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Guide to Benefits Realization (Outcome Management)

Benefits realization management, sometimes referred to as outcome management, is something that everyone has heard of, and has some idea of what it means.  Yet it’s something that is consistently done badly by organizations of all shapes and sizes.  That’s a problem because benefits realization is critical to the success of projects, products, portfolios and entire enterprises.  So, what exactly is benefits realization?  What are some of the challenges that make it so hard to do well?  And what are the best practices organizations should follow to improve your benefits management capabilities?  We’re going to look at all those questions and more in the course of this guide.

What is benefits realization management?

Benefits realization management is the process by which organizations try to ensure that they achieve optimal value from their investments.  It involves everything from the initial estimation of the expected benefits during planning through the validation that those benefits have been achieved and the management of variances after the work associated with an investment is complete.  

Key Elements

The key elements of benefits realization are:

  • Benefits estimation – understanding the benefits that will be achieved (financial, non-financial); the extent of the benefits in terms of dollars, units and so on; and the timing of the benefits – when they will occur, how long they will last and what the curve will look like.
  • Benefit measurement criteria – the metrics that will be used, especially for non-financial benefits and the extent to which an achieved benefit will be attributed to the investment (not all revenue may be the result of the current work for example).
  • Benefit forecasting – just as with costs, the early benefit estimates are going to be inaccurate because they are based on early assumptions and incomplete data.  It is essential to ensure benefits are regularly revisited and updated to ensure they are still sufficient to meet the business needs.
  • Benefit measurement – tracking of actual performance against the defined metrics to ensure that the forecast benefits are being achieved, investigating any variances and implementing benefits management for anomalies to ensure the strategic objectives are achieved.

Challenges of benefits realization management

Many organizations find the benefits realization process difficult, and those difficulties span all of the elements of the discipline.  In this section we explore some of the more common issues that organizations face.  Recognize that benefits realization is just one of the strategic imperatives that organizations must deal with.  It is a critical element of Strategic Portfolio Management, and as such must be integrated with the organization’s Strategic Portfolio Management approach.  That also implies that benefits realization must be part of an organization’s Strategic Portfolio Management software suite, and UMT360 recognizes that, providing a benefits realization management and outcome management accelerator that integrates with the rest of our SPM solution.

Additionally, understand that organizations often experience different issues and challenges with project success when dealing with financial and non-financial benefits.  Generally speaking, the ability to track and measure financial benefits is greater because the metrics involved are already tracked as part of overall organizational performance.  That is, organizations measure costs and revenues on an ongoing basis as part of how they operate.  That doesn’t mean financial benefits aren’t problematic, they are.  But those challenges tend to be more around the appropriateness of the target and the ability to maintain accurate forecasts more than in the actual measurement of outcomes.

With that in mind, it’s time to explore the specific benefits realization process challenges that organizations commonly deal with.

Ineffective strategic planning

To consistently deliver on its strategic priorities, an organization must ensure that it is driving all work top-down.  That starts with the strategic priorities, extends to the goals and objectives, and then to the various investments that will be funded to deliver on those objectives.

When planning is allowed to happen bottom-up, with departments and business units driving demand and funding initiatives, it is inevitable that there will be a disconnect between strategy and execution.  Benefits realization management is focused on measuring and managing the benefits from the work that is actually delivered, so if that isn’t aligned with what the organization needs it can never be optimized to deliver on that need.

Inability to communicate strategy across the enterprise

Related to the previous point, even if organizations plan from the top-down, they need the ability to communicate that strategy clearly and concisely to all areas of the enterprise.  Unless that clear communication is in place and organizations understand how to use roadmaps, there will be no ability to plan and align investments with those strategies and again, benefits realization will never be able to deliver on strategic objectives.

Another consideration is that there must be the ability to communicate strategy to teams who are working using any of the tri-modal realities in a format that is relevant for them.  It’s not simply enough to tell people what the strategy is, it must be ‘made real’ for the people doing the work.  That means providing context that can be related to regardless of how work is being delivered in support of the strategies that are being pursued.

Lack of standardization in metrics and measures

In benefits realization, there are many ways to measure even simple financial metrics.  Unless there is standardization between the definition of the goals and objectives and the way performance against those objectives is measured, then it is impossible to determine whether they have been achieved.  It also makes it difficult to determine which investments are on track, which require assistance and which should be terminated and the funds rerouted.

Additionally, when different initiatives use different measures, different discount rates for financial metrics, etc., relative performance cannot be determined.  This has the potential to become even more pronounced with non-financial metrics which are often not clearly defined in isolation, let alone standardized across the enterprise.  In many cases, success or failure of benefit attainment is left to the subjective judgement of an invested stakeholder, which is clearly not going to result in objective analysis of performance.

With non-financial measures of success, the situation is often worse.  Often the measurement of project benefits – or even project success – is deemed to be ‘impossible’ with no confidence in the ability to identify and track effective proxies, and no structured approach to monitoring non-financial performance.  In these circumstances project benefits are frequently just assumed to be realized if the expectation is that they will accrue from a successful investment execution.

Failure to set and communicate targets for strategic objectives

Beyond standardizing the way performance will be measured, for benefits realization to succeed, there must also be clarity around the performance level that will be achieved.  That’s more complex than it may at first appear.  At an organizational level there is a target level of performance that must be achieved for an objective to be viewed as successful.  Let’s say that’s $10 million of revenue growth for example.

But in order to achieve that, organizations will likely seek to invest in initiatives that are designed to generate more than the target, perhaps $12 million.  That allows for some variances in performance at the investment level without compromising the ability to achieve the organizational objective.  Additionally, the various value streams that are funded at the strategic level may contain multiple individual investments, and there again an overlay is likely to occur, potentially resulting in another increase – perhaps to $15 million.

On the other hand, organizations don’t pursue just one objective at a time.  There will be multiple objectives, each with distinct targets and it may be necessary to compromise on the performance of one in order to ensure there are sufficient investment funds available to meet all of the objectives.  That may bring the funded revenue growth initiatives down to a contribution of $13 million.

So now we have four potential target numbers.  It’s easy to see how their can be confusion unless there is consistency and clarity in how targets are communicated.  Too often, that doesn’t happen.

Difficulty connecting work with strategies and targets

It shouldn’t come as a surprise that, if organizations struggle to plan effectively, are unable to communicate their strategies consistently, and don’t create appropriate targets measured in an effective way, they also have difficulty ensuring that the work they actually execute is directly connected to those strategies and objectives.  Too often, work is pursued because it is important to stakeholders, with alignment to strategy and objectives ‘forced’ as an attempt to justify funding.

Effective benefits realization requires a clear and direct connection between strategies, objectives and the work being done to deliver those objectives.  Unless investments contribute to a strategic objective it is impossible to project the expected benefits with any degree of confidence and any attempts to measure actual project benefits will be flawed simply because those benefits don’t align with the work that has been undertaken.

Inability to reforecast benefits throughout the investment lifecycle

Even if all of the issues above are avoided, organizations still consistently struggle with the ability to maintain accurate benefit forecasts.  Initial benefit projections are made before any work is carried out and are based on expectations of how the operating environment is going to evolve.  That evolution isn’t just between now and when the solution is ready for deployment, but also for the multiple business cycles that the solution is expected to deliver benefits to the enterprise.

It is inevitable that those forecasts will need to be reviewed and updated at regular intervals as the organization learns more about the operating environment and how it is evolving, the actual capabilities of the solution being developed, and the shifting strategic priorities of the business.  Those benefit forecasts must be updated constantly as part of continuous and adaptive planning, and those forecasts may well result in changes being made to the work being undertaken, or even the decision to redirect investments to other areas where a greater, or more appropriate benefit can be achieved.

However, too often organizations assume that once work is in the hands of the project management office, the need for confirming or adjusting expected business value is over.  They allow initiatives to continue despite obvious shifts in priorities and the operating environment, reducing the likelihood of achieving the intended benefits.

Low maturity tracking and reconciling results

The final challenge organizations face comes from the ability to actually measure performance.  While many organizations have been able to deliver a degree of success tracking financial benefit measures, this is still far from ideal.  In many cases there is no ability to determine whether project benefits have come from the work undertaken or whether they would have happened anyway.  Few organizations can confidently track preventive benefits – outcomes that prevent the erosion of revenue or increases in costs, and tracking and measurement is often inconsistent across products and business areas.

With non-financial measures the situation is generally worse.  As we explored above, metrics are often not identified for these, but even where they are, the measurement is frequently ignored or left to the subjective opinions of just one or two stakeholders.  The organization has no ability to validate non-financial performance, and by extension, no ability to manage variances.

Considerations for effective benefits realization management

With so many challenges, and so few organizations consistently doing well with benefits realization, it is critical to take a strategic approach to the discipline.  That starts by recognizing that benefits realization is a core element of one of the strategic imperatives that organizations must deal with.  It is a critical element of Strategic Portfolio Management and then requires these four key considerations:

  1. Evolve to the right investment approach
  2. Define and communicate strategies and metrics
  3. Derive work and assess sufficiency of performance
  4. Standardize tracking and measurement

Let’s look at each of those in turn.

Evolve to the right investment approach

The traditional, project driven approach to defining investments is never going to support effective benefits realization management.  This is a bottom-up approach used by project managers in an attempt to meet strategy ‘in the middle’ and inevitably results in work being pursued that aligns more to departmental challenges than strategic priorities.  Organizations must evolve from this form of planning and work definition.

A product and program-based approach that starts with the top-down strategies and then defines products, programs and value streams directly from those strategic priorities helps ensure that all work is driven from the top, retaining strategic alignment in the process.  Funding is directly tied to strategies and maintain the direct connection between the business need and the work undertaken.

Organizations must also commit to an ongoing evolution of this approach, embracing emerging investment planning techniques such as capability-based alignment to further enhance the relationship between strategic purpose, work and outcomes.  Not only does this provide a solid strategic approach to planning, it also forms a foundation for the other considerations below.

Define and communicate strategies and metrics

In order to ensure the strategic priorities of the organization, and the associated investment areas are clearly understood by all stakeholders, and that they drive the right behavior at all levels, it is critical to ensure they are communicated in a way that is easily understood.  There are many ways of doing that, but two of the more common are SMART and OKRs.

S.M.A.R.T.

SMART is a well-known acronym that stands for:

  • Specific – Strategies and business priorities must be well defined and unambiguous.
  • Measurable – There must be specific criteria that establish how progress and performance against each priority will be measured (this is an area that is often missing in organizations).
  • Achievable – While strategies are designed to stretch the organization, it is important that all stakeholders view them as achievable or they will disengage, ensuring failure.
  • Relevant – Each strategy and business priority must be relevant, showing alignment with what the organization is trying to achieve.  This helps stakeholders understand why the work is being pursued.
  • Timely – Each priority must have a defined start date and an anticipated target date to provide a framework for the investments to perform against.

This remains a popular approach to communicating strategy and is accessible for stakeholders seeking to understand how they need to support organizational strategies. 

O.K.R.

In recent years, a more straightforward approach to communicating strategies has become increasingly popular – OKRs or Objectives and Key Results:

  • Objective – What it is that the organization is trying to achieve.  It is essential that the objective is clear and unambiguous and it should also have a qualitative target, a target date and be tied directly to actions.  It should also stretch the organization to achieve it without being unreasonable.
  • Key Result – Detailing of how performance against the objective will be measured.  Again, it should be quantifiable and achievable while still ambitious.  Most objectives should have three to five distinct key results that relate to different measures of performance against that objective.

Regardless of the approach an organization decides to take to describe and communicate its strategies, it is essential that all teams understand them and know what they must do to execute work against them.  Additionally, organizations must invest in developing and maintaining a set of standardized measures and key results that can be applied to strategies and objectives as appropriate.

Organizations should develop an inventory of such measures, both financial and non-financial, with the appropriate measures assigned to every objective along with a target for each measure.  There should also be allowance for the identification or creation of additional measures by execution teams where necessary that can then be added to the inventory.

Derive work and assess sufficiency of performance

By moving to a program- or product-based investment approach it becomes much easier to define work directly from strategy.  This makes it easier to align individual initiatives with one or more strategic objectives regardless of how those initiatives are structured or which of the tri-modal realities they are delivered through.

This also allows investment owners to easily review and update time-phased benefit estimates for each measure or key result, identifying trends and variances that can be escalated for further scenario analysis.  This allows the portfolio manager to view the entire portfolio and individual investments in order to gauge whether the anticipated performance against each key result meets or exceeds target.

With that understanding investment plans can be confirmed or adjusted as required and the portfolio manager can proactively address any apparent variances in performance to ensure the overall portfolio meets or exceeds every target for every objective.  At the same time, they can guide project managers and similar functions to address any specific adjustments in individual initiatives in order to retain alignment and ensure business benefits are delivered.

Standardize tracking and measurement

Benefit estimates can’t be ‘one and done’ efforts that are never revisited after the business case is approved.  Benefits management must be a living process and estimates must be revisited and updated continuously as circumstances change, more is learned and execution proceeds.  There must be an established and standardized process that revisits benefit estimates on a regular calendar cycle, on completion of each phase, or on whatever cadence makes sense for the individual initiative.

Benefit estimation and tracking must be flexible enough to adapt to circumstances, and that may require a combination of bottom-up and top-down measurement.  Measurement must be consistent over time for each initiative to ensure effective and accurate tracking and forecasting which in turn will drive the required decision making.

Regardless of how work is being delivered, organizations must have tools that provide the ability to consolidate performance against objectives and strategies into consumable dashboards for executives that enable and support funding decisions and adjustments to ensure performance remains optimized.  These must be supported by ongoing planning tools such as strategic roadmaps to assess strategic performance and adjust as needed.

Summary

Strategies only succeed when they are achieved.  Investments only succeed when project success generates a return.  The ability to successfully define and measure benefits and address anomalies is critical to the success of any organization in order to optimize business value.

Benefits Realization tools provide the capabilities needed to derive actionable investments and gauge portfolio sufficiency.

Yet benefits realization management is an area where many project managers continue to struggle.  Benefits management must be made more effective, it must be integrated with the rest of an organization’s strategic portfolio management approach, and it must be managed with integrated benefits realization management software that provides the insight necessary to deliver results consistently.

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