The benefits measurement paradox
To measure your returns on investment you need to measure the value of the benefits realized from each project. For some obscure reason this is seen as it were ‘mission impossible’.
Measuring your benefits, their value and, therefore, your ROI should be integral to each and every project. It is why you do projects – to reap the rewards. Yet, benefits management/measurement is seen as an optional extra, additional work or just too hard to even contemplate.
There are plenty of impediments to successful benefits management but the greatest is political will. If the board and executive team are serious about effective end-to-end capital management then they will need to be serious about benefits identification, management and measurement if they want to make it happen.
The good news is that this is not difficult. It is only the adoption of poor thinking, poor approaches and false beliefs that make benefits management and measurement “hard”.
It is really quite straightforward.
- Define your desired business outcomes – the business end states that will deliver the business benefits. These outcomes need to be defined as clear, specific, measurable statements so that they can become the primary target of the project.
- Then define the benefits each outcome will deliver so that you know which benefits will be delivered when each outcome is delivered. This is easy to track and means you only need to track the outcomes as their associated benefits will automatically follow.
- Quantify the financial benefits with the bases and assumptions made clear. These 'value drivers' can then be tracked throughout the project and beyond to compute the impact of any legitimate changes to the value drivers and the value to be delivered. (This also allows you to identify no longer viable projects and cancel them to avoid wasting more money on a project that will not deliver a return.)
- Track progress towards and the delivery of each of the desired business outcomes
- Then track progress delivery of the benefits associated with each outcome
- While calculating the actual financial value available and realized.
Now you know not only what ROI you have generated from each project investment but also what has caused any variances. Some variances may be recoverable, others not. But now you are closely tracking the returns on your capital and can take action wherever these returns fall below an acceptable threshold.
You are now in control of your financial returns on investment and are measuring your ROI.