Benefits Management – a fool’s errand?

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Stephen Jenner designed, implemented and operated the Criminal Justice System (overseeing a £2 billion investment in modernising justice) IT approach to Portfolio & Benefits Management that has been recognised internationally (in reports to the OECD and European Commission and in a case study published by Gartner) and which won the 2007 Civil Service Financial Management Award. He was infamously described by the UK Government CIO as, "the Rottweiler of benefits management." Steve will outline the research evidence, the possible explanations and solutions which call for a radically different approach to the way organisations approach the realisation of benefits from their investments in change.

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Benefits Management – a fool’s errand?

  1. 1. Benefits Management – a fool’s errand? Business Analysts Meeting, 15 th July 2009 Stephen Jenner [email_address]
  2. 2. Change programmes - the rationale
  3. 3. But the track record is not good in the public sector… “ Implementation of IT systems has resulted in delay, confusion and inconvenience to the citizen and, in many cases poor value for money to the taxpayer.” Public Accounts Committee “ 30-40% of systems to support business change delivery no benefits whatsoever .” Office of Government Commerce
  4. 4. Or in the private sector… “ project success appears to equate to achieving an acceptable level of failure or minimising lost benefits.” KPMG “ Most large capital investments come in late and over budget, never living up to expectations. More than 70% of new manufacturing plants in North America, for example, close within their first decade of operation. Approximately three-quarters of mergers and acquisitions never pay-off…And efforts to enter new markets fare no better” Lovallo and Kahneman
  5. 5. <ul><li>The London Dome - visitors down by 5-6 million. </li></ul><ul><li>Eurostar - passenger forecast in yr1 of full operations 15.9m, actual 2.9m. </li></ul><ul><li>Bangkok skytrain – demand 2.5 times over-estimated. </li></ul><ul><li>Humber Bridge – traffic 25% overestimated in yr1 of full operation. </li></ul><ul><li>Sydney Opera House. </li></ul><ul><li>Olympics - Montreal, Athens, London? </li></ul>and ‘horror’ stories abound…
  6. 6. And empirical research concludes… “ There is a demonstrated, systemic tendency for project appraisers to be overly optimistic. This is a worldwide phenomenon that affects both the private and public sectors…appraisers tend to overstate benefits, and underestimate timings and costs. ” HM Treasury Forecasts are “ highly, systematically and significantly misleading (inflated). The result is large benefit shortfalls ”. Flyvbjerg “ Delusional optimism : we overemphasise projects’ potential benefits and underestimate likely costs, spinning success scenarios while ignoring the possibility of mistakes.” Lovallo and Kahneman
  7. 7. Four explanations… <ul><li>The technical explanation </li></ul><ul><li>The psychological explanation – cognitive biases </li></ul><ul><li>3. The economic explanation </li></ul><ul><li>4. The political explanation – “ Strategic misrepresentation ”? </li></ul>
  8. 8. Delusion or Deception? “ the planned, systematic, deliberate misstatement of costs and benefits to get projects approved .” In short, “ that is lying ”. Flyvbjerg et al “ Figures don’t lie, but liars can figure” Sharpe and Keelin 38% of respondents in one survey openly admitted to overstating benefits to get funding. Ward
  9. 9. <ul><li>If we don’t know the value to be derived from our investments, we can’t make best use of the funds at our disposal – the ‘good’ lose out to the ‘bad’ but well presented proposals. </li></ul><ul><li>All investments have an opportunity cost in terms of other potential investments that are delayed or foregone. </li></ul><ul><li>If we don’t know where the value is we cannot manage it and potential value just drifts away. </li></ul><ul><li>It’s taxpayers’ and shareholders’ money – we need to demonstrate a sound investment justification and a commitment to realising all potential forms of value. </li></ul>Why is this important?
  10. 10. <ul><li>Ensuring benefits claimed are robust and realisable. </li></ul><ul><li>Planning for all potential forms of value created. </li></ul><ul><li>Realising benefits and creating value – exploiting the capability created. </li></ul>The 3 Benefit Challenges
  11. 11. Capturing all forms of value Moving beyond hurdle rates of return to ask – have all potential forms of value been identified? Foundation Social Effectiveness Efficiency Political Categories of Value RCM Consequence 8 LIBRA NSPIS C&P Provides accurate information earlier Ensures quicker resulting cases & conformance to CJS standards Facilitates better case preparation Speeds up communications with CPS Delivers consistent charge wording Supports a more effective timely prosecutional review 08.1 Prosecution discontinue case / withdraw 08.2 Defendant pleas to alternative offence 08.3 Defendant changes to a guilt plea 08.11 Witness does not give evidence 08.12 Ruling against Prosecution on evidence admissability 08.13 Inappropriate charging 08.14 Insufficient evidence 08.15 Ineffective review 08.16 Not in public interest 08.21 Inappropriate charging 08.22 Ineffective review C08.Cases cracked late SR02(PSA 01) To reduce crime and the fear of crime SR02(PSA 02) Narrowing the justice gap by increasing the number of crimes where the offender is brought to justice (NJG) SR02(PSA 03) Increase level of public confidence Supports work of WCU (NWNJ) which prevents witness not giving evidence COMPASS Live Projects Qualify Investigate Commit Project Y Project Z Project J Project P Project N Project B Project M Project K Project X Project L Project H Project F Project O Project Q Project A Project E Project D Project C Cross department Cross CJS Intra CJO Opportunity domain Identify Live Projects Qualify Investigate Commit Project Y Project Z Project J Project P Project N Project B Project M Project K Project X Project L Project H Project F Project O Project Q Project A Project E Project D Project C Cross department Cross CJS Intra CJO Opportunity domain Identify 1 Re - engineer Project Selection & Development 1 Re - engineer Project Selection & Development 6 Improved collaboration with stakeholders 6 Improved collaboration with stakeholders 2 Develop Community - based solution 2 Develop Community - based solution 3 Deploy maintenance strategy 3 Deploy maintenance strategy 5 Human Resources organisation development 5 Human Resources organisation development 4 Oregon Transportation Initiative 4 Oregon Transportation Initiative 10 Better skilled & equipped people 10 Better skilled & equipped people 11 More effective leadership 11 More effective leadership 8 Higher quality solutions 8 Higher quality solutions 8 More effective public investment 8 More effective public investment 2 Improved total transportation experience 2 Improved total transportation experience 1 Improved community liveability 1 Improved community liveability 3 Enhanced economic opportunity 3 Enhanced economic opportunity 3 Transportation balanced with other liveability factors 3 Transportation balanced with other liveability factors 7 8 9 6 8 2 8 9 2 Community Prepared to adapt behaviour 2 Community Prepared to adapt behaviour 1 Balanced with growth, revenue base & needs 1 Balanced with growth, revenue base & needs 4 More integrated state direction 4 More integrated state direction 7 Reduced time for service delivery 7 Reduced time for service delivery 3 4 5 Established state point of view 5 Established state point of view 9 1 2 6 8 4 3 3 4 2 4 1 0 Value
  12. 12. <ul><li>Managing benefits from a portfolio perspective. </li></ul><ul><li>Continuous Participative Engagement. </li></ul><ul><li>Learning from experience. </li></ul>Going beyond forecast to creating value From optimism in planning and pessimism in implementation to realism in planning and enthusiasm in implementation
  13. 13. <ul><li>Spend more time doing your homework. </li></ul><ul><li>Be clear about the benefits you are buying. </li></ul><ul><li>Triangulate and Validate benefit estimates. </li></ul><ul><li>Appraise ‘Attractiveness’ in the context of ‘Achievability’. </li></ul><ul><li>Use stage/phase ‘Gates with teeth’. </li></ul><ul><li>Independent review. </li></ul><ul><li>Maintaining a ‘Clear line of Sight’. </li></ul>But – the problem starts with the business case so…
  14. 14. “ It’s the Business Case, stupid” Failing projects don’t have brilliant business cases The Solutions: 1. Spend more time doing your homework
  15. 15. The Solutions: 2. Understand the benefits you are buying <ul><li>Beware ‘Strategic alignment’ as an investment justification , </li></ul><ul><ul><li>“ Our CEO defines ‘strategic projects’ </li></ul></ul><ul><ul><li>as expensive projects without a </li></ul></ul><ul><ul><li>Business case. ” </li></ul></ul><ul><li>Corporate Executive Board paper </li></ul>
  16. 16. Strategic Contribution Analysis
  17. 17. Beware staff time savings – they are vouchers The Solutions: 2. Understand the benefits you are buying
  18. 18. “ We were survivors, dwellers forever in the cracks of the vast organisational chart. Disperse us, downsize us, squash us, transfer us, and we will reassemble someday, somewhere, to once again build new layers of redundancy, waste, and glaring irrelevance .” Lerner Non-cashable efficiency benefits?
  19. 19. The Solutions: 3. Triangulate and Validate <ul><li>Use Reference class forecasting. </li></ul><ul><li>Validate the benefits with the recipients – before investment. </li></ul><ul><li>Establish effective accountability for benefits realisation & ‘book’ them. </li></ul>
  20. 20. The Solutions: 4. Appraise ‘Attractiveness’ in the context of ‘Achievability’
  21. 21. The Solutions: 5. ‘Gates with teeth’ <ul><li>Challenge and Support. </li></ul><ul><li>Based on joint planning for success. </li></ul><ul><li>Concludes with a formal re-commitment to benefits realisation. </li></ul>
  22. 22. The Solutions: 6. Independent review “ humans not only are prone to make biased predictions, we’re also damnably overconfident about our predictions and slow to change them in the face of new evidence. In fact, these problems of bias and overconfidence become more severe the more complicated the prediction.” Ayers
  23. 23. The Solutions: 6. Independent review <ul><li>Ayers suggests an, “ ‘ Advocatus Diaboli ’… whose job it is to poke holes in pet projects. These professional “No” men could be an antidote to overconfidence bias.” </li></ul><ul><li>Davidson Frame proposes the use of “ murder boards ” to pull a proposal apart to, “ make sure that arguments in support of project ideas do not have built into them the seeds of their own destruction. ” </li></ul><ul><li>Steve Jenner - I suggest a ‘ fool ’ to ask the questions others don’t dare to ask and identify those, ‘assumptions that masquerade as facts’. </li></ul>
  24. 24. The Solutions: 7. A Clear line of sight
  25. 25. And remember… <ul><li>Spend more time doing your homework - be clear about what benefits you are buying. </li></ul><ul><li>Look beyond the hurdle rate of return. </li></ul><ul><li>Use stage/phase gates with formal re-commitment to benefits realisation. </li></ul><ul><li>Joint accountability - planning for success, with a forward looking perspective. </li></ul><ul><li>Track performance and use it to inform investment appraisals. </li></ul><ul><li>Use summary documentation – size is the enemy of understanding. </li></ul><ul><li>Ensure there is a clear line of sight from strategic intent through to benefits realisation. </li></ul><ul><li>Manage benefits from a portfolio perspective. </li></ul><ul><li>Be realistic in planning and optimistic in implementation and…. </li></ul>
  26. 26. 10. Be ‘ wise enough to play the fool ’ Available from www.academic-publishing.org

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