Aligning & Prioritizing Projects With Corporate Strategy Using Balanced ScoreCards Pankaj Bhawnani...

Aligning & Prioritizing Projects With Corporate

Strategy Using

Balanced ScoreCards

Pankaj Bhawnani

Senior Consultant, Project Management

Fujitsu Consulting (Canada) Inc.

Aligning & Prioritizing Projects With Corporate

Strategy Using

Balanced ScoreCards

Pankaj Bhawnani

Senior Consultant, Project Management

Fujitsu Consulting (Canada) Inc.PMI Dinner October, 2007

Introduction ObservationProblem Case StudyWhy? Solution

2

OutlineOutline

Introduction

What are we trying to solve?

Case Study

Observations

How?

Why?



Contact InformationContact Information

Pankaj Bhawnani

[email protected]

[email protected]

Blog:

http://pbhawnani.blogspot.com/

3

mailto:[email protected]

mailto:[email protected]

http://pbhawnani.blogspot.com/


4

IntroductionIntroduction

Doing the right projects vs. performing projects right

Which projects should I do so that:

Achieve alignment with Corporate Strategy

Balance various stakeholder opinions

Optimal use of resources and budget

Take into consideration interdependencies between projects

Minimize Risk Profile

Maximize Return on Investment

Achieve Transparency in Decisions


5

ProblemProblem

Year 1

Year 2

Year 3

Stakeholders

Resources and Budget

Projects

Interdependencies

Prioritize Prioritize

Corporate Strategy

Risk Profile


6

Why Do We Care?Why Do We Care?

Survey on 507 companies on their management practices 53% of the CIOs say that their project prioritization is politically driven

Only 68% agree that all the necessary business stakeholders are involved in setting project priorities

Only 40% of the CIOs say that their companies use a portfolio management approach

Source: CIO Insight Research Study on Project Management, 2004


Why Do We Care?Why Do We Care?

Alignment with strategic objectives Inefficient use of Resources Avoidance of low value projects Consensus needed for executing a project Sarbanes Oxley Act Transparency of

Financial Decisions What to decide? Who decides? How to decide? (in the best interest of the company

and their stakeholders) 7


Value of a Disciplined Process

Value of a Disciplined Process

0 20 40 60 80 100

Yes, there is a formalprocess in place. 62% 33% 5% 1%

There is no formalProcess, but we doDiscuss this issueFrequently enough.

23% 58% 16% 3%

No, it only comesup for major projectsor initiatives.

8% 44% 39% 3%6%

No, it rarely if everIs considered. 40% 50% 10%

Budget closelyaligned with strategy.

Budget somewhataligned with strategy

Budget poorlyaligned with strategy.

Budget doesnot support strategy.

Budget worksAgainststrategy.

Source: Ventana Research

8


OPTIMIZATIONMODELING

STARTSTART

SolutionSolution

ENDEND

Defined ScoreCard Objectives &

Investment Criteria of an Organization

Priorities & weights

Dependencies & Constraints

Cost & Business Case

F2(x) Objective Criteria

F1(x) Subjective Criteria

Bi-objective Release Planning Model

Maximize Objective Function

Maximize Objective Function

YEAR 1 YEAR 2 YEAR 3

Align Projects with Corporate Strategy

WHAT-IF SCENARIOS

Choose Plan

Satisfactory?

Evaluate alternatives

Trade-off parameters

No

Yes

Measure Each Project

New Business Ideas

Internal Process

Financial

Customer Growth

Learning & Growth

Vision &

Strategy

10


Balanced Score CardBalanced Score Card

A strategic Measurement and Strategic Management System which attempts to reconcile traditional financial measures with more forward looking, non-financial measures

Employees can only implement a strategy when they clearly understand it, and what’s their role in achieving company’s strategic objectives

Balanced Score Card was developed to bring strategy down to employees and help the whole organization in Alignment

Top-down guidance with bottom-up execution11


Balanced Score Card – Contd.

Balanced Score Card – Contd.

Vision &

Strategy

Vision &

Strategy

CUSTOMERCUSTOMER

“To achieve our vision, how should we appear to our customers?”

Objectives Measures Targets Initiatives

FINANCIALFINANCIAL

“To succeed financially, how should we appear to our shareholders?”


INTERNAL BUSINESS PROCESSES

INTERNAL BUSINESS PROCESSES

“To satisfy our shareholders and customers, what business processes must we excel at?”


INNOVATION AND LEARNINGINNOVATION AND LEARNING

“To achieve our vision, how will we sustain our ability to change and improve?”


12


Financial?

• Revenue growth rates• Cost reduction• Asset utilisation• Project profitability

To succeed financially, how

should we appear to our shareholders?

Growth Maturity Harvesting

Financial objectives tend to be influenced by the organization's position on the life-cycle curve.

What should our balance sheet look

like?

13


Customer?

What do

our customers

value most?

MarketShare

CustomerRetention

CustomerProfitability

CustomerSatisfaction

CustomerAcquisition

• Product / ServiceAttributes

• Customer Relationship• Image and Reputation

Organisational sub-units may have internal clients.

To achieve our vision, how should we appear to our

customers?

14


Internal BusinessProcesses?

• Improve quality• Reduce cycle times• Maximise production• Maximise throughput• Reduce cost per process• Reduce cost per transaction

CUSTOMER

NEED

SATISFIED

SERVICE THE

CUSTOMER

CUSTOMER

NEED

IDENTIFIED

CREATE THE PRODUCT/ SERVICE OFFERING

BUILD THE PRODUCTS/ SERVICES

DELIVER THE PRODUCTS/ SERVICES

IDENTIFY THE

MARKET

Innovation Process Operations Process

Customer Service

corecompetencies

To satisfy our shareholders and customers, what

business processes must we excel at?

15


Learning andInnovation?

• Employee capabilities• Information system capabilities• Motivation• Empowerment• Alignment

Internal &

External R

&DHighlight gaps in employeeskills and information systems.

To achieve our vision, how will we sustain our ability

to change and

16


OptimizationOptimizationGraph of Project Portfolios

( , )( , )

2

i j

i j

i ji j

Project Dependencies

P3

P4 P5

P6

P2P1

P7

Projects

P3

P4

P2P1

Given ( ) ( , )ppbv i value i p

: ( )( ) ( , )

j ij adjsv i i j

1 1... : ( )F ( ) ( )kk K i x i kx bv i

2 1... : ( )F ( ) sv( )kk K i x i kx i

Max* 1 2( ), ( )F x F x

Subject to max: ( ) ( , ) ( , ),i x i k r i t r k t k K and t T

( ) ( ), ( , )x i x j i j C ( ) ( ), ( , )x i x j i j P

1... ( ) ( , ) kk K tc i x i k ( ) {0,1},x i 1, ,i n

17

+

+

Objective criteria

+ Subjective Criteria+1 1( )F x 1 0( )F x

2 1( )F x

2 0( )F x

11 12 13

23

22

21

**

*

x1

xn

x2

x3

x

Decision SpaceF1

F2

Objective Space

E

AB

C

D

F

H

G


Strategy MapStrategy MapThe Revenue Growth Strategy

“Improve stability by broadening the sources of revenue from current customers”

The Productivity Strategy“Improve operating efficiency by shifting customers to more cost-effective channels of distribution”

Improve Returns

Improve Operating Efficiency

Broaden Revenue

Mix

Increase Customer

Confidence in Our Financial

Advice

IncreaseCustomer

Satisfaction

IncreaseEmployee

Productivity

Access to Strategic

Information

Develop Strategic

Skills

Align Personal

Goals

FinancialPerspective

CustomerPerspective

InternalPerspective

Learning Perspective

Cross-Sell the

Product Line

Shift to Appropriate

Channel

Provide Rapid

Response

Develop New

Products

Minimize Problems

Understand Customer Segments

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Case Study - TransportationCase Study -

Transportation

Objectives

• Fast ground turnaround

Statement of what strategy must achieve

and what’s critical to its

success

Target

• 30 Minutes• 90%

The level of performance

or rate of improvement

needed

• Cycle time optimization

Key action programs

required to achieve

objectives

InitiativeMeasurement

• On Ground Time• On-Time

Departure

How success in achieving the strategy

will be measured and

tracked

Strategic Theme: Operating Efficiency

ProfitabilityFinancial

Learning

Increase Revenue

Ground crew alignment

Lowest prices

Lower Costs

Customer

Internal

Fast ground turnaround

Strategy Map

Flight is on time

19


Case Study–Define Score Card

Case Study–Define Score Card

Financial = 40% of the balanced approach

ROI = 20% of financial Criteria 1 out of 5, ROI < 14.99 % 2 out of 5, ROI 15 – 24.99 % 3 out of 5, ROI 25 – 44.99 % 4 out of 5, ROI 45 – 64.99 % 5 out of 5, ROI > 65 %

NPV = 20% of financial criteria 1 out of 5, NPV = negative 3 out of 5, NPV = $1 to $500,000 5 out of 5, NPV = > $500,000

Pay Back Period = 20% of financial criteria 1 out of 5, PBP >3 years 2 out of 5, PBP 2 – 3 years 3 out of 5, PBP 1 – 2 years 4 out of 5, PBP 6 months – 1 year 5 out of 5, PBP < 6 months

20


Define Score Card - Financial

Define Score Card - Financial

Supports Incremental Revenue =20% of financial criteria 1 out of 5 , no incremental revenue 3 out of 5 , 0 – 5 % RASM over and above natural growth 5 out of 5 , > 5 % RASM over and above natural growth

Supports Cost Reduction = 20% of financial criteria 1 out of 5 , no cost reduction 3 out of 5 , adjusted CASM stays the same through natural growth. 5 out of 5 , decreases CASM

21


Define Score Card- Customer

Define Score Card- Customer

Customer = 20% of balanced approach

Project delivers sustained improvement to the customer experience weighted at 40% of Customer Criteria

1 out of 5 = negative impact to guest experience 3 out of 5 = maintains guest experience or not applicable 5 out of 5 = improves guest experience

Project provides improvement to consistency of customer experience and consistency of service

weighted at 30% of customer Criteria 1 out of 5 = project splits service (creates channel inconsistency, inconsistent guest experience

across touch points) 3 out of 5 = project maintains status quo or not applicable 5 out of 5 = project aligns & improves service offering (channel consistency, aligns experience

across touch points)

Project implementation gives access to new markets and/or new customers weighted at 30% of customer Criteria

1 out of 5 = No 5 out of 5 = Yes 22


Define Score Card – Internal Process

Define Score Card – Internal Process

Internal Business Process = 20% of balanced approach

Project improves service/product delivery processes, ie. Customer experience, safety, sales, route scheduling, OTP etc.

Weighted at 60% of the Internal Process criteria 1 out of 5 = negative impact to processes 3 out of 5 = no impact or not applicable 5 out of 5 = improves processes

Project improves corporate support processes i.e. hiring, accounting, etc.

Weighted at 40% of the Internal Processes criteria 1 out of 5 = negative impact to processes 3 out of 5 = no impact or not applicable 5 out of 5 = improves processes 23


Define Score CardDefine Score Card

Learning & Innovation = 20% of balanced approach

Project supports recruitment and retention of people Weighted at 30% of Learning & Growth Criteria

1 out of 5 = negative impact to recruitment and retention 3 out of 5 = maintains current or not applicable 5 out of 5 = positive impact to recruitment and retention

Project improves alignment of corporate success with personal success (rewards and recognition ) Weighted at 30% of Learning & Growth Criteria

1 out of 5 = negative impact to alignment of success 3 out of 5 = maintains current or not applicable 5 out of 5 = positive impact to alignment of success

Project provides our people with tools required to do the job Weighted at 40% of Learning & Growth Criteria

1 out of 5 = negative impact, manual or inefficient processes 3 out of 5 = maintains current or not applicable 5 out of 5 = positive impact in providing tools required 24


Case Study -OptimizationCase Study -Optimization

Demo

25


What-if AnalysisWhat-if AnalysisWhat amount of resource would be needed to allow execution of top projects?

Cumulative Resource Consumption Technical Analyst

0

2000

4000

6000

8000

10000

12000

Projec

t B

Projec

t X

Projec

t G

Projec

t Z

Projec

t N

Projec

t B1

Projec

t C

Projec

t D

Projec

t M

Projec

t P

Projec

t U

Projec

t V

Projec

t A1

Projec

t L

Projec

t Q

Projec

t E

Projec

t H

Projec

t K

Projec

t T

Projec

t R

Projec

t S

Projec

t A

Projec

t Y

Projec

t O

Projec

t F

Individual Resource Consumption Cumulative Resource Consumption

26


What-if AnalysisWhat-if Analysis

Project ROI Based on Benefit and Effort

-500

0

500

1000

1500

2000

-500 0 500 1000 1500 2000 2500 3000 3500 4000

Effort

Ben

efit

Which projects seem to be most attractive?

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Combined Average Priority

Project PProject G

Project UProject H

Project MProject N

Project EProject XProject Y

Project AProject V

Project KProject RProject S

Project A1Project Z

Project DProject B

Project FProject L

Project OProject Q

Project CProject B1Project T

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00

Which projects are most attractive for stakeholders?

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Stakeholder Similarity AnalysisDistance Between Stakeholder Priorities

0

5

10

15

20

25abc1

abc2

abc3

abc4abc5

abc6

abc7

abc1 abc2 abc3 abc4 abc5 abc6 abc729


ObservationsObservations

By connecting balanced score card directly with project management, we’re directly linking strategy with tactical execution

Helps communicate the value of operational activities Make strategy a continuous process Bringing stakeholders together for consensus Effective leadership Strategic planning is at best about posing questions

more than attempting to answer them Balanced Score Card should be implemented as a

project and buy-in is critical If you can’t measure it, you can’t manage it

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Key ReferencesKey References

Alleman, Glen B., “Using Balanced Scorecard to Build a Project Focused IT Organization”(CH2M HILL), 2003

Benson, Robert J., Bugnitz, Thomas L., Walton, William B., From Business Strategy to ITAction: Right Decisions for a Better Bottom Line, John Wiley & Sons, 2004

Bower, Joseph L., Gilbert, Clark G., From Resource Allocation to Strategy, Oxford University Press, 2006

Cokins, Gary, Performance Management: Finding the Missing Pieces (to Close theIntelligence Gap) (SAS Institute Inc.) John Wiley & Sons, 2004

Kaplan, Robert S. and Norton, David P.,”The Balanced Scorecard: Measures that DrivePerformance,” Harvard Business Review, 1992

Kaplan, Robert S. and Norton, David P., “Putting the Balanced Scorecard to Work", Harvard Business Review, 1993

Kaplan, Robert S. and Norton, David P.,”Using the Balanced Scorecard as a StrategicManagement System,” Harvard Business Review, 1996

Niven, Paul R., Balanced Scorecard Step-by-Step John Wiley & Sons, 2002

Porter, Michael E., Competitive Strategy, Simon & Schuster, 199831

A Final Thought“One of the most dangerous forms of human error is forgetting what one is trying to achieve.”

- Paul Nitze

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