News Feature

Qualitative Methods for Calculating IT Value: Balanced Scorecard, Information Economics, Portfolio Management and IT Scorecard

Balanced Scorecard

"You can make it as hard or as soft and fluffy as you want."
Nuts and Bolts: Balanced Scorecard has been around long enough that it’s hard to remember how radical the concept was when Robert Kaplan and David Norton first proposed it in a 1992 Harvard Business Review article. The two were looking to join traditional finance lag indicators with operational metrics and integrate them into a broader framework that accounted for intangibles like corporate innovation, employee satisfaction or effectiveness of applications. The Scorecard puts those measures into four perspectives?financial, customer satisfaction, internal processes, and growth and learning?then asks managers to evaluate each perspective against the business strategy.

Investors Group, a Winnipeg, Manitoba-based conglomerate of three insurance firms, uses Balanced Scorecard to measure the effectiveness of its newly centralized IS organization. The department inserts metrics and measures into the Scorecard’s four perspectives to gauge every aspect of its performance, from the Information Systems Audit and Control Association’s IT governance framework, which helps monitor governance effectiveness and process performance, to a series of touchy-feely questions aimed at determining employees’ engagement in their jobs.

"You can make it as hard or as soft and fluffy as you want," says Investors Group Senior Vice President and CIO Ron Saull, of the Scorecard. "We make it harder because that’s the nature of our executives, that’s what they want to see, and because I like to manage with numbers."

Word of Mouth: Because the Balanced Scorecard is primarily a tool for managing strategy, it rarely works without top-level executive sponsorship. If companies skip the initial step of mapping out a business strategy with clear cause-and-effect relationships, they can wind up measuring factors that don’t link to business performance. Critics who don’t care for the Scorecard’s softer sliding-scale side charge it’s used as a way to justify behavior rather than effect meaningful change. Even proponents acknowledge IT faces a special challenge in correctly mapping its activities to strategic corporate goals.

Time and Money: About three months; as high as $500,000 for a complex, enterprisewide Scorecard.

Information Economics (IE)

"What’s important is getting the senior people to agree on what’s important to the business."
Nuts and Bolts: Information Economics aims to provide a neutral method of evaluating a portfolio of projects and allocating resources where they will be of greatest benefit. The idea is to force IT and business managers to articulate, agree on and rank priorities, and draw more objective conclusions about the strategic business worth of individual projects.