If you recall from Part 1 of our article series, a successful project benefit validation infrastructure depends on some key elements that span throughout the project governance process. Let’s explore those elements.
Project Benefit Validation Guidelines
Developing rigorous Project Benefit Guidelines is key to a successful project benefit validation process. It is within this development exercise, and subsequent guideline implementation, that all the project benefit rules are defined and set. The guidelines house the benefit definitions, project categories, examples, tools and templates needed to execute a strong project benefit validation process. While a certain set of guidelines for an organization can be lengthy, understanding the foundational definitions that are core to the guidelines are crucial. Those definitions should be defined as Tangible and Intangible, replacing the typical industry standar definitions of hard and soft benefits.
These terms are mildly different in definition than terming benefits as “hard” or “soft”. Where tangible and hard benefit definitions are virtually the same in that they represent actual savings to the bottom line, intangible benefits are more than savings that are deemed as “soft”. In fact, intangible benefits can often be quantified via margin moves or significant shifts in business metrics, but are usually not reconcilable to the financial statements.
In summary, the guidelines are the backbone of the project benefit validation process, and act as an overarching umbrella through the various stages of project definition, benefit definition and benefit identification and reconciliation. A work of caution, however, on developing project benefit guidelines – the process to develop them can be time consuming, as many functions need to come together to author a comprehensive set that is specific to an organization. Specifically, the Lean Six Sigma/Business Improvement function and Finance must work in partnership to ensure that the definitions and project categories are clear and complete in order for the validation infrastructure to be built. Developing the process internally can take as long as 12 – 18 months, but an organization can consider working with consultancies that specialize in this type of effort who customize project benefit validation intellectual property and work to implement it more quickly into an organization.
As previously mentioned, performing a benefit assessment prior to the prioritization and approval process is key to ensuring that the organization is choosing projects that are aligned with the company’s strategic objectives. An initial benefit assessment after the project chartering stage also allows proper selection of projects to be executed, supports the alignment with the overall strategic objectives of the organization, and allocates resources internally to drive the projects to completion.
An organization should develop and customize ROI Benefit Modeling Template that incorporates the key project benefit definitions and categories defined in the guidelines. When this template is built, financial representatives in the business can build benefit models consistently and effectively in support of the Business Improvement effort. And, in order to build an effective benefit assessment model, one has to consider three key pieces of information that are incorporated into the benefit templates: time, resources and volume.
The finance representatives, in partnership with the project leaders, can obtain this relevant information from a SIPOC or any process maps, as well as from the strategic objectives set forth by the business leaders. As a result, we can estimate effectively the amount of time; resources and volume exist from both the current and future states. We can then refer to our customized project benefit definitions and project categories (defined in the guidelines), and determine whether the benefits to be derived from this project will be tangible or intangible. This initial benefit assessment is powerful information, and allows the organization to make the best decisions in prioritizing and approving our project work.
Periodic auditing of project benefits is necessary during the course of the project work so that accurate reporting occurs during the realization phase. A required element to ensure proper review of all active projects is to establish auditing parameters for the portfolio.
Parameters can be established based on several different factors, such as estimated benefit contribution at realization or project duration. It is important, however, to establish a rigorous audit schedule that will lend credibility to your benefit reporting.
It is also important to note that periodic auditing facilitates more accurate estimation of project benefits to be delivered, since better data is gathered during the project execution stage. This, of course, enables more refined tracking and reporting of benefits, so that an accurate impact to the business, as a result of the project, can be determined. This process enables significant confidence of project benefit reporting and delivery to the organization.
Track and Report Benefits
The most significant result of implementing a project benefit validation process is to guarantee accurate reporting of project benefits. A structured process defines financial tracking and reporting to a level that fully integrates with the company’s financial infrastructure. It also drives an appreciation for benefits that impact the company’s objectives – and whether they are tangible or intangible in nature.
It is important to note that while the initial benefits in some scenarios are deemed intangible, a validation process can assist in the determination of related benefits for an intangible-focused project that may indeed affect the financials with tangible benefits. For example, those projects focused on productivity related efforts involving headcount can initially be identified as intangible if the organization does not plan to remove the associated costs of the headcount. In this case, the benefits are certainly intangible, yet can be quantified because we understand that we are doing more work with the same amount of people. However, if a decision is made to remove that headcount from the organization, those costs are now removed, and become tangible since the process can track the removal of those costs directly to the profit and loss statement. In summary, a strong infrastructure facilitates important discussions and allows the organization to make better decisions based on better data – driven by improved financial rigor.
Post Project Benefit Reconciliation for Tangible or Intangible Results
One of the most significant features of a good project benefit validation process is the ability to reconcile tangible project benefits to the company’s financial statements, or determine that projects are driving benefits that are not reconcilable. In the case of reconciling tangible benefits, we design a specific template that mirrors the organization’s profit and loss statement, while feeding the tangible project benefits into the reconciliation process. As a result, the company can clearly identify benefits derived from the projects, and has access to an estimation tool that determines future fiscal year goals and deliverables.
The implementation of a project benefit validation process drives significant improvement in ROI accuracy, project reporting and financial internal controls for Business Improvement projects. The process can be implemented during any maturity stage of a Business Improvement deployment, and is effective regardless of whether or not the company uses a project management portfolio database. When the model is paired with a portfolio database solution, a deployment has all the necessary elements to drive world-class project governance and the successful completion of Business Improvement projects.
Don’t forget to leave your comments below.