Hang the cost – it's the benefits that really matter
When you're at that stage of deciding whether to give a project the green light – or you are assessing a project's progress to decide whether to continue with it – then it's easy to become totally focused on how much the whole thing is costing to the exclusion of other factors. When we look in the media at high profile projects (especially those that are having problems) the emphasis is always on what the project is costing and particularly how much it is over budget. That always makes good media headlines.
So organisations, stakeholders and sponsors naturally fret about how much money is being spent on their project. And there are plenty of worrying statistics from past projects out there to contribute to our budget concerns on major projects. Some infrastructure, architecture, and government projects have had eye-watering budget overruns. And if we look, for instance, at any Olympic Games since 1960 not a single one has come in under budget (according to the World Economic Forum). Although technically London 2012 did come in under budget but only because the budget was quadrupled from the original estimate due to various costs being initially overlooked.
Are cost over-runs ever justifiable?
Well, the value of a project lies in the benefits it provides and if we worry too much about budgets we may never achieve benefits that far outweigh the costs. Maybe organisations, therefore, should take a more entrepreneurial approach to projects and consider whether without investment and risk nothing of true worth can ever be gained. Of course, that's not to say there shouldn't be budget management and controls in place but costs alone are not the only factor in determining project success or failure – rather it is whether benefits outweigh the costs.
Another reason to focus on benefits is that there can be situations where the benefits of a project look set to exceed the actual costs to date. In that case it may be possible to increase the project budget and achieve even greater benefits than originally expected.
Accurately assessing benefits
But how can we accurately assess whether benefits are indeed exceeding (or will exceed) the costs? How can we have faith in predicted outcomes and estimated costs?
A detailed review of the project will, of course, give us some confidence that our costs and benefits are accurate but there is still, in all projects, that element of uncertainty about what might happen tomorrow, next week or next month to throw the project off course.
Ironically it is possible to have a project that comes in on budget and on schedule but fails to deliver true benefits and equally possible to come on over budget and/or over schedule but deliver benefits. Some benefits are measurable quantitatively (an increase in revenue, for example) but others are subjective (a more user-friendly website, for example). Measuring or assessing the true situation to determine project success or not is clearly, then, not always straightforward.
Nevertheless, by following a benefits management process we can verify whether benefits have indeed surpassed the costs of the project. The right data will contribute to a better understanding of how to measure project success and, therefore, improve decision-making on future projects. But just what are the basic steps in a benefits management process?
Here are some essential pieces of data you can use to ensure an accurate assessment of benefits vs costs:
- Describe the expected benefit(s) – if we don't know what the benefits are how can we measure whether they have been achieved?
- Document and agree who is responsible for ensuring benefits are achieved – who will be the driver on the project to push for benefits realisation.
- Describe when the benefit will be realised – this can be done using financial analysis such as IRR (Internal Rate of Return) and NPV (Net Present Value).
- Assess the risks that might prevent the benefit(s) from being realised
- Carry out benefits realisation reviews after the project has been completed and delivered – some benefits may not be realised for some time.