Delivering Value Why Else Are You Doing The Project?

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1 Delivering Value Why Else Are You Doing The Project? THOUGHT LEADERSHIP WHITE PAPER In partnership with By Andy Jordan, PMP, ProjectManagement.com Research Analyst

2 Projects are the way that an organization progresses things the vehicle for moving from current state to desired end state. There is no shortage of potential changes that organizations can make to create progress. As a result, when an organization begins its annual planning cycle, there is always a long list of proposals competing for the limited investment dollars that are available. While some projects are approved by default regulatory compliance, for example and some are approved as keep the lights on preventive maintenance measures, the majority of these proposals have to demonstrate that they are worthy of getting their share of the resources and funds available. How do they do that? By commitment to deliver value that roots itself in on- time and on- budget actions. The combination of financial return and alignment with organizational goals continues to be the single most important factor in deciding whether a project receives resources and investment and that s how it should be. Financial return and alignment with organization goals are the single most important factors for funding projects. So far, so good, but as soon as projects are funded there can often be an immediate shift and it s not a positive change. Projects that were funded based on the contribution that they would make to the organization can be predicated on traditional project constraints such as scope, schedule and budget. The value element may sometimes be relegated to a secondary consideration, and in many organizations never to return due to many unforeseen internal and external market shifts. It makes me wonder, why exactly is the project being completed? In this paper, I want to look at ways that organizations can maintain that focus on value. It is something that is becoming more important not just because of tight budgets and a competitive landscape, but because it is increasingly becoming the only logical unit of measurement for projects. A Unit of Value Measurement It s my belief that one of the biggest challenges in attempting to focus on value is that it isn t something easily measured. Scope, schedule and budget are relatively easy to track accurately, or at least to track precisely. Value, on the other hand, is less tangible and existing measures are unsatisfactory. Earned value calculations are uncommon, not because they are complicated, but because they fail to reliably project whether an initiative will deliver on the value that it promised. If value measurement is going to become the norm, then we need to establish a unit that can be used to compare actual value with planned value and can also support comparison across initiatives. There isn t a convenient and completely objective measure that we can apply. If it existed, then things would be easy but that shouldn t stop us from measuring value during the annual planning process 2

3 For most organizations, comparison at that point includes some kind of scoring a points- based comparison where points are awarded in different categories. The specific categories are up to each organization to decide, but they will likely be based on cost, projected return, goal alignment and perhaps business area. There may also be some kind of weighting given to some factors before the totals are taken and decisions made about where to invest. All of those factors are variable either in absolute terms (cost, return) or in terms of relative importance to the organization (goal alignment, business area), so they are appropriate contributors to the value score during project execution and beyond. Additionally, the organization is likely already undertaking this form of scoring so the effort required to extend it beyond project selection is minimal. Even if the organization doesn t use a formal scoring model during project selection, this is a relatively easy step to take without investment in complex tools or difficult cultural change and should be considered mandatory during the planning process. Scoring projects should become mandatory for all approved projects during the planning or approving process. A value score also has two significant advantages over traditional project tracking. First, it focuses the analysis of performance on variables that matter to the organization will the project deliver the anticipated business benefits, and do those benefits still align with business needs? Current project reporting during execution tends to be a distillation of the more granular tracking that is used to support tactical project management, and that focuses on granularity over accuracy. Similarly, after the project has been completed, a value score helps to track benefits realization. Dollar- based projections especially on the revenue side can be difficult to prove, and organizations frequently abandon attempts to track those benefits. This results in a lack of clarity over whether benefits were ever achieved and a lack of accountability for the business owner that championed the initiative. A value score doesn t completely remove those difficulties, but it again helps to focus attention on whether the benefits occurred rather than expending a lot of effort in trying to determine the details of the benefit at a Benefits of Value Scoring: granular level. 1. Measure performance based on metrics that matter to the organization 2. Standardize measuring across different project types The second advantage is in the ability to standardize a value score across different types of projects. Many organizations are struggling to integrate agile projects into their more traditional, waterfall- based project environments. Their traditional tracking and reporting metrics don t work on agile projects, and the agile metrics that are available don t align with the reporting infrastructure that the organization has in place. This results in 3

4 either multiple, confusing reporting approaches or a perception that projects are not being tracked (and by extension, not being managed). By distilling project performance reporting to a value score, we eliminate the need to combine tactical project reporting approaches and help to focus the business on what really matters whether the return on investment is sufficient and appropriate. Defining Value Once we have decided upon a way to measure value, we need to define what value means. This can be harder than it might at first appear, because for many organizations it involves recognizing that their current value scoring process is flawed. While scoring is a common element of annual planning and quarterly re- planning processes, the scoring approach that is used is often not as objective as it should be. Scoring often involves applying a score to the numbers included in business cases, which automatically assumes that those numbers are both accurate and can be compared across initiatives something that is often not the case. In the absence of consistency, the score becomes a way to standardize cost savings with payback periods, revenue growth with market expansion, etc. That becomes purely subjective and is not the type of foundation that we should be using to manage value. A realistic definition of value needs to consider two elements the factors that will contribute, and the scores associated with those values. Combined, those elements need to allow for a realistic and relatively straightforward measurement of value for any given initiative at any point in the project. They must also allow for comparison across initiatives in order to make intelligent decisions around funding changes, change approvals, etc. Let s deal with the factors that contribute to the value score first as those should be the easiest to agree on. The factors have to be capable of being quantified not just at the outset, but also throughout the execution of the project and during benefits realization. They must also be accessible enough for a relatively simple analysis to be carried out we cannot use factors that require complex and lengthy analysis to measure. That drives us to three simple categories: Alignment with goals: This is probably the most simple factor that we need to consider, and is little more with the extent to which a project aligns with the corporate priorities. During planning, this will be a measure of how closely aligned a proposal is with the stated priorities for the upcoming period. During project execution and benefits realization, it will be a validation that the alignment remains that variances created during execution and/or shifting priorities have not reduced the alignment. Extent of contribution: This is the area that will receive most focus, and will address the size of the benefit that the project will be delivering. This needs to consider the net benefit the contribution after all costs have been taken into account, and the cost side of the ledger needs to include adjustments for risk (we ll look at that in more detail when we look at the scoring 4

5 approach). All of those variables will shift during project execution and benefits realization, and this category should be expected to be the most volatile element of our value score. A subjective adjustment: Numbers and objective analysis cannot be the only measures of value that are used. Sometimes a project needs to be executed to provide a strategic advantage that the organization will be able to leverage in the future sometimes it is a foundational initiative that will allow future project to deliver value, and sometimes it just feels like the right thing to do. Many of the ground- breaking technology products that have changed our lives in recent years would never have become reality if it wasn t for a sponsor pushing for them against objective criteria that suggested that the projects should be killed. This category is likely to be fairly stable, and may even be treated as a weighting of the other factors. Defining Value Three Best Practice Categories: 1. Business Alignment 2. Net Benefit to the Organization 3. Subjective Adjustment These categories will likely be easy to agree to, but what follows the scoring approach might be much harder. The scoring methods chosen require a balance between a detailed statistical analysis that threatens analysis paralysis (and is impossible to apply across different project execution methods), and an approach that is little more than guesswork. There must also be appropriate weighting between the different categories to avoid personal agendas. Let s start by looking at alignment with key business goals, because that s the foundation for primary scores. Every project should contribute to one or more of the organization s strategic goals for the coming period: $X million of revenue growth, Y% cost reduction, etc. A project s contribution and relevance within each category should drive the score. For example, a pure revenue growth target can be achieved by any product line within the organization, so alignment with that goal may not result in a high score even if the dollar contribution is large. On the other hand, a contribution to market share growth in a particular geographic region may only be achievable by one or two projects, resulting in a much higher alignment score. The extent of the contribution will be the hardest category to define a scoring approach for because this is where we get into the realm of the traditional business case projections and project performance metrics. If we only take those raw numbers and apply an arbitrary score, then we aren t shifting the discussion to defining and delivering value. Instead, we must apply this metric to the alignment value above. This effectively becomes a measure of ability and willingness to spend for results that map to the organizational goals. At the time of project approval, this will simply be a consideration and forecast of delivery costs, opportunity costs, timeline and known risks that are acceptable in order to generate the expected 5

6 outcome for the work approved. As the project proceeds, those variables will shift and the score may change based on different variables, and one must consider the options as they relate to costs associated with the work. The cost is defined as risk and quality, as well as the absolute hard dollars, the schedule cost (delays in delivery that reduce and/or delay benefits) and scope cost (reductions in features that limit benefits). Once projects have completed, the extent of contribution will shift from being cost focused to being benefits focused. Whilst the project is almost exclusively sunk cost at this point, it is still important to maintain the value score. It will provide data toward improvements to future planning, helps to establish accountability and can drive operational support work to try and address variances or confirm focus. Examples of this last element will be any required sales incentive programs or marketing initiatives to assist with revenue and/or market growth, and any operational effectiveness analysis required to support cost reductions. Shifting to Value- Driven Measures There is very little in the approach that I describe here that can be considered a barrier to entry. If organizations want to drive a more value- driven approach to portfolio execution, then they can begin this journey with little more than enterprise- wide commitment and some process change. Like any other portfolio- level approach, it is going to take some time to develop a stable and reliable scoring matrix that works for the organization simply because planning cycles are generally annual. However, refinements can occur during quarterly reviews, and benefits will be seen even while the mechanics are being refined. A culture of value- based management will help to ensure that decisions are made with a value context even if the details are still not finalized. A culture of value- based management will help to ensure that decisions are made with a value context even if the details are still not finalized. These early benefits will permeate many areas of portfolio management. Greater confidence that value is being identified and tracked reliably will lead to greater confidence in the ability to select the right projects during annual planning. Improved project selection will in turn reduce portfolio change that will reduce wasted money, time and effort and further enhance the chances of delivering portfolio (and hence organizational) success. As real results contribute to the refinement of the value score approach, the organization can move from improved results to maximized results and that becomes a game changer. When an organization has developed its value scoring to the point where they are confident that the relative contributions of initiatives are understood, project selection becomes a more straightforward 6

7 process. There can be much greater confidence that the right projects are being prioritized, which allows organizations to focus on how to ensure that those initiatives can be executed effectively addressing resource needs, removing barriers, etc. From an execution standpoint, there can also be confidence that when the value becomes questionable or insufficient, there will be processes in place to identify that change and allow for investments to be diverted to other (already identified) priorities. As organizations embrace and mature their value score system, they will be looking for support from tools that can automate the mechanics and allow them to focus on the value- add decision making. Most modern PPM suites should be able to support a value score model, but organizations will want to ensure that they partner with a tool that supports greater value add. Examples will be tools that can model portfolios based on score and that can provide alerts when scoring values become marginal. Conclusions The focus on effective and efficient portfolio management has never been greater than it is today. Portfolio budgets are constrained, and ever- increasing returns on investment are being demanded. Selecting and investing in the wrong initiatives is one of the most damaging mistakes to the chances of success, and failing to recognize when good projects have gone bad is another. Yet organizations consistently fail to manage either of those elements effectively, in large part because they don t have a reliable, consistent approach to measuring and managing value. Projects continue to be approved based on dubious claimed values in business cases that are written and presented by partial stakeholders and that lack a consistent approach that allows for objective comparison. After project approval, value rarely even factors into the discussion the need for accuracy and reliability being sacrificed in favor of convenience. Consequently, organizations invest in the wrong projects and pursue those projects for too long before taking corrective action (if they take that action at all). That creates such a deficit in performance against goals that it is impossible to recover with the good projects and the organization falls short of its targets. Portfolio execution success requires many different elements to come together, and implementing a value score approach is not going to make everything else easy. However, it is one of the cornerstones of success and if an organization can get that right, it at least creates an environment where other management decisions can be taken with a greater level of confidence. 7

8 About ProjectManagement.com Since 2000, our mission has been simple: To make project managers more successful. ProjectManagement.com is the experience bridge that fills in the gaps- - providing help to project managers in a number of ways. It is a community, your community, for project managers in Information Technology and other industries. We are your one- stop shop for PM answers, helping you get "unstuck"- - and confidently meet every new challenge that comes your way with over 4,000 articles from industry experts, over 1K Deliverable Templates to save you time and more than 600K peer connections and experts to offer specific advice. About Innotas Innotas provides a comprehensive, best- of- breed PPM and APM SaaS solution, major IT Governance, and PPM and APM initiatives. People play a large role in the rapid adoption of the Innotas solution. Innotas extends its commitment to excellence and customer success by aligning every client project with an Innotas engagement manager. To learn more, visit About the Author Andy Jordan, PMP is a ProjectManagement.com Research Analyst and Subject Matter Expert. He is also the founder and president of Roffensian Consulting. Andy is a seasoned business professional with experience in many industries on two continents. After a career managing high profile, business critical projects for many organizations, Andy moved into leadership of project management offices and built a reputation for building, rescuing and improving this key function. Moving beyond direct involvement in project, program and portfolio management and into consulting, Andy focused on working with companies to improve their capability to identify, prioritize and track the progress of key initiatives whether they were part of an ongoing evolution or to revolutionize the company through integration of an acquisition, organizational change management, etc. 8