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Mission possible: Benefits-led risk management?

“It’s just common sense, isn’t it?” she said. Katie and I were catching up over coffee, a couple of weeks after she’d been on a benefits course. “Given we think about benefits all the time in real life, why don’t we always use them in projects?”

 

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Safe brakes are worth a month of beans on toast       

Katie told me she’d been worried about her car, so she took it to the garage. The problem turned out to be the brakes, but the mechanic also mentioned her tyres were going to need replacing soon. “The brakes needed doing immediately, but the tyres I could defer until the MOT in the autumn. I realised afterwards, I’d basically done a cost benefit analysis and decided not getting killed was worth the unexpected expense!”

As we chatted I realised she’d also, without realising it, thought about her benefit risks. Traditional risk management focuses on, for example, risk to schedule, costs or reputation. I see very few risk matrices which consider impact on benefits, but, whether it’s getting our car repaired or doing up a kitchen, we all subconsciously think this way.

Benefits are the point of investments

If I’m being blunt, I don’t care that a piece of kit is going to be rolled out three months late. I care that the change relying on that bit of kit can’t happen, so I’m losing three months of benefits. Cost overrun? That’s the ‘price’ of my benefits and lowers my return on investment (in addition to the other impacts: Katie will be eating beans on toast this month to pay for those brake pads).

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Teams should consider the impact on benefits      

Let’s look at this using a basic risk matrix you might find in any organisation. Impact is scored from, say, one to five, with one being minor and five being disaster. I often see, for example, a three month overrun as being a four, i.e. very serious. But what if that overrun isn’t on my critical path, or what if the benefits which rely on it are not worth much, compared to the rest of the initiative? Is it really that important?

Impact scores have implications for those who manage the fallout, if the risk event occurs. I’m not too worried about something which the business change manager can handle alone, but something which could change the balance of the portfolio is damn important!

So, here’s my suggestion for a basic impact matrix for benefits. The scoring doesn’t work for infrastructure (which will always have a negative ROI) and doesn’t consider non-monetised benefits. However, it’s a starting point and indicative of a mindset, which can be extended to infrastructure and non-monetised benefits by at least adopting this as a way of thinking (that’s a whole other blog!).

Description
Score

If we don’t realise these benefits (or control these costs), the programme won’t even break-even, i.e. we won’t even get back the value of what we put in. The investment will have completely failed, so the portfolio will need to manage/make decisions.

5 - disaster

If we don’t realise these benefits (or control these costs), the programme ROI will be so low that, if this was a business case, we wouldn’t approve it. The investment may no longer be worth the cost, so the portfolio will need to manage/make decisions.

4 - major impact

The programme’s ROI will be outside of our ‘red’ limits (tolerances).  While it’s still worth it, the portfolio may have a better use for the resources, so the portfolio will need to manage/make decisions.

3 - significant impact

The programme’s ROI will be outside of our ‘amber’ limits (tolerances).  This could affect the key purpose of the initiative, so the programme team need to coordinate the response.

2 - some impact

Only a small number of benefits affected, from the same area. The benefit owner, business change manager or similar can manage the risk as it’s localised and low impact. The programme isn’t going to be out of tolerance.

1 - minor impact

Looking at it from our benefit perspective, our three month schedule delay might just affect one minor benefit: we can live with it in the grand scheme of things. However, what if all the important benefits are reliant on it? Suddenly it might score significantly higher and require a totally different level of interest and management by the programme. This is a much more nuanced approach.

Tolerances can be a blunt instrument

ROI is not just about how much you’re left with at the end. There’s also the break-even point to consider.

This is where tolerances are important and, in my experience, are underused. Yes, I need limits on how much variation I can accept, and these indicate the levels of escalation (local, programme, portfolio). However, I might also need to set a tolerance on the break-even point. How long can I wait to make my money back?

There are two things going on here. First, while the money is tied up in this initiative, it can’t be used for something else. This is the opportunity cost: if Katie pays for new brake pads, she can’t also spend the money on a night out. 

Secondly, as Keane sings, “everybody’s changing, and I don’t know why”. Nothing is static: organisations operate in a kaleidoscopic environment. At some point, the aim of your current investment might be rendered irrelevant as a result of shifting priorities. If you haven’t broken-even by the time your programme becomes moribund you’ve lost that money entirely: it cannot now be invested in the new priority.

Your mission, should you choose to accept it…

For some, this may be a new way of thinking about risk and benefits and there is much to explore.

I challenge you: revisit your risk register and reframe every risk in it to take account of the impact on benefits (and ultimately therefore ROI). If the benefit is going to be delayed, reduced or cost more to achieve, this is a vital focus for risk mitigation. Mission possible is not just limiting it to concentration on fixed percentage variations from budgets, timescales and so on. Mission possible is to bring benefits thinking into risk management.


 

5 comments

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  1. Janet Brellisford
    Janet Brellisford 13 July 2018, 09:46 AM

    I think this is great - so thanks for the article. I constantly refer to the non-delivery of benefits as a key risk - but too often people focus on the IT or infrastructure risks, not the real benefits from using the IT or infrastructure.

  2. Simon Harris
    Simon Harris 13 July 2018, 05:20 PM

    Agreed. I'm pretty sure Goldratt discusses the equal by examining the change to NPV as a result of acceleration and delay of delivery dates - a chapter towards the end of either The Goal or Critical Chain. I also wrote some words about the disfunction of most folk's attempts to 'do risk' That Ken Lane published in PM Today some years ago - reproduced on the link http://www.logicalmodel.net/wp-content/uploads/2013/04/PMToday-Risk-in-Baseline.pdf should it interest anyone. Thanks for sharing the thoughts. Benefits and whole of Portfolio thinking seem strangely distant from project thinking when one considers how central they are to the focus of shareholders and taxpayers.

  3. Troy Freeman
    Troy Freeman 18 July 2018, 09:52 AM

    Yes, fully agree that a Matrix approach to benefits is helpful, if only to enable wider focus beyond a conventional risk register. Whilst cost, time and quality are king, I wonder if there are further views on how to best realise non-financial benefits in more innovative ways? I don't mean surveys or monitoring feedback, I am interested in "hard" delivery impacts from "soft" benefits. Thoughts?

  4. Adam Humphrey
    Adam Humphrey 23 July 2018, 09:38 AM

    A concise and practical article from Claire. It does however make the assumption that all risks are negative (ie threats). My experience is that thinking also about the upside of benefits (ie opportunities) early on leads to a much more positive conversation and a better engagement in all aspects of benefits.

  5. Claire Dellar
    Claire Dellar 23 July 2018, 01:19 PM

    Thanks everyone for your comments! Janet, your experience mirrors mine, so difficult to get people to think beyond time, cost, quality! Simon, thanks so much for sharing that link, I will be sharing it with colleagues. I particularly like your opening line about people believing “some deity reads and responds to their risk log’s contents”! Troy, thanks for mentioning non-financial benefits, that’s another blog I’m starting to draft now. It’s going to take combining benefits with management of value ideas, which are starting to take exciting shape. Adam, thank you for reminding us about opportunities, you are absolutely correct about how we must think about positives as well as negatives. The difficulty is scoring it. I think the MoV stuff I’m thinking through will be a good way to bring in positives. I really appreciate you all taking the time to comment and hope you and others enjoyed this blog.