Are the Four Lenses Cumulative or Conflicting?
Depending on how they are managed and executed, the primary project and value delivery lenses — investment strategy, business value, and project cost control — can be complementary, generating cumulative results; or they can be conflicting as each role pursues its own individual agenda, resulting in cumulative value loss.
The project team (builder) — especially an independent party such as a Systems Implementer —can try to extract maximum value for themselves through cost variations – increasing the project delivery cost (and revenue to them). It is to avoid this situation that so much management focus is placed on project cost and expenditure control – so as to not lose the potential business benefits or value through cost overruns.
Cost management is, therefore, a discipline and control factor on the project manager and team.
Unfortunately, everyone has adopted the cost control mindset to the exclusion of all other factors, and this has to change.
The project team (builder) is accountable for managing costs. The governance team (owner) is charged with ensuring effective cost management, managing contingency funds, and assessing cost variations based on their impacts on the resultant net business value.
However, the governance team can try to extract maximum short-term returns by making decisions that reduce the project cost or increase the immediate net value but increase the long-term costs of ownership. For example, they may skip transferring historical data to a new system to save project costs, a decision that later creates significant operating costs when access to the historical data is found to be necessary.
When the project delivery lens is mostly focused on cost control, this kind of short-term decision-making is encouraged at the business and governance level to ‘ensure the project comes in on budget’ regardless of its longer-term impacts. It is here that effective use of the ‘business value’ lens will ensure that the governance team’s (owner's) measure of success is not just the immediate (short term) net financial profit, but also the measured and sustained delivery of the agreed desired business outcomes (end states) and their associated benefits, value and operating costs. This requires governing for the longer term.
Value management is, therefore, a discipline and control factor on the governance team.
The governance team is accountable for managing and delivering the maximum net value. The Investment Committee/Board (investor) ensures this value is optimized through the sequencing of projects, planning the cumulative value of the portfolio’s projects, and assessing proposed scope variations based on their impacts on the portfolio’s net, total and long-term value.
You can see from this how portfolio management is a key component of the investment management perspective. The key value-adding role of portfolio management is its ability to ensure the cumulative value generated from projects is greater than the sum of the individual parts. To achieve this portfolio management should not only optimize individual projects but also plan the portfolio, and manage the ‘gaps’ between projects to ensure no value is lost before, during, or after delivery.
Only if the project’s costs are controlled and the governance team’s total value generation is managed, can the executive team achieve their desired investment returns and results. But to make ‘1+1=3’ the executive team has to actively manage and optimize the portfolio so as to ensure the projects build on each other to deliver cumulative value while minimizing the overall level of investment required. Too few portfolios are actively managed from this strategic perspective, resulting in duplicated or overlapping projects, conflicting and non-integrated outcomes, and redundant initiatives – all leading to additional costs and reduced business value.
Portfolio optimization is, therefore, the discipline and control mechanism for the Board/ Executive Team/Projects Investment Committee.
The Investment and Business Value lenses also make visible eight self-evident truths about projects that we’ve been ignoring for too long.