The Balanced Scorecard

One model in current and widespread use is the balanced scorecard. The balanced scorecard is an idea invented by Robert S. Kaplan and David P. Norton. Writing first in the Harvard Business Review in an article entitled "The Balanced Scorecard — Measures That Drive Performance," [5] Kaplan and Norton described four scoring areas for business value. One, of course, is financial performance. Financial performance is often a history of performance over the reporting period. Though historical data provide a basis to calculate trends, in effect indexes for forecasting future results, by and large the focus of financial performance is on what was accomplished and the plans for the period ahead. Almost all projects and all project managers must respond to financial performance.

Three other balanced scorecard scoring areas also fit well into the business of chartering, scoping, and selecting projects. These scoring areas are the customer perspective of how well we are seen by those that depend on us for products and services, and exercise free will to spend their money with our business or not; the internal business perspective, often referred to as the operational effectiveness perspective; and the innovation and learning perspective that addresses not only how our business is modernizing its products and services but also how the stakeholders in the business, primarily the employees, are developing themselves as well.

For each of these scoring areas, it is typical to set goals (a state to be achieved) and develop strategy (actionable steps to achieve goals). The scoring areas themselves represent the opportunity space. As we saw in Figure 1-3, goal setting and strategy development in specific opportunity areas lead naturally to the identification of projects as a means to strategy. Specific performance measures are established for each scoring area so that goal achievement is measurable and reportable.

Typically, project performance measures are benefits and key performance indicators (KPIs). KPIs need not be, and most are not, financial measures. In this book, we make the distinction between benefits, returns, and a KPI. Benefits will be used in the narrow sense of dollar flows that offset financial investment in projects. Returns, typically expressed in ratios of financial measures, such as return on investment, and benefits, typically measured in dollars, are sometimes used interchangeably though it is obvious that benefits and returns are calculated differently. KPIs, on the other hand, are measures of operational performance, such as production errors per million, key staff turnover rate, credit memos per dollar of revenue, customer wait time in call centers, and such.

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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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