Balanced Scorecards and the IT Business Case

Writing an effective business case for IT investments is easier in an organization with a strong culture of measurement, and even more so in an organization that has embraced the balanced scorecard (BSC) methodology as introduced by Robert Kaplan and David Norton.

BSC is a systematic management approach that maps strategy to a set of interrelated measurements that cover objectives related to finance, customers, internal processes, and human capital. These integrated measures encompass the theory of the business as put forward in the strategy: if a set of employees gains a certain measurable skill, it will enable a measurable improvement of an internal process, providing a particular value proposition for a customer segment, causing a measurable increase in customer satisfaction, leading to projected financial gains for shareholders.

In most organizations, the greatest challenge is making the link from process improvement—or even from improved customer satisfaction—to the financial results needed to justify an investment. Indeed, many IT departments operate in complete darkness trying to make these connections. In an organization that has implemented BSC, the links already exist. Senior management representing accounting, sales, marketing, and operations has put it all together. The BSC encompasses the formulas that spell out the exact relationship between a measured improvement to a process and a financial outcome.

Indeed, the BSC makes quite clear where IT should be making its investments to assure that IT aligns with the business. And it makes clear how IT must work with other departments, including HR, to assure that new information systems fit new employee skills and job descriptions. Under BSC, IT will often need to collaborate with other departments on joint projects to assure that all of the requirements are in place to achieve the financial objectives.

The BSC, including as it does leading indicators of success such as process improvement and customer satisfaction, provides much more usable information to an IT department than traditional financial accounting, which gets reported after the fact and does not relate in any systematic way to the type of investments that IT is called upon to make; nothing on the balance sheet or income statement relates directly to the processes that IT needs to improve. BSC makes these connections explicit. While the theory encompassed in the strategy and integrated measures may turn out to be incorrect, that will become clear in time and will call for a review of strategy. In the meantime, IT has a clear framework for making investment decisions.

Both BSC and business cases move IT in the direction of making investments based on objective measurements and away from just taking orders from the users who scream the loudest, making IT into a profit center rather than just a bottomless pit of costs.

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I’m a solution engineer for Shape Security, an awesome web security startup in Mountain View that defends some of the worlds largest web sites from bot attacks. I see this blog as a learning tool. It gives me a chance to collect my thoughts on topics of interest and to share with others. If you see a mistake or think I’m on the wrong track, please let me know. I appreciate comments. See my LinkedIn profile at http://www.linkedin.com/in/jamesdowney and follow me on Twitter at http://twitter.com/james_downey.

Posted in Balanced Scorecard, Project Selection

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