Case study: A fresh approach of the Balanced Scorecard in the Heathrow Terminal 5 project

Ron Basu, Chris Little and Chris Millard

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.

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 a major 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 (nancial, 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, nancial measures versus operational measures, internal performance versus external performance, enabling indicators versus results indicators and between leading and lagging indicators.

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VOL. 13 NO. 4 2009, pp. 22-33, Q Emerald Group Publishing Limited, ISSN 1368-3047

DOI 10.1108/13683040911006765

As might be expected, it is soon recognised (Zagrow, 2003; Project Management Institute, 2004) that the same benets an organisation as a whole can derive from the deployment of a Balanced Scorecard based performance measurement system can also be acquired by a projects 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 nancial benets: 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 benets. 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

BAAs Terminal 5 Programme at London Heathrow Airport was one of Europes 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 trafc 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 rst-tier contractors and consultancy rms, of which only three contractors (Laing ORourke, AMEC and MACE) were designated as principal contractors. The mission and key objectives of the project included to:
B B B B

set new standards in delighting the traveller at T5; develop and deliver T5 to new industry standards of health safety and security; earn the proactive support and trust of key stakeholders; achieve exceptional performance to ensure value for money, on time delivery and an efcient and productive T5; and 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

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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 dened, 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 specic 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 inuenced by some traditional primary factors, such as:
B B

the KPIs give everyone a clear picture of what is important; the KPIs enable the project leadership team to view all projects at a glance in a consistent way; and the KPIs complement the measurement of nancial 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? Do the design solutions have the required technical and functional approvals? Have we agreed what to inspect and test and who will verify compliance? Have we benchmarked the quality standards? Are aiming to do it right rst time? Is the work complete, reliable and maintainable at handover?

B B B B B

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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 ve 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 identied, requirements and benchmarks agreed, inspections and tests are planned to get them right rst 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 denition 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, Verications 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

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Table I The relationships between key performance indicators, key measures and performance data
Number of performance measures

Key performance indicators 1. Verications planned and work supervised 2. Benchmarks agreed 3. Inspected and protected

Objectives Plan to get it right rst time Making quality standards visible and achievable Keep work free from error and damage

Key performance measures 1. Inspection and test plan agreed 2. Supervisors RFT trained 3. Samples/benchmarks agreed

6 4

4. Compliance assured

5. Handover agreed and work complete

4. Inspections meeting benchmarks and quality standards 5. Checks showing that work and assets are protected Provide team assurance that the 6. Non-conformance resolution and cost brief is met (NCRs) 7. Team certicates of compliance issued Ensure that assets are fully 8. Handovers accepted integrated and maintainable 9. O&M manuals accepted 10. Maintenance work plans accepted

13

12

Table II Guidance notes for the Verications Planned & Work Supervised KPI
Performance measures (data table heading) Inspection & test plans scheduled Inspection & test plans due Inspection & test plans agreed Guidance notes Enter the total number of plans required Enter the cumulative number of plans due to date Enter the cumulative number of plans agreed by team. Refer to CP4 and T5- XXX-QA-00002 for details Enter the cumulative number of supervisors mobilised Enter the cumulative number of supervisors right-rst-time-trained R: ITP or Training . 6 weeks late A: ITP or Training 0-6 weeks late G: ITP & Training Meeting Target for Work in Progress

Supervisors mobilised Supervisors RFT trained Verications planned & work supervised RAG status

Table III Description of a KPI

Quality KPI Verications Planned & Work Supervised Description Objective: Plan to get it right rst time Measures: Inspection and test plans agreed prior to start of work. Supervisors have participated in right-rst-time training

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 the Balanced Scorecard based performance management for the T5 Project were enabled and enhanced by two major initiatives of the project:

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Table IV RACI for KPIs

Verication planned and work supervised Responsible Accountable Consult Benchmarks agreed Inspected and protected Compliance assured Handover agreed and work complete

Inform

Production leader Project leader Design manager Technical manager Supplier Principal point of contact (PPOC) Programme ofce Quality leadership Group leaders

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 rst 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 peoples 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 executives commitment to engage with project leadership and suppliers (principals) to introduce a right rst time quality concept and get their buy-in and commitment. The culture and behaviour change process has been iterative, comprising

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

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regular workshops, brieng, awareness and feedback on quality KPIs and right rst 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 aireld, 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 prole 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 specic project level. The most signicant 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 quantication 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 (nancial, customer, internal processes, and learning and growth) of Kaplan and Nortons Balanced Scorecard have been incorporated into the T5 KPIs as shown in Figure 5. In Kaplan and Nortons 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 nancial benchmarks) and Verications 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 specic 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 nancial 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 nancial and growth (innovation) aspects but the manufacturing and assembly stage KPIs would not be expected to address this.

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Table V T5 Balanced Scorecard for December 2007

Project team 100 74 100 100 100 100 99 100 86 100 100 100 100 99 98 87 88 76 100 73 87 98 78 72 100 100 71 86 97 92 92 83 100 62 92

Inspection and test plan agreed Supervisors RFT-trained NCRs closed

Samples/ benchmarks agreed

Inspections meeting quality standards

Checks showing that work is protected

Team certicates of compliance issued 100 86 100 67 100 100 99

Handover accepted 100 100 100 100 100 0 100

O&M manuals accepted 84 29 51 84 100 0 66

Maintenance integration work plans accepted 100 100 0 100 100 0 100

Aireld Land campus Completions Baggage Rail TTS Overall T5

100 93 100 100 100 98 99

Note: Figures shown are percentages

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Figure 3 T5 quality management prole

Inspection & Test plans Agreed 99% Maintenance Workplans Accepted 100%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Supervisors RFT Trained 99%

O & M Manuals Accepted 66%

Samples/Benchmarks Agreed 99%

Handovers accepted 100% Team Certificates of Compliance Issued 99% NCRs Closed 92%

Inspections Meeting Benchmark & Quality Standards 87% Checks Showing Work is Protected 86%

Figure 4 Sample NCR charts

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 specic 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;

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Figure 5 Aspects of the Balanced Scorecard

Benchmarks Agreed
FINANCIAL
To succeed financially, how should we appear to our shareholders?
Objectives Measures Targets Initiatives

CUSTOMER
To achieve our vision, how should we appear to our customers?
Objectives Measures Targets Initiatives

INTERNAL BUSINESS PROCESS

Vision and Strategy

To satisfy our shareholders and customers, what business process must we excel at?

Objectives Measures

Targets

Initiatives

Handover Agreed & Work Complete

LEARNING AND GROWTH

Inspected & Protected Compliance Assured

To achieve our vision, how will we sustain our ability to change and improve?

Objectives Measures

Targets

Initiatives

Verifications Planned & Work Supervised

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 Nortons Balanced Scorecard aspects Financial Customer T5 Balanced Scorecard examples of key measures Samples/benchmarks agreed Total estimated cost of NCRs Handovers accepted RFT Outstanding work items closed O&M manuals accepted Maintenance work plans accepted Inspections meeting benchmark & quality standards Checks showing that work is protected NCRs raised NCRs closed Team certicates of compliance issued Inspection & test plans agreed Supervisors RFT-trained

Internal processes

Learning & growth

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; the metrics and processes are validated and then embedded by extensive discussions with stakeholders followed by documentation, communication campaign and training workshops; and 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.

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The application of the T5 Balanced Scorecard over a few years has also focused on areas of further renement. These include:
B

incorporate Six Sigma training and methodology in the project quality strategy and link them with NCR-related measures; 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 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 Nortons Balanced Scorecard the enabling or leading indicators are learning and growth. In the T5 Balanced Scorecard the enabling indicators are Benchmarks Agreed and Verications Planned & Work Supervised.

8. Summary and conclusions

This case study is an important rst 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 reect specic 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 performance metrics 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 Nortons 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.

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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: basurn@aol.com 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.

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