Benefits tracking gsw

All you wanted to know about Benefits
Tracking—but were afraid to ask

March 1995

Objective

This panel set is targeted at Gemini
consultants who are working on
streams whichs delivery phase.

Delivery Discipline BT00016/1246Ldn17Mar95Rp-mg
-2-

All you wanted to know about benefits—but were afraid to
ask . . .

Contents

• Why benefits?

• What is your role?

• Overview of Benefits Development

• Key Elements

• Tips for Effective Benefits Tracking

• Benefits Checklist

• Detailed Benefits Tracking Guidelines

-3-

One of Gemini Consulting’s strengths

• Unlike other consulting firms, Gemini promises to deliver Performance
Improvement which is MEASURABLE, whether in terms of:
– Cost reduction.

– Cost avoidance.

– Revenue protection.

– Revenue generation.

– Operational improvement.

– Capital reduction.

In Gemini parlance, Performance Improvement = Benefits

-5-

The concept of MEASURABLE Benefits is what makes
Gemini different

• The delivery of MEASURABLE benefits is normally a contractual element of
Gemini’s relationship with the client:
– It’s what clients buy.

– Delivery creates credibility and trust.

– Delivery provides the basis for a meaningful and sustainable partnership with the client. It
means we have earned the right to work on other issues.

– If not a contractual obligation, the A&D will have set benefits expectations with the client.

Trust = Credibility x Intimacy

-6-

But delivery of MEASURABLE benefits is much more than
a numbers game...

• Going for MEASURABLE Performance Improvement—i.e. the Benefits—is a
powerful driver of change in the organisation. It focuses the attention of:
– The client.
– The joint team.
– The sponsor.
– Other relevant stakeholders.
and, last but not least, of
– The Gemini team.

• The process of targeting, measuring and analysing performance
improvement accelerates the pace of change:
– Increases accountability.
– Creates a bias for action.
– Improves client understanding of cause and effect relationships.
– Builds continuous improvement into change programme.

-7-

Focusing on the delivery of benefits provides the
framework—“the glue”—for the project

• Without adequate regard to benefits—and the associated benefits tracking
process—the project may:
– Lack vision.
– Lack direction.
– Not understand the impact of changes.
– Create a sense of dissatisfaction or frustration.

• It is imperative that the Gemini team—whether in a project lead, a stream
lead or a stream member role—fully understands, supports and drives the
benefits piece . . .

. . . and that means right from the beginning of the project.

-8-

Project structures and RACIs will of course vary. A typical
Benefits structure looks like

Stream Stream
A Project Management Stream E

• Milestone Progress Monitoring
• Integration
• Benefits Management

Stream Stream
B D

Stream
C Stream Leader or Stream Benefit
Focus on Team focus on
• Setting up methodology • Identification of Benefits
• Interface with Finance Department • Development of measures,
• Project-wide reporting baseline, target
• Quality control • Tracking benefits
• Providing support and training • Stream Reporting

- 10 -

You could be working in any phase of the Benefits
Management Process . . .

Benefits
Identification Operational
Benefits Cash Benefits
and Target Setting Scoreboarding Benefits
Estimation Realised
Business Case Realised
Development

• Typically done • Typically, you • Generally, this • E.g. 40% • E.g. reduction
on A&D phase will be phase is reduction in in manpower
• Usually needs to expected to completed stocks, 30% • Can be
be reconfirmed review and before improvement difficult for us
in RD update the beginning to in productivity to control.
forecast of implement • Focused on Client will
• May be done what benefits • A scoreboard releasing make
during RD on your stream
large projects benefit capacity in decisions on
will deliver on describes the the which and
a regular benefit, organisation when
basis identifiesill be resources are
• Company can
measured, use excess released
baseline to be capacity to
used and process more
agreed targets volume for
• It’s the “stake same costs or
in the ground” realise cash
benefit

. . .so be sure to clarify expectations.

- 11 -

Your job is to proactively seek out the benefits
expectations of your stream

Key questions to ask

• Is my stream expected to deliver tangible benefits or is it an enabler?

• Do we have a target? Financial or Operational?

• How are we defining benefits? Scoreboarded, Cash, Operational Benefits
translated into financial benefit, etc.?

• Is there a central benefits team (or function)?

• Who will collect baseline details? Are there any financial assumptions we
should use?

• Has my client been pre-positioned?

Don’t put it off! Waiting will only make it more difficult.

- 12 -

Overview of Typical Benefits
Development Process

Development of Benefits
Stage I:

• Identify performance measures.

N

Client
Process: Define
deliverables
Identify
operational
buy-in
to
and benefits measures measures Y

What is the What are the best Do Champion and key
Key redesigned business measures to assess functional/business
process/recommendat successfuless? management
Questions: ion going to leave agree?
behind?
Are the measures
currently used?

If not, how will we
collect measures?

- 14 -

Development of Benefits
Stage II:

• Develop Operational Baselines and Targets.

Develop Document
Determine Develop
Client the approach
Targets for y Financial Value Y reporting
Process: Estimate
Baselines
Each
Operational
Buy-in to
Baselines
of Operational
and basis for
Measures,
mechanism
Improvements and begin
Measure & Targets? Baselines
tracking
and Targets

• Against what will • What level of • How does • Do Champion and • Will we be able to
Key performance performance operational key management explain the details
improvement be improvement is improvement agree on of our approach in
Questions: assessed? feasible? contribute to P&L assessment of six months time?
• Are we sure that • Is this sufficient or Balance sheet current and target • Is the approach
our choice of to achieve improvements? performance and documented at the
baseline will not financial or • Has Finance Dept. goals? appropriateof
result in double balanced agreed to or given details to ensure a
counting? scorecard us assumptions? solid “stake in the
targets? ground”.

- 15 -

Benefits progress and variances must be analysed

Rate of
implementation Target
slower than
expected

£
Actual

Benefit
calculation
over-optimistic

Time

. . . so appropriate actions can be taken.

- 16 -

So what are the key elements of the benefits framework?

• A clear definition of the benefit (in English or whatever language you are
happy with).

• What you are going to measure from when—the baseline and the units of
measurement for the area of performance in question.

• What you are aiming to achieve by a certain date—the target for the area of
performance improvement. This will often be expressed as an improvement
in one or a number of Key Performance Indicators (KPIs).

• How you are going to measure the progress from baseline to target—the
benefits tracking system.

• How you will translate the performance improvement to a financial benefit.

• How you are going to communicate progress to all relevant audiences—the
reporting methods.

- 18 -

Agreeing the baseline is one of the most essential tasks in
the whole benefits process . . .

• Do it as early as possible:
– It may have been agreed as part of the A&D process—but reconfirm it at the outset of RD

– Ensure that a common understanding exists about definition, start-date, implications for other
departments

– Record, in writing, agreement on baseline details -and have the agreement signed off by the
client

If this is not done, the TWHA syndrome could strike . . .

- 19 -

The TWHA—“This was happening anyway”—Syndrome
can really undermine the project

• There has to be a clear understanding and agreement as to the status of the
operation being acted upon PRIOR TO INTERVENTION:
– In this context it is also important to have clear agreement on the potential impact on the
operation of any existing client initiatives.

– Otherwise, performance improvements subsequently recorded can be the subject of futile and
counter-productive Project v. Client wrangling . . .

– . . . “This was happening anyway. We already had initiatives running to deal with this. The
baseline was set to move up as a result of what we were doing” . . .

Starting early will help to avoid this issue.

- 20 -

And what about baselining for intangibles?

• Intangibles can be things like management style, organisational culture or
effective business processes.

• While it will usually be possible to document some sort of assessment of
the As-Is, imputing a financial benefit to a change in culture or the
introduction of an effective Plan-Do-Review process is much more difficult:

• It is probably more fruitful to describe this type of benefit as an “enabler” to
achieve all the other MEASURABLE benefits, or
– It may be possible to update your As-Is assessment with surveys:
• Would be less frequent than other measures the team would track due to the cost of survey and
the nature of the topic.

But remember to include the intangible gains in any overall benefits
description.

- 21 -

The nature of the Baseline will vary depending on type of
Benefit

Benefit Baseline
Cost avoidance Need to demonstrate that money would
have been spent
or Capital
e.g. £ allocated in Budget or Plan
Approved Business Case
Project already spending £

Revenue enhancement Historical volumes, historical or forecast
prices
Forecast volumes, historical or forecast
prices

Cost savings Historical spend

Working capital reduction Ratios not absolute £’s
eg. reduction in A/R, debtors e.g. Accounts Receivable in £
Sales in £

- 22 -

Revenue enhancement opportunities are more difficult to
Baseline

}x
Baseline may be lower than current
due to:
– Regulatory changes.
– Impact of competition.
– Optimism of competition.
– Optimism built into forecasts.

“Current” Baseline

. . . due to greater impact of external factors.

- 23 -

Targets can be reasonable, challenging and stretch

• Whatever the nature of the target, the critical element needed to gain buy-in
from the client, Gemini and other parties affected is an understanding of
how the target was set.

• Typical target setting approaches:
– Internal best practice emanating from the A&D phase.
– Benchmarking with the “best in class” externally.
– Top-client judgement, based on experience.
– Gemini judgement, based on experience.
– Some combination of the above.

• A stretch target is not an unachievable target but is one which will require
significant change in the organisation.

- 24 -

Benefits Tracking may be a good way to introduce or
supplement the use of KPIs to the client . . .

. . . but you need to ask a few questions about this area to clarify your role:

• Are there any other streams working on measurement. The project may
include development of a Balanced Scorecard, Business Management
Process implementation, etc. which you should be aware of.

• What are the stream’s responsibilities to develop KPIs as a part of the
development of the “To-Be” process?

• Does the client use KPIs? Many companies are familiar with the use of KPIs
but may not use them effectively.

- 25 -

With agreement on baselines and targets in place, the next
area to confirm is the benefits tracking system

• Some principles:
– The simpler, the better.

– Agree the nature of the system.

– Agree the tracking frequency.

– Embed Plan-Do-Review in the tracking process.

– Involve the client - they are their benefits; they should really be keen to measure them,

BUT

– Make sure that all Gemini consultants are involved in the process in one way or another.

- 26 -

As in all other aspects of any project, communication
about the benefits approach and progress is crucial

• A number of points have to be agreed on:
– At whom is the communication aimed?
– What is the most appropriate format for the communication?
– How to dispel myths, e.g. “Gemini gets a bonus related to the amount of benefits”.
– How often should communication be made?

• Like the tracking system itself, communication must be simple, clear and to
the point.

• Be careful not to alienate the “line” when using communications to
celebrate team wins:
– We want to give the message that these are company benefits not project benefits.

Look to your central benefits or project management team for guidance.

- 27 -

Tips for Effective Benefits Tracking

Make sure your client and JTMs understand what Gemini
means by “Benefits”

• Our approach is different. Most clients do not track benefits or use “Plan,
Do, Review”:
– They may define a benefit as an after-tax amount which is a product of a Cost/Benefit/NPV
calculation.
– They may expect to prove the benefit directly to the General Ledger (particularly the
accountants!).

• Emphasise that our approach
– Is primarily a project management and change management tool.
– (Generally) translates operational improvement into a financial benefit which approximates the
general ledger benefit.
– Focuses on performance improvement and the use of KPI’s.

. . . but remember

- 29 -

Other tips to consider

• Keep the team’s focus away from the financial translation:
– Talking abut a 40% improvement in engineering productivity or a 50% reduction in product
development cycle time is more meaningful.
– Describe your benefits in annualised amounts:
– E.g. £100,000 of annualised cost reduction.

• You need buy-in from the Finance group but take care—conservatism is the
basis of the accounting profession:
– Finance can have trouble with the concept of stretch targets.
– May have limited definitions of a benefit, e.g. “If we have never tried to measure it, it can’t be a
benefit”.

- 30 -

Other tips to consider (cont.)

• Be proactive about addressing potential double-counting issues. Don’t wait
for the central benefits team to fix it.

• If in the scoreboarding phase, make sure you have support for your ideas or
recommendations before trying to convince the client to sign up to a
benefits target.

• Be careful when using Activity Based management amounts to translate
your operational improvement to a financial benefit:
– ABM methodology assumes that all costs are variable.
– You must consider over what timeframe the resources are likely to be released and the
benefits tracking horizon the project is using.
– Reducing drivers will not automatically reduce resources.

- 31 -

Resources to consider

• Measure Up! The Essential Guide to Measuring Business Performance:
Richard L. Lynch and Kelvin F. Cross
1991, Octopus Publishing Group
A Good overall summary of measuring business performance.

• Understanding Variation the Key to Managing Chaos:
Donald J. Wheeler
1993, SPC Press, Inc.
The focus of this book is the meaningful analysis, presentation and interpretation of data. It
applies theoretical statistics to real business situations

- 32 -

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