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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