Balanced Scorecard in Project Portfolio Management

Revision as of 16:53, 21 September 2017

Abstract

The Balanced Scorecard (BSC) is a strategic planning and management system that organizations use to connect the strategy elements such as vision, mission and core values with more operational elements such as objectives, measures and targets.

It was introduced by Robert S. Kaplan in 1992 (“The Balanced Scorecard – Measures that drive performance”, Harvard Business Review) after observing that managers focused their attention only on aspects of performance that were measurable, with the primary measurement system in most organizations being based on financial accounting. In their view, these financial reporting systems fail to measure or provide a basis for managing the value created by the organization’s intangible assets.

In order to connect the daily work practices with the strategic goals of a company, the Scorecard approach enables managers to review performance from four different perspectives: Financial perspective, Customer perspective, Internal Process perspective, and Learning and Growth perspective.

Nowadays, BSCs are used extensively in business and industry, government, and nonprofit organizations worldwide. BSC has been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years and was listed fifth among the top ten most widely used management tools around the world in a recent global study by Bain & Co.

The Idea behind the Method

Robert S. Kaplan observed that, as companies around the world transform themselves for competition that is based on information, their ability to exploit intangible assets has become far more decisive than their ability to invest in and manage physical aspects.

Based on this observation, Kaplan introduced the Balanced Scorecard. The latter augments traditional financial measures with benchmarks for performance in three key nonfinancial areas: a company’s relationship with its clients, its key internal processes, and its learning and growing. “When performance measures for these areas are added to the financial metrics, the result is not only a broader perspective on the company’s health and activities, it is a powerful, organizing framework. A sophisticated instrument panel for coordinating and fine-tuning a company’s operations and businesses, so that all activities are aligned with its strategy.”(1, Using the Balanced Scorecard as a Strategic Management System)

Therefore, BSC enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. In other words, it is not a replacement for financial measures but rather their complement.

Translating Vision and Strategy into Four Perspectives

The BSC translates an organization’s vision into a set of performance indicators distributed among four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth.

The financial perspective Focuses on financial performance of an organization and it mainly covers the revenue and profit targets as well as the budget and cost-saving targets. It is important to note that financial performance is usually the result of good performance in the other three scorecard perspectives.

The customer perspective Focuses on performance targets as they relate to customers and the market. It usually covers customer growth and service targets as well as market share and branding objectives. Typical measures and KPIs in this perspective include customer satisfaction, service levels, net promoter scores, market share and brand awareness.

The internal process perspective Focuses on internal operational goals and covers objectives as they relate to the key processes necessary to deliver the customer objectives. At this perspective, companies outline the internal business processes goals and the activities the organization has to do really well internally in order to push performance. Typical example measures and KPIs include process improvements, quality optimization and capacity utilization.

The learning and growth perspective Focuses on the intangible drivers of future and is often broken down into the following components: • Human Capital (skills, talent, and knowledge) • Information Capital (databases, information systems, networks, and technology infrastructure) • Organization Capital (culture, leadership, employee alignment, teamwork and knowledge management).