.
What is the Balanced Scorecard?
More than 50% of global organizations are using the balanced scorecard and, what is quite remarkable is that it scores in the top five management tools used globally, and most exceptionally, the Harvard Business Review references the Balanced Scorecard as one of the most influential ideas in the last 75 years, in terms of business innovation.
It considers the traditional KPI’s of business, which are typically financial, but it also balances financial measures with other parts of the organization – hence the idea of a balanced scorecard. So the BSC, as it is sometimes referred to, recognizes that organizations need a more holistic approach for strategic planning and execution, and that can only be a good thing. I think it’s not just about the financial elements.
What are the four perspectives of the balanced scorecard?
In brief, the balanced scorecard looks at four different perspectives.
- Financial,
- Customer,
- Your internal processes, and
- Your organizational capacity.
If we start with the financial, which is usually the easiest one to define and measure. The key focus of the financial perspective is asking the question “How do we view our shareholders? What is our financial objective? And typically that is to make and improve profit margins, and there’s certainly nothing wrong with that.
The second perspective is the customer, and here the focus is “how do our customers see us?”. You take an external view of the organization from the customer’s perspective and you try and understand the customers need and how the organization is meeting that need.
The third perspective is the internal processes, and this really is about a deep dive, a look inside, where you look at how well is the business functioning and “what should our area of focus be?” It’s about prioritizing about streamlining your internal processes in a way that can foster innovation and creativity,
A fourth perspective is your organizational capacity and we’re looking here at issues such as people performance, skills, training, company culture, leadership, and the knowledge base that exists within the organizations.
So organizational capacity tends to be the area where most investment is made. It’s really looking at that fundamental question: “How can we improve and how can we create value within our people and within the organization?”
And I think that’s an incredibly valuable approach to take when looking at strategic execution. It’s really communicating with everyone involved – what it is that the organization is trying to achieve; your strategic goal it’s looking to align operational and project work with strategy, which is essentially strategic alignment. It’s looking at prioritizing projects, products and getting a higher ROI on your strategic objectives.
How can we use the Balanced Scorecard in a Project Management context?
What is abundantly clear is that if you are looking at developing a strategy realization office, you can harness the balanced scorecard as a framework to implement and manage strategic objectives.
The Balanced Scorecard enables the organization to sort of connect the dots between the various projects that collectively deliver a strategic objective. It also acts as a communication tool to ensure that people working on those projects are aware of the project’s strategic importance and how the project is progressing in terms of delivering a strategic initiative, and that really is the Achilles heel for a lot of organizations – they’re good strategic planning, so I think the balanced scorecard is something you should look at if you’re trying to improve the connection between strategic planning and strategic execution, and you recognize that project/programme/portfolio management is fundamentally the vehicle to execute strategy within your organization.
