7 Steps to Financial Approval of Your Project
You’ve been assigned as the project manager for a project that MUST deliver a critical IT system to avoid legal and compliance repercussions.
You’re told “Your next step is to secure financial approval. Since the total internal funding is limited this year, the Executive Board (EB) is scrutinizing several other high priority portfolio projects, and they all heavily compete with your project. So, get this moving quickly!”
Related Article: How Senior Executives Unconsciously Disrupt Projects
What do you do? Where do you go first?
Below are 7 steps to follow to get financial approval of your project.
1. IDENTIFY AND ANALYZE KEY INFLUENCERS AND THEIR NEEDS
Never assume what people’s needs are! Your first step is to promptly identify and reach out to key influencers to gain insights into the organizational climate, business-IT strategy, approval process and investment appraisal factors.
Also, devise a plan of action to deal with each influencer.
This requires a strong implementation of the PCPM methodology that’s described here.
2. STUDY THE ORGANIZATIONAL CLIMATE, BUSINESS-IT STRATEGY & APPROVAL PROCESS
Organizational Climate: To deliver better outcomes in high growth areas of business organizations transform dynamically and rapidly as the world changes around them. They are constantly looking to improve efficiency and efficacy by reaching new levels of functional excellence.
Focus can shift towards increasing revenue or optimizing cost. In such scenarios, internal funding for major, vision-led, wider organizational initiatives may bypass departmental budgets and come direct from the Executive Board.
Watch out for how the organizational climate could influence the EB’s perception of your project alongside these wider initiatives.
Business-IT Strategy: Understand the current business-IT strategy. Be it application development and rationalization, infrastructure, sourcing or Lean IT. In some cases, implementing the solution quickly and within budget is the sole criterion.
Your job does NOT just end at just delivering the system. So, ensure that the system delivered is in line with the business-IT strategy.
Approval Process: Study the approval process well. If this is not well documented, ensure key influencers are in agreement as to this process.
Every missed step in the approval process could cost you time and money – unacceptable if you are entrusted with a constrained project.
3. ANALYZE THE BUSINESS NEED & ALTERNATIVES AND EXPLORE SYNERGIES
Business Need & Alternatives: This is where your business analysis skills will be helpful! Work with the business to clearly understand the business need and direction. If the business need isn’t clear, propose a review to bring clarity to the issue, even if it takes more time!
Explore all alternatives and their qualitative and quantitative benefits.
Sometimes inefficient or non-scalable solutions may already exist and in such cases doing nothing is also an alternative – don’t forget to list this as well!
Cross-Divisional/Portfolio Synergies: A disadvantage in large complex organizations is that divisions work in silos. The advantage, however, is you can likely find divisions doing similar things. Explore cross-divisional synergies and tap into them. There are benefits and risks – but in most cases benefits outweigh risks. For example, you may be unwelcome to onboard another project due to strategic reasons, but you must try if it favors the organizational strategy. PMs are sometimes unaware of what’s going on around them. Reach out to the PMO to learn of the other portfolio projects and programs. You may find synergies within the portfolio itself. Sometimes, it may involve moving funds between projects, re-scoping projects or even their cancellation in order to use funds more effectively for your project.
4. DEVELOP A SOLID BUSINESS CASE & INVESTMENT STORY:
Solid Business Case: Develop a solid business case for top 3 alternatives – including quantitative and qualitative factors.
A common mistake is that project managers showcase what they would like but not what the Executive Board might look for. So ask yourself “What could the Executive Board be looking for to buy-in to my business case?” This may be a tough question to answer, but resolution comes with experience.
WBS, Project Budget & Contingency Reserve: Not having a solid WBS is the biggest problem. Build on one before you estimate your costs and the overall project budget.
Don’t include random contingency reserves in your budget (e.g. as a % of the overall project cost). The EB will have no tolerance for contingency reserves unless they’re an aggregate of concrete cost estimates required to implement risk responses for known risks. So, implement risk management diligently!
Investment Story: Don’t jump into building an investment story before you understand the key investment appraisal factors – some of which are below:
There may be levels of uncertainty regarding the availability of funding. Long-term secured funds will be committed to longer, high-priority programs that showcase positive NPVs. However, legal or compliance projects may or may not always have a positive NPV. However, try to build on one – challenging, isn’t it? Give it a try:
Quantitative:
- Payback: Simplest technique.
- Net Present Value (NPV) & Internal Rate of Return (IRR): Higher the NPV or IRR, the better.
- Accounting Rate of Return (ARR): Higher the ARR, more preferred.
- Adjusted Present Value (APV): APV overcomes the shortcomings of NPV and is used for a highly leveraged project.
- Total Cost of Ownership (TCO): Lowest TCO offers the best value for money.
- Real Option Analysis: Real option analysis considers and values the various options that managers would have while managing their projects in terms of increasing cash in-flow and decreasing cash outflow.
Qualitative:
- NPV with Assumptions: Calculate a financial value by applying a series of assumptions. E.g., include assumptions about the numerical impact of increased morale on staff turnover and the estimated costs of recruitment to showcase benefits. Examples of non-financial factors that can be translated to NPV with Assumptions are:
- Reduced maintenance costs due to out-of-the-box industry standard solution.
- Productivity time savings; no FTE reduction.
- Potential to implement future business needs without further investment.
- Relationship improvement with suppliers/customers reducing procurement overhead.
- Anticipating and dealing with future risks and threats, e.g. protecting intellectual property against potential competition.
- Scoring Methods: Compare the subjective value of benefits e.g. degree of coverage of requirements, the fit of offered solutions, etc.
5. DRAFT A FIRM STATEMENT OF WORK (SOW)
Draft firm SOWs encompassing all aspects of the procurement – top things to consider can be found here.
The EB will challenge you to re-negotiate on costs/time. So, negotiate in the first place and present documented evidence of the Initial vs. Negotiated costs/time. Involve sourcing and legal teams at every phase – they’re crucial in supporting you with securing approval.
6. PRE-ALIGN WITH KEY INFLUENCERS:
So, having to prepare and present your case to the Executive Board can make you nervous and cause what I call the “Executive Presentation Syndrome” – similar to stage fright. To overcome this, find out what the EB needs to approve your project.
If you’re unsure:
- Don’t hesitate to learn from your colleagues lined up for approval or to those who have had their projects approved already.
- Re-align with each influencer on what they expect from you – that will help them approve your project without surprises on the big day.
This is difficult in today’s global virtual world, but again, PCPM will help. Anticipating in addition to learning is half the battle!
The Executive Board would always like to see tangible factors. Failing to deliver tangible benefits can result in you having to go back and forth with the Board in order to make your case stronger.
Every approval cycle involves multiple reviewers and approvers. Communicate with them on when you intend to submit your project so they can make themselves available or deputize someone to approve your project if they are not available.
7. BE VERY WELL PREPARED FOR THE BIG DAY:
Have a Killer Presentation Ready:
So then, are you ready to present your case to the EB? If not, seriously consider requesting them to push back your presentation to a future date. NEVER go into a meeting unprepared – you’ll lose your credibility and reputation!
When you’re ready, here are a few tips that will help you breeze through the approval process.
Prepare a killer “10-20-20” PowerPoint slide that has no more than 10 slides, takes no longer than 20 minutes and has no text less than 20 point font. Remember that a picture speaks a thousand words!
Tips for the big day:
- Come early
- Prepare a 15-word summary
- Put yourself in the audience and present accordingly
- Don’t read the slides
- Slow down
- Listen
- Project your voice
- “That’s a good question”: If you’re not ready to answer, offer to come back.
- Don’t breathe out or use words like “hmm” or “ah”; repeat the question to ensure you’ve heard it right and this will give you time to work your brain to answer
- Don’t apologize unnecessarily
- Apologize if you’re wrong
- Have fun! Sounds impossible, but with a little practice, you can inject your passion into your presentations. Enthusiasm is contagious!
Finally, don’t forget to thank everyone and celebrate your success!