Balance Your Project.

• Author: Germain, Christian J.
• Position: Financial management strategies

A balanced approach to project selection and management offers project managers the chance to recognize and capture hidden value in discrete projects.

Editor's note: This article originally appeared in the May 2000 issue of Strategic Finance, copyrighted by the IMA, and is reprinted and adapted with permission.

Rapid growth of new technologies and the proliferation of best practices have led to finance departments that operate with lean staffs. Today there's little room in the average finance organization to take on additional workloads unless the benefits associated with the effort are clear and the probability of achieving success is high.

Yet, CFOs and controllers know that both performance improvements and cost reductions depend on their ability to identify, justify, and manage discrete projects. Projects are the lifeblood of a finance executive's improvement plan, and they make up a large part of a CFO's discretionary spending.

In today's competitive environment, CFOs, controllers, and other financial professionals have little margin for error in pursuing projects. The market's demand for cost reduction and improved service seems insatiable, and the universe of project options seems limitless and unfathomable. Selecting and then effectively executing improvement initiatives can make the difference between seizing competitive advantage and languishing at the rear of the competitive pack.

Strong project management represents the best chance to maximize your investment in projects. You deserve a strong return on the invested time of your own staff and on the capital necessary to obtain external resources such as consultants and contractors.

Balanced Scorecard

Balanced performance measurement is a managerial technique introduced by Robert S. Kaplan and David P. Norton in their book The Balanced Scorecard (Harvard Business School Press, 1996). Kaplan and Norton advocate using more than financial statements to judge the performance of an enterprise. Their method suggests that viewing performance from four perspectives (financial, internal processes, customer; and learning and growth) affords a more accurate gauge of an enterprise's ability to achieve and sustain performance.

By evaluating the relationships between cause and effect in the performance of an organization, users of the balanced approach can see how measurable drivers presage the achievement of desired outcomes and how those outcomes are indicative of current and future success. The mix of leading indicators (drivers) and lagging measures (key performance indicators) allows managers to steer the business with an eye on both the rear view mirror and the road ahead. For example, a company focused on being a product innovator, such as 3M or Pfizer; might use research and development spending as a leading indicator or driver of its ability to bring new products to market. It might in turn use the percentage of its sales revenues associated with products less than two years old as a lagging indicator of its success in this arena. The relationship between vision, strategy, and measurable outcomes in the four perspectives is depicted in Exhibit 1.

Taking a balanced approach to project selection and management will help financial professionals to justify critical initiatives, successfully manage projects, and extract the maximum possible return on the investment of scarce resources.

The Project Cycle

Many basic elements of the project cycle have links to one or more of the balanced perspectives. Understanding these links will help project managers select appropriate management strategies and tools.

Developing a Business Case. Both the selection and the execution of a project are dependent on the development of a sound business case. Judging the return and payback period on project investments is necessary but not sufficient to identifying projects with the greatest strategic benefit to your organization. Examining the effects of a potential project on learning and growth, process quality, and customer satisfaction may require some subjective...