SPONSORS

SPONSORS

The Cost of Benefits

If you can’t track the allocations, you can’t understand the situation!

 

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 it, you can’t manage it” and explained how to determine the contribution to the benefits of each component project throughout the lifetime of the program. The article finished by pointing out that, although we were now in a position to know the contribution of each component project to the planned benefits, we did not know how to share the estimated project costs between the other components of the model. This article will provide an innovative solution to this challenge and present some of the ways in which this additional knowledge can improve program decision-making.

Reminder on Benefits Maps

The first articles (Piney, 2018b; Piney, 2018c] in this series [Piney, 2018a], explained how to build a benefits realization map (BRM) and 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). 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 dependency 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.

The Earned Benefit of a component project at a given point in time is evaluated from its EBAC in proportion to the its degree of completion at that point. The Earned Benefit of the total program is defined as the sum of all of the project Earned Benefits.

From this starting position, a more general approach to evaluating various numerical characteristics of the components of benefits maps will be developed in the current article.

Clarifications

I received the following comments on the previous article (Piney, 2018c) and will address them here to remove any misunderstandings it may have produced:

  1. “… [The] only possible ‘benefits’ that I can imagine would come in the form of cost savings.”

Cost saving is not so much a benefit as a project performance indicator. However, I am addressing programs, and I should obviously have provided my definition of a benefit in this context. A program benefit is defined as: “An improvement of one or more strategic or business-related results. Program benefits are normally set as a goal by senior management along with the corresponding, quantified objectives”. For example, an underground mining project (Wibikskana, 2012) would normally be one of the components of a program that also needed to address power generation, storage and distribution of the extracted product, environmental considerations, etc. in order to obtain benefits such as profits, market share etc., while avoiding disbenefits to reputation due to environmental issues caused by the mining operations. These program benefits accrue to the mining company in this case, whereas project cost savings are a main consideration for the mining contractor. For this reason, the program manager should use the Earned Benefit Method (EBM), whereas the project manager would apply the Earned Value Method (EVM).

  1. “I don’t understand how you calculated the Benefits in Figure 1?”

In Figure 1, the overall program benefits as defined by the dollar values of the strategic outcome (node K) are specified as an objective by senior management. The way in which business objectives are set and quantified by senior management is the domain of strategy setting and is outside the immediate scope of the program manager. In general, the problem of valuing non-financial benefits is still the subject of debate (see for example SROI 2012). However, the article described in detail how to evaluate the contribution of each of the other components of the benefits map, including the benefits contributions of each of the component projects, once these quantified strategic objectives had been specified.

  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?”

My previous article did not address the challenge of measuring benefits. It presented the concept of “Earned Benefit” during program execution as a direct extension of the Earned Value approach to project performance measurement. As such, it measures the potential result of the work completed at each stage. To give a practical example, as a freelance consultant, I know full well that earning my fee and receiving payment are two related, but very separate, events.

I intend to return to this fundamental question of “earned” vs. “delivered” in more detail in the next article in the series, but this will require the additional concepts that will be developed in the current article.

The Case Study

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 a 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), The Cost of Benefits, PM World Journal, Volume VII, Issue VI – June. Available online at https://pmworldjournal.net/wp-content/uploads/2018/06/pmwj71-Jun2018-Piney-Benefits-series-part3-the-cost-of-benefits.pdf



About the Author


Crispin “Kik” Piney

Southern 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 2017

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/