Application of Balanced Scorecard in Portfolio Management
Contents |
Abstract
In this article the application of Balanced Scorecard (BSC) will be investigated in relation to Portfolio Management. BSC is a strategic planning tool, which addresses the strategic objectives and often measures them in form of Key Performance Indicators which is evaluated, reported and incorporated into a strategic feedback-loop[1]. Each executed project within a portfolio should be aligned with the strategic objectives in the organisation. To ensure the linkage between each project and the strategic objectives, balanced scorecard can be applied and provide the portfolio management with a set of initiatives and measures, which would indicate if the outcomes from a given project provides the expected returns or growth to the portfolio and organisation.[2][3][4]
To facilitate the merge between strategic management and portfolio management this article will present an argumentation of why BSC benefits portfolio management, including a definition of both portfolio management and BSC, the direct linkages in between and a reasoning for application based on theory. This will be followed by how the application of BSC in portfolio management should be initiated and an identification of the strength and weaknesses. Also the limitations and risks derived from the application of BSC will be identified and elaborated. To inspire further reading an annotated bibliography will be conducted, to enhance the understanding of the tool and core literature.
Definition through theory
In this section of the article all theory applied will be outlined and discussed. The purpose is to give the reader an enhanced understanding of the BSC and the linkage to portfolio management.
Balanced scorecard
BSC is a framework and tool which enable the opportunity for a company to describe its intangible and tangible assets. It does not try to valuate the intangible assets but to provide measures to evaluate these. Furthermore, BSC differentiate from traditional balance sheets[5], that it does describe intangible assets and not only tangible assets, such as materials, lands, equipment etc.[1]
The definition of BSC by Kaplan and Norton (2016) [1] is used as the baseline of reasoning to application into project portfolio management (PPM): "The Balanced Scorecard describes how intangible assets get mobilized and combined with intangible and tangible assets to create differentiating customer-value propositions and superior financial outcomes."
Strategy Maps
The article by Tharp (2007), she addresses some of the current weaknesses which is identified in the executive management. One of the major weaknesses she identify is: "Many companies fail to distinguish between operational effectiveness and strategy."[2] This distinguish is very important to ensure a future perspective and to achieve an excellent, effective and efficient operational culture. [4]
In relation to BSC, it is very important that the strategy defined by the executive management is perceived and translated into operational targets and measures. [2] [4] Also BSC is an excellent framework to realize this and closing the gap that often exists. BSC contain both a high level strategic view and works as an enablers to translate the strategy into measures and targets, which directly relates to PPM and initiatives [4]
A highly recommended approach to ensure that the strategy is sufficient developed and transparent is to apply the framework of the "Strategy Maps". Strategy maps is a a logical and comprehensive architecture to describe the strategy, through all its elements and linkages to the organization strategy. [1][4] An example of the framework can be seen in Figure ??. The strategy maps in interplay with the BSC provide a common and understandable reference point of the strategy for all organisational units and employees. [1]
With a well defined and transparent strategy, the PPM will be able to define actions to accomplish the strategy and objective goals, while manageging the all programmes and projects. Which will result in increase in value creation and production capabilities Cite error: Closing </ref> missing for <ref> tag [6] [7]
- ↑ 1.0 1.1 1.2 1.3 1.4 Kaplan, R. S., & Norton, D. P. (2001). Transforming the Balanced Scorecard from Performance Measurement to Strategic Management : Part I, 15(1), 87–104.
- ↑ 2.0 2.1 2.2 Tharp, J. (2007). Align project management with organizational strategy. Paper presented at PMI® Global Congress 2007—Asia Pacific, Hong Kong, People's Republic of China. Newtown Square, PA: Project Management Institute.
- ↑ Toledo, R. (2011). Bridging the strategy gap. PM Network, 25(6), 18.
- ↑ 4.0 4.1 4.2 4.3 4.4 Olivier, A. J. (2007). Guideline for travelling [i.e. traveling] from vision to projects and back. Paper presented at PMI® Global Congress 2007—EMEA, Budapest, Hungary. Newtown Square, PA: Project Management Institute.
- ↑ Taggart, R. A. (1977), A MODEL OF CORPORATE FINANCING DECISIONS. The Journal of Finance, 32: 1467-1484. doi:10.1111/j.1540-6261.1977.tb03348.x
- ↑ https://www.pmi.org/
- ↑ Alsadeq, I., Fatehy, T., & Othman, O. (2009). PMI® and BSC marriage! Where can PMI standards meet balanced scorecard? Paper presented at PMI® Global Congress 2009—EMEA, Amsterdam, North Holland, The Netherlands. Newtown Square, PA: Project Management Institute.
- ↑ Hoffman, W. (2004). The view from 50,000 feet. PM Network, 18(7), 26–33.
