In the past, Organizations have made several attempts to gain and sustain competitive advantage in the relevant industry all over the world (Kagioglou, et al., 2001; Kaplan and Norton, 1996). This has often resulted in the adoption of new philosophies, e.g. lean production, just in time (JIT), total quality management (TQM), benchmarking, business process re-engineering (BPR) etc. in manufacturing and service sector (Kagioglou, et al., 2001; De Wilde De Ligny and Smook, 2001). In the performance management process a company manage its performance in line with its corporate and functional strategies and objectives (Bititci et al., 1997). In this process the outputs of organizational strategies and operational strategies are measured in a quantifiable form to monitor 'vital signs' of an organization (Hronec, 1993 and Euske, 1984 from Johnson, 2003)
Traditionally, businesses have tended to judge their performance on a singular measure, profit, because the traditional performance measurement system rely solely on financial measures which allow the organizations to identify their past performance but not what contributed to achieve that performance (Kagioglou, et al., 2001). Reliance on the financial measures in management system prompted short-term behavior ignoring long-term viability (Kaplan and Norton, 2000). It has been suggest that business performance measurement should look beyond traditional financial metrics and embrace essential business drivers that determine and influence a company's future business (Love and Holt, 2000)
Project Performance Management and Strategic Project Management
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Traditionally contractors have been concerned about project performance (Ward et al., 1991; Mohsini and Davidson, 1992). However, the performance of projects and contractors has been assessed mostly on the context to which the client's objective like cost, time and quality were achieved on those projects (Ward et al., 1991; Mohsini and Davidson, 1992; Smallwood and Venter, 2001). Although these three measures provide an indication of the success or failure of a project they do not provide a balanced view of the project's performance. Performance relative to cost, quality and schedule is influenced by other factors like communication, risk management, and worker satisfaction (Smallwood and Venter, 2001)
Importance of good relationship management in project, in addition to cost, time and quality, enriched by the special features of harmony, trust and goodwill, to be successful in the market (Ward et al., 1991). There is criticism that project performance measurement primarily focuses on traditional bottom-line performance measures such as efficiency and profitability, and therefore fails to assess the true performance of projects and organizations (Kagioglou et al., 2001). There is a consensus among researchers and industry experts that one of the principal barriers to promote improvement in projects is the lack of appropriate performance measurement (Alarcon and Serpell, 1996).
The research problem can therefore be stated as follows:
"Wider project performance measurement systems are lacking in project based organizations. The result achieved from the existing bottom-line project performance measurement system based on only financial measures cannot be used to derive future performance. In the absence of a wider project performance measurement system in the contractor's organization, it will be difficult for them to substantiate the status of their organizational performance"
The following are the basic research questions that led to the formulation of the research proposal:
How do we better measure the project performance in contractors' organization to accommodate a wider range of critical criteria?
How can we better identify project performance indicators to improve monitoring and control of contractor organizations in the long term?
What is the importance of each measure in their project performance system?
The research primarily aimed at identifying the project performance indicators on contractor organization to effective control and monitoring in the long-term together with relative importance of each parameter. Other objectives are:
To study the relationship of stakeholders perspective's indicator on project performance.
To study the relationship of internal process perspective's indicator on project performance.
To study the relationship of financial perspective's indicator on project performance.
To study the relationship of growth and innovation perspective's indicator on project performance.
Justification of Study
In today's business environment, where organizations compete on the basis of non-financial factors, they need information on how well they are performing across a broader spectrum of dimensions, not only financial but also operational (Neely, 1999). It has been suggested that the Balanced Scorecard performance measurement system, which was introduced by Kaplan and Norton (1992), fulfils this requirements (Johnson, 2003).
Always on Time
Marked to Standard
The results derived from the wider project performance measurement process may be used as inputs for a continuous strategic management process in order to form a competitive base in a fiercely competing contractors' environment. This will be highly beneficial for contractors' organizations that are sometimes criticized for a lack of long-term strategic planning and management (Veshosky, 1994; Chinowsky and Meredith, 2000)
Project and Project Management
A project is a temporary endeavor undertaken to create a unique product or service with a definite start time and end (PMBOK @ 2004). This uniqueness is a consequence of the difference in some way from the "normal" product delivered by an organization. Furthermore, every project is constrained in different ways by time, cost, and quality. However, projects are constrained also with the organization strategy (Norrie and Walker, 2004). A project is defined by discrete activities which are related to each other and linked together over the project lifecycle. Moreover, a project consumes limited resources such as human, time, money, machines, facilities, and materials and requires specific skills to manage and execute and finally produces tangible deliverables according to stakeholder's requirements.
Keeping projects on-time, within budget and achieving a high level of quality of scope is difficult. Problems are due to poorly conducted analysis and design, but many also suffer from poor leadership and management. Project management is the planning, execution and controlling of project activities to achieve project objectives. Objectives include time, cost and scope or managing the triple constraints. Based on PMBOK @ 2004 definition, project management is the application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needs or expectations from a project.
Based on PMBOK @ 2004, there are nine knowledge areas for project management which take inputs from stakeholders including their needs and expectation and lead to project success by use of four core function including scope, time, cost and quality management and another four facilitating functions of human resource, communication, risk and procurement management with the direction of the last but not the least area, project management integration.
Project Performance Measurement
Project performance systems measure planned value against actual value of project performance, considering time and cost distribution to develop alarming system for managers (T.R. Collins et al., 2004). After use of measurement system, a project may call "on track", "critical" or "out of control" project depends on the benchmark values from its metric system. In "on track" project, all the activities are going based on the planned system and there is no significant difference in planned and actual values in field of time, cost, or quality. But for a "out of control" project, there is a significant difference between planned and actual values and project needs a catch up plan and huge effort to direct it on the way. The several ways, traditionally, used to measure project performance such as earned value analysis. The other measures such quality, organizational goals and mission also along with time and cost distribution can be used in performance measurement system which we will consider them in strategic project management.
Strategic Management Directions
Major views on Project Management
There are three central paradigms in project management. The first and most traditional view, operational view, sees a project as a sequence of activities that have to be performed and completed according to plan. The second view is based leadership. It looks at projects as an organizational team that needs to be led and motivated. The third view, the strategic view sees projects as business-related activities that need to achieve the project's business result. Each view is completely different. Each is based on different assumptions, uses different metrics of success, and defines the role of project manager in different ways (Shenar and Devir, 2007)
As it is mentioned, a project is a temporary organization and process which has been set to gain specific goals under the certain constraints which are clearly defined on project plan. A project includes of goals, structures, processes, and resources. Moreover, a project is a part of organization structure which should carries the organizational goal and objective. Both the business level and corporate level strategies of organization should translate to project goals. But how exactly is these strategies translated into what project structure? The project strategy is a conceptual missing link between the business strategy and the project plan which carries the project goals and objective (A. Shenhar et al., 2004). The balanced scorecard is a tool to cover this gap using the project strategy level on its structure. Moreover, according to current researches, Clear project vision and clear project goal and objectives are the most important critical success factors in projects (J. Norrie and H. T. Walker, 2004).
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Stakeholder theory emphasizes that "if an organization wants to maximize the shareholder value (improving financial bottom line) it should pay attention to key stakeholders". Usually stakeholders of an organization include investors, customers, employees, suppliers, governments, trade associations, communities, political groups etc. (Freeman, 1999; Donaldson and Preston, 1995).
According to Halal (2000), traditional emphasis of management has evolved from "profit" to "social responsibility", and now seems to be moving toward "collaborative working relations" with all stakeholders of the project. He claims the starting point is the emerging partnering and alliance set-ups. He also states that, although the general concept of stakeholder management seems to be widely accepted, its central tenet of "balancing" interests was predominantly abandoned during the 1990s. Under his model, called the "corporate community model", all stakeholders work collaboratively with managers to improve their own benefits while also enhancing corporate profitability.
Neely et al. (200l) also stress the importance of stakeholder perspective measurement using a stakeholder-centric performance measurement system, which not only measures stakeholder satisfaction but also stakeholders' contribution to the organization's wants and needs. They say the 'Performance Prism' performance measurement framework satisfies this requirement. At a glance, this performance measurement system contains measures to make sure that all stakeholders have been identified; strategies have been put in place to satisfy the wants and needs of these key stakeholders, critical processes that are necessary to execute these strategies have been identified, necessary capabilities are developed to operate and enhance those processes, and contributions are obtained from stakeholders to maintain and develop these capabilities.
Galbreath (2002) provides a framework, which can be used to manage relationships with certain stakeholders, and also help understand the possible value generation through stakeholder relationships. Here the 'goal' of the relationship is the ultimate objective that the organization is going to achieve from enhanced relationships with the particular stakeholder (for example, customers); the 'value outcomes' are expected to result out of such relationships, and can also be considered as the measures of its success in achieving goals; and the 'enablers of success' are the key ingredients that should be in place for the relationships to flourish.
The Balanced Scorecard as a Wider Performance Measurement System
Performance Measurement System
The clear relationship between performance measurement and management can been seen in its wider context from a process view. It has been widely accepted that measurement is the foundation of good management practice (Love et al., 1999) and performance measures influence behavior (Neely, 1999) of people inside and outside the organization. It is accepted that companies often fail to turn strategy into effective action due to inadequate or inappropriate measures. In addition, business today requires better information across a wider scope than that of traditional, and often linear, financial measures to achieve understanding of the factors that create the foundations of future success (McAdam and Bailie, 2002). Thus according to Neely (1999), wider performance measurement is now on the management agenda. Barnard (1962) asserts that it has long been recognized that performances measures are an integral part of the planning and control cycle (quoted in Neely, 1999).
In general, the performance measurement process starts with clarification of the company's mission and strategy in line with the company's success factors and moves on to establishing consensual objectives and goals (usually in the short term). After establishing clear objectives that the organization strives to achieve, a strategy map may be drawn to adequately show cause and effect links. The cause and effect relationships introduce dynamic systems thinking. Following the strategy map appropriate performance measures are identified and relevant targets are established across a balanced set of outcomes and performance drivers. Then strategic objectives and measures are communicated throughout the entire organization. Subsequently, responses are obtained from different functional perspectives, analyzed and reported to the management to take necessary action. The management compares the desired performance goals with current levels in order to establish strategic performance gaps. This enables the organization to monitor the viability of the existing strategy and adjust its implementation and, if necessary, to make fundamental changes in the strategy itself in a continually changing environment in a quick and timely fashion. Strategic initiatives are then designed to close the performance gap. This cyclical process continues with reviewing, updating and replacing the objectives in the various perspectives in accordance with the most current view of the strategic outcomes and required performance drivers for the upcoming periods (Bond, 1999 and Kaplan and Norton, 1996).
Deciding on an appropriate set of performance measures in an organization is an important task. It is paramount that this set of performance measures should support rather than contradict the business objectives of that particular organization (Bititci et al., 1997). In response to such a call for an improved business performance measurement system, several new performance measurement frameworks have emerged in the management literature. Those frameworks take into account all wider perspectives of an organizational performance and address the limitations of the currently available traditional performance measurement systems. They incorporate both financial and business drivers. Some examples of the wider performance measurement frameworks include: the Balanced Scorecard, performance measurement matrix, performance pyramid, and "Baldrige" Award. In addition to these overall performance measurement approaches, specific attention to the measurement of a few important business performance dimensions has also been drawn in the recent past. Some examples are customer satisfaction (Berry et al., 1994), employee satisfaction (House and Price, 1991) and business success (Chakaravarthy, 1988, Love and Holt, 2000).
Of the above performance measurement approaches, the Balanced Scorecard (BSC) to a greater extent provides solutions to the problems that have been experienced with traditional bottom line performance measurement systems. The BSC also meets most of the above-mentioned guidelines pertaining to appropriate performance measures. The BSC demonstrates a project's (or company's) performance based on satisfying a wide range of needs other than profit to the organization delivering the project or lowest cost (financial bottom line) (Walker and Walker, 2002).
The Balanced Scorecard (BSC)
In the market-driven competitive world, businesses are continual seeking new strategies and business models to excel in as well as seeking to update the process and metrics used to measure and improve performance (Basu, 2001). The Balanced Scorecard (BSC) as a performance measurement system includes financial measures that show the results of the actions already taken, and it complements the financial measures with operational measures on customer satisfaction, internal processes, and the organization's innovation and improvement activities. According to Kaplan and Norton (1994) this set of measures gives managers a fast but comprehensive view of the business (Kaplan and Norton, 1994). It is based on the fact that the financial measures are lagging indicators and are the results of the other three leading indicators (also known as "operational measures") (Kaplan and Norton, 1992). These three leading indicators, while being drivers of financial performance of a business provide an early indication of future financial performance of the business, and therefore should not be neglected by organizations. Therefore a complete performance measurement framework should comprise not only financial measures but also operational measures.
Amaratunga et al. (2000) assert that the concept of BSC came out of the realization that no single performance indicator can capture the full complexity of an organization's performance. The BSC has been designed to provide a balanced picture of financial and intellectual capital. It provides a framework for implementing and managing a strategy at all levels of an organization by linking objectives, initiatives, and measures of an organization's vision and strategy. As it translates the organization's vision and strategy into objectives and measures across four balanced perspectives it is consistent with the organization's corporate strategy (Amaratunga et al., 2000).
Strategic Advantages of Using Balanced Scorecard
The advantages of using a Balanced Scorecard in an organization can be summarized as follows:
â€¢ It clarifies the organizational strategy and gains consensus among its managers,
â€¢ It communicates and educates the organization and all its stakeholders about old and new strategies, objectives and directions,
â€¢ It allows the mangers to look at the business from four important perspectives simultaneously and frequently managers can see whether one objective is being achieved at the expense of another and take necessary action,
â€¢ It forces top managers to focus only on the handful of measures that are most critical for a business and avoids overloading of information when making quick decisions,
â€¢ It aligns departmental and personnel goals to the strategy,
â€¢ It helps identify and align strategic initiatives,
â€¢ It meets several other managerial needs in a business, such as organization of resources and their allocation, planning and controlling of business activities, and human resource management,
â€¢ It provides strategic feedback (diagnostic feedback into various processes to guide improvement on a continuous basis via benchmarking, indicate performance trend, provides feedback around performance measurement methods themselves, and which metrics should be tracked),
â€¢ It tracks the performance of intangibles and intellectual capital in an organization that has greater bearing on its long-term performance, and
â€¢ It also builds a good reputation among potential clients, shareholders and employees (adapted from Kaplan and Norton, 1996 and 2000; BSC Organization, 2001; Roos et al., 2001).
Shortfalls of the Balanced Scorecard
Despite the above-mentioned advantages, the Balanced Scorecard is not free from criticism. It has been criticized for over-simplicity and not providing a complete measurement system (Kagioglou et al., 2001). Letza (1996) also identified certain potential mistakes the organizations that he studied have made in designing and implementing a Balanced Scorecard. They are:
â€¢ Measuring the wrong things. Most of the times managers failed to relate their measures to the overall strategic goals of the organization,
â€¢ Failure to measure critical strategic activities. This was usually due to the resistance from managers as they perceived that certain things are un-measurable or those who undertake the activities are 'too professional', and
â€¢ Yielding conflict between managers along the functional lines due to measurement of their performance. Conflict arose when certain divisions were performing at less than optimal level.
Neely et al. (2001) argue that in BSC no mention is made in the Balanced Scorecard of employees. Likewise, no mention is made of suppliers, alliance partners, regulators, the local communities or pressure groups. Yet all of these parties can have a substantial impact on the performance and success of an organization.
According to Gautreau and Kleiner (2001), there are difficulties in using the BSC when an organization is trying to automate the system. They claim BSC measures items which are often difficult to relate to and measures may be difficult to quantify, leading to too many performance measures. On the other hand, determining the performance measures is often more difficult than expected. Further, it takes a great amount of time and resources to update the scorecard and successfully implement it.
Finally, though the BSC worked well when it was first introduced nearly a decade ago it has now also been criticized for not providing guidance on how to improve performance to achieve desired strategic results (Gautreau and Kleiner, 2001). This is because the world has moved on and priorities are changing in the so-called "New Economy" (Neely et al., 2001). However, it is important to note that most of the limitations mentioned above are manageable to a greater extent with proper planning and awareness (Gautreau and Kleiner, 2001). Most of the problems can be overcome by changing the Balanced Scorecard perspectives to suit the emerging management schools of thought.
Project Performance Metric Selection and Categorization
Steward (2000) offered his framework for project performance measurement using a balanced scorecard approach by mapping key performance factors affecting project success to each corresponding BSC perspective. But he focused on his framework more on organization's project portfolio rather than an individual project.
Johnson (2003) used stakeholder theory to provide the new framework. He set stakeholders perspective as a major perspective in balanced scorecard with the indicators of:
Relationship with partners
Image and reputation building
According to Langford and Male (2001), in projects the stakeholders needing to be satisfied would expand and this poses fresh challenges to the strategy-making process. This statement implies the need for an appropriate wider performance measurement system concerned about not only paying customers but also other stakeholders all being critical for business viability in the short and longer terms (Love and Holt, 2000). But his framework more focused on project based organization performance measurement against the individual project.
T. R. Collins et al. (2004) used PMBOK @ 2004 as a source to define the relevant metrics for multiple project balanced scorecard. They focused on scope (strategies to meet objectives), time (project schedules' issues), cost (project cost and budget's issues), and quality (project deliverables' characteristics and specifications). They slightly modified the Kaplan and Norton traditional BSC perspectives to reflect a more realistic set of perspectives for a project management balanced scorecard. The revised perspectives are listed below:
Time Perspective: How well is the project performing with respect to schedule?
Financial Perspective: Is the project conforming to set budget constraints?
Client Perspective: How do the clients rate our project performance?
Learning & Growth Perspective: Are we prepared to meet any shifts in project technology and personnel skills required to provide exemplary project performance?
K. Devine et al. (2010) proposed their framework for project performance measurement. They consider time and cost as financial perspective believing that the time is money.
However, the original sequence of building a balances scorecard system for project management from Kaplan and Norton is clearly documented, but we should notice that in a project context, the balanced scorecard should measure specific result of project instead of measuring the organizational overall objectives (K. Devine et al., 2010).With consideration all previous work on area of project balanced scorecard, their advantages and weaknesses, and notifying the contractors' organization and projects environment, I propose a new framework for project performance measurement in contractors' organization.
The new frame work with four perspectives is as below:
Stakeholders Perspective: How does project appear to its stakeholders to achieve its vision?
Internal Process Perspective: What business process must project at to satisfy customers?
Financial Perspective: How well is the project performing with respect to schedule and budget?
Learning & Growth Perspective: Are project team prepared to meet any shifts in project technology and personnel skills required to provide exemplary project performance?
In order to build up a simple but comprehensive framework for the performance measurement of the contractors, critical measures/factors under each perspective can be summarized as follows:
Stakeholder Perspective Indicators:
Engineering Change order
Team orientation and training
Relationship with partners
Internal Process Indicators:
Non conformity status
Engineering documents revision status
Final acceptance and testing
Change request status
Correspondence and meeting status
Financial Perspective Indicators:
Project cost slippage
Project crashing cost
Growth and Innovation Perspective Indicators:
Improvement of templates, procedures, and tools
Best practice identification
Kaplan and Norton (1996) also support this kind of amendment and state that their Balanced Scorecard framework is only a template. Different perspectives can emerge depending on industry circumstances, organizational strategies, performance drivers, factors that create competitive advantage and breakthroughs for an organization. Having explored the available literature with regard to new project performance measurement models and critical success factors in other industries as well as specifically in contractor's organization, the following framework illustrates key perspectives of a wider project performance measurement/management system (an amended BSC framework for contractors).
Iran's Oil and Gas projects will be targeted population. I will divide the target population into two categories of their role in projects, Contractor or Client. Project Managers and Executives from the targeted population will be the research unit of measurement.
Selection of the Data Collection Method
The primary data are personal interview, email and self-administered survey (structured questionnaire), while the secondary data are journals, article, reference books and etc.
Selection of the Appropriate Sampling Method
The sampling design that was being selected is the non-probability sampling.
Determination of Necessary Sample Sizes and Overall Contact Rates
120 projects will be selected from Iran's Oil and Gas Industries. Since this is self administered survey, estimated 10 respondents might have fill in the questionnaire with errors. Thus, the overall contact rate will be around 92%.
The secondary data, which has been used to carry out this research project, are mainly from journals, articles and reference books. The secondary data are collected from library and online database such as Emerald Insights, EBSCO, Science Direct and Sage Publication.
The primary data, which will be collected to carry out this research project, is from surveys or structured questionnaires
There are 3 main sections in the questionnaire. The first section, will concentrate on the demographic profile of the project and organization such as size and volume. The second section will focus on identifying the factors contributing to project performance measurement and success and which factors they consider most important in determining project performance and finally, the performance of the organization (5 point Likert scale: the scale was in a range from 1 =very undesirable to 5 =very desirable). Moreover, in this section the degree of difficulty that respondent would expect when obtaining evidence to substantiate his response (5 point Likert scale: the scale ranged from 1 = very difficult to 5 =very easy) will be identified. The third section will identify the appropriate current situation of their project performance system.
Descriptive Statistics will be used to identify the mean, median and standard deviation of the data. Mean, median and standard deviation are important measures of the importance of each independent variable.
Moreover, for the quantitative analysis of responses for Section two in the questionnaire, the relative important index (RII) method previously used by Kumaraswamy and Chan (1998) will be used to identify rank of each indicator.
Multiple regression analysis is used to test the predicted relationship between the independent and dependent variables and Pearson Correlation Coefficient will be used to identify the relationships between the independent and dependent variables. For this purpose, the SPSS software is selected.