A CFO recently disputed that he was not getting the value expected from his projects. He pointed to a zero failure rate (ie all projects formally approved had been completed) and benefits locked into future budgets.
So we dug a little deeper.
- True, all formally approved projects had completed; but some had morphed into quite different beasts along the way; so what was initially approved was not delivered but the business case justification had often not been revised so the expected benefits were unlikely to be delivered.
- However, there were a number of ‘skunk-works’ type projects that had come and gone, consuming resources and operational cash with very little to show for their efforts.
- True, the financial benefits from the business cases were reflected in the budgets. But many of the pre-requisites for their achievement were not in place. The line managers were resigned to making the savings ‘somehow’ with little cognisance of the downstream and long term impacts (when they, personally, were unlikely to be in the role). In other words, the letter of the savings would be made, but the actual value realization would not be created by the project so the savings would come from other means.
I saw this some years ago when a service department shed two staff to make the promised savings (as the other savings had not materialized from the project) which resulted in after-sales service levels deteriorating which resulted in lost sales due to poor service. Total cost of this $200K saving as estimated by the Sales Director 3 years later? $20m in sales.
True value means knowing the true costs.
Just locking promised benefits into future budgets does not guarantee they are created, only that they are realized somehow at an unknown cost.
Value Delivery Management (VDM), however, tracks the delivery of the pre-requisites, the means by which the savings are to be made so that management can ensure they are delivered and, therefore, the savings can be made with no long term downstream impacts.
That’s true value at a known cost.
Do you know if you’re getting real value?