This is why economists have a hard time understanding strategic benefits realization  - Peak Consulting Group A/S - UK




This is why economists have a hard time understanding strategic benefits realization 

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Admittedly, this headline is slightly click-bait-y. Even so, I have had to find to my cost, that public financial controllers often have a hard time understanding the point of strategic benefits realization. I have also been asked by despairing project-people, why this is. Here is my guess.  

Four strategies 

The four strategies for how you as an organization can succeed with both reducing costs in the budget and actually creating change. There are four strategies I have seen used in different organizations – and they can also exist parallel to one another. 

1: Take the money and expect change 

Put simply: Write a budget heading with 3 million DKK with reference to an initiative and hope for the best. This is a strategy that many write off, as either naïve and insufficient or as cynical and primitive. The way it works is that the political and administrative top-management, on the basis of a business case (plausible or implausible), makes decisions about how a project will lead to cost reductions.  

Next, they take the money from the budget. Then, they write down the accounts where cost reductions need to happen. This is the strategy many economists have practiced, and it is also the answer to the question in the headline. Benefits realization is simply a mysterious concept, because they already think and feel that they have succeeded at it. This strategy has actually worked somewhat in the time following the financial crisis. But it has started to fall short. There are not many easy changes around anymore; not as much of the stuff that some call ‘cool’. 

I have met my fair share of managers who tell me, that they really would not be able to come up with more solutions, if they were hit by cuts again – except for poorer service and a faster pace.  

2: Create changes and get the money afterwards  

Put simply: Create a change and write the budgets afterwards with the actual, realized amount. This strategy takes the opposite perspective, and ideally the right one, but practically the hardest one. With this strategy, the organization completes the changes first; sees how far they can go, and then reaps the economic benefits in the budget.  

Unfortunately, an organization that has a decentralized budget responsibility rarely works enthusiastically to foster solidarity. Managers and employees are aware that what they deliver will not come back.  

3: Take the money and invest in changes  

Put simply: Write the budgets, but first, take the time to understand the necessary changes and put aside the resources needed for creating them. On the surface it is the same as strategy 1, but with a serious interest in the changes, for the right side. The business case factors in the costs of project management, change and potential operating losses during a transitional period and follow-up.  

It also takes into account that the benefits do not start at year 0 but are gradually introduced at a realistic, but ambitious, pace. This model is far better than strategy 1, and for many organizations it is an immediate continuation of strategy 1.  

4: Take the money, invest in changes and follow up 

Put simply: Write the budgets; understand and invest in the changes and follow up on whether everything is going as planned. In this model, we include some things from strategy 2.  

In this model, resources are now set aside for following up on the changes and benefits realization, for the purpose of taking further initiatives, if the changes do not happen at the expected pace and becoming smarter as an organization about business cases and foundations for project decisions. 

The challenging things about this model is time and resources for follow up, and a lack of interest. In relation to the first challenge the advice would be: 

  1. Follow up on as few things as possible. Better to have one or two goals, than 10 goals.  
  1. Use all the data you already have or the processes where you are already assessing your quality and effectiveness 
  1. Tie the projects to important goals within your organization, for instance via programs or as projects in sub-portfolios with the same goal. 

A lack of interest is bad. The Norwegian researcher Kjell Arne Røvik has shown, that modern public organizations are in danger of splitting themselves into an ‘idea-world’ – where drive is showcased – and an operational world, where daily life has to work out. These schizophrenic organizations create far more projects than the operating organization is able to absorb. For this reason, effects are not assessed.  

The idea-world needs to maintain the illusion of drive. But this is naturally a hopeless use of resources and creates a lot of frustration. The good news is that just a slightly anchored approach to benefits realization can correct this discrepancy.  

The project owner’s and the steering committee’s responsibility now lies in being at least as oriented toward the operating organization’s readiness, as they are toward deliverables and milestones. And that is way more fun! 

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The world of ideas needs to maintain the illusion of agency. But this is obviously a hopeless use of resources, and creates much frustration. The good news is that an even somewhat anchored approach to gain realisation will redress the mismatch.

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