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Disappearing Benefits

You can’t simply pick and choose your investments!

 

Applying Earned Benefit Management

SERIES ARTICLE

By Crispin (“Kik”) Piney, PgMP, PfMP

Southern France

 



Introduction: Link to the Previous Article

The tagline of the previous article was “If you can’t track the allocations, you can’t understand the situation” and explained how to determine the allocation to the costs of each component project throughout the lifetime of the program. The article showed how to apply that algorithm to the case study and identified that one of the component projects and a number of the intermediate nodes clearly cost more than they contributed to the ultimate benefits. It finished with the warning that more information about the overall program benefits model was needed before any decisions could safely be taken on how the set of components might be modified to provide the optimal business result. The current article will explain the points to take into account when optimizing the portfolio in this way, and will demonstrate the potential issues that could be caused by taking a simplistic approach.

Reminder on Benefits Maps

The first articles [Piney, 2018b; Piney, 2018c; Piney, 2018d] in this series [Piney, 2018a], explained how to build a benefits realization map (BRM), how to evaluate the contribution of each component of this map to forecast the strategic benefits of the total program (the “Benefits Allotment Routine” – BAR), and how to evaluate the corresponding allocation of costs to each element of the realization map by using the Break-Even Everywhere Routine (the BEER). These concepts were illustrated on a simple case study. This introduction provides a brief reminder of these ideas.

A BRM illustrates how to make the benefits happen. It can be constructed as follows.

Once the anticipated benefits have been defined by the strategic sponsor, you need to determine all of the steps that are required to construct this result, thereby allowing you to identify the necessary component projects. The dependencies from each logical step to the next are quantified for each step in the logical chain. The BAR uses the forecast value of the strategic objectives in conjunction with this link information to calculate the contribution of every node in the BRM to the anticipated benefits. In particular, the BAR evaluates the contribution to the anticipated benefits of each component project. This value is known as the “Earned Benefit At Completion” (EBAC) of that component project.

Once the full set of parameters that define the model is known (predicted benefits, estimated cost per initiative, and the structure of the benefits map, including the contribution fractions), no additional assumptions on the model are required in order to use these parameters to evaluate to cost of each intermediate node in the model. The return on investment of any node can then be evaluated from its benefit contribution and its cost allocation.

The Earned Benefit of a component project (initiative) at a given point in time is evaluated from its EBAC in proportion to the its degree of completion at that point – i.e., the Earned Value “percent complete” of this project. As a first approximation, the Earned Benefit of the total program is defined as the sum of all of the project Earned Benefits. This definition of the program Earned Value will be revisited in the next article in this series, taking into account concepts defined later on in the current article.

Clarifications

I received the following comment on an earlier article (Piney, 2018c):

  1. “How can you claim to measure benefits when the project has yet to be completed?  […] Asked another way, how can Activity A produce any measurable benefits until Activities C and D are also finished and the services actually implemented?”

I gave a partial answer in Piney, 2018d and proposed to complete it in the current article. Once I had started work on the full explanation, I came to the conclusion that it was sufficiently interesting and involved to warrant its own article. This additional article will therefore be added to this series as a follow-on to the current article.

The Case Study for the Current Article

The business objective of the program in this example is to increase profits for an organization in the area of customer service. For the purpose of the case study, strategic analysis by senior management has shown that increased customer satisfaction with after-sales support enhances business results and has the potential for delivering additional revenue of €300,000 per annum compared with the current level of business, but that this service will also lead to an increase in operational costs amounting to 25% of the corresponding financial improvement, thereby reducing the net benefit by the corresponding amount.

More…

To read entire article, click here

 

How to cite this article: Piney, C. (2018). Disappearing Benefits, Series on Applying Earned Benefit Management, PM World Journal, Vol. VII, Issue VIII – August.  Available online at https://pmworldjournal.net/wp-content/uploads/2018/08/pmwj73-Aug2018-Piney-Benefits-series-part4-dissapearing-benefits.pdf

 



About the Author


Crispin Piney

South of France

 

 

 

After many years managing international IT projects within large corporations, Crispin (“Kik”) Piney, B.Sc., PgMP is now a freelance project management consultant based in the South of France. At present, his main areas of focus are risk management, integrated Portfolio, Program and Project management, scope management and organizational maturity, as well as time and cost control. He has developed advanced training courses on these topics, which he delivers in English and in French to international audiences from various industries. In the consultancy area, he has developed and delivered a practical project management maturity analysis and action-planning consultancy package.

Kik has carried out work for PMI on the first Edition of the Organizational Project Management Maturity Model (OPM3™) as well as participating actively in fourth edition of the Guide to the Project Management Body of Knowledge and was also vice-chairman of the Translation Verification Committee for the Third Edition. He was a significant contributor to the second edition of both PMI’s Standard for Program Management as well as the Standard for Portfolio Management. In 2008, he was the first person in France to receive PMI’s PgMP® credential; he was also the first recipient in France of the PfMP® credential. He is co-author of PMI’s Practice Standard for Risk Management. He collaborates with David Hillson (the “Risk Doctor”) by translating his monthly risk briefings into French. He has presented at a number of recent PMI conferences and published formal papers.

Kik Piney is the author of the book Earned Benefit Program Management, Aligning, Realizing and Sustaining Strategy, published by CRC Press in 2018

Kik Piney can be contacted at [email protected].

To view other works by Kik Piney, visit his author showcase in the PM World Library at http://pmworldlibrary.net/authors/crispin-kik-piney/