SPONSORS

SPONSORS

Uncertain Benefits

Understanding the effect of risk on benefits realization

 

Applying Earned Benefit Management

SERIES ARTICLE

By Crispin (“Kik”) Piney, PgMP, PfMP

Southern France

 



This article builds on the ideas described earlier in this series, and applies the Benefits Map to provide a comprehensive analysis of threats and opportunities associated with the realization of strategic benefits.

Introduction: Program Risk

In any non-trivial endeavour, the effects of uncertainty must be taken into account. In particular, this need for effective risk analysis applies to programs during all of the stages from the inception right through to the complete realization.

The current article will explain how the Benefits Map and the assocated algorithms can help to broaden the initial analysis of the various categories of uncertainty that affect programs and to take into account their interactions across the entire program.

Link to Previous Articles

Earlier articles in this series [Piney 2018*] explained how to apply the Earned Benefit cost and benefit evaluation algorithms to a representative case study.

The current article changes topic away from determining “certain” outcomes, to address the clouds of uncertainty that surround the results.

In order to allow this article to be understood independently of the earlier ones in the series, some reminders are provided below, plus an overview of the case study,  prior to addressing the current topic of uncertainty analysis and risk management in programs.

Reminder on Benefits Realization Maps

A Benefits Realization Map (BRM) illustrates how to make the benefits happen. The BRM for the case study is shown in Figure 1.

BRMs can be developed in two passes, as follows:

Top-Down Strategy Decomposition

Once the anticipated benefits have been defined by the strategic sponsor, you need to determine all of the steps that are required for delivering this result, as well as their interdependencies, thereby allowing you to identify the necessary component projects (“initiatives”). The links from each logical step to the next are quantified based on their relative importance for contributing to realizing the benefits (the “contribution fraction” for the link).

The Benefits Allotment Routine (BAR) uses the forecast benefit value of the strategic objectives in conjunction with the link contribution fractions to calculate the contribution to the anticipated benefits of each node in the BRM. In particular, the BAR evaluates the contribution to the anticipated benefits of each component project.

Because of the way the BRM is drawn with the strategic outcomes on the right and the component projects on the left, this top-down approach is also characterized as “right-to-left”.

Similarly, the bottom-up approach is also known as “left-to-right”.

Bottom-Up Component Evaluation

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 links and their contribution fractions), no additional assumptions on the model are required in order to evaluate the cost of each intermediate node in the model. The “Break Even Everywhere Routine” (the BEER) provides the additional link parameters (the “allocation fractions”) required for calculating the corresponding cost of each node, based on the cost of the initiatives and the structure of the map.

The BAR and the BEER

It is important to understand the way in which the model works:

The BAR – by applying the contribution fractions – can be used to evaluate the top-down effect of nodes across the BRM and diffuse values from right to left. Although the BAR algorithm was initially applied to the contributions, it can also be used to diffuse any other program-related values across the model from right to left.

Due to the way in which the BEER was specified, the allocation fractions provide the means for distributing not only costs but also other quantities (such as node Earned Benefit) across the map from the initiatives (on the left in the BRM) towards the strategic outcomes (on the right).

In general, therefore, the strategic effects diffuse from right to left, according to the BAR. Tactical activities affect downstream nodes, from left to right, based on the BEER.

These algorithms are used to evaluate the forecast contribution and allocation of each node based on the forecast benefits and implementation costs. This is known as the “static model”. The addition of ramp-up durations and other lead times illustrated by use of a roadmap can be used to forecast the program’s cash-flow. This is known as the “dynamic model”. The current article focusses principally on the static model, although the concepts used can also be applied directly to the dynamic model.

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. The premise of the case study is that 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. However, 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 that amount.

In the previous articles, the steps to achieving the business objective were developed and quantified, all the way back from the required strategic outcome across to identifying the required projects. The corresponding BRM for this program, including the financial numbers and allocation fractions mentioned above, is shown in Figure 1 and, in tabular form as the forecast baseline in Table 1.

More…

To read entire article, click here

 

Editor’s note: This series is by Crispin “Kik” Piney, author of the book Earned Benefit Program Management, Aligning, Realizing and Sustaining Strategy, published by CRC Press in 2018.  Merging treatment of program management, benefits realization management and earned value management, Kik’s book breaks important new ground in the program/project management field.  In this series of articles, Kik introduces some earned benefit management concepts in simple and practical terms.

How to cite this article: Piney, C. (2019). Uncertain Benefits: Understanding the effect of risk on benefits realization, Series on Applying Earned Benefit Management PM World Journal, Vol. VIII, Issue II (February). Available online at https://pmworldjournal.net/wp-content/uploads/2019/02/pmwj79-Feb2019-Piney-Benefits-series-part-8-Uncertain-Benefits.pdf

 



About the Author


Crispin 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 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/