Focusing on the benefits of any project to the organisation is a critical lens for assessing risk and opportunity. The discipline of good benefit management practices, writes guest contributor, Martin Ryan, is critical to successful delivery.
There are many project methodologies in common use for business improvement initiatives, including Six Sigma, Lean and others, with possibly as many again for project management, such as PMBOK, Agile, and Prince2.
Each of these methodologies is designed to deliver a business outcome, yet none specialise in the science of benefits management. In fact, many of the methodologies are quite silent on the subject.
So, if the primary purpose of any business initiative is to create and manage business benefits, why is it that benefits management is so often an afterthought?
Where do benefits begin?
The first mention of likely benefits usually starts with the so-called ‘business case’. It can be a quite lengthy document yet may feature near-throwaway lines about the benefits the project will derive e.g. “reduce costs by 20%”.
20% of what, exactly? And relative to what, and over what period? Even where a benefit is expressed in dollar terms, the same questions will still apply.
It’s at odds with other components of many of the methodologies such as schedule tracking and cost tracking where much greater rigour is applied.
Why do benefits in a project lack the same rigour given to other parts of project delivery?
One explanation for this lack of rigour when capturing and managing benefits relates to agency theory: those actors advocating for an initiative are frequently not the stakeholders to whom the benefit would accrue.
Thus, there can be a tendency for a business case to address only whatever is necessary to obtain funding approval. Following this tendency, benefits which seem plausible, but lack rigour and precision, are favourably regarded by the advocates because it is easier to later assert they have been achieved.
Of course, if a business case is somehow lost in the mists of time and ultimately confined to a bottom drawer after approval there will be even more latitude to claim good benefits outcome which may not be supported by facts.
The relationship between assumptions and benefits
There is the natural desire to claim project success and benefit achievement by invoking convenient assumptions – assumptions that may not stand up to any detailed level of scrutiny. This scrutiny, however, is avoided because the assumptions are implicit and hence hidden.
A Project Manager can often encounter this desire to guild the benefits lily at the Board or Management level. This becomes particularly challenging when those claiming benefits in this way start to actually believe their own narrative – that the assumptions are now a truth and thus no longer up for debate.
Therefore, there will be little incentive to continue to strive to maximise ongoing benefits by those who believe they are already in the bag.
Is there a better way to manage benefits?
What, then, is a rigorous approach to benefit management that will avoid vague estimations and often self-serving yet unproven narratives that undermine maximising benefit outcomes? Here are four possible suggestions:
- Establish in the business case clear cause-and-effect logic. What feature of a process or system does the project actually change, what business impact does that have and why, and how does this convert to higher EBITDA and why? This rigour is essential upfront if we are to influence and manage what occurs later on. It also discourages claiming windfall gains as benefits, or conversely failing to recognise benefits because of some adverse but exogenous counter-balancing event.
- Define the term ‘benefit’ with the same rigour as would apply in a contract. One such definition is, “an incremental improvement in EBITDA in a specific time period, which occurs as a direct result of the project, and which would not have occurred but for the project.”Whatever the definition, give a worked example, such as “for the time period from January to June, the committed revenue forecast is $2.6M whereas without the project the revenue forecast would be $2.2M, therefore the benefit for the period is $0.4M.” This definition of benefit requires the exercise of preparing two full and separate scenarios, so the delta is explicit.
Preparing these two scenarios will uncover a series of assumptions, and these should be documented as well. For example, whether a cash flow or accrual basis, whether before or after tax, whether the cost of capital is factored in, whether the price change is factored in etc. It also applies additional scrutiny to the cause-and-effect logic, including the timing differences between when a project change is made and when the effect becomes evident on the P&L.
- Place the business case in the Project Library, where it is visible to all stakeholders – and keep it updated as things evolve. As time passes during the project’s life, record actual, ledger-based outcomes in the same model, so they can be compared to the scenarios on a fully like-for-like basis.The Project Manager can play an important role here; he or she is better placed to maintain this environment than those in the Finance function, who may have less capability to push back if asked to invoke convenient, implicit assumptions.
- At the project’s conclusion, insist on a post-project review and ensure that benefit management is a topic at that review. It may be pragmatic to restrict the distribution of review outcomes if this assists to generate authentic dialogue and to honestly assess what aspects of benefit management went well, and what did not. As long as the distribution includes those who will be the Steering Committee for future projects – and thus the lessons can be learned and adopted – the post-project review will generate improvement over time in benefit management.
Benefit management will continue to be a challenging topic for all involved. It is not an exact science, but current approaches certainly could do with some improvement from our experience.
Maturity has a role to play
If a Project Manager has not encountered any of the above challenges and shortcomings in benefit management, he or she should be thankful for the organisational maturity of their employers or clients. For those who have, the four suggestions above may be helpful and provide some insights into the discipline of benefit management for your project
Our guest contributor, Martin Ryan, is a business improvement consultant who is engaged by C-Level Managers of mid-to-large organisations to lead improvement initiatives such as post-merger integration projects and the establishment of PMOs. Follow Martin on Linkedin here.
As project specialists, we develop fit-for-purpose strategy and benefits management capability for our clients. Contact us here to find out more about how we work with your teams or call 02 9098 6300.
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