All you wanted to know about Benefits Tracking—but were afraid to ask

1. All you wanted to know about Benefits Tracking—but were afraid to ask March 1995

2. Objective This panel set is targeted at Gemini consultants who are working on streams whichs delivery phase.

3. All you wanted to know about benefits—but were afraid to ask . . . Contents • Why benefits? • What is your role? • Overview of Benefits Development • Key Elements • Tips for Effective Benefits Tracking • Benefits Checklist • Detailed Benefits Tracking Guidelines

4. Why worry about benefits?

5. One of Gemini Consulting’s strengths • Unlike other consulting firms, Gemini promises to deliver Performance Improvement which is MEASURABLE, whether in terms of: • Cost reduction. • Cost avoidance. • Revenue protection. • Revenue generation. • Operational improvement. • Capital reduction. In Gemini parlance, Performance Improvement = Benefits

6. The concept of MEASURABLE Benefits is what makes Gemini different • The delivery of MEASURABLE benefits is normally a contractual element of Gemini’s relationship with the client: • It’s what clients buy. • Delivery creates credibility and trust. • Delivery provides the basis for a meaningful and sustainable partnership with the client. It means we have earned the right to work on other issues. • If not a contractual obligation, the A&D will have set benefits expectations with the client. Trust = Credibility x Intimacy

7. But delivery of MEASURABLE benefits is much more than a numbers game... • Going for MEASURABLE Performance Improvement—i.e. the Benefits—is a powerful driver of change in the organisation. It focuses the attention of: • The client. • The joint team. • The sponsor. • Other relevant stakeholders. and, last but not least, of • The Gemini team. • The process of targeting, measuring and analysing performance improvement accelerates the pace of change: • Increases accountability. • Creates a bias for action. • Improves client understanding of cause and effect relationships. • Builds continuous improvement into change programme.

8. Focusing on the delivery of benefits provides the framework—“the glue”—for the project • Without adequate regard to benefits—and the associated benefits tracking process—the project may: • Lack vision. • Lack direction. • Not understand the impact of changes. • Create a sense of dissatisfaction or frustration. • It is imperative that the Gemini team—whether in a project lead, a stream lead or a stream member role—fully understands, supports and drives the benefits piece . . . . . . and that means right from the beginning of the project.

9. What is your role?

10. Project structures and RACIs will of course vary. A typical Benefits structure looks like Stream A Stream E Project Management Stream • Milestone Progress Monitoring • Integration • Benefits Management Stream B Stream D Stream C Stream Leader or Stream Benefit Team focus on • Focus on • Setting up methodology • Interface with Finance Department • Project-wide reporting • Quality control • Providing support and training • Identification of Benefits • Development of measures, baseline, target • Tracking benefits • Stream Reporting

11. You could be working in any phase of the Benefits Management Process . . . Benefits Identification and Business Case Development Target Setting Benefits Estimation Scoreboarding Operational Benefits Realised Cash Benefits Realised • Typically done on A&D phase • Usually needs to be reconfirmed in RD • May be done during RD on large projects • Typically, you will be expected to review and update the forecast of what benefits your stream will deliver on a regular basis • Generally, this phase is completed before beginning to implement • A scoreboard benefit describes the benefit, identifiesill be measured, baseline to be used and agreed targets • It’s the “stake in the ground” • E.g. 40% reduction in stocks, 30% improvement in productivity • Focused on releasing capacity in the organisation • Company can use excess capacity to process more volume for same costs or realise cash benefit • E.g. reduction in manpower • Can be difficult for us to control. Client will make decisions on which and when resources are released . . .so be sure to clarify expectations.

12. Your job is to proactively seek out the benefits expectations of your stream Key questions to ask • Is my stream expected to deliver tangible benefits or is it an enabler? • Do we have a target? Financial or Operational? • How are we defining benefits? Scoreboarded, Cash, Operational Benefits translated into financial benefit, etc.? • Is there a central benefits team (or function)? • Who will collect baseline details? Are there any financial assumptions we should use? • Has my client been pre-positioned? Don’t put it off! Waiting will only make it more difficult.

13. Overview of Typical Benefits Development Process

14. Development of Benefits Stage I: • Identify performance measures. N Process: Client buy-in to measures Identify operational measures Define deliverables and benefits Y What is the redesigned business process/recommendation going to leave behind? What are the best measures to assess successfuless? Do Champion and key functional/business management agree? Are the measures currently used? If not, how will we collect measures? KeyQuestions:

15. Determine Financial Value of Operational Improvements Client Buy-in to Baselines & Targets? Development of Benefits Stage II: • Develop Operational Baselines and Targets. Estimate Baselines Document the approach and basis for Measures, Baselines and Targets Develop reporting mechanism and begin tracking Develop Targets for Each Operational Measure Y Process: y • Against what will performance improvement be assessed? • Are we sure that our choice of baseline will not result in double counting? • What level of performance improvement is feasible? • Is this sufficient to achieve financial or balanced scorecard targets? • How does operational improvement contribute to P&L or Balance sheet improvements? • Has Finance Dept. agreed to or given us assumptions? • Do Champion and key management agree on assessment of current and target performance and goals? • Will we be able to explain the details of our approach in six months time? • Is the approach documented at the appropriateof details to ensure a solid “stake in the ground”. Key Questions:

16. Benefits progress and variances must be analysed Rate of implementation slower than expected Target £ Actual Benefit calculation over-optimistic Time . . . so appropriate actions can be taken.

17. Key Elements

18. So what are the key elements of the benefits framework? • A clear definition of the benefit (in English or whatever language you are happy with). • What you are going to measure from when—the baseline and the units of measurement for the area of performance in question. • What you are aiming to achieve by a certain date—the target for the area of performance improvement. This will often be expressed as an improvement in one or a number of Key Performance Indicators (KPIs). • How you are going to measure the progress from baseline to target—the benefits tracking system. • How you will translate the performance improvement to a financial benefit. • How you are going to communicate progress to all relevant audiences—the reporting methods.

19. Agreeing the baseline is one of the most essential tasks in the whole benefits process . . . • Do it as early as possible: • It may have been agreed as part of the A&D process—but reconfirm it at the outset of RD • Ensure that a common understanding exists about definition, start-date, implications for other departments • Record, in writing, agreement on baseline details -and have the agreement signed off by the client If this is not done, the TWHA syndrome could strike . . .

20. The TWHA—“This was happening anyway”—Syndrome can really undermine the project • There has to be a clear understanding and agreement as to the status of the operation being acted upon PRIOR TO INTERVENTION: • In this context it is also important to have clear agreement on the potential impact on the operation of any existing client initiatives. • Otherwise, performance improvements subsequently recorded can be the subject of futile and counter-productive Project v. Client wrangling . . . • . . . “This was happening anyway. We already had initiatives running to deal with this. The baseline was set to move up as a result of what we were doing” . . . Starting early will help to avoid this issue.

21. And what about baselining for intangibles? • Intangibles can be things like management style, organisational culture or effective business processes. • While it will usually be possible to document some sort of assessment of the As-Is, imputing a financial benefit to a change in culture or the introduction of an effective Plan-Do-Review process is much more difficult: • It is probably more fruitful to describe this type of benefit as an “enabler” to achieve all the other MEASURABLE benefits, or • It may be possible to update your As-Is assessment with surveys: • Would be less frequent than other measures the team would track due to the cost of survey and the nature of the topic. But remember to include the intangible gains in any overall benefits description.

22. The nature of the Baseline will vary depending on type of Benefit Benefit Baseline Cost avoidance or Capital Revenue enhancement Cost savings Working capital reduction eg. reduction in A/R, debtors • Need to demonstrate that money would have been spent • e.g. £ allocated in Budget or Plan • Approved Business Case • Project already spending £ • Historical volumes, historical or forecast prices • Forecast volumes, historical or forecast prices • Historical spend • Ratios not absolute £’s • e.g. Accounts Receivable in £ • Sales in £

23. Revenue enhancement opportunities are more difficult to Baseline Baseline may be lower than current due to: • Regulatory changes. • Impact of competition. • Optimism of competition. • Optimism built into forecasts. } x “Current” Baseline . . . due to greater impact of external factors.

24. Targets can be reasonable, challenging and stretch • Whatever the nature of the target, the critical element needed to gain buy-in from the client, Gemini and other parties affected is an understanding of how the target was set. • Typical target setting approaches: • Internal best practice emanating from the A&D phase. • Benchmarking with the “best in class” externally. • Top-client judgement, based on experience. • Gemini judgement, based on experience. • Some combination of the above. • A stretch target is not an unachievable target but is one which will require significant change in the organisation.

25. Benefits Tracking may be a good way to introduce or supplement the use of KPIs to the client . . . . . . but you need to ask a few questions about this area to clarify your role: • Are there any other streams working on measurement. The project may include development of a Balanced Scorecard, Business Management Process implementation, etc. which you should be aware of. • What are the stream’s responsibilities to develop KPIs as a part of the development of the “To-Be” process? • Does the client use KPIs? Many companies are familiar with the use of KPIs but may not use them effectively.

26. With agreement on baselines and targets in place, the next area to confirm is the benefits tracking system • Some principles: • The simpler, the better. • Agree the nature of the system. • Agree the tracking frequency. • Embed Plan-Do-Review in the tracking process. • Involve the client - they are their benefits; they should really be keen to measure them, BUT • Make sure that all Gemini consultants are involved in the process in one way or another.

27. As in all other aspects of any project, communication about the benefits approach and progress is crucial • A number of points have to be agreed on: • At whom is the communication aimed? • What is the most appropriate format for the communication? • How to dispel myths, e.g. “Gemini gets a bonus related to the amount of benefits”. • How often should communication be made? • Like the tracking system itself, communication must be simple, clear and to the point. • Be careful not to alienate the “line” when using communications to celebrate team wins: • We want to give the message that these are company benefits not project benefits. Look to your central benefits or project management team for guidance.

28. Tips for Effective Benefits Tracking

29. Make sure your client and JTMs understand what Gemini means by “Benefits” • Our approach is different. Most clients do not track benefits or use “Plan, Do, Review”: • They may define a benefit as an after-tax amount which is a product of a Cost/Benefit/NPV calculation. • They may expect to prove the benefit directly to the General Ledger (particularly the accountants!). • Emphasise that our approach • Is primarily a project management and change management tool. • (Generally) translates operational improvement into a financial benefit which approximates the general ledger benefit. • Focuses on performance improvement and the use of KPI’s. . . . but remember

30. Other tips to consider • Keep the team’s focus away from the financial translation: • Talking abut a 40% improvement in engineering productivity or a 50% reduction in product development cycle time is more meaningful. • Describe your benefits in annualised amounts: • E.g. £100,000 of annualised cost reduction. • You need buy-in from the Finance group but take care—conservatism is the basis of the accounting profession: • Finance can have trouble with the concept of stretch targets. • May have limited definitions of a benefit, e.g. “If we have never tried to measure it, it can’t be a benefit”.

31. Other tips to consider (cont.) • Be proactive about addressing potential double-counting issues. Don’t wait for the central benefits team to fix it. • If in the scoreboarding phase, make sure you have support for your ideas or recommendations before trying to convince the client to sign up to a benefits target. • Be careful when using Activity Based management amounts to translate your operational improvement to a financial benefit: • ABM methodology assumes that all costs are variable. • You must consider over what timeframe the resources are likely to be released and the benefits tracking horizon the project is using. • Reducing drivers will not automatically reduce resources.

32. Resources to consider • Measure Up! The Essential Guide to Measuring Business Performance: Richard L. Lynch and Kelvin F. Cross1991, Octopus Publishing Group A Good overall summary of measuring business performance. • Understanding Variation the Key to Managing Chaos: Donald J. Wheeler1993, SPC Press, Inc. The focus of this book is the meaningful analysis, presentation and interpretation of data. It applies theoretical statistics to real business situations