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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?
Introduction ObservationProblem Case StudyWhy? Solution
Introduction ObservationProblem Case StudyWhy? Solution
Contact InformationContact Information
Pankaj Bhawnani
Blog:
http://pbhawnani.blogspot.com/
3
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
5
ProblemProblem
Year 1
Year 2
Year 3
Stakeholders
Resources and Budget
Projects
Interdependencies
Prioritize Prioritize
Corporate Strategy
Risk Profile
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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?”
Objectives Measures Targets Initiatives
INTERNAL BUSINESS PROCESSES
INTERNAL BUSINESS PROCESSES
“To satisfy our shareholders and customers, what business processes must we excel at?”
Objectives Measures Targets Initiatives
INNOVATION AND LEARNINGINNOVATION AND LEARNING
“To achieve our vision, how will we sustain our ability to change and improve?”
Objectives Measures Targets Initiatives
12
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
18
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
Case Study -OptimizationCase Study -Optimization
Demo
25
Introduction ObservationProblem Case StudyWhy? Solution
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
Introduction ObservationProblem Case StudyWhy? Solution
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?
27
Introduction ObservationProblem Case StudyWhy? Solution
What-if AnalysisWhat-if Analysis
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?
28
Introduction ObservationProblem Case StudyWhy? Solution
What-if AnalysisWhat-if Analysis
Stakeholder Similarity AnalysisDistance Between Stakeholder Priorities
0
5
10
15
20
25abc1
abc2
abc3
abc4abc5
abc6
abc7
abc1 abc2 abc3 abc4 abc5 abc6 abc729
Introduction ObservationProblem Case StudyWhy? Solution
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
30
Introduction ObservationProblem Case StudyWhy? Solution
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