The benefits challenge
Explain to me this…
- We commission projects to realize the benefits (if we deliver the project but don’t realize the benefits, where’s the value in that?)
- But we treat benefits as some afterthought or hoped for after-effect, rather than the project’s principal purpose
- When we do measure benefits, we make it incredibly hard, labour-intensive and (usually) value destroying!
How did we get to this situation? Benefits realization management is not a mainstream discipline or process, but it should be.
Why is effective benefits management such a rare sight? There are many reasons and pressures to keep benefits management off the agenda – “not mature enough, it makes executives too accountable, too many things change for it to be meaningful”, and so on.
But there is one underlying, invisible reason that undermines benefits management which is - operational management thinking.
Operational management manages costs to budgets. Each year a month-by-month budget is approved, and each departmental manager works 'to budget’. Overspending requires a ‘Please explain’ as does under-performing on the revenue side. Therefore the majority of managers know they have to manage cost as a primary control measure. They therefore bring this cost management thinking into the project world.
Look at your project/program/portfolio reporting and I guarantee that the majority of the reporting is cost centric. Costs to date, costs to budget, costs to complete, committed costs, etc. All of these are important, but…
Project delivery should be managed to value.Each project’s cost-to-deliver, needs to be managed in relation to the value available. The project manager needs to manage the productivity of the project delivery team and the quality of the outputs so as to deliver, enable and support the realization of the full business value for the least practical cost.
“Delivering on budget” is never the goal – “Delivering the business value” is the real goal; and you can’t deliver value by just controlling costs.
Yes, yes, yes, cost control is important as it impacts the net value realized. Every dollar/pound/euro spent over and above the least possible cost reduces the net value of the project and business results.
Cost management, in the project delivery context, is a value management process.
Value management requires the full and timely delivery of the maximum available benefits and their financial value for the least practical cost. Every aspect of the project must be visibly aligned to and driven by value.
To achieve this you don’t need complex benefits measurement processes. The project is the primary benefits realization process — but most project delivery approaches currently miss this as the project activities are not directly connected to the realization of the business benefits and value. It is believed and hoped that “the benefits will be realized after the end of the project”, but this is neither necessarily true nor a reason for not focusing on benefits from the day they are identified.
As a result of mis-focused thinking we have institutionalize three project delivery approaches that individually and cumulatively destroy the very reason we do projects – ie the realization of the business benefits.
- We manage projects to cost - and hope the value will follow. It doesn’t, as we’ve seen in practice for many years.
- We separate projects from benefits realization so that we need to create a separate stream of activities (and overheads) to track and measure benefits.
- We treat benefits realization as a measurement or accounting exercise rather than as a change delivery process. To realize the benefits you need to take action, not just measure something!
What happens when you change these three approaches to focus on true benefits realization? The number, nature and value of benefits realized go up exponentially!
Benefits increase at the business case stage as more benefits are identified leading to more value being delivered.
- Benefits increase at the business case stage as more benefits are identified. Usually the value of the benefits goes up by at least 50% and often over 100%.
- The value of the benefits realized during the project can increase (and we don't just mean some ‘quick wins’ here).
- And the value delivered increases at and after the project’s delivery as every aspect of both the project and business’s changes have been focused on realizing the maximum available value.
When benefits management is made mainstream, a doubling in the value of benefits 'banked' is common. This results in a doubling of the return on investment.
In these tight economic times, a doubling of the return on capital invested in projects needs be a priority for everyone. It is a great opportunity for any organization. And it is not difficult – it is really quite simple when you understand the true nature of benefits and value management and how it can be simple.