PMI research demonstrates the value of strategic alignment for projects

A failure to connect project outcomes with specific business goals leads to wasted effort and lower returns. It’s time for CEOs to push for strategic alignment

Feature image
Mark A Langley, President and CEO, Project Management Institute

A disturbing trend revealed itself in our 2016 Pulse of the Profession global project management survey: more money is being wasted on projects, which are the strategic initiatives that drive organisations forward and bring about change. According to our most recent research, an average of $122m per $1bn spent on projects is wasted because of poor project performance, an increase of 12 percent over the figure from the previous year.

Why are companies having less success with implementing strategic initiatives? There is no shortage of tools and methodologies to measure, monitor and boost performance, nor any lack of management theories and gurus to guide us. We have technologies that enable efficiencies and levels of worldwide engagement that would have been unimaginable even a decade ago. And the problem is not a lack of focus on goals or outcomes. In fact, organisations are increasingly expected to set – and quickly meet – ambitious, short-term targets, whether for increasing profits, market share, or customer value.

Organisations use metrics as success measures because it is easier. Was the initiative completed on time and on budget? If so, it must have been a success

As both our research and anecdotal evidence tell us, when it comes to managing a portfolio of projects, there is too much focus on metrics and not enough on benefits. Metrics measure activities: a successful IT conversion; development of a new product or manufacturing process; or construction and staffing of a new facility. In contrast, benefits measure the value that is created as a result of the successful completion of a project: the market potential for the new product; or the cost efficiencies or improved customer satisfaction associated with a new IT system.

Organisations use metrics as success measures because it is easier. Was the initiative completed on time and on budget? If so, it must have been a success. These measures are important, but they are not enough. A misplaced emphasis on metrics over benefits is a major reason many companies aren’t maximising their return on investment. It’s time to redefine success, moving beyond completion of activities and instead thinking about identifying, managing and sustaining benefits – the value that is delivered to organisations, clients, and employees – and how doing so contributes to strategic success.

Benefits realisation management

The concept of benefits realisation management can be broken down into three stages. The first is identification, i.e. determining whether the collection of strategic initiatives in the project portfolio, individually and collectively, can produce intended business results. Then comes implementation, which entails ensuring each initiative remains aligned with the business objectives and delivers incremental value at each milestone. The final stage is sustainment: monitoring to be sure the expected value of the initiative continues even after it becomes business as usual.

In organisations with high maturity in benefits realisation, 45 percent more projects – including strategic initiatives – meet original goals and business intent, compared to organisations with low benefits realisation maturity. This translates to significantly fewer dollars wasted due to poor project performance – only 5.4 percent in highly mature organisations, compared to 16.6 percent in organisations with low maturity. But too few organisations have effective benefits realisation management processes in place, or even none at all.

Despite the demonstrated value of benefits management, our data reveals only 73 percent of organisations identify the benefits they expect before initiatives begin and, even more surprisingly, only half have any idea whether or not their initiatives deliver any value or not. This situation raises a myriad of questions about how executives understand their strategic initiatives in the context of their business. To address these concerns, Project Management Institute has analysed best practices in benefits realisation, drawn from a comprehensive global research series, with the goal of encouraging fellow CEOs to re-evaluate the methods they use to measure and achieve success.

Early identification
Identifying benefits – determining whether selected strategic initiatives can produce the intended business results – as part of the business case, before the start of any work, improves outcomes. In organisations that identify benefits up front, 74 percent of projects meet goals, versus 48 percent in organisations that do not. Nearly three quarters of organisations identify benefits before the start of an initiative. Yet 83 percent still report a lack of maturity around their benefits realisation. This suggests they don’t have a comprehensive approach in place, that they lack effective guidelines, or that they don’t have the right people participating in the process – or a combination of these factors.

The value of aligning identified project benefits with strategic goals cannot be overstated. Project outcomes improve significantly – 57 percent more meet goals, 45 percent more are within budget, and 50 percent more are on time. As mentioned above, these measures are important, but not sufficient.

To ensure a focus on benefits – in addition to ensuring successful project delivery – Dave Gunner, Head of Global Programme and Project Management Academy at Hewlett Packard Enterprise, recommends using a simple tool such as a benefits map. ” Outcomes and benefits are separate things, and too often people don’t recognise that”, he said. “If you start out by breaking things down into a benefits map, drawn from expected outcomes, you can then look at the value of projects and programmes in terms of alignment to strategy.”

Global telecommunications company Telstra creates a ‘benefits profile’ related to all projects and programmes at the ideation stage. The company then refines the profile as projects move through from ideation to the business case, according to Alicia Aitken, Telstra’s first Chief Project Officer. The company also encourages continual review of potential benefits throughout the life of the project. Too few companies practice this level of rigour and discipline. Only half of organisations report they frequently identify benefits that are measurable, concrete, or explicit to achieving strategic goals. In fact, many organisations only begin to worry about benefits at the end of a project. If you don’t think about benefits from the beginning, you have no way to know if you achieved the desired results.

Laura Brock, Benefits and Savings Lead at the UK’s Infrastructure and Projects Authority, pointed out: “Benefits identification helps create a shared vision, identifying key relationships between outputs, benefits and strategy. It also ensures that all benefits and possible outcomes have been considered.” She added the value in doing the work is “significantly increased” the earlier it is carried out. “Activities such as benefits identification workshops and benefits mapping can help predict unintended consequences that might otherwise divert progress.”

Laser focus
To be most effective, benefits realisation management has to be a shared responsibility in your organisation. Project managers, business owners, initiative sponsors, and executives all have a role. This becomes especially apparent in the implementation stage. Senior leadership needs to offer the executive-level view of why and how an initiative will advance strategy, but the actual implementation will be out of their hands.

The value of aligning identified project benefits with strategic goals cannot be overstated. 57 percent more meet goals, 45 percent more are within budget, and 50 percent more are on time

The day-to-day implementation will largely be the responsibility of the personnel assigned to the initiative. The value they can offer as your eyes and ears is enormous. During the lifecycle of a project, they have the opportunity to track metrics, flag and manage emerging risks, and deliver the type of critical information you need to decide the future of a project and determine if the targeted benefits – both tangible and intangible – are in jeopardy and still relevant. Monitoring should begin at the initiative’s outset, so information can be used to guide ongoing resource allocation, risk management, and other decisions that will keep the project on track. Organisations often struggle in this phase, but those with more mature benefits realisation practices establish benchmarks for acceptable levels of performance, avoid capturing too much data, and focus on key indicators to better inform executive leaders of progress against benefits and strategic goals.

One company that illustrates the importance of identifying desired benefits in the early stages of an initiative and measuring along the way is infrastructure contractor CH2M. In 2011, Terry Ruhl was selected to lead the company’s transportation group, with the strategic goal of doubling the consulting revenues of the business line in five years. By getting rid of non-productive service lines and geographies, and focusing on a smaller set of clients with sustainable infrastructure programmes, Ruhl and his leadership team were able to recalibrate the portfolio for growth. And, by 2015, the transportation group had in fact doubled its consulting business profits. Ruhl, who sits on the CH2M board of directors in addition to his role as President of the group, said: “By aligning strategy and benefits early on, we were able to realise the value we had hoped for.”

Also critical is the effective transition from those who have been doing the day-to-day work to the business owner and the operations team. Good practices during this phase include clear communication about how deliverables can reach
full operational status and establishing two-way dialogue around benefits sustainment, regardless of when the benefits will be realised.

Moving forward
Transition is key to sustainability. Project teams are responsible for delivering a new product or new capability according to specifications, but they often won’t be the ones to keep it going. The project team’s work typically ends when the operational team takes delivery, and that is often the point where executives lose interest, though it is exactly the time when they should ensure the most senior leaders’ involvement.

“Our final gate in our project governance framework is focused on a benefits realisation review”, said Aitken. “This review is conducted six to 12 months after the project has been completed and is driven by our benefits management team in consultation with the business owner responsible for benefits realisation.” The findings are then documented and presented to an executive committee with representatives from across Telstra. “The learnings from these projects are used by the committee when evaluating and providing advice on new projects to ensure Telstra is continuously improving.”

Our KPIs are broken down into several quantitative categories, but we also have a descriptive category

An assessment of value delivery must include the full spectrum of benefits, including the intangibles, such as customer satisfaction, brand image, reputation and risk profile – things that are not easily or immediately quantifiable, but no less important for that. Difficult as they can be to measure, smart companies take the difficult step and both quantify and evaluate these intangibles to ensure benefits delivery. “Our KPIs are broken down into several quantitative categories, but we also have a descriptive category that is used where outcomes realised within the business cannot be practically represented numerically”, said Aitken. This allows the company to assess the true and total value of its single initiatives and its collective portfolio of work that will, ultimately, drive competitive advantage.

As a CEO, if you can’t look at your organisation’s project portfolio and see a direct connection to your strategy, you have no chance of achieving it. You can’t just assume you are going to get what you expect. Ask your implementation team to highlight the expected benefits and ensure you see the alignment. Unless you ask the questions, you won’t get the answers. Managing and monitoring benefits is the means to determining return on investment, as well as realising the many intangible benefits projects and programmes deliver.

If there is any confusion about who is responsible for identifying, managing, or sustaining benefits, clear it up immediately. A failure to do so is a significant oversight, and an impediment to success. Don’t let it be an impediment to yours, and don’t leave your strategy to chance – your stakeholders are counting on you.