‘Benefits realization management’ defined
Benefits realization management is the process by which organizations try to ensure that they achieve optimal value from their investments. It involves everything from the initial estimation of the expected benefits during planning through the validation that those benefits have been achieved and the management of variances after the work associated with an investment is complete.
4 key elements of benefits realization
- Benefits estimation – understanding the benefits that will be achieved (financial, non-financial); the extent of the benefits in terms of dollars, units and so on; and the timing of the benefits – when they will occur, how long they will last and what the curve will look like.
- Benefit measurement criteria – the metrics that will be used, especially for non-financial benefits and the extent to which an achieved benefit will be attributed to the investment (not all revenue may be the result of the current work for example).
- Benefit forecasting – just as with costs, the early benefit estimates are going to be inaccurate because they are based on early assumptions and incomplete data. It is essential to ensure benefits are regularly revisited and updated to ensure they are still sufficient to meet the business needs.
- Benefit measurement – tracking of actual performance against the defined metrics to ensure that the forecast benefits are being achieved, investigating any variances and implementing benefits management for anomalies to ensure the strategic objectives are achieved.
7 common challenges of benefits realization
Benefits realization is a critical element of Strategic Portfolio Management, and as such must be integrated across the organization. With that in mind, it’s time to explore the specific benefits realization process challenges that organizations commonly deal with.
1. Ineffective strategic planning
To consistently deliver on its strategic priorities, an organization must ensure that it is driving When planning is allowed to happen bottom-up, with departments and business units driving demand and funding initiatives, it is inevitable that there will be a disconnect between strategy and execution. Benefits realization management is focused on measuring and managing the benefits from the work that is actually delivered, so if that isn’t aligned with what the organization needs it can never be optimized to deliver on that need.
2. Inability to communicate strategy across the enterprise
Even if organizations plan from the top-down, they need the ability to communicate that strategy clearly and concisely to all areas of the enterprise. Unless that clear communication is in place and organizations understand how to use roadmaps, there will be no ability to plan and align investments with those strategies and again, benefits realization will never be able to deliver on strategic objectives.
3. Lack of standardization in metrics and measures
In benefits realization, there are many ways to measure even simple financial metrics. Unless there is standardization between the definition of the goals and objectives and the way performance against those objectives is measured, then it is impossible to determine whether they have been achieved. With non-financial measures of success, the situation is often worse. Often the measurement of project benefits – or even project success – is deemed to be ‘impossible’ with no confidence in the ability to identify and track effective proxies, and no structured approach to monitoring non-financial performance. In these circumstances project benefits are frequently just assumed to be realized if the expectation is that they will accrue from a successful investment execution.
4. Failure to set and communicate targets for strategic objectives
For benefits realization to succeed, there must also be clarity around the performance level that will be achieved. At an organizational level there is a target level of performance that must be achieved for an objective to be viewed as successful. But organizations don’t pursue just one objective at a time. There will be multiple objectives, each with distinct targets and it may be necessary to compromise on the performance of one in order to ensure there are sufficient investment funds available to meet all of the objectives. It’s easy to see how this might lead to confusion unless there is consistency and clarity in how targets are communicated, which all too often, simply doesn’t happen.
5. Difficulty connecting work with strategies and targets
Too often, work is pursued because it is important to stakeholders, with alignment to strategy and objectives ‘forced’ as an attempt to justify funding. Effective benefits realization requires a clear and direct connection between strategies, objectives and the work being done to deliver those objectives. Unless investments contribute to a strategic objective it is impossible to project the expected benefits with any degree of confidence and any attempts to measure actual project benefits will be flawed simply because those benefits don’t align with the work that has been undertaken.
6. Inability to re-forecast benefits throughout the investment lifecycle
Organizations consistently struggle with the ability to maintain accurate benefit forecasts. Initial benefit projections are made before any work is carried out and are based on expectations of how the operating environment is going to evolve. It is inevitable that those benefit forecasts will need to be reviewed and updated at regular intervals as the organization learns more about the operating environment and how it is evolving, the actual capabilities of the solution being developed, and the shifting strategic priorities of the business.
7. Low maturity tracking and reconciling results
The final challenge organizations face comes from the ability to actually measure performance. In many cases there is no ability to determine whether project benefits have come from the work undertaken or whether they would have happened anyway. Tracking preventive benefits – outcomes that prevent the erosion of revenue or increases in costs – is often inconsistent across products and business areas. And non-financial metrics are often ill-defined, or their measurement is frequently ignored or left to the subjective opinions of just one or two stakeholders. With no ability to validate non-financial performance, the organization has no ability to manage variances.
4 keys to effective outcome management
Benefits realization is a critical element of Strategic Portfolio Management which requires these four key considerations:
1. Evolve to the right investment approach
The traditional, project driven approach to defining investments is never going to support effective benefits realization management. This is a bottom-up approach used by project managers in an attempt to meet strategy ‘in the middle’ and inevitably results in work being pursued that aligns more to departmental challenges than strategic priorities. Organizations must evolve from this form of planning and work definition.
A product and program-based approach that starts with the top-down strategies and then defines products, programs and value streams directly from those strategic priorities helps ensure that all work is driven from the top, retaining strategic alignment in the process. Funding is directly tied to strategies and maintain the direct connection between the business need and the work undertaken.
Organizations must also commit to an ongoing evolution of this approach, embracing emerging investment planning techniques such as capability-based alignment to further enhance the relationship between strategic purpose, work and outcomes. Not only does this provide a solid strategic approach to planning, it also forms a foundation for the other considerations below.
2. Define and communicate strategies and metrics
In order to ensure the strategic priorities of the organization, and the associated investment areas are clearly understood by all stakeholders, and that they drive the right behavior at all levels, it is critical to ensure they are communicated in a way that is easily understood. There are many ways of doing that, but two of the more common are SMART and OKRs.
SMART is a well-known acronym that stands for:
- Specific – Strategies and business priorities must be well defined and unambiguous.
- Measurable – There must be specific criteria that establish how progress and performance against each priority will be measured (this is an area that is often missing in organizations).
- Achievable – While strategies are designed to stretch the organization, it is important that all stakeholders view them as achievable or they will disengage, ensuring failure.
- Relevant – Each strategy and business priority must be relevant, showing alignment with what the organization is trying to achieve. This helps stakeholders understand why the work is being pursued.
- Timely – Each priority must have a defined start date and an anticipated target date to provide a framework for the investments to perform against.
In recent years, a more straightforward approach to communicating strategies has become increasingly popular – OKRs or Objectives and Key Results:
- Objective – What it is that the organization is trying to achieve. It is essential that the objective is clear and unambiguous and it should also have a qualitative target, a target date and be tied directly to actions. It should also stretch the organization to achieve it without being unreasonable.
- Key Result – Detailing of how performance against the objective will be measured. Again, it should be quantifiable and achievable while still ambitious. Most objectives should have three to five distinct key results that relate to different measures of performance against that objective.
Regardless of the approach an organization decides to take to describe and communicate its strategies, it is essential that all teams understand them and know what they must do to execute work against them. Additionally, organizations must invest in developing and maintaining a set of standardized measures and key results that can be applied to strategies and objectives as appropriate.
Organizations should develop an inventory of such measures, both financial and non-financial, with the appropriate measures assigned to every objective along with a target for each measure. There should also be allowance for the identification or creation of additional measures by execution teams where necessary that can then be added to the inventory.
3. Derive work and assess sufficiency of performance
By moving to a program- or product-based investment approach it becomes much easier to define work directly from strategy. This makes it easier to align individual initiatives with one or more strategic objectives regardless of how those initiatives are structured or which of the tri-modal realities they are delivered through.
This also allows investment owners to easily review and update time-phased benefit estimates for each measure or key result, identifying trends and variances that can be escalated for further scenario analysis. This allows the portfolio manager to view the entire portfolio and individual investments to gauge whether the anticipated performance against each key result meets or exceeds target.
With that understanding investment plans can be confirmed or adjusted as required and the portfolio manager can proactively address any apparent variances in performance to ensure the overall portfolio meets or exceeds every target for every objective. At the same time, they can guide project managers and similar functions to address any specific adjustments in individual initiatives to retain alignment and ensure business benefits are delivered.
4. Standardize tracking and measurement
Benefit estimates can’t be ‘one and done’ efforts that are never revisited after the business case is approved. Benefits management must be a living process and estimates must be revisited and updated continuously as circumstances change, more is learned and execution proceeds. There must be an established and standardized process that revisits benefit estimates on a regular calendar cycle, on completion of each phase, or on whatever cadence makes sense for the individual initiative.
Benefit estimation and tracking must be flexible enough to adapt to circumstances, and that may require a combination of bottom-up and top-down measurement. Measurement must be consistent over time for each initiative to ensure effective and accurate tracking and forecasting which in turn will drive the required decision making.
Regardless of how work is being delivered, organizations must have tools that provide the ability to consolidate performance against objectives and strategies into consumable dashboards for executives that enable and support funding decisions and adjustments to ensure performance remains optimized. These must be supported by ongoing planning tools such as strategic roadmaps to assess strategic performance and adjust as needed.
Strategies only succeed when they are achieved. Investments only succeed when project success generates a return. The ability to successfully define and measure benefits and address anomalies is critical to the success of any organization in order to optimize business value.
Yet benefits realization management is an area where many project managers continue to struggle. Benefits management must be made more effective, it must be integrated with the rest of an organization’s strategic portfolio management approach, and it must be managed with integrated benefits realization management software that provides the insight necessary to deliver results consistently.