Project managers have a critical task that involves guaranteeing that each project is completed in the time frame and budget given. “A manager is responsible for the application and performance of knowledge.” (BrainyQuotes, 2013) In projects, project managers are held accountable for the performance, good or bad. Performance management is a tool that is effectively used in order to maximize the success of the projects. Performance management consists of multiple mechanisms and tools that are combines to track and report the set targets in a project. Companies that are successful invest the money, time, and resources into projects making sure that they reach the goal of earning a return on the investment. Performance management enables the project managers to ensure that they are operating within the guidelines given. According to Schied, performance measurements are important because it is the process that an organization uses to establish the parameters in order to reach their desired results. (Schied, 2010) Within the paper, it will compare and contrast several performance measurements used by project managers in order to gauge the success of their projects. These performance measurements include return on investment, balanced scorecard, and performance dashboards.
Return on Investment
In order to maintain success, project managers must balance the demands of the shareholders and the organization with the constraints of the resources given. One of the most used and essential performance measurements used throughout organizations is return on investment. According to Investopedia, Return on Investment is, “A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.” (Investopedia, 2010) In order for organizations to calculate the return on investment, they must take the benefit or return of the investment and divide by the cost of the investment and the results will yield a ratio which can either be positive or negative. Return on investments are popular among business individuals because they are versatile and simple to use. Managers use return on investment as an equation to determine if the reward on the risks is worth taking on a project. In project planning project managers must list out the resources that they will use should not outweigh the return (benefits). The benefits include profits, cost savings, and increases in the output which can convert to a dollar value. The costs can be considered expenses during the development and design, cost of the resources used, training, and other expenses. Return on investments can be an essential financial metric for asset purchases, approval of funding decisions on projects, investment decisions, and evaluation of financial consequences of project actions and decisions. (Ready Ratios, 2013) When the return is not worth the risks on the project, the project will probably self-terminate or become too much of a threat that the project managers must pull more resources. The shareholders and the organization can rely on the results of the return on investment to determine if the project is fallible. Once approved by the shareholders, the project manager can work towards assembling the team, budget, and the project productivity measures.
The problem with return on investment used as a performance measurement is that it can be easily manipulated by people. These results can lead to poor decision making and can be harmful in project planning. The flexibility of return on investment can lead to individuals might have a difference in results as one can manipulate to suit their own needs. Not only is the flexibility pose an issue for manipulation, but according to Ready Ratio, “ one drawback of ROI is that it by itself says nothing about the likelihood that expected returns and costs will appear as predicted.” (Ready Ratios, 2013) Despite its criticisms on not being an accurate indicator of performance, when used properly it can calculate marginal return on investment, residual income, and of their benefits that lead to overall profit is the return on investment is positive.
Another performance management that organizations and project managers use is balanced scorecards. The balanced scorecard is a useful strategic tool used in planning and management to measure the widely used style and strategy of the project. (Balanced Scorecard Institute, 2010) When the balanced scorecard performance measurement is implemented it increases the strategies of the project team, and the results of the overall project. In the management’s perspective, “The Balanced Scorecard translates Mission and Vision Statements into a comprehensive set of objectives and performance measures that can be quantified and appraised.” (Bain & Company, 2013) It also increased the project team’s performance in measuring the importance of the project factors, and outlines the roles and responsibilities of the team members in their daily operations.
Balanced scorecard can improve communication, prioritized the initiatives of the project, and keep the future performance of the project successful. The outlines of the balanced scorecard is that it utilizes four tables that outline business perspectives that need to be focused on. These tables include, The Learning & Growth Perspective that includes the corporate attitudes, and employee training used for project managers is obtaining knowledge of the organization and the project teams’ characteristics for the success of the project. (Balanced Scorecard Institute, 2010) The Business Process Perspective that is based on the allowing the project managers to know business operations, and the mission of the organization and the projects. This metric is used by project managers and consultants that know the organization internally. The Customer Perspective is used when the there needs to be special focus placed on the customers and their satisfaction. Poor performance in this metric is a leading indicator that the project and overall financial outlook is not looking good. Lastly is the Financial Perspective where there is need for financial data that is timely and accurate. This places importance on the risk assessment, cost-benefit analysis, and other financial data.
Although a balanced scorecard is a useful performance metric that places the focus on customers, the organization mission, financial resources, and employee knowledge, it can have its downfalls, as it doesn’t adequately provide a practical guide to project deployment. Based on the four table it can be seen that there is too much internal focus and not enough focus on the project’s output success, and has no formal review that measures the metrics used and deployed in the project. It can be viewed as a quick fix, which is easy, and simple like return on investment. However, it takes much more investment and work to implement into a project, and required project managers to define metrics, provide efficient data and reporting, and some form of process improvement methodology.
The last performance measurement discuses is performance dashboard. It is a strategy that is used in organization that measures the metrics, objectives, and initiatives that is able to customized tasks specific to the organization or project. (Eckerson, 2011) Performance dashboards prove to be valuable in the way that project managers utilized them throughout the project. Performance dashboards measure and monitor the critical business processes that trigger any alerts to the project managers in case of a problem, or threat if the metrics are not being met in the project. Project managers analyze the problems by lokking at the timely and relevant information that is received from the performance dashboards, viewed from multiple perspectives from management, and through various detail levels. This useful information is then used to improve decision making, performances, and guides the project in the right direction. The performance dashboards provide various benefits to the organizations and the project team. As an added benefit to the project management, it provides other ways to strategize communication, increase visibility, coordination, motivation, and refine strategy that reduces costs and redundancy. (Erckerson, 2011) According to Erckerson, performance dashboards provide accurate information to the right people at the right time, in order to be optimize best the decision to increase the bottom-line, and efficiency of the project. (Erckerson, 2011)
The downfall of the performance dashboards are that they must be utilized by professionals that know what they are doing. Unlike return on investment, and balanced scoreboards they are not simple, and require skill and accurate information. When using performance dashboards managers must have realistic expectations, unlike ROI they cannot be easily manipulated, and when used can provide an accurate view of performance if they have support, and accurate information. Balanced scoreboards focus on internal operations, while performance dashboards incorporate all aspects of business operations. However, performance dashboards will only work if the management that is skilled in working them remains interested in their value to the project. If the management loses interest it risks failing.
In conclusion, performance measurements vary and range in the value they add to organizations. Performance measurements such as return on investment is a very popular measurement that is used in a lot of different industries and throughout the business world. Balanced scoreboards are useful also as they proved perspectives on different aspects of the organization to measure the effectives of the customer, the organization, and the employee knowledge. Lastly performance dashboards, are useful when measuring the fluidity of the metrics used in evaluating the success of the project. Each has flaws and benefits for a project
“Balanced Scoreboards Basics.” (2010) Balanced Scoreboard Institute. Retrieved from http://www.balancedscorecard.org/bscresources/aboutthebalancedscorecard/tabid/55/default.aspx
“Balanced Scoreboard.” (2013). Bain & Company. Retrieved from http://www.bain.com/publications/articles/management-tools-balanced-scorecard.aspx
Eckerson, W. (2011). “What Are Performance Dashboards? Information Management.” Retrieved from http://www.information-management.com/issues/20051101/1040487-1.html
“Peformance Quotes.” (2013). Brainy Quotes. Retrieved from http://www.brainyquote.com/quotes/keywords/performance.html
“Return of Investment.” (2013). Ready Ratios. Retrieved from http://www.readyratios.com/reference/profitability/return_on_investment_roi.html
“Return on Investment.” (2010). Investopedia. Retrieved from http://www.investopedia.com/terms/r/returnoninvestment.asp