pereira diamond benefits model webinar 10th june 2015

Pereira Diamond:

Benefits Management

Framework

Leandro Pereira Claudia Teixeira

APM Benefits Summit Thursday 25th June, Hatton Garden, London http://bit.ly/bmsummit

Projects and programmes: a sure-fire way to create business value? Wednesday 24th June – breakfast briefing, London SW1

Visualising the relationship between projects and benefits Wednesday 24th June workshop [pm], London SW1

Putting down the roots for good governance #eVa20 Tuesday 16th & Wednesday 17th June, London http://evaintheuk.org

#apmbmsummit &

other great #eventroi

For full nationwide programme of good practice events visit apm.org.uk/events

@apmbmsig I #apmbmsummit



Visualising the relationship between projects and benefits Wednesday 24th June workshop [pm], London SW1

Putting down the roots for good governance #eVa20 Tuesday 16th & Wednesday 17th June, London http://evaintheuk.org

#apmbmsummit &

other great #eventroi

For full nationwide programme of good practice events visit apm.org.uk/events

Webinar: Pereira Diamond Benefits Model

CLÁUDIA TEIXEIRA & LEANDRO PEREIRA, Ph.D PMP

#apmbmsummit

APM Benefits Summit 2015

Thursday 25th June 2015

© 2015 Winning Management Consulting

Agenda

6

Beginning

The End

12h30

13h15

(45min)

— Context

— Benefits Management

— Pereira Diamond

— Scientific Business Case

— Conclusions

— Questions

(10min)

13h25


Agenda

7

Beginning

The End

12h30

13h15

(45min)

— Context


— Pereira Diamond


— Conclusions

— Questions

(10min)

13h25


Rupert Murdoch

The world is changing very fast. Big will not beat small anymore.

It will be the fast beating the slow.

© 2015 Winning Management Consulting 9

Statistics Companies continue to focus on costs or qualitative benefits

54% of

respondents

indicated that cost reduction is a

primary driver of projects and

programmes in their organisation

Source: APM, 2014

Up to 70% of

change initiatives

fail to deliver on the benefits that

they set out to achieve

40.5% of

respondents

answered their organisations have

“weak benefits focus”

Source: APM, 2014 Source: John Kotter, 1995

UK Survey Harvard Business School Study UK Survey


Product Life Cycle The Modern Management Challenges

10

Globalization

Technological

Innovation

Planned

Obsolescence

Social

Networking

3 years 5 years

Introduction Growth Maturity Decline B

usin

ess

Vol

ume

8 years Time

Source: Pereira & Teixeira, 2015


Global Capex Expenditure The consequence of the product life cycle decrease is the continuous investment in new projects

11

Source: World Bank. 2014


Expectation versus Estimation The difference between Common Sense and Scientific Management

12

Expectation Estimation

Common Sense Technique… Scientific Management


“Two different people will reach very similar conclusions” Scientific Management Principle

13

Common Sense Management Scientific Management

Acquired as result of ordinary business and daily living

Unreflective opinions of ordinary people

Systematic approach to management

Pursued deliberately and systematically

Is Individual

Based on personal experience

Is Universal

Looks at what is applicable across all situations

Process not tested

Each time a different process is applied

Process tested in several contexts and organizations

Results validated

Accept the obvious

“Of course”

Some discoveries are not true

Questions the obvious

“Why?”

Start the search from the common sense answer

Cannot rely on consistent results Yields the same results or very similar results when conducted by

two different people under the same circumstances

Gained through uncontrolled experience Gained through controlled experiment

Vague Precise


Agenda

14

Beginning

The End

12h30

13h15

(45min)

— Context


— Pereira Diamond


— Conclusions

— Questions

(10min)

13h25


Peter Drucker

Efficiency is doing things right.

Effectiveness is doing the right things.


“Value of Something” Value Perception is higher before you get it and after you lose it

16

The value of any asset is measured by the

impact generated by having it or not having it.

Method of Measuring Value through Impact

Value

Perception

Before

getting it When you

have it

After

losing it


“Value of Something” Future Wheel Method

17

The value of things is measured by the

effects generated and not by what they

“are” or “represent”

Future Wheel Method

Increase the portfolio margins

Increase the “word of mouth”

Reduce costs with advertising

Reduce commercial

costs

Increase value to the

shareholders Reduce Funding Costs

Increase the liquidity for

change

More time to develop the

business

Reduce the time-to-market

More time available for the

client

Improve the brand image

Reduce commissions

Projeto

Increase Nº Clients

Increase retention

Reduce internal costs

Reduce “dead” times

Project


TimeBudget Box Define the budget available according to the benefits generated

18

Deadline

Benefits Budget

50%



Benefits Modelling Benefits are turned into the “increase” of something positive or the “reduction” of something negative

19

─ Increase Invoicing

─ Increase Retention

─ Increase Productivity

─ Increase Liquidity

─ Increase Geographical areas + ─ ─ Reduce non-compliance

─ Reduce Waiting times

─ Reduce average time of the processes

─ Reduce Rework

─ Reduce Costs with Suppliers

─ Reduce Infrastructure Costs

─ Operational Costs Reduction

AS IS TO BE


Business Requirement A Business Requirement comes from the need and the related business impact

20

NEED:

Optimize a process with

computer support

BENEFITS:

Reduce time (hours) of employees

Reduce rework

Reduce non-compliance

BUSINESS

REQUIREMENT

BUSINESS

IMPACT

PROJECT

SCOPE = +

Benefit 1

Benefit 2

Benefit 3


Benefits Stages Each benefit requires a “picture” of the current situation, estimate of potential and track of the results

21

AS IS TO BE

REDUCE

MATERIAL

WASTE

REDUCE

REWORK

INCREASE

UP-SELLING

-----------------

-----------------

-----------------

-----------------

-----------------

---------------

-----------------

-----------------

-----------------

-----------------

-----------------

---------------

-----------------

-----------------

-----------------

-----------------

-----------------

---------------

-----------------

-----------------

-----------------

-----------------

-----------------

---------------

-----------------

-----------------

-----------------

-----------------

-----------------

---------------

-----------------

-----------------

-----------------

-----------------

-----------------

---------------

Example:

DATA

COLLECTION EVALUATION

TECHNIQUES

TRACKING

TECHNIQUES


Benefits Parameters Metrics identification to quantify costs and benefits

22

How MUCH is a Work Unit? How MUCH is a client worth?

− Employee cost/hour

(per role)

− Process nº hours

− Wasting hours

− Space Cost per m2

− …

− Client Value per month

(or yearly) of a client (per

segment)

− N.º Complaints

− Portfolio per client

− Churn Rate

− Average time of a client

life cycle

Metrics for the

Intervention:

− Observation

− Simulation

− Gap Analysis

− Risk Assessment

− Performance

Analysis

− Finance Reports

− Compliance

Reports

Techniques for the

Intervention Evaluation:

− Market Studies

− Surveys

− Interviews

− Benchmarking

− Satisfaction

Evaluation

− Corporate Reports

− Prototyping

− …

Techniques for the

Intervention Evaluation:

Metrics for the

Intervention:

WHAT? HOW? HOW? WHAT?

COST

DECREASE

BUSINESS

GROWTH


Pareto Principle Identify the three benefits with the most impact

23

Source: The Chaos Report. The 10 Laws of CHAOS. 2013

Small projects with high organization impact

Techniques to validate the Scope “frontier”:

─ In/Out Scope (contradictory technique)

− Which of the three benefits is affected and by how much, in this case scope

component is not included?

− In case there is no cause-effect relationship with one of three benefits, the

component is out of scope

− Avoid: “by the way”, “it would be useful to..”, “it would be interesting if…” 25

%

40%

35%

15%

5% 3%

1%

Benefits

Tangibles Intangibles


Poll Question 1:

Is there anyone accountable for the

benefits management process in your company?

a) Yes

b) No


Benefits Life Cycle We need to have a benefits perspective from strategic planning through to the project results

25

Benefits Estimation

[Step 2]

Benefits Tracking

[Step 4]

Strategic Planning

[Step 1]

Benefits Leverage

[Step 3]


Agenda

26

Beginning

The End

12h30

13h15

(45min)

— Context


— Pereira Diamond


— Conclusions

— Questions

(10min)

13h25


Benefits Dimensions The four dimensions of value generation: Pereira Diamond (1st Level)

27

Source: Pereira Diamond (Pereira & Teixeira, 2015)

Business

Growth

Legal

Compliance

Costs

Reduction

Efficiency

Increase Stock

Price


Business Growth Leverage business withing four alternatives

28

New Clients

Retention

Cross-selling

Up-selling

Sell more of the same product

to current clients

Increase the price of the

same products

Sell new products to the same

clients

Sell the same product to

different clients within the

current clients portfolio

Increase the lifecycle time of the

current clients (work with the current clients)

Reduction of churn rates (work with the clients who leave the

company)

New products New geographies

Win-back New segments


Costs Reduction and Efficiency Increase Reduce the current impact and avoid a future impact

29

€

Period N Period N+1

Period

Pro

ject

Period

€

Period N Period N+1

Pro

ject

Reduce costs

Avoid Cost Increase

Nº

hour

s

Period N Period N+1

Period

Pro

jet

Nº

hour

s

Period

Period N Period N+1

Pro

ject

Reduce Time

Avoid Time Increase


Benefits Classification The four dimensions of value generation: Pereira Diamond (2nd Level)

Source: Pereira Diamond (Pereira & Teixeira, 2015)


Poll Question 2:

How often do you estimate your initiative’s benefits

in a quantitative way?

a) Never

b) Rarely

c) Very Often

d) Always


Primitive Benefits and Instantiated Benefits The difference between the cause and the effect

32

Primitive Benefit Instantiated Benefit

Increase the process quality Reduce the process rework due to the n.º of errors

Reduce clients dissatisfaction Increase the client lifecycle through a better relationship

Increase employees motivation Reduce the processes time through employees’ s motivation

increase

Cause Effect

Business

Increase

Legal

Compliance

Costs

Reduction

Efficiency

Increase


Benefits Parametric Equations The benefits are measured by the impact generated

UPSELLING

CROSS-

SELLING

INCREASE Nº

NEW CLIENTS

= 5.000 * 30% * (120€ - 80€) * 3 years = 180.000€

= 5.000 * 15% * 100€ * 3 years = 225.000€

+

+

=

TOTAL = 1.020.000€

CLIENTS

RETENTION

= 1.000 * (8% - 4%) * 250€ * 3 anos = 300.000€

= 10.000 * 15% * 70€ * 3 years = 315.000€

Market Share * % Costumer Entry * Product Price * 3 years

Nº Current Clients * % Costumer Entry * (New Price- Current Price) * 3 years

Nº Current Clients * % Costumer Entry * Price of the New Product* 3 years

Nº Clientss * (Current Churn Rate– Future Churn Rate) * Client Value/year* 3 years

+

BUSINESS

REQUIREMENT

BUSINESS

IMPACT

PROJECT

SCOPE = + Benefit 1

Benefit 2

Benefit 3


Benefits Parametric Equations The benefits are measured by the impact generated

REDUCE

HOURS

REDUZIR

REWORK

REDUCE

MATERIAL

WASTE

+

+

=

Nº Units Produced * (% current waste – % new waste) * Product Cost* Nº years

= 100h * 40% * 35€/h * 12 months * 3 years = 50.400€

Nº Hours of the process* % Time Reduction* Cost €/h * Nº anos

= 40h * (20% - 5%) * 35€/h * 12 months * 3 years = 7.560€

Nº Hours of a process* (% Hours in Rework – New %of Rework) * Cost €/h * Nº years

= 500 uni * (10% - 5%) * 100€ * 12 months * 3 years = 90.000€

TOTAL = 147.960€

BUSINESS

REQUIREMENT

BUSINESS

IMPACT

PROJECT

SCOPE = +

Benefit 1

Benefit 2

Benefit 3


Benefits Estimation Estimated benefits must be presented with variance analysis


Cost Estimation Estimated costs must be presented with variance analysis

Total

cost

Source: COCOMO 2, 1995


ROI Sensitivity Sensitivity analysis to economic indicators according to a confidence level

37

ROI %

0%

100%

-50% -25% 25% 50%

Co

nfi

den

ce %

Confidence: 99% 95% 80% 50% 25% 1%

Net Present Value 20k€ 45k€ 80k€ 150k€ 220k€ 300k€

Internal Rate of Return 2.6% 5.4% 8.2% 12.6% 19.3% 27.5%

Benefit Cost Ratio 1.08 1.13 1.23 1.34 1.62 1.75

Return on Investment 8% 13% 23% 34% 62% 75%

Payback Period 30 m 28 m 26 m 22 m 18 m 12 m


Poll Question 3:

Are you aware of your initiative benefits confidence level

when presenting the benefits plan?

a) Yes

b) No


Balancing to decide Benefits vs Investment

39

Business

Growth

Legal

Compliance

Costs

Reduction

Efficiency

Increase


Portfolio Prioritization Sequential analysis for decision-making

40

Quit Go Ahead

1. Qualitative

Analysis

2. Quantitative

Analysis

3. ROI Analysis

Portfolio Prioritization

Projeto 3

Project 2

Project 1

4. Decision-Making

Legal Compliance

Increase Revenue Reduce costs

Increase efficiency


Traditional Budgeting vs Zero-Based Budgeting The relevance of justifying each monetary unit for budgeting approval

Sources:

Wetherbe, James C “ A general purpose strategic planning methodology for the computing effort in higher education: development, implementation and evaluation “, unpublishded

Ph.Dissertation Texas Tech. University 1976.

Wetherbe, J; Montanari, J: “ Zero Based Budgeting in the planning process” - Strategic Management Journal , Vol. 2. 1-14 (1981)

Traditional Incremental Budgeting Zero-based Budgeting

Budget changes only occur to increase the current

amount (positive variations)

Justification is based on the amount incremented

The entire budget is thoroughly reviewed with a clear

justification of the costs estimated for each project

[zero-budget principle]

It does not consider the historic records.

Every cost unit is subject to approval


Business Life Cycle From strategic plan to operational results

43

HIGH PERFORMANCE TEAMS

GOVERNANCE, RISK & COMPLIANCE STRUCTURE &

PROCESSES

PEOPLE &

CULTURE

Business Cases Requirements & Project Management Benefits tracking

Grow the Business Run the Business Change the Business

Strategic Plan

Vision, Mission

Goals

Benefits &

Performance Projects

Portfolio



Agenda

44

Beginning

The End

12h30

13h15

(45min)

— Context


— Pereira Diamond


— Conclusions

— Questions

(10min)

13h25


Scientific Business Case Hypothesis Validation through the appropriate Business Research Methods

THEN IF

Two different teams will reach the same conclusions about ROI of a specific project.

Effect

Business

Growth

Legal

Compliance

Costs

Reduction

Efficiency

Increase Stock

price

Benefit 1

Benefit 2

Benefit 3

Initiative

“What is intended to do”

Cause

Hypothesis

Yes? / No? How Much?

Business Research Methods

(…)

- Regression

Analysis

- …

Historical Experience Interrogative

- Control

Group

- …

- Survey

- …


Business Case Canvas Template Example: critical information for the decision-making GO/NO-GO

Cost € [95% confidence level] Benefits € [95% confidence level]

Solution Economics

Problem Business

Drivers

Strategic Align

Customers’

loyalty

increase

Business Increase:

3,208,013 Cost Reduction:

3,609,015

Campaign from our

competitors with

high price reduction

(50%)

New offer: Service

package with more

functionalities at a

slightly higher price

OPEX:

415,104

CAPEX:

799,720

Leader in the

quadruple play

market

NPV (k €): 7,633

ROI (%): 870.7

ERR (%): 135.2

Payback w/ interest

(months): 3.7

Increase of

presence of

our services in

the client

Decrease

operational

costs

Strengths Weaknesses

Opportunities Threats

High Return on

Investment

Expertise of our

commercials

Failures in

our Internet

Services

High demand on

Internet + Mobile

Phone services

A downturn in

economy and

less spending

budget of

people

1st place in

customers

satisfaction rank


Agenda

47

Beginning

The End

12h30

13h15

(45min)

— Context


— Pereira Diamond


— Conclusions

— Questions

(10min)

13h25


Conclusions Pereira Diamond within the Business Case Process

Based on the business case good practice, the overall business case steps and benefits mindset may be synthesized on the following steps:

1. Listen to the

market

2. Listen to your

company

3. Start the process with a

benefit in mind 4. Budget is only a means to

achieve the benefit

5. Uncertainty is a fact and

needs to be estimated

6. Two different people must

achieve the same results


Leandro Pereira

The biggest problem for an organization is …

its assumptions!


Agenda

50

Beginning

The End

12h30

13h15

(45min)

— Context


— Pereira Diamond


— Conclusions

— Questions

(10min)

13h25

Thank you! Any questions?

Contacts:

[email protected]

[email protected]

#apmbmsummit

APM Benefits Summit 2015

Save the date! Thursday 25th June 2015



Visualising the relationship between projects and benefits Wednesday 24th June –workshop [pm] [Note: Also at Milton Keynes on 23 June]

#apmbmsummit

[email protected]

[email protected]

@apmbmsig I #apmbmsummit

mailto:[email protected]

mailto:[email protected]


Leandro Pereira Ph.D, PMP, ROI

53

CEO of Winning Management Consulting Associate Professor at ISCTE Business School Director of Executive Master in Program and Project Management at INDEG President and Founder of PMI Portugal Chapter PhD in Project Management Certified by DEA in Knowledge Management PMP Certification of PMI Certified in ROI Professional Mobile: +351 91 599 10 20 email: [email protected]

Background

Leandro Pereira is the CEO and founder of Winning Management Consulting. With over 14 years of working experience in functions of executive management in management consultancy organizations. Having a degree in Information Management from Escola de Engenharia da Universidade do Minho, with a GPA of 18/20, he obtained the distinction of Best Student of Universidade do Minho. Later, he took a PhD in Project Management at the prestigious Universidade Pontifícia de Salamanca, where conducted a pioneering project in the project recue area. Regarding the PhD program, he has received from the faculty an award for developing the investigation with highest final grade. At ISCTE, Leandro Pereira is the Director of Executive Master in Program and Project Management as well as Guest Associate Professor in the Strategic Management, Business Project and Project Management, being the advisor of several PhD and Master’s theses in the same areas. He detains the Project Management Professional (PMP®) Certification from PMI® and ROI Professional Certification from ROI Institute. Throughout his professional experience, he was responsible for the conceptualization, design and implementation of management solutions not only at organizational level but also at technical level, including conceptualization and design of organizational units – PMO’s in several companies within Banking, Pharmaceutical, Utilities, Services, Infrastructures and Civil Engineering sectors. As instructor, he detains the CAP and has wide experience in this area which goes from the conceptualization of advanced courses in Business Cases, Business Analysis, Project Management and Cost Management to the preparation of numerous applicants for PMP® and CBAP® in Portugal. Moreover, Leandro Pereira is the Director and Founder of PMI Portugal Chapter. Author of several articles in management magazines (RH Magazine, Pessoal, Dirigir), he recently published a book called “Gestão de Conhecimento em Projetos” from FCA. During his professional and academic path, he received many distinctions, being The Best Professor of Executive Master in Project Management at ISCTE and 8 Merit Awards with highlight on Prémio Senado Universitário, for being the best student at Universidade do Minho and Prémio Governo Civil de Braga, for being the student with highest final GPA in the entire university. Besides, he was awarded with the diploma supplement to the degree developed by UNESCO. Before the admission in the higher education, in 1994, he received the Prémio de Distinção Nacional: "Juventude e Defesa Nacional", awarded by Ministério da Defesa.


Cláudia Teixeira

54

Manager at Winning Management Consulting Degree on Business Management & Administration (Catholic University) Master Student at ISCTE Business School (Thesis on Benefits Management) Mobile: +351 91 474 05 58 email: [email protected]

Background

Cláudia Teixeira is a business case consultant specialist at Winning Management Consulting responsible for projects from different sectors such as banking, insurance, IT and telecommunications. Cláudia trains others in benefits management and business case topics and is currently undertaking a Master degree at ISCTE-IUL Business School specializing in benefits management. Her dissertation thesis aims to identify business case gaps in organisations and make recommendations based on worldwide good practice. She has also a foreign professional experience in UK (London) for two years and a half where she worked in the hotel management sector in several roles such as Guest Relations, Revenue Management & Pricing Strategies and Sales & Events. Cláudia is also an author of several articles in business magazines and international journals such as the Executive Digest Magazine and the International Journal of Business & Management