The Money Files

In my early days as a project manager, my business cases and PIDs were full of non-quantifiable benefits. The kind of improvements that I thought we could get but weren’t set up to track.

In my more recent years, I’ve been heavily focused on quantifiable benefits, most specifically the money-related ones. Anything that presents a trackable, cash improvement is something to focus on. If it improves the bottom line, managers want to know about it.

There are also quantifiable benefits that are harder to track like reducing cycle time for invoicing and reducing energy consumption. These would lead to financial savings, but they are more difficult to pin down and measure realistically with no other influencing factors. Cycle time, for example, may lead to bills being paid faster which would lead to better cash flow and increased bank interest, but how do you separate that out as a benefit of just this project and not something to be attributed to one of the many other projects that are doing their bit for continuous process improvement?

Energy consumption can be tracked, but it’s several steps and calculations – it’s doable but harder. That’s not to say we shouldn’t do it, but it is something that you have to put effort into tracking.

Non-quantifiable benefits seem to have dropped out of favour. For example, staff satisfaction survey results is a good one that I used to mention a lot in project documentation. However, there are lots of things that influence staff satisfaction, and I’m sure my projects only played a very small part in influencing the results one way or another.

Also, new initiatives that once seemed completely life changing and a huge improvement quickly become ‘the way things work around here’ and the benefit tails off to nothing. No one would want to go back to the old process, but equally no one is celebrating the new process 6 months later when it’s just normal BAU.

I learned this on a Six Sigma course I took many years ago where the instructor talked about giving customers a biscuit with their coffee in a coffee shop. At first customers were excited they were getting a biscuit for free, but over time they came to expect that service and were disappointed when they didn’t get it, but not more happy because they did.

Therefore there is a balance to be struck with benefits: you want a mix of both quantifiable (financial and other) and non-quantifiable. But not so many that they all become meaningless. And not so few because you can’t be bothered to put the tracking mechanisms in place for more.

Be realistic about what you can achieve with benefits and how much time people really are going to spend on tracking the more difficult ones. If they believe that it’s worth tracking, they’ll do it, but if they feel energy consumption, for example, is tracked adequately through other types of environmental reporting or projects, they probably won’t be falling over themselves to create project-specific benefits reporting.

Talk to the key stakeholders about what sort of benefits you are putting forward for a project and make sure they are reasonable, measurable (where possible) and realistic.

Making a recommendation? Whether you’re doing a formal business case or a quick paper for your boss, here are 5 things that you should make sure are covered.

1. Present the options

What are the options you have considered before making your recommendation? Normally you’ll have at least 3:

• Do nothing (what happens if nothing happens – if your project is legal or regulatory you might not have a do nothing option)
• Do something (minimum intervention)
• Do more than the minimum.

Write a few sentences about each, or if you are doing a verbal presentation, spend a moment outlining each.

The option chosen should be practical and deliverable. In fact, all the options should be reasonable – suggesting pointless activity is a waste of time and undermines your credibility. There’s no point putting forward an option to deliver 100% improved customer service if it needs an investment of £2m and you know there is no way your company is going to go for that.

2. Present the choice

Next, say which one of your reasonable options you are putting forward.

Explain why. Be clear and don’t assume they know anything about any of the analysis or thinking. What’s the obvious choice to you might not be clear to them.

Explain why the other choices are not appropriate to pursue at this time. You don’t want to spend loads of time on explaining why you have discounted them, but you might need to justify the financials so link out to (or have to hand if you are presenting) info that stakeholders can use to look at the detail.

Hopefully they won’t need it as they should trust that you’ve consulted the right people and made a sensible choice.

3. Present the benefits

Review the benefits that come with the chosen option and make sure you can justify them. Are they clear, measurable and reasonable? Are there benefits that look good on paper associated with the rejected options that you should explain? Normally, business leaders go for the ‘biggest benefit’ choice so if you aren’t selecting that one, be sure you have clearly justified why not.

Don’t over-estimate the benefits because of all the sections in this presentation or paper, the benefits are the thing most managers will remember. They’ll be looking to you to deliver those, so I would recommend being on the cautious side!

4. Check the language

The decision might go up the chain to people who don’t know the jargon of your department. Check through your proposal or presentation script and make sure you’ve explained any acronyms or project-related terminology that other people might not understand – or that they might interpret incorrectly.

Get someone else to read it through if you are worried that you’re so in the detail that you won’t be able to pick out terms that someone else can’t understand.

5. Read through your recommendation again

If you were presenting this to a family member or non-project manager friend, would they understand your justification for the choice? It should be clear that you have chosen the obvious winner and that you can explain why that is the most appropriate choice at this time for your business. If there is any doubt, go through and strengthen the language.

Finally, check for spelling and grammar errors, and make sure that people’s names and job titles are spelled correctly. Circulate the paper for comment amongst your subject matter experts if it is something you need to get input on, and then send it off to your boss or whoever needs to see it.

The decision maker might not agree with you, but you can be sure they’ve seen the best possible justification and case for the choice.

Earlier this month I looked at spring cleaning your portfolio to check for strategic fit and also to ensure resources were being managed appropriately.

Now it’s time for step 3 of my decluttering plan: setting clear priorities. You can’t keep everything tidy if you don’t have a plan for how to manage the space going forward. Otherwise, the clutter starts to build up again (looking at you, cupboard under the stairs).

It’s really important to set clear priorities for the remaining projects in the portfolio (the ones you haven’t swept away with the clean sweep brush) and develop a roadmap for execution that aligns with organisational goals.

You probably already have a strategic, portfolio roadmap, and if you haven’t reviewed that yet, it’s worth it, so you’re starting this section of the year with a fresh slate and clarity about where everyone is going.

Focus on high-impact initiatives

Scan through the portfolio and make sure projects are prioritised appropriately. Use scoring models and an alignment matrix, or whatever prioritisation model you have agreed with your stakeholders, to ensure everyone is focused on the high-impact initiatives. Typically, these are the ones which are relatively straightforward to deliver and have high benefits. You might use a PICK chart (let me know if you want me to write about PICK in a future article, it’s quite a useful tool to Google if you don’t already use it) or something similar to pull out the projects where it’s worth investing your time and resources.

Remember, even if you did this exercise a while ago, things might have changed. The business context is different now to how it was even 3 months ago, so it’s worth keeping prioritisation under review.

Create (or refresh) your roadmap

If you already have a roadmap, pull it up and check that the key milestones and timelines are still valid. Adjust as necessary, being as flexible as you need to be and flag anything that needs approval before it is updated. For example, you may have internal rules about the number of projects that can go live at any one time in an area and now the portfolio plan shows that guidance would be broken with the current timescales. Discuss internally and update so that you’re not overloading any single area with too much change at once.

Engage stakeholders

Finally – although this is something you’ll be doing throughout the spring cleaning process – check in with key stakeholders. They should be aligned and supportive of project prioritisation, both the process for assessing priorities and the final outcome of the prioritised list.

Hopefully, getting buy in is straightforward, because you’ve aligned priorities to the strategic plan and everyone can see that this roadmap is the best approach to making sure all the projects get the organisation closer to delivering on the overall objectives.

When all that is done, you can put down your dustpan and brush. The old stuff has been swept away and the portfolio is looking clean and refreshed. After your spring cleaning I think you deserve a well-earned rest!

I’m working with organisations who are putting a lot of thought into benefit management at the moment – more thought than I’ve ever seen in past years. I know benefits management has always been something to consider on projects, but how many project/leaders/organisations actually truly do it?

I’m sure the larger projects are geared up for benefits tracking, but smaller initiatives? Those that might only deliver a few thousand pounds/dollars of benefit per year? Are those being tracked?

I think the trend is changing, and I think there is more focus on benefits tracking, particularly in programmes. Where there is a large programme of work, even small projects get to contribute.

So how do you do it?

The first step is to work out what benefits your project is going to deliver. For example, that could be:

• Cost saving
• Increased sales/revenue

In fact, benefits could be lots of things (shorter cycle times, more calls answered, higher customer satisfaction) but most often they can be reduced to money. Shorter cycle times should mean more projects delivered in a year, so more value achieved, or more widgets through the process, so more sales. More calls answered should convert to more sales, so more cash. Higher customer satisfaction results in more repeat purchases and more testimonials that drive new buyers, so more cash.

Even carbon savings and sustainability targets can often be represented as financial benefits. Carbon has a financial figure associated with it, so you can translate carbon reduction into money.

The trouble comes with trying to get stakeholders to agree on how these benefits will be calculated.

More calls in, for example, might not translate to more sales for several months, depending on your business timeframes and processes. You will need some rules and assumptions around how benefit numbers are going to be worked out where the maths is not straightforward.

For example: if we outsource a service, we can reduce headcount in function and probably make a saving on the cost to serve (budgets are part of the outsourcing decision, after all). That’s a straightforward cash saving: those individuals are no longer on our payroll (even if they were moved across to the outsourced party – the UK has TUPE rules for this).

But do we count that saving as a ‘pure’ saving, or do we have to take off the cost of buying the outsourced service? How long can we claim the service for before it becomes BAU? What happens when we need to add a head or two back in, where do those costs go?

We need assumptions to make benefit calculations work, like what’s the average cost of a sale (so if we answer more calls we should convert x% and make y% extra money as a result).

This first step of creating a model on which to base benefit calculations is the hardest part, in my opinion. There are experts to consult, finances teams to engage, data to gather so we have something to use as the baseline, and lots of maths and spreadsheets to test out so we can model what the benefits might look like.

Getting agreement on how the benefits will be worked out is hard. You need everyone to agree, and more importantly, to understand how it all goes together so they can repeatedly work out the benefit using the same calculation, month after month for as long as you decided to track it for.

That’s no small undertaking, especially for organisations starting out. Especially as many projects have multiple strands and multiple things contribute to the benefits.

What’s the journey like for benefits tracking in your organisation? Let us know in the comments what the biggest challenge is for you – I’m interested to see if you agree with me that it’s the setting up and creating the assumptions and rules for calculation, or whether there is something else that is the hard part.

The PMBOK® Guide – Seventh Edition talks about four different ways to define business value.

‘Value’ is quite a vague term when it’s used in everyday speech, so I think it’s useful to have something to hang a definition on when we’re using the term in project management.

The Guide does specify that there are lots of aspects to value, including non-financial considerations, and that the four ways that are listed are only some of the ways that you could measure value. However, they are a good starting point if you’re trying to have conversations with execs about what projects you should work on – you do need some kind of idea of what value means.

Here are the four metrics that you can use to measure value, as outlined in the PMBOK® Guide.

1. Cost benefit ratio

This ration works out the present value of the investment compared to the initial cost, basically, do the costs outweigh the benefits (if they do, you probably shouldn’t start the project unless there is a strong justification for doing so in the knowledge that it will cost you more to deliver than the benefit expected).

2. Planned benefits compared to actual benefits

This is a bit of a weird one if you ask me – until you start delivering, you don’t have any actual benefits to compare to. It’s fine if you want to review value after the project is complete or while it is in progress, but it’s not a metric you could use for project selection.

You’d have to use the planned benefits, and that really is the planned value of the work to the organisation – so it’s just a different way of talking about the other metrics until you have some actuals.

3. Return on investment

This is my favourite of the four (is it odd to have a favourite value metric?). Probably because I use it the most and it’s very clear on what it is. It’s easy to explain to stakeholders and finance teams seem to like it.

Plus it’s easy to work out.

ROI is the financial return compared to the cost, so it’s helpful in project selection. However, you can use it throughout the project to refer back to whether or not you are on target to hit that particular ROI – useful to do when your costs are going up.

4. Net present value

NPV used to confuse me because it’s time-phased, but once you get your head around it, it’s straightforward. It’s a very common metric in use for project selection so it’s definitely worth taking the time to understand how it is put together and what it means.

You can measure NPV throughout the project and check that the investment still holds up.

With all of these, as long as you keep measuring if you are getting enough value out of the project, you can make an ongoing commitment to keep the work going. If the numbers point to a trend of decreasing value, there is likely to be a point where you’ll want to stop the work, because the amount of effort expended isn’t worth the value you’ll get at the end of it.

Of course, there are some projects where the value is simply being able to continue to trade or operate within a legal framework, or benefit related to social/corporate responsibility or sustainability, so you might find it irrelevant to track metrics like the ones above. The takeaway from all this is to work out what ‘value’ looks like to your team and your project, and measure that.

How do you do it? Let me know in the comments!