The current PMI Pulse titled Delivering Value: Focus on Benefits during Project Execution provides some guidance on how to manage the benefits side of an IT project. But the article misses the mark on an important concept. This is a chart in the paper, suggesting the metrics of the benefits.
But where do these metrics come from?
The question is where do the measures of the benefits listed in the above chart come from?
The answer is they come from the Strategy of the IT function. Where is the strategy defined? The answer is in the Balanced Scorecard. This is how ALL connections are made in enterprise IT projects. Why are we doing something? How will we recognize that it's the right thing to do? What are the measures of the outcomes connected to each other and connected to the top level strategy to the strategic needs of the firm.
- Stakeholder - what does the business need in terms of beneficial outcomes?
- Internal Processes - what governance processes will be used to produce these outcomes?
- Learings and Growth - what people, information, and organizational elements will be needed to execute the process to produce the benefical outcomes?
- Budget - what are you willing to spend to achieve these beneficial outcomes
As always, each of these is a random variable operating in the presence of uncertanty, creating risk that they will not be achieved. As always, this means making estimates of both the beneficial outcomes and the cost to achieve them.
Like all non-trivial projects, estimating is a critical success factor. Uncertainty is unavoidable. Making decisions in the presence of uncertanty is unavoidable. Having some hope that the decision will result in a beneficial outcomes requires making estimates of that outcome and choosing the most likely beneficial outcome.
Anyone telling you otherwise is working in a de-minimis project.
So Let's Apply These Principles to a Recent Post
A post Uncertainty of benefits versus costs, has some ideas that need addressing ...
- Return of an investment is the benefits minus the costs.
- And both are random variables subject to reducible and irreducible uncertanties.
- Start by building a model of these uncertainties.
- Apply that model and update it with data from the project as it proceeds.
- Most people focus way too much on costs and not enough on benefits.
- Why? This is bad management. This is naive management. Stop doing stupid things on purpose.
- Risk Management (from the underlying uncertainties) is how adults manage projects - Tim Lister.
- Behave like an adult, manage the risk.
- If you are working on anything innovative, your benefit uncertainty is crazy high.
- Says who?
- If you don't have some statistically confident sense of what the pay off is going to be, you'd better be ready to spend money to find out before you spend all the money.
- This is naive project management and naive business management.
- It's counter to the first bullet - ROI = (Value - Cost)/Cost.
- Having an acceptable level of confidence in both Value and Cost is part of Adult Management of other people's money.
- But we can’t estimate based on data, it has to be guesses!
- No estimates, are not guesses unless done by a Child.
- Estimates ARE based on data. This is called Reference Class Forecasting. Also parametric models use past performance to project future performance.
- If Your cost estimation might be off by +/- 50%, but your benefit estimation could be off by +/-95% (or more), you're pretty much clueless about what the customer wants. Or you're spending money on a R&D project to find out. This is one of those examples conjectured by inexperienced estimators. This is not how it works in any mature firm.
- Adults don't guess, they estimate.
- Adults know how to estimate. Lots of books, papers, and tools.
- So we should all stop doing estimates, right?
- No - an estimate is a forecast and a commitment.
- The commitment MUST have a confidence level.
- We have 80% confidence of launching on or before the 3rd week in November 2014 for 4 astronauts in our vehicle to the International Space station. This was a VERY innovative system. This is why a contract for $3.5B was awarded. This approach is applicable to ALL projects
- Any de minimis projects have not deadline or a Not to Exceed target cost.
All projects are probabilistic. All projects have uncertainty in cost and benefits. Estimating both cost and benefit, continuously updating those estimates, and taking action to correct unfavorable variances from plan, is how adults manage projects.
