Using Balanced Scorecard To Build A Project Focused IT Organization

Using Balanced Scorecard to Build a
Project Focused IT Organization

Driving high performance teams
with Balanced Scorecard and a
Program Management Office
© 2002 CH2M HILL Communications Group

A Quick Background Of Our Business Environment, Clients And
Business Model
l CH2M HILL is a $2.2B project completion services firm

l Our current engagement is a $12M annual IT services contract with
the Department of Energy
l We provide information and communication technology (ICT) services
to Rocky Flats Environmental Technology Site
4DOE weapons complex closure project
4All mission critical operation
l Steady reduction in budget and staff in support of
closure is our “normal” business environment
4 Closure projects have accelerated cost
reduction budgets until they reach ZERO
4 Our goal is to turn Rocky Flats into dirt, prairie
dogs, and 10TB of data

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Information and Communication Technology (ICT), Balanced
Scorecard, and Program Management
l ICT provides
4Server and network operations
4Applications
4Desktop support
4Telecommunications
l Core ICT strategies
4Use technology in place of labor
4Never be an impediment to progress toward site closure
4Withdraw services that follow closure processes

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Inverting the Balanced Scorecard pushes strategy down into the
organization to the project management level
l Many speakers here will be talking about using Balanced

Scorecard to implement strategy up and down the organization
l Our approach includes the above, but also the use of BSC to
improve the performance of a project based organization
l This is a Program Management Office view of BSC rather than a
CXO view
4 This closes the gap between “vision” and
“execution”
4 Where should dollars be invested to achieve
value?
4 How can this delivered be measured?
4 How can investments be connected to strategy
as well as the tactical side of PM?

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Program Management View of Balanced Scorecard
ü Performance metrics
ü Actual cost
Earned
EarnedValue
Value
Performance
Performance Project
Project Risk
Risk
Management
Management Management
Management Management
Management
ü Balanced Scorecard ü Risk related project data

ü Direction ü Strategic data
ü Strategic metrics
Lessons
Lessons
Learned
Learned
ü Strategy is a hypothesis
ü Metrics are the data for
testing the hypothesis

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One Critical Understanding Missing From Many Strategy Discussions Is
– “What Is Strategy In The Context Of IT Deliverable Projects?”
l Strategy creates fit among a firms activities

l The success of strategy depends on doing many things well, not
just a few
l All things that are done well must operate within a close knit
system
l If there is no fit, there is no strategy
l Management then becomes the search for

operational excellence
l Improving operational excellence is
necessary but it is not the same as strategy

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So What Is Strategy And How Can It Be Deployed In A Project
Management Context?
l Operational effectiveness involves continual improvement that

have no trade off opportunities
l The operational effectiveness agenda is the proper place for
constant change, flexibility, and relentless efforts to achieve best
practices
l The strategic agenda in the place for making clear tradeoffs and
strengthening the fit between the business components
l Strategy involves the continual search for ways to reinforce and
extend a firms position
4This includes the IT “firm” within the business firm
4As well as a department within the IT organization

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Strategy Is About Creating Fit Among The Various Components,
Participants, And Forces Driving Of An IT Organization
l Fit creates incentives and

pressure to improve
l Poor fit means poor performance
l Weaknesses are exposed by this

poor performance
l Increasing fit improves
performance in other areas as
well as the source of the
improvement

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A Framework For IT Strategy In The Absence Of Balanced
Scorecard Fails To Answer Many Questions Needed For Success
l
l What––isisthe
What thesystem
systemmade
madeof? of? l
l Who––does
Who doeswhat
whatrelative
relativetotothese
these
system
systemcomponents?
components?
l
l How––does
How doesthethesystem
systemwork?
work?
l
Where––are
Where arethe
thecomponents
componentsofof
l
l When––do
When dothings
thingshappen
happenininthethe
l
the system?
system?
thesystem
systemlocated
locatedrelative
relativetotoone
one
another?
another? l
l Why––are
Why arevarious
varioussystem
system
choices being made?
choices being made?
l
l
What
Whatisisthe
theinformation
informationsystems
systemsstrategy?
strategy?
l How is the information technology strategy?
l How is the information technology strategy?
l Who is the information management strategy?

l Who is the information management strategy?
l Why is the organizational strategy?

l Why is the organizational strategy?

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There Are Four Elements Of IT Strategy That Must Be Present To
Fully Assess The Connection Between Objectives And Projects
Organizational Strategy – WHY Information Technology Strategy – HOW

The wherefore and rational for the strategy The mechanism of the strategy
Organizational components – chose the structure or Scope – which technologies are to be formally
design, management control systems and formal included in the information strategy
policies. Architecture – the technology framework which
Business Components – the corporate strategy drives, shapes, and control the Information
concerned with mission. Strategic business unit technology strategy.
strategy concerned with competitive advantage
Information Systems Strategy – WHAT Information Management Strategy – WHO

The components of the strategy The participants in the strategy
Alignment – identify the applications required to Roles – who has what responsibility for information
support the business strategy resources and policies and actions
Opportunity – search for innovative uses of IT to Relationships – how are relationships built between
enable business to perform better the CIO and others to assure success over time

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The BIG Question of Strategic Fit Becomes The Focus of the
Alignment Process
l If strategy and structure must fit each other, then what is not
stated is:
4Which aspects are to fit other aspects?
4Business / Information relationships?
4Information / Business relationships?
l The answer to these should be obvious, but the consequences of
the answer needs to be understood:
4The business strategy “drives” the IT Strategy
4The IT Strategy drives the Technology Strategy
4A loop is created which must be created between the technology
strategy and the business strategy before any measurable value
can be created.

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Balanced Scorecard And Project Management Are Natural “Soul
Mates” In An IT Organization, But Connecting Them Is Difficult
l BSC provides a strategy focused view of the IT operation.

l Projects and Project Management provides a tactical view of the
IT operation.
l Putting these two views together creates a synergy not found in
the individual views
4Tactics enable the fulfillment of strategy
4Strategy validates tactical decisions

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Project Management Is More Than Managing Projects, It’s About
Managing The Right Projects, And Dropping The Wrong Projects
l Traditional view of a “project”

4 Defined start and end
4 Defined resources, cost, and delivered value
4 Customer, technology,
l Balanced Scorecard view of a “project”
4 What objective of the strategy does this project support?
4 If the project were implemented, what goals would be fulfilled?
4 When will the cost of the project be earned back by a specific
objective in the strategy.
l These questions and their answers are also found in project
portfolio management.

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Project Portfolio Management
Identification
Identification
• Needs
• Needs
• Source of ideas
• Source of ideas
Timing
Timing Project
Project Evaluation
Evaluation
• Competitiveness
• Competitiveness
• Resource Availability
Portfolio
Portfolio
• •Feasibility
Feasibility
• Resource Availability • •Benefits
• Logical sequence Management
Management
Benefits
• •Evaluation
• Logical sequence EvaluationCriteria
Criteria
Selection
Selection
• •Performance
PerformanceMetrics
Metrics
• •Strategy connection
Strategy connection

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Project Portfolio Management Is An “Implementation Process,” But
Alone It Is Not Sufficient To Answer The Strategy Questions
l PPM has many of the tools to answer the previous questions.

l PPM alone is not sufficient to assure success.
4 Project selection criteria are typically financial and technical.

4 Strategic impact analysis is needed as well.
l What are the units of measure of the “strategic impact?”
4 Economic value added?
4 “Real options” exercisable value?
4 Market opportunities?
l The business situation defines the units of measure
l But most importantly connecting strategy and tactics can be done
through projects.

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Projectizing IT Organizations Is Harder Than It Looks, Everyone
Has “Enlightened Self Interest” For The Use Of Their Budget
l The curse of the “level of effort” project

4 “Train watching” is a common term
4 As time passes resources are consumed, services delivered, but
delivered value is not always measured.
l How to measure “value” of a project
4 Expected Monetary Value (EMV)
4 Project “profit,” ROI, IRR, etc.
4 Opportunity costs
l These all have static monetary units of measure with little or no
connection to strategy
4 It’s the interaction between “value” and ”strategy” that must be
evaluated

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What is the “value” of fulfilling a specific strategy and how can this
value be monetized in the same units as development costs?
l There are many ways of measuring “value”

4Expected Monetary Value 4Return on Assets
4Earned Value 4Payback Period
4Real Options 4 Return on Investment
4Internal rate of return 4 Economic Value Added
l All these methods are useful, but care needs to be taken not to
put too much “faith” in the absolute numbers
l The “value” aspects need to not only fit the strategic needs, they
need to be acceptable to both the finance team as well as the
customers

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Our Method Of Measuring “Value” Involves Discovering The Expected
Cost Of The Project With A Degree Of Certainty: Earned Value
$1,000K Authorized Budget = $1,000K

This
Thisisisaasimple
simpleproject
projectininwhich
whichthethefirst
first
reported
reportedperiod
periodhas hascompleted.
completed.
$750K $300K
$300Kwas wasplanned
plannedto tobe
bespent,
spent,$300K
$300K
was
was actually spent, but only$200K
actually spent, but only $200Kof of
Planned Cost = BCWS= $300K
physical
physicalprogress
progresshas hasbeen
beenmade.
made.
$500K In
Inthe
thetraditional
traditionalproject
projectmanagement
management
method,
method, “we’ve spentto
“we’ve spent toour
ourplan,”
plan,”so so
Actual Cost = ACWP = $300K we’re
we’reright
righton ontrack.
track.We’re
We’reOK. OK.
$250K In
Earned Value = BCWP = $200K InEV
EV“we’ve
“we’vespent
spentto toplan,
plan,but
butunder–
under–
delivered,
delivered,by by$100K.
$100K.We’reWe’reinintrouble.
trouble.
1 2 3 4 Now
Nowwe weneed
needto toincrease
increaseour ourefficiency
efficiency
just
just to get back on track andincrease
to get back on track and increaseeven even
Traditional
Traditional Project
Project Management
Management more
moreto tostay
stayahead.
ahead.
By
Byreducing
reducingthe thereporting
reportingperiod
periodtotofiner
finer
and finer granularity, software
and finer granularity, software
Planned Cost = $300K Variance from development
developmentmethods methodslike likeExtreme
Extreme
Programming
Programmingand andSCRUM
SCRUMcan canbe belaid
laid
Actual Costs = $300K Plan = ($0K) over
overthetheEarned
EarnedValue Valuesystem.
system.Adding
Adding
Testable
Testablerequirements
requirementsto tothese
thesemethods
methods
re-connects EV with
re-connects EV with software software
Earned
Earned Value
Value Project
Project Management
Management development,
development,closing closingthe theloop
loopbetween
between
traditional
traditionaland andagile
agilemanagement
management
processes.
processes.
Planned Cost = $300K
SV = BCWP – BCWS: Schedule variance from Plan = (–$100K)
Earned Value = $200K
CV = BCWP – ACWP: The true cost variance = (–$100K)
Actual Cost = $300K

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Our Balanced Scorecard, Based On A Strategy Of “Going Out Of
Business” On December 15th, 2005
l Getting all participants accountable for the outcome is critical

4 Strategy is developed both top down and bottom up
4 Matrixed approach to projects, portfolios, and metrics – not
dictated by management but collaborative development
l Projectizing all activities with specific measurements creates a
focused team, but metrics must match the underlying behavior of
the process
4 Bottom up cost and schedule estimates
4 Deliverables management continuous rather than stages

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Turning Strategy Into Tactics Connects The Strategic Planning
Process With The Delivery On That Strategy Using the PMO
The Strategy Focused
IT Organization
Mobilization Phase
Initiate the Process of Change – Gain Consensus and Momentum from Participants
Migration Phase
Create Focus – Create Focus and Establish New Performance Culture
Management Phase
Institutionalize Change – Deploy Changes and New Management Processes
BALANCED PROJECT
MANAGEMENT CYCLE
Strategies Objectives Measures Targets Initiatives
Business Case
Strategic Critical Success Performance Performance

Objectives Factors Drivers Indicators
Project Objectives
Balanced Scorecard PMO

Business Project Process Growth Critical Success Factors
EVMS
Outcome Needs Improvement Training
Performance Metrics
Balanced Scorecard Database Proj Srvr (Drivers and Indicators)
Budget Customer CSS SQA SNO Skill Project
Measures Measures Measures Measures Measures Measures Portfolio(s) PROJECT PLANNING
Targets and Budgets AND BUDGETING
Project Managers
Participants
Project Implementation
IT Functional Project PERFORMANCE AND
CRMs Supervisors APPRAISAL PROCESS
Directors Managers Managers Internal and
External Performance Evaluation
Communications
Dec 15, 2002 Jan 30, 2003 Mar 31, 2003

Value Delivery

BD02005 A 08/29/02
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Assembling The Components Of Strategy And Tactics
l Turning the strategy into projects requires a project oriented

organization
l Project organizations start with changing the role of the functional
managers
4Self directed teams
4Project Manager led teams
4Functional manager led teams = level of effort teams
l Cascading strategy to the functional managers
4Ownership of objectives now a a low level
4Roll up the objectives from the bottom
4Combine top down and bottom up

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Organizing Around “Project Driven” Processes Means A Matrix Structure
With Teams, Functional Managers, And Project Management
Balanced Score Card + Portfolios + Teams = High Performance Organization
Business Domain
Operations
Manager
(Caterham)
IT Management
Business Units Portfolio Architecture Business Policy & Purchasing
Project
Administration
IT Leadership Development Administration Governance Accounting
Management Controls (Murray) (Bontempo)
Customer (Ploughman)
Communications
Stewardship
Enterprise
Advisory
Services
Shared
Data
Group Hittelman
(CAG) Caterham Oshinski
Martin Alleman Guthner Alleman
Alleman Guthner Oshinski
Radley Guthner Bontempo Oshinski
Barefield Hittelman Alleman
Henderson Oshinski Gwin Barefield
Radley Martin Guthner
Conan Barefield Teegarden Henderson
Conan Swanson Caterham
Barefield Martin Ploughman Guthner
Teegarden Henderson
Swanson
Senior Management PMO Enterprise

Managing Dir Applications
Architecture &
Management Manager CTO Manager
Governance (Alleman) (Guthner) (Oshinski)
Business Dev
Customer & Stakeholder Community
CTO Project &

Infrastructure
Portfolio
Management
Program Mgmnt Management Safety Telecommunications Administration Deputy CTO Applications Business Customer
(Lewis) (Conan) (Gwinn) (Barefield) Solutions Solutions Relationship
Enterprise (Henderson) (Martin) Managers
Network Cyber Server

SQA CM CSS Telecommunications
PMO Operations Security Operations
(Trivett) (Simon) (3) (Lindsey)
(Goldberg) (Weber) (Russo)
Vision Mission Culture
Network Cyber Server Applications Business

SQA/SV&V CM CSS Telecommunications
Operations Security Operations Solutions Solutions
Staff Staff Staff Staff
Staff Staff Staff Staff Staff
Project Delivery Team
Initiatives Portfolio(s)
Measures
Initiative(s)
Portfolio(s)
Strategies Objectives Project Delivery Team
Initiative(s)
Targets Portfolio(s)
Individual Business Units

Balanced Scorecard
Individual Business Units

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Balanced Scorecard And Project Management Can Be Blended
Together To Build A Powerful Tool For Managing IT Projects
l The Balanced Scorecard components are necessary but not

always sufficient for success
l Matrix of components
4Strategy map – tells the strategy story in one page

4Objectives – describes the deliverables from the strategy
4Measures – indicators of success
4Targets – goals
4Initiatives – collections of work efforts
4Projects – tactical work packages

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The Hard Part Is When We’re Asked To Manage Projects That
Don’t Fulfill A Strategy
l Connecting project costs with strategic value is critical

4 Two different units of measure
4 Two different spheres of influence – one looks outward, one looks
inward
l Making visible the project’s “value” to the strategy.
l Making the “value” of a project visible beyond cost and schedule.
l One approach is to use “earned value” to manage IT projects
l EV is commonly found in construction, aerospace and

government contracting environments.
4 But in IT development?
l The Balanced Scorecard is the place to start as well as end

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Alignment Means “Actions Have Consequences”
Alignment Actions Alignment Consequences
Full engagement with the Servicing the customer is a
è
“customers” at the detailed level “strategy”
Aligning in “stages” by sorting Identifying the value of each
out “going forward” applications è application.
Shared strategic objectives that Capturing needs is a continuous

start with the “customers” needs è process.
Short–term tactical success Continuous building on success
means long–term strategic è is a difficult and fulltime job
success.
Knowing about the business, Having the customer “inside” the
but not making the business process, rather than as an
è
decisions, this belongs to the external source of information.
“customers”

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Our Balanced Scorecard Follows
l This is a “traditional” BSC

4Four levels
4Bubbles, but no connecting lines of a map (too confusing)
4Some partitioning of functions on a horizontal scale
l There are other way to represent the BSC
4Simple lists with metrics and goals
4Quadrants with everything on one page
l A current way is to list the objectives in a table, with metrics
4Assign portfolios of projects
4Cascade the Scorecard down to the functional manager level
4Tie “every thing” to an objective even the level of effort projects

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“Do the right things, do them well, do them with less, to…”
Business
Results
……reduce
……reduce overall
overall …enable
…enable profitable
profitable …enable
…enable firm
firm to
to accelerate
accelerate
operating
operating costs
costs -- R2
R2 operations
operations -- R1
R1 market
market deployment
deployment -- R3R3
Competency Contribution
Expectations
Competency Credibility Contribution

Project
“Keep
“Keep mymy “Manage
“Manage toto “Understand
“Understand my my “Implement
“Implement timely
timely and
and cost-
cost-
systems
systems running”
running” corporate goals”
corporate goals” operation”
operation” -- E3
E3 effective
effective solutions”
solutions” -- E4
E4
-- E1
E1 -- E2
E2
Operational
Operational Excellence
Excellence Project
Project // IT
IT Alignment
Alignment Solutions
Solutions Leadership
Leadership
Reduce
Reduce the
the cost
cost ofof Provide
Provide appropriate
appropriate technology
technology to
to Provide
Provide innovative
innovative
providing
providing services - P1
services - P1 enable success - P2
enable success - P2 solutions
solutions -- P3
P3
Internal Processes
Deliver
Deliver solutions
solutions Manage
Manage Leverage
Leverage
Improve
Improve requirements
on
on schedule
schedule -- P6
P6 requirements -- P7
P7 knowledge
knowledge andand
processes
processes for
for
best
best practices
practices -- P10
P10
efficiency
efficiency
and
and quality
quality -- Centralize
Centralize IT
IT Enhance
Enhance customer
customer
P4
P4 resources - P5
resources - P5 relationships
relationships -- P9
P9
Strategically
Strategically deploy
deploy services
services -- P8
P8
People and
Develop
Develop and and Recognize
Recognize team
team Provide
Provide employees
employees with
with
Tools
Build
Build aa high
high performance
performance
retain
retain critical
critical and
and individual
individual the
the tools
tools and
and knowledge
knowledge
culture
culture -- S2
S2
skills
skills -- S1
S1 performance
performance -- S3
S3 they
they need
need -- S4
S4

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Lessons Learned From A “Fresh” Assessment Of Our Current
Balanced Scorecard – Continued Training And Consulting Is Needed
l Some of the goals are hard to create metrics for

4“Manage requirements?”
4Who get to say we’re managing requirements?
l The customer wording is too soft at times, since the metrics for
satisfaction are hard to come by in our environment
l “Strategically deploy services”
4This is a tautology
l “Deliver solutions on schedule”
4This is easy, and having a program office makes it easier
l “Keep my systems running”
4This can be measured everyday

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The Risks To This Approach Are Numerous,
Our Experience Includes …
l Lack of time for the decision makers to focus on strategy

4Having strategy sessions on a continuous basis is difficult
4Running the business seems to come first
l Confusion between operational efficiency and strategy
4This is a continual problem
4Always ask “do I have options?” if so then it’s strategy
l Difficulty in creating well defined metrics and connecting them to
deliverables
4Scalar metrics with defined “units of measure”
l Cascading the objectives down to the staff that can deliver the
results
4This is the hardest and where there is the most resistance

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The Balanced Scorecard School Of Management Is Not For The
Faint Of Heart
l The individuals and teams should:

4Be committed to making the scorecard process work across all
levels of the organization
4By-in has to be gained up and down the organization
4Keeping the commitment is a full time job
4Seek to close any gaps that open in the process in the same way
they manage their daily activities
4Make BSC a “project” like any other
4Plans, budget, and deliverables
4Understand that without the commitment and dedication, not only
will Balanced Scorecard fail, the underlying business process will
suffer as well.

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The Balanced Scorecard School Of Management Is Not For The
Faint Of Heart
l The scorecard should:

4Measure performance against goals
4Determine if the goals are appropriate
4Determine if the strategy or measures should be changed
4Provide direct measurable outcomes traceable to the actions of
individuals and teams
l These measures and metrics should
4Have scalar units of measure: dollars, defects/1000, percentiles,
etc.
4Have metrics that are first order derivatives from the work process:
quality, response time, budget compliance
4Have independent variables that can be controlled which are
connected to the dependent variables

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A Final Thought
“One of the most dangerous

forms of human error is
forgetting what one is trying
to achieve.”
– Paul Nitze

Using Balanced Scorecard To Build A Project Focused IT Organization

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Using Balanced Scorecard to Build a

Project Focused IT Organization

© 2002 CH2M HILL Communications Group

l CH2M HILL is a $2.2B project completion services firm

© 2003 CH2M HILL Communications Group

© 2003 CH2M HILL Communications Group

l Many speakers here will be talking about using Balanced

© 2003 CH2M HILL Communications Group

ü Balanced Scorecard ü Risk related project data

© 2003 CH2M HILL Communications Group

l Strategy creates fit among a firms activities

l Management then becomes the search for

© 2003 CH2M HILL Communications Group

l Operational effectiveness involves continual improvement that

© 2003 CH2M HILL Communications Group

l Fit creates incentives and

l Weaknesses are exposed by this

© 2003 CH2M HILL Communications Group

l Who is the information management strategy?

l Why is the organizational strategy?

© 2003 CH2M HILL Communications Group

Organizational Strategy – WHY Information Technology Strategy – HOW

Information Systems Strategy – WHAT Information Management Strategy – WHO

© 2003 CH2M HILL Communications Group

© 2003 CH2M HILL Communications Group

l BSC provides a strategy focused view of the IT operation.

© 2003 CH2M HILL Communications Group

l Traditional view of a “project”

© 2003 CH2M HILL Communications Group

© 2003 CH2M HILL Communications Group

l PPM has many of the tools to answer the previous questions.

4 Project selection criteria are typically financial and technical.

© 2003 CH2M HILL Communications Group

l The curse of the “level of effort” project

© 2003 CH2M HILL Communications Group

l There are many ways of measuring “value”

© 2003 CH2M HILL Communications Group

$1,000K Authorized Budget = $1,000K

© 2003 CH2M HILL Communications Group

l Getting all participants accountable for the outcome is critical

© 2003 CH2M HILL Communications Group

Strategic Critical Success Performance Performance

Balanced Scorecard PMO

Dec 15, 2002 Jan 30, 2003 Mar 31, 2003

© 2003 CH2M HILL Communications Group

l Turning the strategy into projects requires a project oriented

© 2003 CH2M HILL Communications Group

Balanced Score Card + Portfolios + Teams = High Performance Organization

Senior Management PMO Enterprise

CTO Project &

Network Cyber Server

Network Cyber Server Applications Business

Project Delivery Team

Individual Business Units

Individual Business Units

© 2003 CH2M HILL Communications Group

l The Balanced Scorecard components are necessary but not

4Strategy map – tells the strategy story in one page

© 2003 CH2M HILL Communications Group

l Connecting project costs with strategic value is critical

l One approach is to use “earned value” to manage IT projects

l EV is commonly found in construction, aerospace and