Published here December 2003. 

PART II | Reason 3 | Shareholder Value | Stakeholder Value
Finding the Right Metrics | Metrics as "Observables" and the Clairvoyant Test
Don't Forget Financial Metrics | Be Careful Using Balanced Scorecards
Each Organization Needs Its Own Metrics | PART IV

Each Organization Needs Its Own Metrics

Different organizations conduct different types of projects. The metrics for evaluating new product investments by a software vendor, for example, will be different from the metrics needed to evaluate process improvements for a company operating an oil pipeline. Also, different organizations create value in different ways. An electric utility, for example, creates value differently compared to, say, a ballet school. Some organizations will seek to maximize shareholder value, while others will want to value impacts to other stakeholders as well. Thus, each organization will have a different model for how its projects create value and, therefore, will want to use different metrics. There is no one set of project metrics that works for every organization. However, in all cases, good metrics provide a means for computing the value added by projects. Good metrics are observables. And, they are sensitive to project decisions so that they may be used to differentiate the value of alternative project portfolios.

One of the most under-appreciated benefits of having good metrics linked to a defensible value model is improved justification. Author Anthony O'Donnell quotes a portfolio manager at an insurance company that implemented a portfolio management tool: "People would come to me and ask me to do a particular project…I would tell them I couldn't fit it in, but had a hard time articulating why." Metrics now allow him to give concrete reasons for turning away projects. "Their satisfaction immediately went up, and I still didn't do their projects!".[5]

Next month

Part 4 of this paper will describe the fourth reason organizations choose the wrong projects-inattention to risk.

Be Careful Using Balanced Scorecards  Be Careful Using Balanced Scorecards

5. O'Donnell, "Worth the Effort", Insurance Technology, March 4, 2003.
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