Business Cases And Benefits Management

Business Cases and Benefits Management Alan McSweeney

Objectives
Why is Benefits management an important competency for organisations?
What is a Business case, how do you write one?
How should the Business case and Benefits be measured and managed during the project’s delivery?
Some differing perspectives…..

Scope
Draws on experience in providing services to Financial services and Corporate clients investing in Information Technology projects.

Hints and tips on Mountain Climbing, not a guide to Climbing Mountains…

Project Outcomes
2004 Standish Group Report http://www.standishgroup.com/
29% projects succeeded (delivered on time, on budget, with required features and functions)
53% are challenged (late, over budget and /or with less than the required features and functions)
8% have failed (cancelled prior to completion or delivered and never used)
Failures cost an estimated US$145 billion

Benefits Approach
How do we pick the winning investments?
How do we ensure that we are getting value from these investments and know that we are doing so?
Benefits do not just happen with delivery
Benefits rarely happen according to plan
Benefits realisation is a process that must be managed like any other business process

Four Questions
1. Are we doing the right thing?
(Re)definition of business, program alignment
2. Are we doing them the right way?
Organisational structure, program integration
3. Are we getting them done well?
Organisational capability, support structure
4. Are we getting the benefits?
Proactive management of benefits realisation process as a whole

Four Questions 2. Are we doing them the right way? 3. Are we getting them done well? 4. Are we getting the benefits? 1. Are we doing the right thing? Alignment Integration Capability/Efficiency Benefits

Benefits Management
A process of organising and managing such that potential benefits are actually realised
Benefits Management means maximising the benefits from projects, changes and initiatives

What is a Benefit?
Improve
Increase
Reduce
Eliminate
Stop
The value placed by a stakeholder on the performance improvement or new capability resulting from an outcome
Benefits are identified by asking stakeholders to articulate how they believe they (or the people they represent) will experience the value of the outcome, i.e. stakeholders answer the question “what’s in it for me?”

Benefits Analysis
What benefits do we want / could we get?
Identify benefits
Link to business objectives
Link to enablers
For each benefit:
How can you measure it
Can we quantify it
Is there a financial value?

Benefits Realisation Planning for Programmes
A set of activities to design and plan an integrated change programme to deliver quality and value benefits to patients, staff and local communities
Benefit realisation IS NOT only about whether the project delivered things on time to budget, etc.
Identifying benefits will not make them happen
Preparation
Objectives and Outcomes
Benefits and Measures
Validation and Completion
Support, Manage and Update

Benefits Realisation Management Process Develop/update business case; time-phased cost, benefit flows;plans Perform to plans Benefits being realised? Assumptions still valid? Determine corrective actions Yes Yes No No

Benefits Management Challenge
Technology driven
Value for MONEY
Expenditure proposal
Loose linkage to business need
IT implementation plan
Business manager as on-looker
Large set of unfocussed functionality
Stakeholder “subject to”
Trained in technology
Do a technology project audit
Benefits driven
VALUE for money
Business case
Integration with business drivers
Change management plan
Business manager involved and in control
IT investment sufficient to do the job
Stakeholders “involved in”
Education in exploiting.
Obtain business benefit then review

A Benefits Driven Approach Will …
… Allow you to:
Build the case for your investment
Forecast benefits and business impact
Identify key business changes
Gain buy-in to the project from all participants
Identify early wins and prioritise the application portfolio
Reduce risk by having better understanding of expected outcomes and barriers to success

Silver Bullets
60-80% of projects do not deliver benefits
Success is usually measured in terms of delivery time and cost
Is the system in use or useful is rarely examined
Failure = Blame = Bad Press = Punishment

Lots of projects become disconnected from the business need, processes and people that created them
Benefits Management reconnects project to benefits
Structured approach that will
Make the link between the enablers and the organisation’s strategic objectives
Build the case for investment
Gain buy-in to the project from all participants
Maximise the benefit from investment

The Why: A Benefits Led Approach to Project Selection…
Is a critical success factor for organisations who are seeking to obtain best in class performance
Assuming that you assess/understand your market position relative to market…
Aligns the delivery of change with business objectives and strategy
Assuming there is an agreed strategy to align with…

The Why: A Benefits Led Approach to Project Selection…
Enables decisions to be made around portfolio management and prioritisation
Not who shouts loudest…
Creates a culture of accountability and measurement in service delivery.
Or gives the Business back control over the portfolio of projects…

High performing companies are 50% more likely to use analytic information strategically
Best in Class Performance: the Evidence…. Source: Competing on Analytics, Thomas Davenport Low Performers High Performers Have significant decision-support/analytical capabilities Value Analytical insights to a very large extent Have above average analytical capability within industry Use analytics across their entire organization

Benefits in Projects
We invest in projects because of the perceived Benefits they bring
The Benefits justify the project
Linked to Corporate Objectives & Priorities
Can be wide-ranging
Statutory, Social, Economic…
Often financial (but not exclusively)
Sometimes hard to measure

Financial Benefits
Time saved, posts lost, costs avoided, costs reduced…
Calculate a £ figure
Work out timing (investment & saving)
Payback (in years)
When Savings equal Investment
NPV (Net Present Value)
A common measure of a project’s value
Cash flows adjusted for time they occur
Using a 5% discount rate

Non-financial Benefits
Is this a Corporate priority?
Look for a performance measure
BVPI
Other PI
Measure
Value at start of project
Predicted value at end of project
Actual value at end of project

Organisation Development
The four pillars of Change
Driven by the Customer
Improving our Performance
Learning & Developing
Optimising our Finances
These describe the type of organisation we want to be
Each project has to contribute

Later Benefits
Project puts a capability in place
To be exploited by a later project
Must link these projects
Is funding in place for later project?
Are we committed to later project?
If not, investment in first project may be wasted

Later Benefits
Project delivers as expected
But Benefits only measurable later
Need to link to process
What process?
The owner?
When and how to measure?

Realising Benefits
Financial saving
Remove £ from next year’s budget
Saving included in formal budget setting process
Clarity about what was saved where
Posts lost
At risk register
Identify the staff affected, communicate
Process based on existing Council policies
Consultation, redeploy, retrain … redundancy
Minimise redundancy costs
Affects timing of realisation of Benefits

Tough Decisions
Cost constraints
We must stay within this
Headcount and Budget
We need to manage both
May require restructuring
New ways of working may mean changes to some organisation structures

Strategy Alignment to Change Management
Strategy
Business Vision
Strategy
Goals and Objectives in a 3-5 Year Investment Plan
Products and Services
Annual Budget
Change
Project and Programme Design
Business Case
Programmes and Portfolio Projects
Benefits Management and Realisation

Prioritisation: Follow the Money
All Project investment decisions should be based on a Financial justification.

Benefits Realisation Principles
Benefits realisation is the pre-planning for, and ongoing management of benefits promised to be enabled by the successful implementation of a project
Sound project management can only enable a business owner (program) to realize intended benefits
Accountability for the realisation of intended benefits must rest with the business function, not with the IT project

Outcome Management
What is an outcome?
An outcome (benefit) is the desired result of an initiative undertaken to meet a need or solve a problem
Outcomes are final results supported by intermediate outcomes (benefits milestones)
Background
Outcome Management is focused on the outcomes or results side of an initiative or program
Outcome Management methodology is based on internationally recognized project and risk management techniques that has been refined
Outcome Management is an evolving discipline
Details
Cost benefit analysis is a subset of Outcome Management
Outcome Management is the potential link to existing tools or other sources of performance indicators

Portfolio Prioritisation
“ One of the key contributors to poor IT investment performance is an unbalanced approach taken by executives at the project approval stage.
Too often, the overriding emphasis is on quick payback or demands for the return on investment (ROI) to be demonstrated in financial terms.”
Gartner.

Business Accountability and measurement
The Business is responsible for ensuring that the Investment made yields the return calculated.

Recap: Why do we need Business cases
A Critical Success Factor
Ensuring Strategy alignment
Prioritisation
Accountability and Measurement

A Business case should describe the proposition in terms of:-
Scope and out of scope
Objectives
Options
Schedule
Risk
Investment and return.
In short, it should describe the reason and justification for initiating a project and explain how the organisation will get there.

Identifying Benefits
Deliverables or outcomes
Cashable v non cashable
Efficiency

Business Case
Features of a good business case
Description of benefits – quantified
Cost benefit analysis
RoI
The business case is a logical argument to spend money and Benefits Management creates a compelling reason for the Sponsor / Champion to act
Is it worth spending this amount to achieve this result?

Benefits Management
Assigning benefits
Benefits manager
Service managers
Metrics
Financial
Non-financial
Proxies

PMBOK: Project Initiation
Product
description
2. Strategic Plan
3. Project selection
criteria
4. Historical
information
Project Selection
Methods
2. Expert Judgement
Project charter
Project Manager
identified/assigned
3.Constraints
4. Assumptions
Inputs Tools and Techniques Outputs

Business Case Activities

Presenting a Business Case

Exec Summary Name of project Responsible Board Member Project owner Project manager Objective Value Drivers Market launch Estimated cumulated investments Present Value

Market Opportunity Region/maturity of market*
Targeted region …
Description of maturity of market ...
Competitors*
Main competitors (incl. market shares)
Customers/needs*
Targeted customers and their key needs
...
Current market volume (as of …)
Future market volume (growth / market potential by ...)
Products/substitutes*
Description of products/services
Possible substitutes (existing / expected)
*) Current status Opportunities ... Threats ...

Opportunities and Threats Threats
...
…
Opportunities
…
...
market

Description and Analysis of Proposed Offering/Sales Sources What are our products/ services? Who are our customers? What demand is met? How is the money earned (revenue driver, pricing) ?
Text
Text
Text
Text
Our offer

Strengths and Weaknesses of Proposed Offering Key Differentiation Factors Compared to Competitors’ Weaknesses
...
…
Strengths
…
...
Our offer

Key Success Factors of Product/Service Offering <Success factor 1> <Success factor 2> <Success factor 3> <Success factor x>
Text
Text
Text
Text
Our offer

Strategic Fit and Risk Assessment Corresponding strategic objectives ... … are reflected in initiative ... Potential strategic conflicts or risks ... … are mitigated by ...
...
…
...
...
…
...
...
…
...
...
…
...
Strategy/Risk

Sales drivers project/product/service
(a) Number of Customers*
(b) Average quantity per customer*
(c) Average price per unit*
(d) Sales volume (mn €) *
xxx
xxx
xxx
xxx
2008
Market share
xxx
xxx
xxx
xxx
xxx
2009
xxx
xxx
xxx
xxx
xxx
2010
xxx
xxx
xxx
xxx
xxx
2011
xxx
<Bubble to add important remarks> *) Generally: (a)*(b)*(c)=(d); (c) in line with pricing model
xxx
xxx
xxx
xxx
2012
xxx
Sales drivers

Cost drivers: N ame of project/product/service
FTE
...
...
...
xxx
xxx
xxx
xxx
2008
xxx
xxx
xxx
xxx
2009
xxx
xxx
xxx
xxx
2010
xxx
xxx
xxx
xxx
2011
Bubble to add important remarks
xxx
xxx
xxx
xxx
2012
Quantities or mn €
Cost drivers

Differentiation of project scope and handling of project risks Project Potential project risks and mitigation
<Risk 1> ...
mitigated by …
<Risk 2> ...
mitigated by …
<Risk 3> ...
mitigated by ...
Aspects not in project scope
…
...

Project phases, milestones and required budgets/resources Budget/resources (mn €, man days) Milestone (interim result) Responsibility Delivery date
Project Phase 1
Text
Text
Text
Text
Project Phase 2
Text
Text
Text
Text
Project Phase 3 ...
Text
Text
Text
Text
Depedencies
Text
Text
Text
Implementation

Summary of Strategic fit
XXX
XXX
...
...
Comments: Strategic Planning

Project and Benefits Lifecycle

Change Management
Change requests should assess Business case impact.
The approval of scope changes, budget changes, schedule changes should be mapped back to the Business case
For Larger projects and programmes, stage gate Business case reviews as part of key phase end milestone reviews
Consider changes in the wider Business environment (e.g. the current recession), as drivers to re-assess the in flight portfolio
Consider changes in products and solutions as drivers to re-assess the in flight portfolio
E.g. Vendor consolidation, changes in Vendor product strategy
E.g. New products that might improve solutions/invalidate previous architectures
Changes in Organisation structure or composition (mergers/takeovers/sales/joint ventures)

Benefit Realisation
Most Business cases have a time horizon which extends over a period from 1 – 5 years.
So Benefits are often fully realised only after the project has been closed.
Who measures the effectiveness of the investment when the project is gone?
Project Management Office
Business Management
IT Management
Project Manager

Project Management Office and Benefits Management
PMO’s are often located in IT, not embedded in the Business
Terms of reference for PMO are often quite narrow
Focus often on methodology, resourcing, governance and reporting
Is there an appetite to extend the PMO into this role…

Conclusion: Recap of Seminar Objectives
Why is Benefits management an important competency for organisations?
Some differing perspectives…..

Some Closing Thoughts
What are the Critical Success Factors for Benefits Management?
If they arent in place what does this mean?
Should Benefits management be part of the PM’s remit?
If not the PM then who?
Should Benefits realisation be placed in a more general Management framework
Cobit?
PMM Maturity assessment?

The Success of Benefits Management in Organisation and projects is
Linked to the ability of the organisation to
Clearly define strategy and business goals
Determine priority of activities
Measure costs and success of implementation
So to be truly successful Organisations must
Understand their customers needs
Understand and quantify revenues by customer and product
Understand and quantify their cost base (activity costing/unit costing)
Understand their relative competitive position
Have processes and policies in place to support a Benefits led culture when introducing change

Relationship to Other Management Disciplines …… ..Is Benefits Management a core competence of a Project Manager? ……… Should the PM be involved? PMBOK Application Area Knowledge and Practice General Management Knowledge and Practice

Maturity Models

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Alan McSweeney
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Business Cases And Benefits Management

by Alan McSweeney

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