There are four approaches to benefits management and the one you choose will determine the results 'banked' by your business.
When you select your benefits management approach you are in fact determining the level of benefits realization and net value your organization will achieve from its project investments.
Each benefits management approach will, if correctly implemented, increase the value of the benefits realized. However, while some approaches will increase the level of benefits realized (what gets measured gets managed) others will also increase the number and value of the benefits to be realized, while one will simultaneously also reduce the costs of delivery.
The four approaches are:
1 Benefits measurement
2 Benefits tracking and measurement
3 Benefits identification, tracking and measurement
4 Benefits optimization, tracking and measurement.
The potential business results increase exponentially from approach one to approach four. Approach four – benefits optimization – both increases the number and value of the benefits AND reduces the costs of delivery to substantially increase the net value ‘banked’.
And, remember, there is also a further defacto choice of ‘0’ — no benefits management approach — which is very expensive in terms of the level of business benefits and value missed, lost and destroyed.
Your benefits management approach is your choice. Here we explain each of the four approaches and their impacts on the value you will 'bank' in your organization.
Approach 1 BENEFITS MEASUREMENT
Benefits measurement is the most basic level of benefits management. Here, measurement processes are put in place to measure that the benefits defined in the business case are realized.
This approach does not increase the number of benefits at all as it merely ensures the benefits that were identified are subsequently realized.
In one major bank a whole army of “Benefits Realization Officers” was created and given accountability for measuring specific groups of benefits. They would then ‘camp’ in a department until they had measured that the expected benefits had been delivered. (Often, in this particular case, that the head count reduction had been achieved and the people had left.)
However, the implementation of benefits measurement, on its own, can be counter-productive. Knowing that the benefits in the business case are going to be policed and measured, management can minimize their benefit commitments to “just enough” to get the project approved.
A benefits management process that causes the number and value of benefits to be minimized should be an oxymoron, but is too common in reality.
Benefits measurement is not a substitute for true benefits management – it is a subset that allows most business cases to miss at least 25% of the available benefits and value due, partly, to its encouragement of benefits minimization. This benefits measurement approach then merely takes these minimized benefits and measures their realization.
A variation on this benefits measurement approach is the ‘lock the benefits into future budgets’ approach. This variation substitutes ‘budget measurement’ for ‘benefits measurement’, as the focus is shifted to ‘achieving the budget (by whatever means possible)’ rather than protecting and delivering the project's benefits and banking the value. (For more on the problems with the ‘locking into future budgets’ approach in our Thought Leader, “Simplistic accounting”)
Benefits measurement is a start and can be better than nothing but it is the least effective benefits management approach.
What you need for benefits measurement is
1 A list of measurable benefits
2 A named person accountable for each benefit
3 An implementation schedule for the delivery of the benefits
4 A measurement process to ensure the benefit is realized
5 A reporting process (and an interested audience).
Approach 2 BENEFITS TRACKING AND MEASUREMENT
A project’s Value Equation™ should define the desired business outcomes, benefits and value to be delivered. Of these, the value of the financial benefits is the least stable element of the Equation. This financial value can be impacted and changed by both internal (to the project) and external forces. To know the current true value of a financial benefit you need to track these ‘forces’ (or 'value drivers') throughout the duration of the project and beyond. In order to be able to track this value you need clear financial benefit value calculations.
Each value calculation is made up of a number of ‘value drivers’ – the bases and assumptions used to compute the value. Some of these assumptions can be wrong, the bases can change or external events can impact one or more value drivers. Each change or correction can change the computed value of the financial benefits.
For example: a major organization was front-page news for a week on how badly it treated its customers and performed its services. As a result it lost around half of its customers within three months. One of this organization’s major projects had benefits whose value was principally driven by the number of customers. So, as a result of the loss of customers, the value of this project’s benefits was reduced by almost half, through no fault of the project. But as this was tracked, its impacts were known and the ongoing viability of the project could be assessed.
This potential volatility in the real available financial value needs to be tracked as well as measured. A benefit worth, say, $10 million 12 months ago may, as a result of legitimate changes to the value drivers, only be worth $9 million or alternatively $14 million now.
Tracking the value of the benefits enables you to:
- Identify the impact on your benefits' value of externally driven changes that you have no control over
- Identify the value impact of internally driven changes that you can sometimes mitigate
- Reassess the viability of your project each quarter, taking into account any changes in the project’s value.
Benefits tracking and measurement brings the next level of sophistication to benefits management. You can now ensure you are pursuing and delivering all of the ‘available at the time of delivery’ financial value, not some historical figure that is no longer valid.
However, this approach does not increase the business value targeted, it merely tracks and then measures the value of the benefits identified and targeted in the business case.
What you need to track and measure benefits is
1 A list of measurable benefits
2 A financial benefits quantification spreadsheet that facilitates value driver tracking
3 A tracking process and person(s) to track any changes to the financial value drivers
4 A named person accountable for each benefit
5 An implementation schedule for the delivery of the benefits
6 A measurement process to ensure the benefit is realized (based on up-to-date figures)
7 A reporting process (and an interested audience).
Approach 3 BENEFITS IDENTIFICATION, TRACKING AND MEASUREMENT
Deficiencies in the benefits identification process can cause massive value to be missed. With an effective benefits identification process it is not unusual to increase the identified value of projects from (real examples) $6m to $72m, from $35m to $100m and from $0m to $40m – all for the same cost of delivery.
These increases in the benefits’ value are achieved through a more comprehensive benefits identification process that specifically aims to maximize (not minimize) the business value to be targeted and delivered.
Orthodox business cases have a “Cost/Benefit” mindset. Notice the sequence of these two words—costs, then benefits. This mindset leads people to identify the project’s costs first and then identify “just enough” benefits to justify the costs. Once “just enough” benefits to get the project approved have been identified the search for benefits stops. This is upside down thinking that leaves significant value ‘on the table’ unidentified.
You commission projects to realize the benefits – all of the available benefits. It therefore makes sense to start by identifying ALL of the available benefits and only then quantifying their costs of delivery.
When you ignore the “just enough benefits” mental constraint you can keep on identifying benefits until you have maximized the value of your project investment.
This benefits identification and management approach aims to not only measure the value realized but also to increase and maximize this value. This benefits management approach is therefore increasing each project’s value and ROI. It has moved benefits management from being a background measurement approach to a frontline value creation and delivery approach.
Now you have a benefits management approach that is adding value to your projects. But there is still a more valuable benefits management approach.
What you need to identify, track and measure benefits is
1 A benefits identification and maximization process
2 A financial benefits quantification spreadsheet that facilitates tracking
3 A tracking process and person(s) to track changes to the financial benefits
4 An ongoing project viability tracking process
5 A named person accountable for each benefit
6 An implementation schedule for the delivery of the benefits
7 A measurement process to ensure the benefit is realized (based on up-to-date figures)
8 A reporting process (and an interested audience).
Approach 4 BENEFITS OPTIMIZATION, TRACKING AND MEASUREMENT
Approach three’s focus on maximizing the identified benefits is a major step forward but not all benefits are necessarily worth their cost of delivery. In some cases the costs to deliver can exceed the value to be delivered.
Now most business case and benefits management approaches do not enable you to link each benefit and its value to its costs of delivery. There is often a list of benefits, some financial benefit spreadsheets, and then a project cost model (usually based on resource needs). As a result there is no visible connection between any specific costs and any specific benefits. Without this connection you do not know whether or not each benefit is economic to deliver.
You need a central, measurable point that allows these benefit values and costs to be linked.
The TOP Value Equation™ equips you to define your “desired business outcomes” – the clear, specific measurable business end states to be achieved in the business that will, in turn, deliver the business value.
- Each benefit is then linked to the outcome that will deliver it.
- Then you can identify the workload required to deliver each outcome and compute its cost of delivery.
As a result you can easily identify where the costs to deliver exceed the value to be delivered. Spending, say, $1 million to realize $10,000 in benefits is not economic and can be avoided.
However, culling high-cost/low-value outcomes and benefits is not one-dimensional as you may have low-value outcomes that are essential to subsequent high-value outcomes. You therefore need to know (via an Outcomes Dependency Roadmap) how each outcome contributes to the other outcomes. The Roadmap illustrates each outcome’s up and downstream dependencies so you can make informed decisions when eliminating low-value outcomes.
- Where there is no downstream value impact from eliminating a low-value/high-cost outcome, it can be eliminated.
- Where there are downstream impacts you need to revisit the upstream low-value outcome to determine if it can be adjusted to either increase its value or decrease its delivery cost (or both) without jeopardizing the downstream outcomes and their benefits.
We call this process – ‘benefits optimization’ or the 90-60 principle — delivering at least 90% of the benefits for only 60% of the original costs.
Now you have a benefits management process that is increasing and optimizing the value to be delivered while simultaneously reducing the costs of delivery. This process can exponentially increase each project investment’s ROI.
Now that is real benefits management – TOP’s benefits management.
What you need to optimize, track and measure benefits is
1 A definition of the ‘desired business outcomes’ plus an outcomes dependency roadmap generation process
2 A benefits identification and maximization process
3 A financial benefits quantification spreadsheet that facilitates tracking
4 A project investment value optimization process
5 A tracking process and person(s) to track changes to the financial benefits
6 An ongoing project viability tracking process
7 A named person accountable for each benefit
8 An implementation schedule for the delivery of the outcomes and their benefits
9 A measurement process to ensure each benefit is realized (based on up-to-date figures)
10 A reporting process (and an interested audience).
TOP’s Optimized, Tracked and Measured Benefits Management process is based on the simple but powerful TOP Value Equation™
Use of the TOP Value Equation can make Benefits Management simple, effective and low cost
