The 10 Reasons Why Benefits are Lost
You commission projects to realize and enjoy the benefits – yet most organizations do not identify, track, measure or focus on benefits. Why? Here we describe common 10 reasons why benefits are lost due to being either ignored or subordinated to other interests
We also give you a four-step approach to putting the full realization of benefits center-stage.
For those that believe delivery of the project is ‘success’, consider this example:
Near where I live there is a big house on the top of a hill. It must have wonderful 360° views of the surrounding countryside. But it is empty. It has never been occupied in the 10 years since it was built. It has not been occupied because the local council will not give it an ‘occupancy certificate.’
If we assume for the moment that it was built ‘on time and to budget,’ was it a success? Obviously not, because the owner has incurred the costs of building the house but has not enjoyed the benefits of living in it with its wonderful views.
This simple, real life example illustrates the difference between delivering the project and delivering the benefits. When you build a house you actually want the lifestyle and benefits of living in the house (or the sale price if it is an investment). If you don’t get these benefits, as in our house example, then you’ve failed, however well the house (project) was built.
You commission projects to realize the benefits in the business— but most organizations do not focus on these benefits and their realization. So the very reason why you do projects is not center-stage – why? Here are the 10 most common reasons:
1 Limited project delivery (only) focus
The project fraternity through its methodologies has focused on ‘project delivery’ with the assumption that the benefits will follow. This limited approach enables the realization of the benefits to be ignored by the project team.
However, as in our example above, this automatic realization of the benefits is not necessarily the case; and if the project is not delivered in a form that enables the benefits to be realized, then most, if not all, of the value of the project can be lost.
NB Around 40% of projects leave their organizations worse off then before delivery. The cost of a limited project delivery only focus is massive.
2 Limited benefit targets
The business has seen how projects consistently do not deliver what they were expected to deliver – therefore, they know that to rely on projects to enable the delivery of all of the possible business benefits is high risk. Better, they think, to only commit to a small subset of the benefits that should be realizable regardless of any project failings. In this way targeted benefits are minimized to the level that just justify the costs and no more.
On most projects at least 25% of available benefits are never identified. That is a quarter of the potential value foregone at the outset.
3 Benefits are positioned as offsets to the costsBenefits are positioned as an offset to justify the costs. Notice the order of the words in a “cost/benefit analysis”. You determine the costs of delivery and then seek just enough benefits to justify the costs and generate an acceptable level of return. Once you have found ‘enough’ benefits you can stop looking for benefits.
This approach is the inverse of what should be happening. What should happen is that all of the benefits should be identified first and then their costs-of-delivery computed. Any high-cost/low-value benefits can then be eliminated to optimize the project investment’s overall value.
This benefits-focused approach enables you to deliver the optimum value for the lowest practical cost.
Optimization can deliver the 90-60 rule—delivering at least 90% of the value for only 60% of the original cost. This represents a massive cost saving across the portfolio.
4 Ineffective governance and protection of the benefits
The role of the project governance team is rarely well understood. Even the name commonly used, “Project Control Board” focuses the governance team’s attention away from business value to project control.
The governance team has full accountability for the delivery of the business value (total benefits’ value less costs-of-delivery). Yet their focus is more commonly directed to the project’s delivery efficiency measures of ‘on time and on budget’. As a result they can make decisions that destroy business value in order to ensure their project comes in ‘on time and on budget’.
Governance teams can often destroy more business value in 5 minutes than a project team can destroy in 5 weeks! Governance teams are accountable for the benefits – but first they need to know that they are, and then they need to learn how to actively enable, track and manage these benefits.
All of the major project disasters of the past 30 years have been overseen by otherwise competent executives who did not know what to do when their project was failing. Ineffective governance is expensive.
5 Simplistic measurement
Benefits are positioned as fixed values. If you promise a $10 million saving in your business case, your future budgets are adjusted accordingly. This approach is simplistic as it ignores the fact that the value of the benefits can legitimately change up or down during the course of the project due to factors outside the control of the project and even the business – eg interest rate changes, competitor actions or market movements.
Unless these legitimate changes to the benefits’ value are taken into account, benefits management becomes unrealistic and does not garner support. Again, this simplistic approach encourages the minimization of benefits not their maximization.
Simplistic accounting transfers the object of measurement from the project’s benefits to the adjusted budget’s achievement. As we know, budgets can be achieved many ways but project benefits can only be achieved through the successful delivery of the project outcomes.
6 Simplistic change
Benefits management is too often seen more as an accounting and measurement exercise than as a change management challenge.
Realizing the available business benefits requires actioning one or more change programs to deliver the project and to translate the project’s outcomes into business outcomes, benefits and value. But too often ‘change programs’ are thought of as only training and communication exercises – which is insufficient to deliver business value.
Change programs need to be action plans that move the organization from its current to a defined future state so as to deliver the desired business outcomes, benefits and value. However, too often, so called benefits realization plans are really benefits tracking forms that detail who is going to measure what and when. Then management is left wondering why the benefits are not realized.
Only between 20% and 30% of the available benefits are automatically realized when the project is delivered. The other 70% to 80% have to be actively realized—and this requires comprehensive change plans, not summary benefit registers.
7 No accountability for results
Accountability for benefits is avoided for no other reason than it can be. When was the last time you saw an executive project sponsor fired when a project did not deliver to expectations? Never?
Yet, if you are entrusting an executive with hundreds of thousands or millions of dollars/pounds/euros you expect a return. They are making a promise (in the business case) to deliver a set of business outcomes, benefits and value. If this value is not realized then they should be held accountable. But they rarely are held accountable.
Capital funds are the last great slush fund for business management. Prepare a passable business case and there are usually few consequences for failure. Indeed, how many organizations even measure sponsor effectiveness? In most organizations sponsor ‘A’ and sponsor ‘B’ can deliver totally different returns for the same level of investment – one is competent, the other incompetent in their sponsor roles – but is anyone looking?
An excellent sponsor can deliver at least a 15% increase in business results vis-à-vis an average to poor sponsor.
8 Ineffective investment management
The Project Investment Committee (PIC)'s capital management can also be delinquent. It can hand out money but not closely track the returns. It hopes or assumes that some returns are delivered on the monies invested. Some PIC members are so cynical that they never believe the business cases anyway and rely on their own judgement as to whether or not the project idea is worthwhile.
PICs should be the guardians of capital funds and the returns generated. They should be ensuring not only that the promised returns (net of external adjustments) are delivered but also that the organization’s capability to deliver these returns increases each year. While not every project can have a positive return on investment (ROI), the PIC needs to ensure that the overall portfolio does have a positive (and increasing year-on-year) ROI.
An effective PIC should be measuring the actual ROI on funds invested AND the annual increase in returns. These are its primary measures of success.
9 Lack of organizational capability
Organizations may not have the capability to deliver the value available from all of their projects. Our worldwide research established a measurable correlation between an organization’s value delivery capability (processes, measures, skills, policies, mental models, etc) and the results delivered. Most organizations are still struggling to improve their value delivery capability – being stuck at either level one or two. Over time these low capability levels only deliver returns around breakeven across the whole portfolio. This level of return is unacceptable and unnecessary.
However, if organizations don’t focus on improving their value delivery capability they won’t improve their results except by osmosis—an approach that is slow and liable to regression. Only when organizations directly focus on improving their delivery capability to, say, level four, will they consistently generate the returns on investment they desire. Organizations at capability level four deliver returns three or more times those organizations at level two. The key characteristic of level four is that the business takes control and leads its projects so as to maximize the business benefits realized.
When you don’t know your value delivery capability level you can take on projects that are beyond your organization’s capability to successfully deliver. These projects then go over time, over budget and deliver compromised results. Sound familiar?
10 Lack of business value delivery processes
The business value delivery processes required for effective business leadership and control of projects are mostly missing or deficient. As a result, business management and staff rarely know what to do, when, why or how to do it.
Increasingly business delivery processes have been taken over by project-based staff — project managers, business analysts, change managers, technical architects, etc. Unless the business takes back control and direction of projects they will be the victims of project results not the drivers of business value.
To illustrate, the vast majority of projects never define in clear, specific, measurable terms their desired business outcomes – the new business-as-usual end states to be delivered. Therefore it is not surprising that these business outcomes/end states are rarely delivered. As the business outcomes enable the benefits that, in turn, deliver the value, this lack of focus on defining the business outcomes is fatal for effective benefits management.
Until the business value delivery processes are put in place (a pre-requisite for value delivery capability level four) most of the business benefits and value will continue to be lost.
Our research has shown that on a typical project the costs can increase by 60% (over the optimum) while 60% of the value is lost. The result is that most projects deliver less than 50% of the value that could have been delivered.
The way forward
It is time to get serious about benefits and their realization. The solution is frightening simple.
- The business executive team and board first have to make a decision – “Do they want to deliver all of the benefits available from their project investments or not?”
- If they do want to focus on full benefit realization they need to put in place the business processes required to lead, direct and control value driven projects. This involves new or changed processes being adopted at the project, business, governance and investment levels. (See the TOP eBooks, “The Choice” and “Managing for Value”.)
- Then train the business staff to use these business processes and adapt any existing project delivery processes to become value delivery focused.
(The changes required are spelt out in the TOP eBook, “The New Value Delivery Science™”)
- Finally, track and measure the results – identifying any delivery gaps that allow benefits and value to be missed, lost or destroyed. Plug all gaps fast with the appropriate business value delivery processes and continue to enjoy the high value “view” the resultant benefit realization results give you.
If they are not, there is no point doing anything.
If they are, then you need to immediately adopt an effective benefits and value delivery management process as every day you don’t have one you are missing, losing or destroying substantial funds.
There are four approaches to benefits management that have different impacts on the results delivered.