limited resources, they must prioritize and fund projects selectively. Depending on the demand for IT professionals or the state of the economy, it is not always feasible to hire new employees or to have them trained in time.

The IT Project Selection Process

Although each organization's selection process is different, this section describes the general process for selecting and funding a given project. The selection process determines which IT projects will be funded in a given period. This period can be for a quarter, year, or a time frame used by the organization. In order to weed out projects that have little chance of being approved, many organizations use an initial screening process in which business cases submitted for review are compared with a set of organizational standards that outline minimum requirements.

Projects that meet the minimum requirements are then forwarded to a decision-making committee of senior managers who have the authority to approve and provide the resources needed to support the project. On rare occasions an individual might make such decisions, but most organizations of any size prefer to use committees. The committee may compare several competing projects based on the costs, benefits, and risks to projects currently under development and to those already implemented. Projects selected should then be assigned to a project manager who selects the project team and then develops a project charter and detailed plan.

The Project Selection Decision

Even though each project proposal should be evaluated in terms of its value to the organization, it is important to reiterate that IT projects should not be undertaken for technology's sake. The decision to approve an IT project requires a number of conditions be met:

• The IT project must map directly to the organization's strategies and goals.

• The IT project must provide measurable organizational value that can be verified at the completion of the project.

• The selection of an IT project should be based upon diversity of measures that include:

« Tangible costs and benefits " Intangible costs and benefits

* Various levels throughout the organization (e.g., individual, process, department, and enterprise)

One way to select an IT project portfolio is to use the same methods that were used and discussed when analyzing the project alternatives in the business case. Today, however, there are several ways to measure the expected and realized value of IT to an organization. One method that is becoming increasingly popular is the Balanced Scorecard approach that was introduced by Robert S. Kaplan and David Norton in a 1992 Harvard Business Review article. Instead of focusing solely on the financial impact of a decision, the Balanced Scorecard approach helps balance traditional financial measures with operational metrics across four different perspectives: finance, customer satisfaction, internal business processes, and the organization's ability to innovate and learn (Kaplan and Norton 1992; Kaplan and Norton 1993).

An organization that utilizes the Balanced Scorecard approach must create a set of measurements, or key performance indicators, for each of the perspectives illustrated in Figure 2.6. In turn, these measures are used to create a report or : scorecard for the organization that allows management to track, or keep score, of i the organization's performance. The four perspectives provide a balanced approach in terms of tangible and intangible benefits and long and short term : objectives, as well as how each perspective's desired outcomes and drivers impact I the other perspectives.

• Financial perspective—The Balanced Scorecard approach encourages managers to consider measures other than traditional financial measures for strategic success. Most financial measures are useful for understanding how an organization performed in the past, and some have likened this to steering the ship by watching the wake. Traditional financial measures, however, are still important and can be a cornerstone for ensuring that an organization's strategies are being implemented properly. More importantly, the Balanced Scorecard approach provides a means for linking financial performance with customer focused-initia-tives, internal operations, and investments in employees and the infrastructure to support their performance. Although traditional financial measures that include operating income—ROI, NPV, IRR, and so forth— are still useful, many organizations are now using new financial measures as well. One financial measure that has been receiving a great deal of attention and scrutiny recently is Economic Value Added (EVA). EVA is a measurement tool to determine if an organization is earning

Innovation & Learning Perspective

How do we keep getting better?

Financial Perspective

How do we look to our shareholders or to those who provide funding to us?

Financial Perspective

How do we look to our shareholders or to those who provide funding to us?

Innovation & Learning Perspective

How do we keep getting better?

Internal Processes Perspective

What internal processes must we excel at in order to attract and retain our customers and other key stakeholders?

Internal Processes Perspective

What internal processes must we excel at in order to attract and retain our customers and other key stakeholders?

Customer Perspective

How do we look to our customers and other stakeholders?

Figure 2.6 A Balanced Scorecard Approach more than its true cost of capital. Supporters of EVA believe it provides a clearer picture on whether management is creating or destroying shareholder wealth. EVA is calculated by considering the cost of debt (e.g., the interest rate a bank would charge) and the cost of equity (e.g., what shareholders could earn elsewhere). Subsequently, a positive EVA indicates that positive wealth has been created.

• Customer perspective—How an organization performs in its customers' eyes largely determines customer satisfaction. In turn, satisfied cus tomers can mean repeat business and referrals for new business. As a result, measures or targets for customer satisfaction can be linked to financial rewards. They create a value chain for establishing customer-focused initiatives that can be linked to financial performance. Customer-based measurements may focus on areas that determine the level of satisfaction with the products and services of the company and how well those product and services are delivered.

• Internal process perspective—The internal process perspective focuses on the processes—both long term and short term—that an organization must excel at in order to achieve its customer and financial objectives. Customer satisfaction can be achieved through improved operational activities by the organization, which in turn leads to improved financial performance. Therefore, internal-based measurements should focus on the efficiency and effectiveness of the organization's processes.

• Innovation and learning perspective—The abilities, capabilities, and moti vations of the people within an organization determine the outcomes of the operational activities, financial performance, and levels of customer satis faction within the organization. Thus, an organization relies heavily on its people not only to support the other three perspectives, but also to provide continuous improvements in these areas. An organization's ability to inno vate and learn at the individual level is critical for supporting the organiza tion as a whole. Therefore, the Balanced Scorecard approach gives considerable support to the importance of investing in the future by invest ing in people and makes investing in human infrastructure at least as important as investing in technical and physical infrastructures. Measures for the innovation and learning perspective may include training, certifica tions, and employee satisfaction and retention.

By measuring the value of an IT project across these four areas, the scorecard approach compels an organization's management to consider the impact and context of a project from an organization-wide view. It also limits the potential for overemphasizing traditional financial measurement at the expense of perspectives that include both tangible and intangible benefits. Still, the Balanced Scorecard can fail for a number of reasons (Schneiderman 1999):

• The nonfmancial measurement variables are incorrectly identified as the primary drivers for stakeholder satisfaction.

• Metrics are not properly defined.

• Goals for improvements are negotiated and not based on stakeholder requirements, fundamental process limits, or capabilities.

• No systematic way to map high-level goals with subprocess levels where the actual improvement activities reside.

• Reliance on trial and error as a methodology for improvement.

• There is no quantitative linkage between the nonfmancial and expected financial results.

The Balanced Scorecard approach is an overall performance management system that is useful for selecting all projects in an organization, monitoring their progress, and then evaluating their overall contribution. As illustrated in Figure 2.7, the MOV concept introduced earlier supports the Balanced Scorecard approach.

The MOV can be developed and reviewed in terms of how it supports the four Balanced Scorecard perspectives. However, the MOV concept can also support organizations that use other means of identifying a project's value to the organization.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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