pereira diamond benefits model webinar 10th june 2015
TRANSCRIPT
APM Benefits Summit Thursday 25th June, Hatton Garden, London http://bit.ly/bmsummit
Projects and programmes: a sure-fire way to create business value? Wednesday 24th June – breakfast briefing, London SW1
Visualising the relationship between projects and benefits Wednesday 24th June workshop [pm], London SW1
Putting down the roots for good governance #eVa20 Tuesday 16th & Wednesday 17th June, London http://evaintheuk.org
#apmbmsummit &
other great #eventroi
For full nationwide programme of good practice events visit apm.org.uk/events
APM Benefits Summit Thursday 25th June, Hatton Garden, London http://bit.ly/bmsummit
Projects and programmes: a sure-fire way to create business value? Wednesday 24th June – breakfast briefing, London SW1
Visualising the relationship between projects and benefits Wednesday 24th June workshop [pm], London SW1
Putting down the roots for good governance #eVa20 Tuesday 16th & Wednesday 17th June, London http://evaintheuk.org
#apmbmsummit &
other great #eventroi
For full nationwide programme of good practice events visit apm.org.uk/events
Webinar: Pereira Diamond Benefits Model
CLÁUDIA TEIXEIRA & LEANDRO PEREIRA, Ph.D PMP
#apmbmsummit
APM Benefits Summit 2015
Thursday 25th June 2015
© 2015 Winning Management Consulting
Agenda
6
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
© 2015 Winning Management Consulting
Agenda
7
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
© 2015 Winning Management Consulting
Rupert Murdoch
The world is changing very fast. Big will not beat small anymore.
It will be the fast beating the slow.
© 2015 Winning Management Consulting 9
Statistics Companies continue to focus on costs or qualitative benefits
54% of
respondents
indicated that cost reduction is a
primary driver of projects and
programmes in their organisation
Source: APM, 2014
Up to 70% of
change initiatives
fail to deliver on the benefits that
they set out to achieve
40.5% of
respondents
answered their organisations have
“weak benefits focus”
Source: APM, 2014 Source: John Kotter, 1995
UK Survey Harvard Business School Study UK Survey
© 2015 Winning Management Consulting
Product Life Cycle The Modern Management Challenges
10
Globalization
Technological
Innovation
Planned
Obsolescence
Social
Networking
3 years 5 years
Introduction Growth Maturity Decline B
usin
ess
Vol
ume
8 years Time
Source: Pereira & Teixeira, 2015
© 2015 Winning Management Consulting
Global Capex Expenditure The consequence of the product life cycle decrease is the continuous investment in new projects
11
Source: World Bank. 2014
© 2015 Winning Management Consulting
Expectation versus Estimation The difference between Common Sense and Scientific Management
12
Expectation Estimation
Common Sense Technique… Scientific Management
© 2015 Winning Management Consulting
“Two different people will reach very similar conclusions” Scientific Management Principle
13
Common Sense Management Scientific Management
Acquired as result of ordinary business and daily living
Unreflective opinions of ordinary people
Systematic approach to management
Pursued deliberately and systematically
Is Individual
Based on personal experience
Is Universal
Looks at what is applicable across all situations
Process not tested
Each time a different process is applied
Process tested in several contexts and organizations
Results validated
Accept the obvious
“Of course”
Some discoveries are not true
Questions the obvious
“Why?”
Start the search from the common sense answer
Cannot rely on consistent results Yields the same results or very similar results when conducted by
two different people under the same circumstances
Gained through uncontrolled experience Gained through controlled experiment
Vague Precise
© 2015 Winning Management Consulting
Agenda
14
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
© 2015 Winning Management Consulting
Peter Drucker
Efficiency is doing things right.
Effectiveness is doing the right things.
© 2015 Winning Management Consulting
“Value of Something” Value Perception is higher before you get it and after you lose it
16
The value of any asset is measured by the
impact generated by having it or not having it.
Method of Measuring Value through Impact
Value
Perception
Before
getting it When you
have it
After
losing it
© 2015 Winning Management Consulting
“Value of Something” Future Wheel Method
17
The value of things is measured by the
effects generated and not by what they
“are” or “represent”
Future Wheel Method
Increase the portfolio margins
Increase the “word of mouth”
Reduce costs with advertising
Reduce commercial
costs
Increase value to the
shareholders Reduce Funding Costs
Increase the liquidity for
change
More time to develop the
business
Reduce the time-to-market
More time available for the
client
Improve the brand image
Reduce commissions
Projeto
Increase Nº Clients
Increase retention
Reduce internal costs
Reduce “dead” times
Project
© 2015 Winning Management Consulting
TimeBudget Box Define the budget available according to the benefits generated
18
Deadline
Benefits Budget
50%
Source: Pereira & Teixeira, 2015
© 2015 Winning Management Consulting
Benefits Modelling Benefits are turned into the “increase” of something positive or the “reduction” of something negative
19
─ Increase Invoicing
─ Increase Retention
─ Increase Productivity
─ Increase Liquidity
─ Increase Geographical areas + ─ ─ Reduce non-compliance
─ Reduce Waiting times
─ Reduce average time of the processes
─ Reduce Rework
─ Reduce Costs with Suppliers
─ Reduce Infrastructure Costs
─ Operational Costs Reduction
AS IS TO BE
© 2015 Winning Management Consulting
Business Requirement A Business Requirement comes from the need and the related business impact
20
NEED:
Optimize a process with
computer support
BENEFITS:
Reduce time (hours) of employees
Reduce rework
Reduce non-compliance
BUSINESS
REQUIREMENT
BUSINESS
IMPACT
PROJECT
SCOPE = +
Benefit 1
Benefit 2
Benefit 3
© 2015 Winning Management Consulting
Benefits Stages Each benefit requires a “picture” of the current situation, estimate of potential and track of the results
21
AS IS TO BE
REDUCE
MATERIAL
WASTE
REDUCE
REWORK
INCREASE
UP-SELLING
-----------------
-----------------
-----------------
-----------------
-----------------
---------------
-----------------
-----------------
-----------------
-----------------
-----------------
---------------
-----------------
-----------------
-----------------
-----------------
-----------------
---------------
-----------------
-----------------
-----------------
-----------------
-----------------
---------------
-----------------
-----------------
-----------------
-----------------
-----------------
---------------
-----------------
-----------------
-----------------
-----------------
-----------------
---------------
Example:
DATA
COLLECTION EVALUATION
TECHNIQUES
TRACKING
TECHNIQUES
© 2015 Winning Management Consulting
Benefits Parameters Metrics identification to quantify costs and benefits
22
How MUCH is a Work Unit? How MUCH is a client worth?
− Employee cost/hour
(per role)
− Process nº hours
− Wasting hours
− Space Cost per m2
− …
− Client Value per month
(or yearly) of a client (per
segment)
− N.º Complaints
− Portfolio per client
− Churn Rate
− Average time of a client
life cycle
Metrics for the
Intervention:
− Observation
− Simulation
− Gap Analysis
− Risk Assessment
− Performance
Analysis
− Finance Reports
− Compliance
Reports
Techniques for the
Intervention Evaluation:
− Market Studies
− Surveys
− Interviews
− Benchmarking
− Satisfaction
Evaluation
− Corporate Reports
− Prototyping
− …
Techniques for the
Intervention Evaluation:
Metrics for the
Intervention:
WHAT? HOW? HOW? WHAT?
COST
DECREASE
BUSINESS
GROWTH
© 2015 Winning Management Consulting
Pareto Principle Identify the three benefits with the most impact
23
Source: The Chaos Report. The 10 Laws of CHAOS. 2013
Small projects with high organization impact
Techniques to validate the Scope “frontier”:
─ In/Out Scope (contradictory technique)
− Which of the three benefits is affected and by how much, in this case scope
component is not included?
− In case there is no cause-effect relationship with one of three benefits, the
component is out of scope
− Avoid: “by the way”, “it would be useful to..”, “it would be interesting if…” 25
%
40%
35%
15%
5% 3%
1%
Benefits
Tangibles Intangibles
© 2015 Winning Management Consulting
Poll Question 1:
Is there anyone accountable for the
benefits management process in your company?
a) Yes
b) No
© 2015 Winning Management Consulting
Benefits Life Cycle We need to have a benefits perspective from strategic planning through to the project results
25
Benefits Estimation
[Step 2]
Benefits Tracking
[Step 4]
Strategic Planning
[Step 1]
Benefits Leverage
[Step 3]
© 2015 Winning Management Consulting
Agenda
26
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
© 2015 Winning Management Consulting
Benefits Dimensions The four dimensions of value generation: Pereira Diamond (1st Level)
27
Source: Pereira Diamond (Pereira & Teixeira, 2015)
Business
Growth
Legal
Compliance
Costs
Reduction
Efficiency
Increase Stock
Price
© 2015 Winning Management Consulting
Business Growth Leverage business withing four alternatives
28
New Clients
Retention
Cross-selling
Up-selling
Sell more of the same product
to current clients
Increase the price of the
same products
Sell new products to the same
clients
Sell the same product to
different clients within the
current clients portfolio
Increase the lifecycle time of the
current clients (work with the current clients)
Reduction of churn rates (work with the clients who leave the
company)
New products New geographies
Win-back New segments
© 2015 Winning Management Consulting
Costs Reduction and Efficiency Increase Reduce the current impact and avoid a future impact
29
€
Period N Period N+1
Period
Pro
ject
Period
€
Period N Period N+1
Pro
ject
Reduce costs
Avoid Cost Increase
Nº
hour
s
Period N Period N+1
Period
Pro
jet
Nº
hour
s
Period
Period N Period N+1
Pro
ject
Reduce Time
Avoid Time Increase
© 2015 Winning Management Consulting 30
Benefits Classification The four dimensions of value generation: Pereira Diamond (2nd Level)
Source: Pereira Diamond (Pereira & Teixeira, 2015)
© 2015 Winning Management Consulting
Poll Question 2:
How often do you estimate your initiative’s benefits
in a quantitative way?
a) Never
b) Rarely
c) Very Often
d) Always
© 2015 Winning Management Consulting
Primitive Benefits and Instantiated Benefits The difference between the cause and the effect
32
Primitive Benefit Instantiated Benefit
Increase the process quality Reduce the process rework due to the n.º of errors
Reduce clients dissatisfaction Increase the client lifecycle through a better relationship
Increase employees motivation Reduce the processes time through employees’ s motivation
increase
Cause Effect
Business
Increase
Legal
Compliance
Costs
Reduction
Efficiency
Increase
© 2015 Winning Management Consulting 33
Benefits Parametric Equations The benefits are measured by the impact generated
UPSELLING
CROSS-
SELLING
INCREASE Nº
NEW CLIENTS
= 5.000 * 30% * (120€ - 80€) * 3 years = 180.000€
= 5.000 * 15% * 100€ * 3 years = 225.000€
+
+
=
TOTAL = 1.020.000€
CLIENTS
RETENTION
= 1.000 * (8% - 4%) * 250€ * 3 anos = 300.000€
= 10.000 * 15% * 70€ * 3 years = 315.000€
Market Share * % Costumer Entry * Product Price * 3 years
Nº Current Clients * % Costumer Entry * (New Price- Current Price) * 3 years
Nº Current Clients * % Costumer Entry * Price of the New Product* 3 years
Nº Clientss * (Current Churn Rate– Future Churn Rate) * Client Value/year* 3 years
+
BUSINESS
REQUIREMENT
BUSINESS
IMPACT
PROJECT
SCOPE = + Benefit 1
Benefit 2
Benefit 3
© 2015 Winning Management Consulting 34
Benefits Parametric Equations The benefits are measured by the impact generated
REDUCE
HOURS
REDUZIR
REWORK
REDUCE
MATERIAL
WASTE
+
+
=
Nº Units Produced * (% current waste – % new waste) * Product Cost* Nº years
= 100h * 40% * 35€/h * 12 months * 3 years = 50.400€
Nº Hours of the process* % Time Reduction* Cost €/h * Nº anos
= 40h * (20% - 5%) * 35€/h * 12 months * 3 years = 7.560€
Nº Hours of a process* (% Hours in Rework – New %of Rework) * Cost €/h * Nº years
= 500 uni * (10% - 5%) * 100€ * 12 months * 3 years = 90.000€
TOTAL = 147.960€
BUSINESS
REQUIREMENT
BUSINESS
IMPACT
PROJECT
SCOPE = +
Benefit 1
Benefit 2
Benefit 3
© 2015 Winning Management Consulting 35
Benefits Estimation Estimated benefits must be presented with variance analysis
© 2015 Winning Management Consulting 36
Cost Estimation Estimated costs must be presented with variance analysis
Total
cost
Source: COCOMO 2, 1995
© 2015 Winning Management Consulting
ROI Sensitivity Sensitivity analysis to economic indicators according to a confidence level
37
ROI %
0%
100%
-50% -25% 25% 50%
Co
nfi
den
ce %
Confidence: 99% 95% 80% 50% 25% 1%
Net Present Value 20k€ 45k€ 80k€ 150k€ 220k€ 300k€
Internal Rate of Return 2.6% 5.4% 8.2% 12.6% 19.3% 27.5%
Benefit Cost Ratio 1.08 1.13 1.23 1.34 1.62 1.75
Return on Investment 8% 13% 23% 34% 62% 75%
Payback Period 30 m 28 m 26 m 22 m 18 m 12 m
© 2015 Winning Management Consulting
Poll Question 3:
Are you aware of your initiative benefits confidence level
when presenting the benefits plan?
a) Yes
b) No
© 2015 Winning Management Consulting
Balancing to decide Benefits vs Investment
39
Business
Growth
Legal
Compliance
Costs
Reduction
Efficiency
Increase
© 2015 Winning Management Consulting
Portfolio Prioritization Sequential analysis for decision-making
40
Quit Go Ahead
1. Qualitative
Analysis
2. Quantitative
Analysis
3. ROI Analysis
Portfolio Prioritization
Projeto 3
Project 2
Project 1
4. Decision-Making
Legal Compliance
Increase Revenue Reduce costs
Increase efficiency
© 2015 Winning Management Consulting 41
Traditional Budgeting vs Zero-Based Budgeting The relevance of justifying each monetary unit for budgeting approval
Sources:
Wetherbe, James C “ A general purpose strategic planning methodology for the computing effort in higher education: development, implementation and evaluation “, unpublishded
Ph.Dissertation Texas Tech. University 1976.
Wetherbe, J; Montanari, J: “ Zero Based Budgeting in the planning process” - Strategic Management Journal , Vol. 2. 1-14 (1981)
Traditional Incremental Budgeting Zero-based Budgeting
Budget changes only occur to increase the current
amount (positive variations)
Justification is based on the amount incremented
The entire budget is thoroughly reviewed with a clear
justification of the costs estimated for each project
[zero-budget principle]
It does not consider the historic records.
Every cost unit is subject to approval
© 2015 Winning Management Consulting
Business Life Cycle From strategic plan to operational results
43
HIGH PERFORMANCE TEAMS
GOVERNANCE, RISK & COMPLIANCE STRUCTURE &
PROCESSES
PEOPLE &
CULTURE
Business Cases Requirements & Project Management Benefits tracking
Grow the Business Run the Business Change the Business
Strategic Plan
Vision, Mission
Goals
Benefits &
Performance Projects
Portfolio
Source: Pereira & Teixeira, 2015
© 2015 Winning Management Consulting
Agenda
44
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
© 2015 Winning Management Consulting 45
Scientific Business Case Hypothesis Validation through the appropriate Business Research Methods
THEN IF
Two different teams will reach the same conclusions about ROI of a specific project.
Effect
Business
Growth
Legal
Compliance
Costs
Reduction
Efficiency
Increase Stock
price
Benefit 1
Benefit 2
Benefit 3
Initiative
“What is intended to do”
Cause
Hypothesis
Yes? / No? How Much?
Business Research Methods
(…)
- Regression
Analysis
- …
Historical Experience Interrogative
- Control
Group
- …
- Survey
- …
© 2015 Winning Management Consulting 46
Business Case Canvas Template Example: critical information for the decision-making GO/NO-GO
Cost € [95% confidence level] Benefits € [95% confidence level]
Solution Economics
Problem Business
Drivers
Strategic Align
Customers’
loyalty
increase
Business Increase:
3,208,013 Cost Reduction:
3,609,015
Campaign from our
competitors with
high price reduction
(50%)
New offer: Service
package with more
functionalities at a
slightly higher price
OPEX:
415,104
CAPEX:
799,720
Leader in the
quadruple play
market
NPV (k €): 7,633
ROI (%): 870.7
ERR (%): 135.2
Payback w/ interest
(months): 3.7
Increase of
presence of
our services in
the client
Decrease
operational
costs
Strengths Weaknesses
Opportunities Threats
High Return on
Investment
Expertise of our
commercials
Failures in
our Internet
Services
High demand on
Internet + Mobile
Phone services
A downturn in
economy and
less spending
budget of
people
1st place in
customers
satisfaction rank
© 2015 Winning Management Consulting
Agenda
47
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
© 2015 Winning Management Consulting 48
Conclusions Pereira Diamond within the Business Case Process
Based on the business case good practice, the overall business case steps and benefits mindset may be synthesized on the following steps:
1. Listen to the
market
2. Listen to your
company
3. Start the process with a
benefit in mind 4. Budget is only a means to
achieve the benefit
5. Uncertainty is a fact and
needs to be estimated
6. Two different people must
achieve the same results
© 2015 Winning Management Consulting
Leandro Pereira
The biggest problem for an organization is …
its assumptions!
© 2015 Winning Management Consulting
Agenda
50
Beginning
The End
12h30
13h15
(45min)
— Context
— Benefits Management
— Pereira Diamond
— Scientific Business Case
— Conclusions
— Questions
(10min)
13h25
Thank you! Any questions?
Contacts:
#apmbmsummit
APM Benefits Summit 2015
Save the date! Thursday 25th June 2015
APM Benefits Summit Thursday 25th June, Hatton Garden, London http://bit.ly/bmsummit
Projects and programmes: a sure-fire way to create business value? Wednesday 24th June – breakfast briefing, London SW1
Visualising the relationship between projects and benefits Wednesday 24th June –workshop [pm] [Note: Also at Milton Keynes on 23 June]
#apmbmsummit
@apmbmsig I #apmbmsummit
© 2015 Winning Management Consulting
Leandro Pereira Ph.D, PMP, ROI
53
CEO of Winning Management Consulting Associate Professor at ISCTE Business School Director of Executive Master in Program and Project Management at INDEG President and Founder of PMI Portugal Chapter PhD in Project Management Certified by DEA in Knowledge Management PMP Certification of PMI Certified in ROI Professional Mobile: +351 91 599 10 20 email: [email protected]
Background
Leandro Pereira is the CEO and founder of Winning Management Consulting. With over 14 years of working experience in functions of executive management in management consultancy organizations. Having a degree in Information Management from Escola de Engenharia da Universidade do Minho, with a GPA of 18/20, he obtained the distinction of Best Student of Universidade do Minho. Later, he took a PhD in Project Management at the prestigious Universidade Pontifícia de Salamanca, where conducted a pioneering project in the project recue area. Regarding the PhD program, he has received from the faculty an award for developing the investigation with highest final grade. At ISCTE, Leandro Pereira is the Director of Executive Master in Program and Project Management as well as Guest Associate Professor in the Strategic Management, Business Project and Project Management, being the advisor of several PhD and Master’s theses in the same areas. He detains the Project Management Professional (PMP®) Certification from PMI® and ROI Professional Certification from ROI Institute. Throughout his professional experience, he was responsible for the conceptualization, design and implementation of management solutions not only at organizational level but also at technical level, including conceptualization and design of organizational units – PMO’s in several companies within Banking, Pharmaceutical, Utilities, Services, Infrastructures and Civil Engineering sectors. As instructor, he detains the CAP and has wide experience in this area which goes from the conceptualization of advanced courses in Business Cases, Business Analysis, Project Management and Cost Management to the preparation of numerous applicants for PMP® and CBAP® in Portugal. Moreover, Leandro Pereira is the Director and Founder of PMI Portugal Chapter. Author of several articles in management magazines (RH Magazine, Pessoal, Dirigir), he recently published a book called “Gestão de Conhecimento em Projetos” from FCA. During his professional and academic path, he received many distinctions, being The Best Professor of Executive Master in Project Management at ISCTE and 8 Merit Awards with highlight on Prémio Senado Universitário, for being the best student at Universidade do Minho and Prémio Governo Civil de Braga, for being the student with highest final GPA in the entire university. Besides, he was awarded with the diploma supplement to the degree developed by UNESCO. Before the admission in the higher education, in 1994, he received the Prémio de Distinção Nacional: "Juventude e Defesa Nacional", awarded by Ministério da Defesa.
© 2015 Winning Management Consulting
Cláudia Teixeira
54
Manager at Winning Management Consulting Degree on Business Management & Administration (Catholic University) Master Student at ISCTE Business School (Thesis on Benefits Management) Mobile: +351 91 474 05 58 email: [email protected]
Background
Cláudia Teixeira is a business case consultant specialist at Winning Management Consulting responsible for projects from different sectors such as banking, insurance, IT and telecommunications. Cláudia trains others in benefits management and business case topics and is currently undertaking a Master degree at ISCTE-IUL Business School specializing in benefits management. Her dissertation thesis aims to identify business case gaps in organisations and make recommendations based on worldwide good practice. She has also a foreign professional experience in UK (London) for two years and a half where she worked in the hotel management sector in several roles such as Guest Relations, Revenue Management & Pricing Strategies and Sales & Events. Cláudia is also an author of several articles in business magazines and international journals such as the Executive Digest Magazine and the International Journal of Business & Management