Identifying benefits

The starting point for achieving value from a project is to identify the benefits it will deliver.

• Benefits are identified during business case development. Benefits should be aligned with the business strategy, e.g. if the strategy is to be a low-cost business, then cost reduction benefits are of paramount importance (see page 237).
• There are several categories of possible benefit types:
  • Financial, e.g. cost reduction, cost avoidance, revenue increase.
  • Tangible and measurable, e.g. customer advocacy increase, staff satisfaction increase, changes in operational KPIs (Key Performance Indicators). Some of these may be convertible to financial measures if desired; for instance, an operational performance improvement can usually be converted to a cost saving or revenue increase.
  • Intangible and immeasurable, except by subjective judgement, e.g. strategic alignment, capability improvement, skills development.
• Project benefits should be subject to change control as the project progresses. Rarely will actual benefits match those expected when the project started.
• Expected levels of benefits to be achieved should factor in the risk associated with a project. No one should commit to delivery of 100 per cent of benefits from high-risk projects. However, across a portfolio of projects it is reasonable to expect 100 per cent of planned benefits to be achieved.

Tips for achieving identified benefits:

• Design projects to deliver benefits. Don’t work out benefits when you have an idea for a project: select projects which will achieve the benefits desired. If you need cost reductions, identify cost-reduction projects; if you need revenue increases, identify revenue-increasing projects, etc.
• Plan projects to maximise benefits. Projects are often planned with a focus on deliverable creation and resource usage without considering benefits. Project managers should constantly be looking for ways to maximise the benefits a project delivers. The way a project is managed will impact the speed and level of benefits.
• Take care when mixing benefit types. Different types of benefits can conflict from a change management perspective, and may also clash in terms of project strategy, e.g. cost reduction and customer service improvement benefits may require different project strategies.
• Check that the project is really the source of the benefits. If the benefits can be achieved without the project, then the project is not beneficial. Often projects are started which claim to deliver benefits that are achievable without the project.
• Identify and avoid double-counting, i.e. claiming exactly the same benefit from two projects.
• Don’t focus too much on financial benefits. Financial benefits are important, but don’t become fixated on them, as there are also valuable non-financial benefits. A focus on financial returns alone can lead to an unbalanced portfolio.

Measuring and tracking benefits

Benefits need to be tracked and measured if you want value to be achieved. For many projects, benefits tracking takes place after the project is complete, when deliverables have been implemented. For some programmes, with phases of implementation, benefits will be achieved throughout the life of the programme and should be tracked as the programme proceeds.

When benefits are not tracked, they tend to disappear. Without tracking benefits, it is impossible to make an objective judgement of whether or not a project has been a success. By tracking benefits it is possible to reward staff for achievements, and so motivate them for future projects.

The steps in measuring and tracking benefits are:

1. Start by being sure that you know what the expected benefits will be.
2. Understand what direct or indirect data are required to measure achievement of the benefit.
3. Have a mechanism to collect the data related to benefits and report on it in a structured format.
   • This may require activity in the project to put the processes in place if the data are not already collected in the organisation.
   • Baseline data are also required. A benefit is shown by a change in a measure, not by an absolute amount. Measuring a business’s costs at £1 million per annum after a project tells you nothing. If baseline costs were £1.1 million before the project, costs have declined by £100,000.
4. Assign responsibility for measurement. Someone needs to be assigned with responsibility for collecting and assessing data. Be prepared for the fact that the measurement may have to go on for months, or even years, after delivery.

Additional tips for measuring and tracking benefits:

• Remember that just because a metric changes does not mean that a specific project caused it to change. There must be a causal link.
• Some important benefits will be intangible. Just because they are intangible does not mean that measurement should be abandoned. Intangibles can be indirectly measured by assessing opinions. Although this is subjective, it may be worth doing.
• It is not possible to measure some types of benefits. If this is the case, agree this up front, rather than wasting energy trying to prove the unprovable.

Realising project benefits

Benefits are only achieved if something has changed. Achieving benefits is often known in business as realising benefits. Benefits are more likely to be realised when you:

1. Identify who is responsible for delivering the benefits. In many cases this will not be a member of the project team, but will be an operational manager in the organisation.
2. Gain acceptance up front from the responsible party that he is accountable for benefits realisation. This is a fundamental step both in successful change management and in achieving benefits. Without such agreement up front, it is very hard to deliver benefits.
3. Agree at the outset how and in what form the benefits will be delivered, e.g.:
   • If a project reduces cost – are the benefits realised as cost savings or cost avoidance?
   • If a project makes an organisation more efficient – are the benefits realised as headcount reductions or volume increases?
   • If a project reduces expenditure – will the benefits lead to a budget reduction or funds available for other expenditures?
   • Are the benefits incremental to budget, or are they already built into the budget?
4. Manage benefits expectations in line with any changes to the project. If the project is amended or modified in any way, the benefits may need to be updated.
5. Deliver the project, and assess the possible benefits again. Has the project delivered what it set out to do? Is it reasonable to expect the benefits to be delivered? There is no point trying to force delivery of benefits if a project has failed – but if you can, the project was unnecessary anyway!
6. Measure the delivery of benefits over time (see page 231).
7. Make the necessary changes in forecasts, budgets, headcount, performance targets, etc. as projects deliver. (If nothing changes, what has been delivered?)
8. If appropriate, seek proof, e.g. which budget has changed, which performance measure has improved.

Realising benefits across a portfolio

From a portfolio management perspective, the benefits delivered from an individual project are less relevant than the total benefits from all projects in the business. There can be a conflict between the needs of an individual project and the total benefits to the business from its investment in projects. Dealing with such conflicts is part of the challenge of portfolio management.

Considerations for benefits management from a portfolio perspective are:

• Project prioritisation should reflect benefits.
• Portfolio management should ensure the delivery of a balanced range of different types of benefits.
• An individual benefit can only be delivered once. By looking across the whole project portfolio and by knowing everything that is going on, double-counting should be reduced, with each benefit assigned to one project only.
• Portfolio management should perform a sanity check across projects, e.g. if two projects separately claim to increase a performance metric by 10 per cent, do you really believe it will go up by 20 per cent if you do both projects? It is common to find that when the benefits from all the projects are totalled they add up to infeasible amounts.
• Project activity should be phased to maximise benefits and speed benefits. You want to maximise the returns from projects in the minimum amount of time. This is rarely achieved by starting as many projects as possible.
• Portfolio management should ensure that projects which are not delivering, or which have changed to such an extent that the benefits are lower than the cost to deliver, are stopped.
• The selection of projects should be changed as predicted benefits change.
• It is essential to take account of risk in assessing cumulative benefits.
• Take advantage across the portfolio of the opportunity to balance high-risk projects with low-risk ones.

Linking projects to budgets

A project is an investment and it has to be budgeted for. Budgeting for projects is a continuous process that goes through the following stages:

1. Budget planning in Year 1:
   • Set targets and goals for the following year (i.e. in Year 1 set targets and goals for Year 2, etc.). These may be performance targets, opportunities to take, problems to overcome, mandatory objectives, such as meeting regulatory goals, or strategic objectives.
   • Identify projects that will meet these targets.
   • Estimate expenditures to deliver projects in the following year, e.g.:
     • New projects contributing to next year’s targets and goals.
     • Projects planned or expected to continue in the next year.
   • Estimate benefits and costs to be realised from completed projects in the following year.
   • Create an initial budget. To do this, you need to understand if you are doing zero-based budgeting (unusual), or last year’s budget plus or minus some percentage for growth or cost reduction.
   • Manage expectations and avoid surprises which may result in an absolute rejection of project ideas, especially if the budget you have created is significantly different from historic budgets.
   • Undertake budgetary review and approval. There are usually several iterations of budgetary review. Each iteration typically requires amendments to proposed budgets to meet targets set by the executives of the organisation. Typical amendments include:
     • Reducing the costs of projects by removing projects the organisation cannot afford or reducing the scope of projects.
     • Modifying the project line-up to meet performance and strategic objectives not met by the originally proposed projects.
     • Adding unexpected expenditures on projects. This is common when departmental budgets are brought together into an overall business budget. Different departments make assumptions about what project costs other departments are bearing, which are often wrong. Although this can lead to identifying savings by removing projects which are budgeted for twice, it more often leads to additional costs for projects that have been missed.
     • Changes to the expected benefits and costs from projects once they have been delivered.
   • Finalise the budget for the following year.
   • At the end of the current year:
     • Agree accruals to carry forward (if allowed under your company’s accounting policy).
     • Identify any projects that are unexpectedly late and which will continue to require expenditure in the following year.
     • Identify and agree any expenditure which can be brought forward from the following year into the current one, and so reduce next year’s budget.
2. Manage the budget in Year 2:
   • Start new projects and continue projects from the previous year.
   • Amend project expectations in line with project budget variances:
     • New unplanned projects: if new projects arise, this requires either additional budget or reducing the budget assigned for existing projects.
     • Deal with project cost overruns or under-spends. Overruns and under-spends may allow more or fewer projects to be undertaken (or have an impact on other areas of expenditure, such as operational costs).
   • Amend actual budgets in line with benefits realisation variances.
   • Start budget planning for Year 3.

Aligning projects with strategy

Most organisations have a strategy. It may be a formal and structured document, or it may be an informal and general statement of direction. The strategy should control the allocation of resources and influence which projects are chosen. Projects are one of the key ways of achieving strategy and should be aligned with it.

Important considerations in aligning projects with strategy are:

• Does your organisation have a clear strategy?
• Is it communicated and understood by project managers and project sponsors?
• Is the understanding in line with the latest version of the strategy and updated whenever the strategy evolves? How does this happen – and is it effective?
• Is the strategy considered when making project-related decisions and approvals?
• Are any of the projects mandatory, irrespective of strategy, e.g. legal and regulatory requirements?
• Do the remaining projects contribute to meeting strategic goals?
• Are the projects being run in a way that contributes towards achieving the strategy?
  • At a macro level, are project objectives aligned with strategy? For example:
    • Will the complete set of projects deliver the strategy desired?
    • Does each individual project move the organisation closer to its strategic goals?
  • At a micro level, are the daily decisions and choices being made consistent with strategy? For example:
    • Requirements selection: are requirements prioritised based on their conformance with strategy?
    • Time–cost–quality: is the balance between time, cost and quality consistent with the direction of the business?