Invisible driver of excessive costs
Projects progressively generate a set of requirements, a solution and an approach that is then ‘justified’ in the business case.
The business case completeness, internal consistency and net value is then reviewed, and then it is either either approved or not approved.
At this stage a few specific costs or assumptions may be challenged, but the thinking driving the costs is embedded in the plans, spreadsheets and work breakdown structures.
The purpose of a project investment is to deliver the business outcomes, benefits and value. Therefore, the project costs are the costs of delivering these business outcomes, benefits and value.
If the costs of delivery exceed the value to be delivered then this is obviously a waste.
But the orthodox methodologies do not directly link the costs to the outcomes, benefits or value. Therefore, they cannot identify high-cost/low-value components and delete them. As a result you can spend, say, $10 million to deliver only $100,000 in value. This is avoidable waste.
The top 5% start by defining their desired business outcomes - the business end states to be achieved - and then identify each outcome’s benefits and their value. This enables them to quantify the business value of each outcome.
Then they identify the change workload required to deliver each outcome. This enables them to compute the cost of delivering each outcome.
As a result they can make visible any high-cost/low-value outcomes that are not worth delivering.
We call this process “Project Optimization” whereby you can often deliver at least 90% of the available value for, say, 60% of the initial costs.
Project Optimization makes overstated budgets visible and manageable so as to save significant investment funds.
(Blatant overstating of the delivery costs is managed by the Validation Process which we'll discuss later.)