Price Systems, a recognized leader in cost forecasting, conducted a study a number of years ago called “A Cracked Foundation”. The study found, among other things, that government IT executives believe that almost half of all failed projects could be avoided if project baselines were more realistic.
No wonder! A typical approach to sizing a project can go something like this:
Business Executive (BE): “We’d like to launch a new crammafrabber product. What’s it going to cost us?”
IT Guy: “Well BE, tell me a bit more about what you have in mind.”
BE: “Sure. It will appeal to our customer base. We’ll sell millions. Our stock price will go sky high”.
Overstated? Sure. But it does emphasize the all too common problem we face with projects – the emphasis on cost to make important decisions, even when we have a very murky understanding of what it is we have to deliver and what benefits will accrue. That’s the situation in this case. How did they solve it? They focused on value to drive the change.
Thanks to M.B. for the details on this story.
This consumer products company had just completed the first phase of a two part strategy to accelerate growth and profitability. It had acquired and implemented a CRM solution from a major software vendor, focusing on the needs of its sales, marketing and product development organizations. The results had exceeded expectations.
The firm’s Marketing VP, the project’s sponsor, was now ready to launch the second part of the strategy, integrating the CRM front end into their back end manufacturing and supply chain operations and supporting new multi-channel distribution initiatives. He was supported in his planning by the manufacturing and information technology executives and he had the backing of the CEO and the company’s board, at least philosophically. But he was having difficulty making the numbers add up. The company’s target for payback on major projects was three years. The economic times were uncertain and it wanted to ensure fiscal stability going forward.
The Marketing VP had worked with his colleagues to understand and articulate the potential benefits. Productivity improvements in the manufacturing and supply chain operations were estimated at $500,000 annually. The remainder of the stage two benefits would come from increased business growth from the multi-channel distribution efforts. A conservative estimate of bottom line impact was $350,000 annually over the next five years.
The problem was the estimated cost of the project. The software vendor was asking $5 million for the back end software they needed. The IT organization estimated another $1 million to implement and integrate. That one time total plus the annual software maintenance fees put the total cost well beyond the three year payback target.
The Marketing VP worked with the company’s CIO to pressure the vendor for a better deal. It wouldn’t budge. He asked the CIO to take another look at the integration costs and he did. But his software development folks wouldn’t budge. He pressured the CEO to relax the three year payback target, arguing that the project was a strategic initiative and vital for the long term success of the company. The CEO wouldn’t budge. He worked with his counterparts in manufacturing and distribution to refine and improve the benefit estimates. They wouldn’t budge.
Frustrated, the Marketing VP sat down with the CIO over lunch to try and find a way forward. He invited the CFO to join them to provide a fresh perspective. They mulled over past attempts to get the deal done – tweaking the benefit estimates, pressuring the vendor on acquisition and maintenance costs, cutting software development costs for implementation and integration. No new ideas emerged.
Finally, the CFO, getting ready to leave for another appointment, suggested that they abandon the selected vendor’s solution and instead consider options that they could implement to achieve the three year payback. And he left the meeting.
The Marketing VP and CIO looked at each other. And then the impact of the CFO’s suggestion dawned on them. Eureka! A way forward! Pencils out, they calculated that they would need to find a solution they could implement for a one time cost of no more than $2.5 million - $500,000 annually in productivity improvements plus $350,000 annually in new business times three years. If they used the $2.5 million target as a proxy for the estimated cost of the project, would the CEO fund the project?
They reviewed their approach with the CFO. He was on side. They revamped their business case accordingly and reviewed it with their colleagues. They were on side. They took the business case to the CEO. He backed the project and approved the funding. They were in business! They would focus on value to drive change.
Discover and implement a back end solution that would satisfy the three year payback mandate.
The Marketing VP and CIO selected Kaitlin, a seasoned project manager, to lead the way. She knew the business, she knew the key players and was respected by them and she had a stellar track record.
Kaitlin recognized the challenge immediately. Most projects fix on functionality and vary the time and cost elements to deliver. She would need to target and maximize the benefits and vary functionality and time to achieve a three year payback. She established the following priorities for her project:
- “BfB” (bang for the buck) profiles – to identify specifically which processes, practices, features, functions and services yielded what benefits
- Solution alternatives – what options were available to deliver the benefits within the three year payback target
- Release plan – given the first two priorities, how could the most lucrative features and functions be packaged on a release basis to accelerate benefit delivery and manage risk.
Kaitlin assembled a team of business analysts and subject matter experts from the affected areas and paired them up to build the BfB profiles. She charged her teams with being fully collaborative and creative as they assessed benefit opportunities. Her mantra: KISS (Keep It Simple Silly)! The emphasis was on “low hanging fruit” opportunities.
Every Friday morning, the BA/SME teams presented their BfB discoveries for comment and feedback. Each was rated using the MoSCoW scale (Must, Should, Could, Would) based on the potential value to be realized. The sponsors and other involved executives had standing invitations to attend and would often be present. The presentations were informal, the discussions often lively, the ideas conceived were expansive and the passion generated was infectious.
In six weeks, Kaitlin and her teams had completed their analysis, had identified the high, medium and low value opportunities and had packed them into an initial release framework that maximized benefit delivery and minimized risk and organizational disruption. As important, forecast savings from productivity improvements had increased to $750,000 annually. Now the challenge was to find a solution that could achieve the three year payback target.
Kaitlin created a solution team with the addition of a technology architect, a senior software developer and a senior technology infrastructure resource to start the solution identification and assessment process. They also took on the request for proposal (RFP) effort that would be used to assess the various alternatives.
The solution team found four vendors who expressed an interest in bidding on the project. Included in that group was the original vendor whose too high price drove the project to take a value first approach in the first place.
The RFP was drafted, vetted with the BA/SME teams, the sponsors and other engaged executives and distributed to the vendors. Three weeks later, when the RFP submissions were received and reviewed, the lowest cost and most comprehensive proposal was from …… the original vendor! When queried on this, the vendor explained that their original quote was based on the assumption that all modules of the back-end solution were required because the company hadn’t specified their specific requirements. With the benefit of the BfB analysis that shaped the RFP, the vendor was able to exclude a number of modules and reduce the cost accordingly. That cost, together with the company’s software development costs for implementation and interface work, would yield a payback of three years.
And so the project continued, with the original vendor on board, at a reduced scope.
The project was delivered in six stages over fifteen months. The quality was exceptional. The support and buy-in were almost universal. And the delivered solution was projected to cover the original investment in two years, seven months, clearly a result of the focus on value to drive change.
How a Great Leader Changed the Result
Kaitlin was masterful in guiding the project to a successful conclusion. She used her sponsors effectively, always keeping them in the loop, getting the decisions she needed and leveraging them to engage with those affected by the change. She used project management best practices effectively to control risk, manage issues and changes and ensure timely and quality deliverables.
But the master stroke on this project was the CFO’s offhand remark to abandon the vendor’s too costly solution and find some other alternative that could be implemented to achieve a three year payback. It completely changed the frame of reference, from one emphasizing cost to one focusing on value. It changed the project from a functionality first perspective to a value first exploration of discovery. Instead of being obsessed with cost, as so many projects are these days, the sponsor and supporting senior managers were focused on the benefits that could be achieved and the three year payback target. Of course, with that emphasis, the company did exceed the projected return in less than three years. All because they focused on value to drive change.
So, as you put together your next business case, consider these proven practices for focusing on value first to improve project performance. Also remember, use Project Pre-Check’s three best practice based building blocks covering the key stakeholder group, the decision management process and the Decision Framework right up front so you don’t overlook these key success factors for managing change.
Finally, thanks to everyone who has willingly shared their experiences for presentation in this blog. Everyone benefits. First time contributors get a copy of one of my books. Readers get insights they can apply to their own unique circumstances. So, if you have a project experience, a favorite best practice, or an interesting insight that can make a project or change manager’s life a little easier, send me the details and we’ll chat. I’ll write it up and, when you’re happy with the results, Project Times will post it so others can learn from your insights. Thanks.