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Pereira diamond benefits management model - Q&A


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Pereira diamond benefits management model - Questions and answer

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Pereira diamond benefits management model - Q&A

  1. 1. Webinar: Pereira Diamond Benefits Management Model Questions and Answers Q. Do you think the Pereira model can be successfully applied to public service organisations? A. Partially yes [mainly the costs and efficiency dimensions] but we will have more news on that soon, since we are developing a model for Social ROI Benefits which will be particularly useful for Public Sector services and projects. Q. Is the model at conflict with innovation projects - where speculation and hunches are encouraged? A. Answered on the webinar which can be viewed here. Q. In reducing hours is it not important to understand what will be done with the freed-up time? For example, saving one minute per staff member doesn't mean much but it may look impressive if there are 10,000 staff members. A. Your example is correct, that’s the point! But it seems unlikely we can determine what will be done for each worker [at least easily]. So probably the required effort doesn’t justify it. Besides, if reducing hours has a direct impact on the cost results then it should be considered as cost reduction and not efficiency. Let me give you an example:  You have a considerable amount of work-related documentation and your team needs about 8 hours weekly to do it.  As you need your team to do other tasks you want to hire a new resource.  You are doing a Business Case to assess if the implementation of new software and automation of the documentation process will have a positive ROI. In this Business Case, the benefit should be considered as Cost Avoidance [Cost Reduction dimension] because with that you’ll eliminate the need of the new resource and with that you’ll avoid that cost.  It is important to note that if the required effort is reduced to a point where the employee is no longer required and leaves that department, or even the company, that becomes a cost reduction and not an efficiency benefit as it will assist to direct cost reduction on the company P&L.
  2. 2. Q. In which dimension of the Pereira Diamond would you see revenue-generating projects? A. Revenue-generating projects are included in the business growth dimension. However costs reduction or legal compliance may represent a direct impact on company results [savings] so will also contribute to create added value. The Efficiency increase dimension typically represents “virtual” savings which will return value to the company on a long term. That is why that the projects portfolio should be prioritized [along with the strategic goals] as first: Legal Compliance due to ethical reasons, Business Growth and Costs Reduction and at last, Efficiency Increase. Q. How do you agree on shared benefits across various sections of the business? A. Pareto rule of 80/20 means that 80% of wealth is owned by 20% of the people. We use also that principle in the business case framework, hence we should instantiate about 20% of the benefits, because it represents 80% of the total value of benefits. The effort required to compute the other the remaining benefits does not justify it. In practice, we typically consider up to 3 benefits. Q. Do projects fail because the expected benefits were unrealistic [i.e. the benefits estimate was wrong] or because projects fail to deliver achievable benefits [i.e. the execution is wrong]? A. It depends on what we are assessing. It can fail on both perspectives. If an ROI of 200% was estimated and the real ROI was 1000%, the estimation was wrong, but that’s not necessarily bad! This means that probably we were too conservative with our estimation. On the other hand, and frequently what happens, is that people over estimate benefits [known as the optimism bias phenomenon] as they aim to get their project approved or end up using inappropriate tools and techniques to estimate future benefits, either due to a lack of knowledge or time pressure to present the business case. Having said that, the priority should be making the right decisions first [right projects], and afterwards decisions about managing them right. Typically, larger projects tend to be more difficult to manage hence more variables to be controlled pursuing the goal of meeting the scope, cost and time predicted. So, what is the point of investing time and resources on implementing a project if the project will not deliver any value to the business? This is where business cases play a key role, on assuring that first, we choose the most valuable projects for implementation. Q. How do you work out the confidence level of your benefits? A. Typically we work within the interval of 80-95%, depending on the risk-aversion profile of stakeholder we are working for. The most popular system for it, is called the Monte Carlo Simulation system [there is software for that nowadays although Excel provides good assistance]. Q. Is it Ok for a benefit to be yes/no achieved and therefore not trackable? A. Benefits have a dynamic behaviour through the project life-cycle, so we cannot say in the middle of a project “yes it was achieved so we don’t need to keep our attention on it” or “no, it wasn’t achieved
  3. 3. and it is not even achievable so we don’t now need to care about it.” Both scenarios are just unrealistic because they can change at any time. Of course, at the beginning of a project we should define a tracking plan for benefits and they must measure it sometimes during the project, and if we identify deviations from the estimation, we must adopt corrective actions for that. Q. If the benefits are the deciding point for an organisation, at what point would the costs (budget) to achieve the benefits become part of the decision process? A. Organizations should be benefits-driven and not cost-driven. The mission of any profitable entity is to create wealth and not just to control the costs. What does it mean? An investment of 1,000€ can be expensive and an investment of 1,000,000€ can be cheap if the first one doesn’t return any value and if the second gives a high return value. The cost estimation process is, obviously, very important in order to have a robust process so that its viability valuation is not biased. Furthermore, we argue that the costs estimation shouldn’t happen before the benefits estimation so that high costs don’t intimidate the Business Case analyst. Q. I see that Kotter's data from 1995 is still being used - is there anything more up to date to give us a modern view? A. This statistic has been widespread during the last decades and it was assumed as reference to increase people’s awareness to this topic. Kotter’s study has been increasingly criticized in the last year and revised by several authors. The main critics argue that it is not about the number but the concept of failure. They suggest that “failure” can be misunderstood since its scope wasn’t well defined in the Kotter study. Summing up, we consider this statistic just as a reference and not as commonly accepted by the scientific community. There are a few studies and statistics which reinforce these findings. See for example the results from Change for the Better: A study on benefits management across the UK [Glynne, P. & Williams Rod - APM 2009]  54% of respondents indicated that “cost reduction is a primary driver of projects and programmes in their organization”  In the same survey respondents were asked to describe the approach to benefits management within their organization and 60% described the approach as informal or incidental. Clearly the benefits management discipline is still developing and is far from achieving a maturity level.  60% of respondents indicated that their organization had a standard set of key performance indicators to measure corporate business performance. However, only 12% of respondents used a software application to support management information on benefits. This finding suggested a lack of maturity in the software market for benefits management.  On the question “By widening the focus to the whole organization, to what extent is benefits thinking integral to the wider approach to management, from strategy to operations?” 40.5% of respondents reported that their organisation had a “weak benefits focus” and a further 23.8% a “very weak benefits focus.”
  4. 4.  The report concluded that “there is a need for guidance and best practice examples on how benefits management might fit within the overall approach to organizational change and project / programme and portfolio management.” [APM, 2014]. Q. I would guess that people use a general optimism bias value instead of applying sensitivity analysis to each benefit. A. Absolutely, that is a common pattern. Optimism bias is, unfortunately, common practice. People should bear in mind that decision-making, and the business case itself, should be undertaken from a scientific management basis which is sharply different from the common sense. Actually, common sense management is one of the biggest mistakes of managers. Optimism bias will lead an organization to undertake projects with lower return [or even negative return] instead of the best projects. Also this process can compromise the organization survival in the long term.