Business Cases and Benefits Management

Business Cases and Benefits Management:

Business Cases and Benefits Management Alan McSweeney

Objectives:

January 9, 2011 2 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:

January 9, 2011 3 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…:

January 9, 2011 4 Hints and tips on Mountain Climbing, not a guide to Climbing Mountains…

Project Outcomes:

January 9, 2011 5 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:

January 9, 2011 6 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:

January 9, 2011 7 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:

January 9, 2011 8 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:

January 9, 2011 9 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?:

January 9, 2011 10 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:

January 9, 2011 11 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:

January 9, 2011 12 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:

January 9, 2011 13 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:

January 9, 2011 14 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 …:

January 9, 2011 15 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:

January 9, 2011 16 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

Slide 17:

January 9, 2011 17 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…:

January 9, 2011 18 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…:

January 9, 2011 19 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…

Best in Class Performance: the Evidence….:

January 9, 2011 20 High performing companies are 50% more likely to use analytic information strategically 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 Source: Competing on Analytics, Thomas Davenport Best in Class Performance: the Evidence…. Low Performers High Performers

Benefits in Projects:

January 9, 2011 21 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:

January 9, 2011 22 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:

January 9, 2011 23 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:

January 9, 2011 24 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:

January 9, 2011 25 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:

January 9, 2011 26 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:

January 9, 2011 27 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:

January 9, 2011 28 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:

January 9, 2011 29 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:

January 9, 2011 30 Prioritisation: Follow the Money All Project investment decisions should be based on a Financial justification.

Benefits Realisation Principles:

January 9, 2011 31 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:

January 9, 2011 32 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:

January 9, 2011 33 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:

January 9, 2011 34 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:

January 9, 2011 35 Recap: Why do we need Business cases A Critical Success Factor Ensuring Strategy alignment Prioritisation Accountability and Measurement

What is a Business case, how do you write one?:

January 9, 2011 36 What is a Business case, how do you write one? 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 :

January 9, 2011 37 Identifying Benefits Deliverables or outcomes Cashable v non cashable Efficiency

Business Case:

January 9, 2011 38 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:

January 9, 2011 39 Benefits Management Assigning benefits Benefits manager Service managers Metrics Financial Non-financial Proxies

PMBOK: Project Initiation:

January 9, 2011 40 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:

January 9, 2011 41 Business Case Activities

Presenting a Business Case:

January 9, 2011 42 Presenting a Business Case

Exec Summary:

January 9, 2011 43 Exec Summary Name of project Responsible Board Member Project owner Project manager Objective Value Drivers Market launch Estimated cumulated investments Present Value

Market Opportunity:

January 9, 2011 44 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 ...) Opportunities ... Threats ... Products/substitutes* Description of products/services Possible substitutes (existing / expected) *) Current status Market Opportunity

Opportunities and Threats:

January 9, 2011 45 Threats ... … Opportunities … ... market Opportunities and Threats

Description and Analysis of Proposed Offering/Sales Sources:

January 9, 2011 46 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’ :

January 9, 2011 47 Weaknesses ... … Strengths … ... Our offer Strengths and Weaknesses of Proposed Offering Key Differentiation Factors Compared to Competitors’

Key Success Factors of Product/Service Offering:

January 9, 2011 48 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:

January 9, 2011 49 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:

January 9, 2011 50 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: Name of project/product/service:

January 9, 2011 51 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:

January 9, 2011 52 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:

January 9, 2011 53 Budget/resources (mn €, man days) Milestone (interim result) Responsibility Delivery date Project phases, milestones and required budgets/resources 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

Slide 54:

January 9, 2011 54 Summary of Strategic fit XXX XXX ... ... Comments: Strategic Planning

How should the Business case and Benefits be measured and managed during the project’s delivery? :

January 9, 2011 55 How should the Business case and Benefits be measured and managed during the project’s delivery?

Project and Benefits Lifecycle:

January 9, 2011 56 Project and Benefits Lifecycle

Change Management:

January 9, 2011 57 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:

January 9, 2011 58 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:

January 9, 2011 59 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:

January 9, 2011 60 Conclusion: Recap of Seminar 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…..

Some Closing Thoughts:

January 9, 2011 61 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:

January 9, 2011 62 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:

January 9, 2011 63 Relationship to Other Management Disciplines ……..Is Benefits Management a core competence of a Project Manager? ………Should the PM be involved?

COBIT:

January 9, 2011 64 COBIT

Maturity Models:

January 9, 2011 65 Maturity Models

More Information:

January 9, 2011 66 More Information Alan McSweeney alan@alanmcsweeney.com