Application of Balanced Scorecard in Portfolio Management
Contents |
Abstract
In this article the application of Balanced Scorecard (BSC) will be investigated in relation to Project Portfolio Management (PPM). 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 PPM 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 PPM, including a definition of both PPM 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 PPM 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
In this section all theories and definitions will be outlined and discussed. The purpose is to give the reader an enhanced understanding of the BSC and the linkage to PPM.
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. [1] Furthermore, BSC differentiate from traditional balance sheets[5], through its describtion of intangible assets and not only tangible assets, such as materials, lands, equipment etc.[1]
The definition of BSC by Kaplan and Norton (2016) together with the definition by Abernethy et. al (2005) used as the baseline of reasoning to application into PPM:
(1) "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."[1]
(2) "it [Balanced score card] articulates the links between leading inputs (human and physical), processes, and lagging outcomes and focuses on the importance of managing these components to achieve the organization's strategic priorities" [6]
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 organizational 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 [7]
The four perspectives
Key Performance Indicators
Stakeholders
Portfolio management
Linkages
Implimentation
Steps
Strengths
Weaknesses
Limitations
Risks
Annotated Bibliography
Project Management Institute. (2018). The standard for portfolio management.
Toledo, R. (2011). From the balanced scorecard to the project portfolio. Paper presented at PMI® Global Congress 2011—North America, Dallas, TX. Newtown Square, PA: Project Management Institute.
Kaplan, R. S., & Norton, D. P. (2001). Transforming the Balanced Scorecard from Performance Measurement to Strategic Management : Part I, 15(1), 87–104.
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 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
- ↑ Abernethy, M.A., Horne, M.H., Lillis, A.M., Malina, M.A., & Selto, F.H. (2005). A multi-method approach to building causal performance maps from expert knowledge, Management Accounting Research, 16(2), 135–155.
- ↑ Toledo, R. (2011). From the balanced scorecard to the project portfolio. Paper presented at PMI® Global Congress 2011—North America, Dallas, TX. Newtown Square, PA: Project Management Institute.
- ↑ Project Management Institute. (2018). The standard for portfolio management.
- ↑ 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.
