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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?

• Howshould the Business case and Benefits be


measured and managed during the project’s delivery?

• Some differing perspectives…..

November 26, 2009 2


Scope

• Draws on experience in providing services to Financial


services and Corporate clients investing in Information
Technology projects.

November 26, 2009 3


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

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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

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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

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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

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Four Questions

Alignment Benefits
1. Are we 4. Are we
doing the getting the
right thing? benefits?

2. Are we 3. Are we
doing them getting
the right them done
way? well?
Integration Capability/Efficiency
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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

November 26, 2009 9


What is a Benefit?

The value placed by a


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

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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?

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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
• Benefitrealisation 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

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Benefits Realisation Management Process

Yes

Develop/update
Benefits Yes
business case; Perform Assumptions
being
time-
time-phased cost, to plans still valid?
realised?
realised?
benefit flows;plans

No
No

Determine corrective actions

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Benefits Management Challenge

• Technology driven • Benefits driven


• Value for MONEY • VALUE for money
• Expenditure proposal • Business case
• Loose linkage to business need • Integration with business drivers
• IT implementation plan • Change management plan
• Business manager as on-looker • Business manager involved and in
• Large set of unfocussed functionality control

• Stakeholder “subject to” • IT investment sufficient to do the job

• Trained in technology • Stakeholders “involved in”

• Do a technology project audit • Education in exploiting.


• Obtain business benefit then review

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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

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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

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• 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

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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…
• Alignsthe delivery of change with business objectives
and strategy
− Assuming there is an agreed strategy to align with…

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The Why: A Benefits Led Approach to Project Selection…

• Enables
decisions to be made around portfolio
management and prioritisation
− Not who shouts loudest…
• Createsa culture of accountability and measurement in
service delivery.
− Or gives the Business back control over the portfolio of
projects…

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Best in Class Performance: the Evidence….

• High performing companies are 50% more likely to


use analytic information strategically

Have significant decision-


decision- 65%

support/analytical capabilities 23%

Value Analytical insights to a 36%

very large extent 8%

Have above average analytical 77%

capability within industry 33%

High Performers
Use analytics across their 40%
Low Performers
entire organization 23%

Source: Competing on Analytics, Thomas Davenport

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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

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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

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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

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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

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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

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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?

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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

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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

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Strategy Alignment to Change Management

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

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Prioritisation: Follow the Money

• AllProject investment decisions


should be based on a Financial
justification.

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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

• Soundproject 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

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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

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Portfolio Prioritisation

• “One of the key contributors to poor IT investment


performance is an unbalanced approach taken by
executives at the project approval stage.
• Toooften, the overriding emphasis is on quick payback
or demands for the return on investment (ROI) to be
demonstrated in financial terms.”
terms.”
− Gartner.

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Business Accountability and measurement

• TheBusiness is responsible for ensuring that the


Investment made yields the return calculated.

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Recap: Why do we need Business cases

•A Critical Success Factor


• Ensuring Strategy alignment
• Prioritisation

• Accountability and Measurement

November 26, 2009 35


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.

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Identifying Benefits

• Deliverables or outcomes

• Cashable v non cashable

• Efficiency

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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?

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Benefits Management

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

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PMBOK: Project Initiation

Inputs Tools and Techniques Outputs

1. Product
description 1. Project charter
1. Project Selection
2. Strategic Plan 2. Project Manager
Methods
3. Project selection identified/assigned
criteria 3.Constraints
2. Expert Judgement
4. Historical 4. Assumptions
information

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Business Case Activities

Scope Definition and Agreement Solution Implementation Options


and Selection
The scope and requirements of the
engagement are confirmed. The The options for implementing the
required outputs are agreed. The solution – package acquisition and
scheduled is established. customisation, existing system
upgrade, system development – are
Requirements Analysis, analysed. Suitable suppliers are
Definition and Agreement identified. An options or options are
recommended.
Business, functional, technical and
implementation requirements are Implementation Plan Roadmap
identified, analysed and
documented. Any existing A realistic plan to implement the
processes and systems impacted solution is creating, incorporating
by the proposed investment are resource requirements and
analysed. constraints and includes risk,
assumptions and dependencies.
Solution Architecture
Specification and Design Financial Analysis

A logical solution is designed to The full costs to implement and


meet the defined and agreed operate the solution are quantified.
requirements. The tangible savings are identified.

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Presenting a Business Case

Strategic Fit Options Procurement and Whole-Life Costs Plan for


Evaluation and Implementation Achievement
Identification
Business need and Cost/benefit Proposed sourcing Statement of Plan for achieving
its contribution to analysis of realistic option with reasons available funding the desired
the organisation's options for meeting and details of outcome with key
business strategy the business need Key features of projected whole-life milestones and
proposed cost of project dependencies
Key benefits to be Statement of commercial (acquisition and
realised possible soft arrangements operation), including Contingency plans
benefits that cannot all relevant costs
Critical success be quantified in Procurement Risks identified and
factors and how financial terms approach/strategy Expected financial mitigation plan
they will be with supporting benefits
measured. Identify preferred details External supplier
option and any plans
trade-offs
Resources, skills
and experience
required

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Exec Summary

Name of project

Responsible Board
Member

Project owner

Project manager

Objective

Value Drivers

Market launch
Estimated cumulated
investments
Present Value

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Market Opportunity

Region/maturity of market* Customers/needs*


 Targeted region …  Targeted customers and their
 Description of maturity of key needs
market ...  Current market volume  ...
(as of …)
 Future market volume
(growth / market
potential by ...)

Products/substitutes* Competitors*
 Description of Opportunities Threats  Main competitors (incl.
products/services ... ... market shares)
 Possible substitutes (existing /
expected)

*) Current status

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Opportunities and Threats market

Opportunities Threats
 …  ...
 ...  …

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Description and Analysis of Proposed Offering/Sales
Sources

Our offer

 Text
What are our
products/ services?

Who are our  Text


customers?

What demand is  Text


met?

How is the money  Text


earned (revenue
driver, pricing) ?

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

Strengths Weaknesses
 …  ...
 ...  …

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Key Success Factors of Product/Service Offering Our offer

 Text
<Success factor 1>

 Text
<Success factor 2>

 Text
<Success factor 3>

 Text
<Success factor x>

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Strategic Fit and Risk Assessment

Strategy/Risk

Corresponding strategic objectives ... Potential strategic conflicts or risks ...

•... •...
•… •…
•... •...

… are reflected in initiative ... … are mitigated by ...

•... •...
•… •…
•... •...

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Sales drivers project/product/service

Sales drivers

2008 2009 2010 2011 2012

(a) Number of Customers* xxx xxx xxx xxx xxx


(b) Average quantity per customer* xxx xxx xxx xxx xxx
(c) Average price per unit* xxx xxx xxx xxx xxx

(d) Sales volume (mn


(mn €)) * xxx xxx xxx xxx xxx

Market share xxx xxx xxx xxx xxx

<Bubble to add
*) Generally: (a)*(b)*(c)=(d); (c) in line with pricing model
important remarks>

November 26, 2009 50


Cost drivers: Name of project/product/service

Cost drivers

Quantities or mn € 2008 2009 2010 2011 2012

FTE xxx xxx xxx xxx xxx


... xxx xxx xxx xxx xxx
... xxx xxx xxx xxx xxx
... xxx xxx xxx xxx xxx

Bubble to add
important remarks

November 26, 2009 51


Differentiation of project scope and handling of
project risks
Project

Aspects not in project scope Potential project risks and mitigation


 …  <Risk 1> ...
 mitigated by …
 <Risk 2> ...
 ...  mitigated by …
 <Risk 3> ...
 mitigated by ...

November 26, 2009 52


Project phases, milestones and required
budgets/resources Implementation

• Project Phase • Project Phase • Project Phase


1 2 3 ...

Milestone • Text • Text • Text


(interim result)

Responsibility • Text • Text • Text

Delivery date • Text • Text • Text

Depedencies • Text • Text • Text

Budget/resources • Text • Text • Text


(mn €,, man days)

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Summary of Strategic fit

Comments: Strategic Planning

 XXX
 XXX
 ...
 ...

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

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Project and Benefits Lifecycle

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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)

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Benefit Realisation

• MostBusiness cases have a time horizon which extends


over a period from 1 — 5 years.
• SoBenefits 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

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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…

November 26, 2009 59


Conclusion: Recap of Seminar Objectives

• Why is Benefits management an important competency


for organisations?

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

• Howshould the Business case and Benefits be


measured and managed during the project’s delivery?

• Some differing perspectives…..

November 26, 2009 60


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?

November 26, 2009 61


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

November 26, 2009 62


Relationship to Other Management Disciplines

PMBOK

……..Is
……..Is Benefits Management
a
core competence of a Project
Manager?

………Should
………Should the PM be
involved?

General Management Application Area


Knowledge and Practice Knowledge and Practice

November 26, 2009 63


COBIT

November 26, 2009 64


Maturity Models

November 26, 2009 65


More Information

Alan McSweeney
alan@alanmcsweeney.com

November 26, 2009 66