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The balanced scorecard means the implementation of a balanced reporting of a company. This is one of the most well-known approaches of the performance measurement. The Balanced Scorecard is a theory and management approach first proposed in the Harvard Business Review by Robert S. Kaplan & David P. Norton (1995). A subsequent book, The Balanced Scorecard, was published following this article (1996). The most recent refinement of this theory and management approach appears in Kaplan & Norton's book, The Strategy-Focused Organization (2001).
For well over a decade organizations in both the manufacturing and service industries have been working arduously at trying to bring the power, discipline and rigor of performance measurement into their organizations. These efforts have been partially driven by the fact that anywhere from 20% to 35% of manager's time is spent in collecting, monitoring, evaluating or reporting out data, much of which is of dubious value to the running of the organization. These efforts are also being fuelled by the desire on the part of many executives to convert the concept of managerial accountability from a
much abused, tiresome slogan, which often receives lip service at best, into an integrated cultural expectation. Over time, it has become both recognized and accepted how a clear, valid, functional performance measurement system can serve as a powerful vehicle to develop and communicate expectations and priorities, align strategies with goals and enhance planning, decision making
and evaluation efforts. (W.ZAGAROW, Herbert, 2010)
1.2Aim of Work:
This research "Balanced Scorecard and project management" starts with the introduction which includes the executive summary and aim of work that is realized in here. Then we discuss problem that causes the relevance of this to this research, the determination of the objectives as well as the methodology that describes the research structured procedure. We focused on the basics of the balanced scorecard. At that time we discuss the characteristics and definition of the balanced scorecard, the balanced perspectives as well as the cause and effect relationship are being analyzed. After that we can discuss application of the four already described perspectives to project management and the corresponding chances in organization by implementing the balanced scorecard. Finally, the results the project are summarized.
2 Problems and Research
The BSC success in the company's strategy is one of the challenges for todayâ€²s time. The pure formulation and composition of a good strategy leads not necessarily to success of a company due to the fact that the implementation of a strategy needs to be successful.
The Balanced Scorecard (BSC) is successfully used by many companies in order to support the implementation of a strategy. But it still remains open whether and to what extent the sales organization is coupled to the strategy implementation by means of the balanced scorecard. Thus, a system can be developed which promotes and recompenses the successful strategy implementation. (WELZ, stefanie, 2006)
2.2 Relevance and Motivation:
According to the arising significance of company's sales and distribution achievement, the implementation of an efficient balanced scorecard is an essential requirement from managerial point of view. This change requires a stronger orientation of business enterprises towards an optimized balanced scorecard as we well as sales organization in order to create a lasting added value for the enterprise.
In order to meet these requirements, the primary objective of this project is to reveal and underline the importance of well implemented and managed balanced scorecards for corporate success and to explain methods for the management critically. (WELZ, stefanie, 2006)
In general, data researches are clustered into two groups:
The primary research or the so-called field research raises data and information on the market originally - starting point for the data collection is the origin respectively source of facts and opinions.
2 secondary researches
On the one hand, the secondary research is based on already existing literature Due to time restrictions this research is only based on secondary research which is particularly about the arising problems that causes the relevance of that project. Today, competition becomes more and more turbulent. Therefore, it is of increasing importance to assure a future-proof company strategy and their fast conversion. These are the main developments which cause the growing importance of well implemented and managed balanced scorecard for corporate value creation.
3 Basics on Balanced Scorecard:
3.1Characteristics and definition:
The balanced scorecard has evolved from a performance measurement reporting tool to a complete strategic management system in 12 short years. Its use and popularity have grown so much that the Balanced Scorecard Collaborative was formed in 1999 to provide support, education, research, and training to the many companies interested in the process.
Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." (Kaplan and Norton, 1996)
3.2 Four Balanced Perspectives:
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. (WELZ, stefanie, 2006)
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems." (BALANCEDSCORECARD.ORG, 2010).
3.2.1 Financial Perspective:
Financial performance measure to indicate whether the company strategy is implantation to contribute the bottom- line improvement.
All perspective in the BSC is the same priority, but the financial is financial award special position in the BSC. This is because no organisation runs without fiscal side of the enterprise. Its contained goals and figure of the organization by which the result of the company is made.
The importance of financial considerations is paramount in most situations and in most organisations. For any strategic choice, therefore, the timely and accurately presented funding data is critical and the sources of funding and budgeting must be done. Another key consideration is the prospects of sustainability of funding for the initiative required to implement the strategy. This component of the Balanced Scorecard therefore looks at the projects from a financial perspective and discusses financial considerations (Kaplan and Norton, 1992).
All figure in the financial perspective are used among other thing. Return on investment(ROI), return on capital employed(ROCE), return on equity(ROQ),cash flow ,turn over. (WELZ, stefanie, 2006) The financial perspective addresses the question of how shareholders view the firm and which financial goals are desired from the shareholder's perspective. The specific goals depend on the company's stage in the business life cycle.
Growth stage - goal is growth, such as revenue growth rate
Sustain stage - goal is profitability, such ROE, ROCE, and EVA
Harvest stage - goal is cash flow and reduction in capital requirements
While financial accounting is suited to the tracking of physical assets such as manufacturing equipment and inventory, it is less capable of providing useful reports in environments with a large intangible asset base. As intangible assets constitute an ever-increasing proportion of a company's market value, there is an increase in the need for measures that better report such assets as loyal customers, proprietary processes, and highly-skilled staff.
Consider the case of a company that is not profitable but that has a very large customer base. Such a firm could be an attractive takeover target simply because the acquiring firm wants access to those customers. It is not uncommon for a company to take over a competitor with the plan to discontinue the competing product line and convert the customer base to its own products and services. The balance sheets of such takeover targets do not reflect the value of the customers who nonetheless are worth something to the acquiring firm. Clearly, additional measures are needed for such intangible
3.2.2 Customer Perspective :
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.
In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.
This area focuses on what must be done and what's most important, from the customer's perspective, to achieve the mission. The importance of customer focus and customer satisfaction has gained considerable importance in recent management philosophy. The increased competition in the markets means that it is easier than ever for the dissatisfied customers to switch suppliers. The objectives, measures, targets and, eventually activities are therefore planned to implement strategy regarding the customer satisfaction (Olve et al., 1999).
3.2.3Internal Business Perspective:
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.
This component focuses on what an organisation must be doing well to meet the customer needs defined in the Customer Perspective. It also lets managers know how well their business is running and how well the internal processes are designed to meet the objectives. These may be divided into: a) mission-oriented processes and b) support processes. Specific measures and benchmarks are then set to monitor their effectiveness (Kaplan and Norton, 1992).
3.2.4 Learning and Growth Perspective:
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. (NETMBA.COM, 2010)
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems.
This may include employee training and corporate culture attitudes. In the modern management philosophy, it is increasingly becoming important for the organisations to develop a culture of learning where the employees constantly learn and share the knowledge to facilitate growth. The on-the-job training and mentoring is also an essential component of the perspective
3.3 Cause and effect chain :
Before the Balanced Scorecard, some companies already used a collection of both financial and non-financial measures of critical performance indicators. However, a well-designed Balanced Scorecard is different from such a system in that the four BSC perspectives form a chain of cause-and-effect relationships. For example, learning and growth lead to better business processes that result in higher customer loyalty and thus a higher return on capital employed (ROCE).
Effectively, the cause-and-effect relationships illustrate the hypothesis behind the organization's strategy. The measures reflect a chain of performance drivers that determine the effectiveness of the strategy implementation
3.4 Strategy Mapping:
Whereas strategy is articulated in terms meaningful to top management, to be implemented it must be translated into objectives and measures that are actionable at lower levels in the organization. The Balanced Scorecard can be cascaded to make the translation of strategy possible.
While top level objectives may be expressed in terms of growth and profitability, these goals get translated into more concrete terms as they progress down the organization and each manager at the next lower level develops objectives and measures that support the next higher level. For example, increased profitability might get translated into lower unit cost, which then gets translated into better calibration of the equipment by the workers on the shop floor. Ultimately, achievement of scorecard objectives would be rewarded by the employee compensation system. The Balanced Scorecard can be cascaded in this manner to align the strategy throughout the organization. (NETMBA.COM, 2010)
4 Applying the Balanced Scorecard In Project Management
The Balanced Scorecard:
For those in the field of project management who have seen the value of bringing performance measurement system into their organization, many have chosen the Balance Scorecard as the format and methodology of choice. This approach to performance measurement development was introduced by Kaplan and Norton in their seminal article The Balanced Scorecard Measures that Drive Performance, Harvard Business Review (January-February 1992).
The premise and value behind the Balanced Scorecard lies in the fact that over the past twenty-five years the world of business has entered a new age. In sharp contrast to the time period between the onset of the industrial revolution and the 1970. We are now in a technology driven information age where there is global competition, declining prices, increased quality standards and complex customer requirements. In this new age, the century old traditional approach to measuring performance is no longer adequate. Simply measuring magnitude of output and financial results, no longer tells a leadership team how well the organization is performing. For the complex organization of today, what
is needed is a measurement system that has a healthy balance between leading and lagging indicators; process, output and outcome measures; as well as data on the tangible versus invisible assets of the organization. The Balanced Scorecard fills this role by pushing the management team of an entire organization,or a specific department, e.g., Project Management Office, to develop a broad,
comprehensive set of performance measures that objectively conveys how well it has performed in the past and more importantly, how well it will performing the future.
The challenge with the balanced scorecard is to translate an organization's mission and strategy into an integrated constellation of performance objectives and measures. This is accomplished by developing the objectives and measures around four themes or perspectives Financial, Customer, Internal Business Process and, Growth and Learning. The benefit of using these four perspectives is that one is now pushed to go beyond financial and output measures alone, i.e., project cost, milestones met, or number of projects completed and thus delve wider and deeper to discover additional measures that demonstrate the magnitude of contribution to overall organizational performance. (W.ZAGAROW, Herbert, 2010)
The Four Perspectives of the Balanced Scorecard:
4.1.1The Financial Perspective:
This perspective addresses the financial impact of priorities chosen, plans executed, decisions made and actions taken by the management team. For the traditional organization, measures usually include:
Revenue, profitability, sales growth, stock valuation and return-on equity. In the realm of project management, measures from past clients include unit cost for operating technology and gap between cost estimate and project budget.
4.1.2The Customer Perspective:
Here we address issues around the themes of customer satisfaction and customer retention. Corporate level measures might include performance data from formal customer surveys, loyalty indices, market segment growth and performance measures against key drivers of customer satisfaction.
For project managers, performance measures in this perspective could include project errors, delayed milestones and schedule performance.
4.1.3In the Internal Business Perspective,
Measures are developed around the key processes in the organization. It is here that those processes that the organization must excel at because they correlate with customer satisfaction are identified and monitored to ensure that standards and targets are being met. For some organizations the measures will be formulated around the purchasing and shipping processes, while for others, it might be the design, assembly or the sales process. For the project manager, process performance measures might be developed for requirements development, cost estimating, system design or resource planning.
4.14 In this last perspective:
The challenge of identifying measures that link to long term growth and success are identified. For the Organization as a whole, as well as for project management managers, issues such as new skill and competency acquisition, employee morale, process improvement and enhanced value to the customer are all addressed in this future focused perspective.
Project management is a rapidly emerging profession. It requires a wide range of knowledge, skills and capabilities. If those who choose this field of end ever are to establish themselves as well respected, valued members of the organizational team, eventually it will be necessary to have hard, concrete, objective data to validate level of worth and contribution. Learning the how to build and deploy a viable performance measurements system using the Balanced Scorecard is one definitive step to meeting this challenge.