Many of you will know the famous Abbott and Costello comedy routine about who is on the various bases at a baseball game. Because the player on first base is named “Who” there is great confusion as to who is on first base. (see http://vintage.videosift.com/video/Abbott-and-Costellos-Whos-on-First-Routine)
Which brings me to the question — when evaluating project proposals, who’s on first? What dimension do you evaluate first?
The traditional approach has been to look at the financials first. Does it have a positive ROI? Are the financials believable and appropriate? If the project passes the ROI hurdle it gets a BIG tick. In some cases only if it fails this first hurdle do the other dimensions get evaluated.
But is this right?
Research by PWC found that 83% of project proposals had their numbers ‘fudged’ to get them through the evaluation process. If you want a hurdle rate of 15%, we’ll give you a proposal with a return of 15.2%!
We recently found the CFO of a major organization fudged his own project’s business case to get the requisite ROI figure!
The number of assumptions on assumptions built into a project’s costs and benefits make many ROIs a guesstimate at best.
Also, as external-to-the-project events can change the project’s value and therefore its ROI, the financials are the least reliable and least consistent measure of a project’s (potential) success.
So, should they be the first evaluation measure? Probably not.
The first question should be “Does this project align with and contribute to our strategic direction and priorities?” Is it helping us get to where we want to get? Is it relevant? Should we focus on it now?
There are projects that financially have a great positive ROI but which are totally irrelevant to the strategic goals and focus of the organization.
Some years ago, a management team prioritised its projects and the project that was rated ‘priority number two’ disappeared completely when a strategic alignment and contribution assessment was added to the process. It was totally irrelevant to the strategic imperatives of the organization. The organization had a lot of key issues to address and this project was not focused on any of them. (It was cancelled.)
To make ‘strategic contribution’ the first major assessment basis requires an effective and objective way of measuring strategic contribution. Once this is in place, the management team can ask the following questions in the following order when assessing potential projects:
- Why are we doing this? (What’s the opportunity/problem? Is it real or a symptom of something else?)
- Why is this relevant? (What’s the strategic alignment and contribution? Do we need to focus on it now?)
- What’s the value? (What are the financial and non-financial benefits?)
- Is it doable? (What are the risks and delivery capability requirements? Can we successfully deliver such a project?)
- Is it doable now? (What are the resource and deployment constraints? Can we resource the project and complete it on time?)