Project disaster alert – the target benefits lack credibility

examine XSmallJust as every project costs money every project is expected to deliver benefits. If not, why is the project being undertaken? But do your benefits stand up to scrutiny?

 

Even projects you wouldn’t necessarily want to undertake such as regulatory compliance projects or upgrading from obsolete versions of software have target benefits. You avoid fines (or maybe even jail) with regulatory compliance projects and you avoid your business grinding to a halt because of unsupported software failures or virus attacks with software upgrades.

In these ‘must do’ categories, the benefits are obvious, if somewhat unexciting, but the dangers can get over hyped. Look at the Year 2000 ‘threat’ Multi-millions of pounds were spent making systems Y2K compliant and on the big day nothing went wrong. Some would say it was money well spent. But my own experiences saw many projects badged as Y2K as a convenient way of getting new or upgraded systems approved that probably wouldn’t otherwise have seen the light of day.

 

Your top three questions

And that leads nicely in to the meat of today’s topic. I’m going to assume you have taken over your project after the business case was created. After all, as a professional project manager, you wouldn’t be a party to any of the practices I’m about to describe. So having taken on a project, if you are like me, the first thing you want to do is look at the business case. You’re basically looking to answer three questions:

1stWhat are you being asked to deliver?

2ndWhat resources have you been given to deliver it?

3rdAnd what does the business expect by way of return?

You’ll also be interested in the alternatives that were considered, the plan, the risks, issues and assumptions but fundamentally you want to know what’s expected of you and is it doable.

 

Dubious benefits

By looking at the deliverables in conjunction with the plan and the costs/resources, you will get a pretty good idea of what is required to make the project delivery happen. The business expectation of returns will be a lot more subjective. In many cases it will be vague or woolly. Whilst it is relatively easy to identify a series of tasks and products and estimate the cost of doing the tasks or creating the products, estimating the impact they will have is much, much harder.

Let’s say your project is to develop and launch a new product. There will have been market research undertaken to identify if there is a market for the product and a target price will have been decided on. But until you get it to market and people actually start buying, you don’t actually know. You might be targeting taking market share from a competitor. But what if that competitor revamps their product to counter yours, or launches a price war? The economics of your project could be shot to pieces very quickly.

One real example I encountered was with a bank implementing new financial and risk control systems. The benefits were to be derived from a better management of the bank’s balance sheet enabled by more robust and accurate financial information. This would be able to share a number of basis points (fractions of a percent) off teh cost of funding the bank’s balance sheet. However, by the time the implementation was even half way through the Bank’s balance sheet had changed dramatically and the benefits were no longer there.

Now I’m not saying anyone is being deliberately dishonest in either of the above examples. But if a business case is predicated on a set of assumptions that are at best variable, then they are being a little disingenuous.

There have been plenty more instances where sponsors and business case authors are being down right untruthful.  Where the benefits have been estimated on spurious grounds just to achieve a level that justifies the costs.


lightbulb02Disaster avoidance

 

So what should you be looking at to see if your business case’s benefits actually stack up?

  • Is there a robust ‘base case’ or baseline against which changes can be measured to see that benefits are being delivered
  • Is there an existing mechanism, or will the project deliver a mechanism, to measure benefits delivery
  • Is there clear responsibility and accountability for delivery of the benefits
  • Is there clear and valid documentation supporting the estimated benefits giving valid reasons why the estimates should be trusted
  • Are alternative scenarios presented – best case, worst case, most likely case
  • How likely are the benefits to hold up over the elapsed period between approval of the business case and the expected delivery date
  • Are the benefits susceptible to relatively minor changes in the marketplace
  • If you have access to earlier versions of the business case, have the benefits miraculously moved in line with, or increased to cover, the costs
  • Are the benefits understood and supported by all areas of the business or are they dependent on support of the sponsor

If there are good answers to all or most of the above questions, the chances are that the benefits have been honestly drawn up have as good a chance as any of standing the test of time. If the answers are bad, there may be trouble ahead…..

2 comments on “Project disaster alert – the target benefits lack credibility
  1. Ste[phen Pinkney says:

    Having done hundreds of business cases, the above points are bang on. The other challenge is, when real benefits start to erode, at what point do you cancel the project or charge forward based on value at the margin, with the right approvals ?

    • admin says:

      Thanks for your comments Stephen. I think you have to look at what value will be delivered verses the amount still to be spent. Sunk costs are irrelevant to the go-forward decision. However, you also need to look at the opportunity cost – where else could the funding be deployed and would that deliver a better return. That’s the role of the portfolio manager.

      The other important thing is to learn from the experience and ensure that the reasons the project became marginal are understood and factored into future assessments.

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