Case 2 BSC Flexibility & The Customer Perspective
Case study: A fresh approach of the Balanced Scorecard in the Heathrow Terminal 5 project
Ron Basu, Chris Little and Chris Millard
Summary
Purpose – The purpose of this paper is to present a case study of the Heathrow Terminal 5 project and
to illustrate a customised application of the Balanced Scorecard in a major infrastructure project with
multiple stakeholders.
Design/methodology/approach – The research methodology applied in this work was based on the
case study methodology. The focus was on ‘‘how’’ questions and exploratory analysis of primary and
secondary data supported in-depth interviews with members from both the project team and suppliers.
Findings – The application of the concept of the Balanced Scorecard by Kaplan and Norton in project
management is less frequent in comparison with operations management. The study has established a
proven application of the Balanced Scorecard in managing quality in a major infrastructure project.
Practical implications – For practitioners of major projects the paper gives implications for
implementing the theoretical and customising requirements of the Balanced Scorecard involving key
stakeholders.
Originality/value – The paper illustrates that metrics can be customised for major projects within the
framework of the Kaplan and Norton Balanced Scorecard and that suppliers should be empowered to
own the monitoring and improvement process using their performance data.
Keywords Balanced scorecard, Stakeholders, Suppliers, Partnership, Performance measurement (quality)
Paper type Case study
1. Introduction
Heathrow Terminal 5 opened on 27 March 2008 with high expectations. It represents a major
step in the transformation of Heathrow and it is now amajor gateway to the UK. From the start
T5 was different and it needed to be due to its size, complexity and proximity. Despite some
teething problems on opening, T5 was a catalyst for new and improved ways of working.
One such initiative is the application of a Balanced Scorecard approach in managing quality
in major projects.
For nearly two decades organisations in both the manufacturing and service industries have
been working arduously at trying to bring the power, discipline and rigour of performance
measurement into their organisations based on the Balanced Scorecard. The concept of a
Balanced Scorecard by Kaplan and Norton (1996) is a strategic measurement system
organised in four perspectives (financial, customer, internal processes, and learning and
growth) that aims to establish tangible performance indicators in all functions of the
business. One of the proven virtues of this system is that it proposes a balance between
concepts that could be contradictory to managers. For example, it aims to balance between
short-term and longer-term objectives, financial measures versus operational measures,
internal performance versus external performance, enabling indicators versus results
indicators and between leading and lagging indicators.
PAGE 22 j MEASURING BUSINESS EXCELLENCE j VOL. 13 NO. 4 2009, pp. 22-33, Q Emerald Group Publishing Limited, ISSN 1368-3047 DOI 10.1108/13683040911006765
Ron Basu is based at
Henley Management
College, Henley Business
School, Gerrards Cross,
UK. Chris Little and
Chris Millard are both
based at BAA Capital
Programmes, Heathrow
Airport, Hounslow, UK.
As might be expected, it is soon recognised (Zagrow, 2003; Project Management Institute, 2004) that the same benefits an organisation as a whole can derive from the deployment of a Balanced Scorecard based performance measurement system can also be acquired by a project’s management. Performance measures enable project managers to track whether the projects they are managing are moving in the right direction. Furthermore, projects do not only provide financial benefits: many of the outcomes of a project are intangible in nature. Project leaders are beginning to come out of the box of traditional project objectives, such as time, cost, risk and safety, and are moving towards the softer issues of project quality (Basu, 2008). This also means that many traditional performance measurement tools do not capture these benefits. The Balanced Scorecard approach enables us to identify the intangible drivers and project outcomes. So the application of the Balanced Scorecard in project management is becoming attractive to project managers.
However, a customised application of a performance management system based on the concept of the Balanced Scorecard in Heathrow Terminal 5 Project has created a fresh approach to involve all key stakeholders, including major consultants and contractors, to move towards a project quality culture.
2. Heathrow Terminal 5 project
BAA’s Terminal 5 Programme at London Heathrow Airport was one of Europe’s largest construction projects. Terminal 5 caters for approximately 30 million passengers a year and provides additional terminal and aircraft packing capacity. There are 42 aircraft stands (in phase one) including stands to cater for the Airbus A380. T5 features a world-class transport interchange connecting road, rail and air transport. The Heathrow Express from London Paddington and the Piccadilly Line have been extended and a new spur road links T5 to the M25 motorway. Passengers move from the terminal to satellite buildings by a driver-less tracked transit system. The new 87-metre control tower will meet the longer term demands of air traffic control at Heathrow. The facility opened to the public on 27 March 2008 and represents a £4.3 billion investment to BAA.
The project was delivered by BAA working in partnership with suppliers and the airline operator British Airways. By 2008 around 50,000 people, employees and key stakeholders, have been involved with building T5, working both on and off site. Only about 120 employees were directly employed by BAA. The project has deployed circa 100 first-tier contractors and consultancy firms, of which only three contractors (Laing O’Rourke, AMEC and MACE) were designated as principal contractors.
The mission and key objectives of the project included to:
B set new standards in delighting the traveller at T5;
B develop and deliver T5 to new industry standards of health safety and security;
B earn the proactive support and trust of key stakeholders;
B achieve exceptional performance to ensure value for money, on time delivery and an
efficient and productive T5; and
B leave behind a legacy of quality.
The need of supplier partnerships in line with the T5 Agreement (Little, 2005) and the
complexity of rail, road, construction and systems requirements of the project were
additional drivers.
To achieve these audacious targets in money and programme BAA had to consider a novel contracting and procurement strategy supported by a performance management system. Suppliers signing up to BAA agreements are expected to work in integrated teams and display true partnering behaviours and values akin to partnering. Before embarking on the Terminal 5 (T5) programme of works, BAA looked at a number of major UK construction projects to ascertain lessons learned, particularly where they had gone wrong. BAA decided that they had to have an agreement that could deal with an adaptable and dynamic approach dealing with the uncertainties and embracing integrated teams. So BAA wrote its own bespoke agreement or contract. The same conditions of contract applied to all key
VOL. 13 NO. 4 2009 jMEASURING BUSINESS EXCELLENCEj PAGE 23
suppliers irrespective of type or usual position as a subcontract. And to support the governance of the project in line with this agreement a Balanced Scorecard based performance management system was developed for the T5 project.
3. Drivers of the Balanced Scorecard
It is recognised (Basu, 2004) that the comprehensive approach of a well-designed performance management system is underpinned by three fundamental criteria leading to the success of a performance management system including the Balanced Scorecard. These are:
1. rigour in purpose;
2. rigour in measurement; and
3. rigour in application.
3.1 Rigour in purpose
Depending on the business objective, the metrics would vary in different industries. The metrics should be derived in alignment with company objectives and an emerging area for the four inter-linked perspectives of the Balanced Scorecard. The metrics should be clearly defined, validated and accepted by users during a pilot exercise.
3.2 Rigour in measurement
The success of established metrics will depend on the effectiveness of data collection and monitoring systems. This could vary from a manual process on a spreadsheet to a sophisticated ERP system.
3.3 Rigour in application
The value of a well-designed and monitored Balanced Scorecard will be lost if the data is not used to improve and sustain performance. A review process should be in place to review the metrics continuously and take action for performance improvement. Each measure should have a target both for the current year and the ‘‘best in classes’’ for the future.
In keeping with the above criteria of good practice of performance management there were both generic and specific drivers of adopting a customised Balanced Scorecard approach for the T5 project. No doubt the application of a Balanced Scorecard approach and key performance indicators (KPIs) to T5 were influenced by some traditional primary factors, such as:
B the KPIs give everyone a clear picture of what is important;
B the KPIs enable the project leadership team to view all projects at a glance in a consistent
way; and
B the KPIs complement the measurement of financial performance.
However, the need of supplier partnerships and stakeholder management in line with the T5 Agreement and the complexity of rail, road, construction and systems requirements of the project also generated collaborative (Basu, 2001) secondary drivers of customising the Balanced Scorecard in the T5 performance management system. It aimed to address some key management questions:
B Do we have adequate measures to monitor interface arrangements with key
stakeholders?
B Do the design solutions have the required technical and functional approvals?
B Have we agreed what to inspect and test and who will verify compliance?
B Have we benchmarked the quality standards?
B Are aiming to do it right first time?
B Is the work complete, reliable and maintainable at handover?
PAGE 24 jMEASURING BUSINESS EXCELLENCEj VOL. 13 NO. 4 2009
4. T5 performance management system
4.1 Key performance indicators and measures
The performance management system of T5 is underpinned by well thought out key
performance indicators and measures. As shown in Figure 1, there are five key performance
indicators (KPIs), ten key measures and 37 performance data.
The KPIs are selected as high-level quality indicators to steer the major project
objectives and requirements, ensuring that stakeholders are identified, requirements and
benchmarks agreed, inspections and tests are planned to get them right first time and
work is complete. The KPIs, supported by linked key measures, provide overall snap
shots to direct the project through enablers, monitoring progress or assuring results. The
performance data are the metrics that are measured for each part of the project by
team members, including suppliers, to monitor performance as a target or planned
versus actual. The key measures are the chosen ten measures to report and publish
regularly.
As shown in Table I, as an example of metrics for the manufacturing and assembly stage of
the project, each KPI is linked to relevant key measures and each key measure is supported
by a number of performance data.
4.2 Guidance notes
It is important to recognise that all metrics must be tried and tested with worked out
examples and also validated by collecting trial data under different conditions before
communicating to the project team. It was helpful to provide a guidance note for each metric
which are then explained to team members in workshops to gain their understanding and
acceptance. A similar process was followed for T5 performance metrics and a Quality KPI
Workbook was prepared. The workbook contained description and definition of each
indicator and measure supported by guidance notes and individual or team responsibilities.
For example each key performance indicator and performance measure (also called Data
Table Heading) was supported by guidance notes for data collection and reporting as
shown in Table II for the KPI, ‘‘Verifications Planned &Work Supervised’’. An example of how
a description is presented is shown in Table III.
In order to clearly assign responsibility and accountability for each KPI a simple RACI
(responsible, accountable, consult and inform) format was used. Each team member or
Figure 1 T5 metrics triangle
5
10
37
KEY PERFORMANCE INDICATORS (KPIs)
KEY MEASURES
PERFORMANCE DATA
VOL. 13 NO. 4 2009 jMEASURING BUSINESS EXCELLENCEj PAGE 25
leader either as an individual or as a team was aware of the role as a sponsor (responsible),
owner (accountable), contributor (consult) or participant (inform). Table IV shows an
example of RACI for key performance indicators.
5. Performance monitoring and improvement
5.1 Embedding performance management in the T5 project
The roll out and implementation of theBalancedScorecard basedperformancemanagement
for the T5 Project were enabled and enhanced by two major initiatives of the project:
Table I The relationships between key performance indicators, key measures and performance data
Key performance indicators Objectives Key performance measures
Number of performance measures
1. Verifications planned and work supervised
Plan to get it right first time 1. Inspection and test plan agreed 2. Supervisors RFT trained 6
2. Benchmarks agreed Making quality standards visible and achievable
3. Samples/benchmarks agreed 4
3. Inspected and protected Keep work free from error and damage
4. Inspections meeting benchmarks and quality standards
5. Checks showing that work and assets are protected 2
4. Compliance assured Provide team assurance that the brief is met
6. Non-conformance resolution and cost (NCRs)
7. Team certificates of compliance issued 13 5. Handover agreed and work
complete Ensure that assets are fully integrated and maintainable
8. Handovers accepted 9. O&M manuals accepted 10. Maintenance work plans accepted 12
Table II Guidance notes for the ‘‘Verifications Planned & Work Supervised’’ KPI
Performance measures (data table heading) Guidance notes
Inspection & test plans scheduled Enter the total number of plans required Inspection & test plans due Enter the cumulative number of plans due to
date Inspection & test plans agreed Enter the cumulative number of plans agreed by
team. Refer to CP4 and T5- XXX-QA-00002 for details
Supervisors mobilised Enter the cumulative number of supervisors mobilised
Supervisors RFT trained Enter the cumulative number of supervisors right-first-time-trained
Verifications planned & work supervised RAG status
R: ITP or Training .6 weeks late A: ITP or Training 0-6 weeks late G: ITP & Training Meeting Target for Work in Progress
Table III Description of a KPI
Quality KPI Description
Verifications Planned & Work Supervised Objective: Plan to get it right first time Measures: Inspection and test plans agreed prior to start of work. Supervisors have participated in right-first-time training
PAGE 26 jMEASURING BUSINESS EXCELLENCEj VOL. 13 NO. 4 2009
1. the T5 Agreement; and
2. a four-tiered approach of quality culture.
The T5 Agreement was agreed between BAA and the major consultants and first tier
contractors. Under the terms of this T5 Agreement, BAA took a single insurance policy to
cover the multi-billion pound project. And because BAA had shouldered the risk, it expected
the consultants and suppliers to work together. People from all stakeholders were
encouraged to raise issues at the earliest opportunity. This helped the reporting and
discussions on performance and non-conformance issues. ‘‘ When you align people’s
objectives, stuff happens. The agreement has allowed us to work with our consultants and
suppliers in a refreshing new way’’, says Andrew Wolstenholme, T5 Project Director.
As shown in Figure 2, an inter-related four-tier approach (Millard, 2005) of embedding quality
culture to project team members and suppliers was introduced in 2005.
This four-tier approach is an on going process and is primarily driven by focussed
discussion groups and workshops. The stakeholder engagement and commitment process
is supported by the project executive’s commitment to engage with project leadership and
suppliers (principals) to introduce a right first time quality concept and get their buy-in and
commitment. The culture and behaviour change process has been iterative, comprising
Table IV RACI for KPIs
Verification planned and work supervised
Benchmarks agreed
Inspected and protected
Compliance assured
Handover agreed and work complete
Responsible Production leader Accountable Project leader Consult Design manager
Technical manager Supplier Principal point of contact (PPOC)
Inform Programme office Quality leadership Group leaders
Figure 2 Four-tiered approach
1. Stakeholders’ Engagement for Commitment
2. Create a Culture that Values Quality
3. Integrated Communications Campaign
4. Implement Best Practice Quality
VOL. 13 NO. 4 2009 jMEASURING BUSINESS EXCELLENCEj PAGE 27
regular workshops, briefing, awareness and feedback on quality KPIs and right first time
behavioural change programme. This is further supported by the third-tier communication
campaign, which includes quality logo branding, quality commitment workshops, quality
booklets, quality walkabout, quality awards and posters. The fourth tier on quality best
practice started with research and interviews with experts to establish best practices and
align them with quality KPIs. This was followed by supervisor training and workshops to
ensure understanding and ownership from supervisors.
5.2 Monitoring and Improvement
Each project team (such as airfield, baggage, rail, TTS, etc.) record, measure and monitor
each performance measure, and on a monthly basis the ten key performance measures are
reported as a Balanced Scorecard. Table V shows an example of a Balanced Scorecard.
The overall T5 results for Key Performance Measures are also presented graphically as the
quality management profile shown in Figure 3.
The key performance measures provide a snapshot of the performance of each project
team, which are also highlighted by RAG (red, amber, green) colour codes according to their
status with regard to targets. However improvement projects are acted upon more by
individual performance measures at the specific project level. The most significant
contributors to improvement projects are non-conformance reports (NCRs). There are nine
performance measures related to NCRs as part of one KPI, viz. compliance assured. These
measures enable the quantification of a part of COPQ (cost of poor quality) given by
estimated cost of NCRs. Root cause analyses by type of non-conformance and supplier lead
to continuous improvement in design and processes and savings. Figure 4 shows an
example of NCR report analysis.
Overall, circa 6,000 non-conformance reports were raised on T5 and the cumulative cost of
non-conformance was only 0.6 per cent of the budget. Analysis of the data showed that 70
per cent of the total cost of non-conformance resulted from just 150 reports. A no-blame
culture resulted in speedy and effective resolution of all issues.
6. Comparison with aspects of the Balanced Scorecard
As discussed in sections 3 and 4, key performance indicators and key measures of the T5
project were customised to meet the requirements of the T5 Agreement and the complexity
of the project, spanning rail, road and air infrastructures. The key balancing principles of the
four aspects (financial, customer, internal processes, and learning and growth) of Kaplan
and Norton’s Balanced Scorecard have been incorporated into the T5 KPIs as shown in
Figure 5.
In Kaplan and Norton’s Balanced Scorecard the enabling or leading indicators are provided
by learning and growth. In the T5 Balanced Scorecard, the enabling indicators are
‘‘Benchmarks Agreed’’ (which also include some financial benchmarks) and ‘‘Verifications
Planned & Work Supervised’’ (containing ‘‘Supervisor Training’’). As regards the lagging or
results indicators, ‘‘Handover Agreed & Work Complete’’ in T5 relates to the customer
aspect of Kaplan and Norton, while the T5 KPIs ‘‘Inspected & Protected’’ and ‘‘Compliance
Assured’’ relate to the internal process aspect of Kaplan and Norton.
On a closer analysis, not all the key measures as a group in each of T5 KPIs conform to
specific aspect of Kaplan and Norton Balanced Scorecard as shown in Figure 5. For
example ‘‘Total Estimated Cost of NCRs’’, which is a key measure of the KPI ‘‘Compliance
Assured’’, also relates to the financial aspect. The matching of T5 metrics is more
appropriate at the level of key measures as shown in Table VI.
It is arguable that there are some gaps in T5 key performance indicators and key measures
related the financial and growth (innovation) aspects but the manufacturing and assembly
stage KPIs would not be expected to address this.
PAGE 28 jMEASURING BUSINESS EXCELLENCEj VOL. 13 NO. 4 2009
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VOL. 13 NO. 4 2009 jMEASURING BUSINESS EXCELLENCEj PAGE 29
7. Learning points
It is evident from the preceding analysis that the fundamental principles of the Balanced
Scorecard have been gainfully adopted and customised to the performance management
systems of T5 meeting the specific requirements of this complex major project. The best
practices of project performance management arising from this case study include:
B encouraging supplier partnership and proactive involvement of contractors in monitoring
and improving project quality and conformance to standards;
Figure 3 T5 quality management profile
99%100%
66%
100%
92%
86%
87%
99%
99%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Inspection & Test plans Agreed 99%
Supervisors RFT Trained
Samples/Benchmarks Agreed
Inspections Meeting Benchmark & Quality Standards
Checks Showing Work is Protected
NCRs Closed
Team Certificates of Compliance Issued
Handovers accepted
O & M Manuals Accepted
Maintenance Workplans Accepted
Figure 4 Sample NCR charts
PAGE 30 jMEASURING BUSINESS EXCELLENCEj VOL. 13 NO. 4 2009
B providing indicators and measures in three main themes as enablers, monitoring
progress and showing results along the project life cycle right up to the handover and
completion of work;
B the metrics and processes are validated and then embedded by extensive discussions
with stakeholders followed by documentation, communication campaign and training
workshops; and
B the ongoing reporting of non-conformance reports (NCRs) supported by the estimation of
cost of non-conformance and improvement projects based on root cause analysis is a
strong point of the process and opens the opportunities for Six Sigma and innovation.
Figure 5 Aspects of the Balanced Scorecard
“To achieve our vision, how will we sustain our ability to change and improve?”
Objectives Measures Targets Initiatives
LEARNING AND GROWTHLEARNING AND GROWTH
“To succeed financially, how should we appear to our shareholders?”
Objectives Measures Targets Initiatives
FINANCIAL
“To achieve our vision, how should we appear to our customers?”
Objectives Measures Targets Initiatives
CUSTOMER “To satisfy our shareholders and customers, what business process must we excel at?”
Objectives Measures Targets Initiatives
INTERNAL BUSINESS PROCESSINTERNAL BUSINESS PROCESS
Vision and Strategy
Verifications Planned & Work Supervised
Benchmarks Agreed
Handover Agreed & Work Complete
Inspected & Protected Compliance Assured
Note: T5 KPIs are shown in bold italics
Source: Kaplan and Norton (1996)
Table VI T5 key measures in the aspects of the Balanced Scorecard
Kaplan and Norton’s Balanced Scorecard aspects
T5 Balanced Scorecard examples of key measures
Financial Samples/benchmarks agreed Total estimated cost of NCRs
Customer Handovers accepted RFT Outstanding work items closed O&M manuals accepted Maintenance work plans accepted
Internal processes Inspections meeting benchmark & quality standards Checks showing that work is protected NCRs raised NCRs closed Team certificates of compliance issued
Learning & growth Inspection & test plans agreed Supervisors RFT-trained
VOL. 13 NO. 4 2009 jMEASURING BUSINESS EXCELLENCEj PAGE 31
The application of the T5 Balanced Scorecard over a few years has also focused on areas of
further refinement. These include:
B incorporate Six Sigma training and methodology in the project quality strategy and link
them with NCR-related measures;
B explore and then extend a Balanced Scorecard approach and metrics to the design
phase (including conceptual and preliminary engineering) of a major project (this is now
in place for BAA major capital projects); and
B align the key performance indicators and measures to a formal self-assessment of EFQM
(European Foundation of Quality Management) type excellence process.
In Kaplan and Norton’s Balanced Scorecard the enabling or leading indicators are learning
and growth. In the T5 Balanced Scorecard the enabling indicators are ‘‘Benchmarks
Agreed’’ and ‘‘Verifications Planned & Work Supervised’’.
8. Summary and conclusions
This case study is an important first step in providing support towards measuring, improving
quality standards in major projects. Initial research work (Basu, 2008) indicates that in spite
of formal quality plans supported by PRINCE 2 and ISO 9000 many projects managed to
‘‘tick many boxes’’ but failed to deliver expected quality criteria. The performance
management system of the T5 project, having learned from other major projects, has
established a ‘‘best practice’’ of the application of a Balanced Scorecard approach in major
projects by involving major stakeholders and contractors.
The metrics of the T5 Balanced Scorecard have been designed to reflect specific
requirements of the project as enablers as well as showing results leading to continuous
improvement. The experience of the project team indicates that NCR (non-conformance
resolution) related data have been most effective in identifying the cost of poor quality, to
improve design and processes by analysing root causes by task or supplier and also to
attract the attention of the project board.
There are variations of performancemetrics depending on variable quality requirements and
expectations of stakeholders and therefore among many learning points two key pointers
emerging from theT5 Balanced Scorecard are:
1. that metrics can be customised for major projects, showing the value of customising
measures within the framework of Kaplan and Norton’s Balanced Scorecard; and
2. that suppliers should be empowered to own the monitoring and improvement process
using their performance data.
References
Basu, R. (2001), ‘‘New criteria of performance management: a transition from enterprise to collaborative
supply chain’’, Measuring Business Excellence, Vol. 5 No. 4, pp. 7-12.
Basu, R. (2004), Implementing Quality, Thomson, London.
Basu, R. (2008), ‘‘A third dimension of project quality’’, Quality World, May, pp. 34-8.
Kaplan, R.S. and Norton, D.P. (1996), The Balanced Scorecard, Harvard Business School, Boston, MA.
Little, C. (2005), ‘‘BAA Terminal 5’’, paper presented to IQA Conference, Bali, 18 May.
Millard, C. (2005), ‘‘Make T5 quality’’, internal BAA document, February.
Project Management Institute (2004), A Guide to the Project Management Body of Knowledge (PMBOK
Guide), 3rd ed., Project Management Institute, Newtown Square, PA.
Zagrow, H.W. (2003), ‘‘Applying the Balanced Scorecard in project management’’, AllPM Project
Manager Project Management, November.
PAGE 32 jMEASURING BUSINESS EXCELLENCEj VOL. 13 NO. 4 2009
Further reading
Yin, R.K. (2003), Case Study Research: Design and Methods, Sage Publications, London.
About the authors
Ron Basu is currently a Visiting Executive Fellow at Henley Business School and also a Visiting Professor at ESC Lille. Previously he held functional and executive roles in Unilever and GlaxoSmithKline. Ron Basu is the corresponding author and can be contacted at: [email protected]
Chris Little is BAA Capital Programmes Quality Assurance Leader. Previously he worked for Stanger Science and Environment (Tarmac Professional Services), providing advice on quality assurance for highway structures and building projects.
Chris Millard is a Programme Director for BAA. Previously he was BAA Technical Director, Head of Engineering for Terminal 5 and held senior programme and technical appointments in the automotive industry.
VOL. 13 NO. 4 2009 jMEASURING BUSINESS EXCELLENCEj PAGE 33
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