I’ve worked in many businesses, and only two of them had what I would have judged to be a proper grip on change projects. In the other ones, senior Finance people would sometimes talk disparagingly about certain projects, and almost ‘tut’ with disapproval in seeing projects underdelivering and overrunning on time and costs.
I never had much time for that kind of ‘standing-on-the-side-lines’ mentality. It’s always struck me that there’s so much we can do in Finance to help projects succeed, rather than standing watching them crash and burn, as if it’s some sort of sport.
So, here are seven observations – things that I think Finance can easily improve that will give change projects in our businesses more of a fighting chance.
No 1 – Appreciating the Importance of Projects
First of all, I don’t always get the impression that Finance business partners really appreciate the importance of change projects. They’re seen more as an intrusion on their busy BAU schedule, something to deal with as and when they have time. But normally, Finance people have got month end reporting to do, commentaries to write, meetings to attend and questions to answer. Projects get what’s left of our time.
But that undervalues the importance of projects. Businesses don’t do projects for any other reason than to improve the performance of the business. And projects are a major part of executing the strategies of the business.
So, surely, if our role in Finance is to drive business performance, we should be doing everything we can to make sure, a) that the business is doing the right projects, and b) that agreed projects do in fact improve performance and add value.
No 2 – Having Standard Business Cases
A lot of businesses I’ve worked with simply don’t have a standard business case template. What does a project manager do then? They just do the best they can. They don’t tell the sponsor that something more robust is necessary, because the sponsor is impatient and just wants the bare minimum done so that the project can start. (This is generalising of course, but I’ve seen this so much that you couldn’t persuade me that it doesn’t happen!)
That sometimes results in one of my pet hates – business cases presented on less than 10 Powerpoint slides. The approval process then reduces to a nod of agreement in a meeting in which the Exec had 5 minutes to think about it. ‘Horses for courses’ – when you want to get across a points in a meeting or training session, use Powerpoint. When you want to describe, discuss and cover all bases, do a proper document (in MS Word or something).
But what has that got to do with Finance? Surely business case templates are the responsibility of the area that looks after the project portfolio? In many places that’s the IT department (something else that I don’t necessarily agree with), although some have a portfolio management team within a Strategy function. I’ve certainly heard it said that business cases aren’t a Finance responsibility.
But there’s something you need to know about project discipline. Many project management functions (IT or wherever) will say, “we use PRINCE2 as standard” (or something similar), to make you believe that they’re using an accepted project management methodology. What I discovered when I actually studied PRINCE2, and became a PRINCE2 Practitioner, myself, is that many are merely paying lip service to PRINCE2.
PRINCE2, as a full project management methodology, puts major emphasis on business cases. Here’s a quote from the 2009 PRINCE2 manual:
“The Project Board and stakeholders must have confidence at all times that the project remains viable. In PRINCE2, the Business Case provides the vital test of the viability of the project. It provides the answer to the question: Is the investment in this project still worthwhile?
“Since this viability question is ongoing, the Business Case is not static. It should not be used only to gain initial funding for a project, but should be actively maintained throughout the life of the project and be continually updated with current information on costs, risks and benefits.”
The reason this is important to Finance is that viability is a core question for us. It is the question. In Finance, we are the guardians of business performance. It’s our responsibility to guide the business into good decisions, from a performance point of view. And if projects are not viable, then they will damage business performance.
So, if the project management function (in IT or elsewhere) does not have a robust, and strictly used, template, then Finance has a strong vested interest in getting one in place.
No 3 – Challenging in Detail
Another thing that we’re not very good at is pressing on the detail. In my experience this does add value, even though it can be annoying to the sponsor and project manager.
Lack of thorough thinking about the project results in costs crawling out of the woodwork and benefits that fail to materialise.
First, I was involved in a big project to implement a system. The business case (which was signed off and forgotten about on 5 powerpoint slides at the start of the project – no I’m not exaggerating) contained a line to the effect that system support wasn’t costed in because the IT department thought they could do it. 18 months later when the system was close to implementation it was decided that a 3rd party support contract was needed, with an annual cost that would have made the business case marginal. Where was the commercial challenge from Finance in the business case review?
Second, a business case was given to me for review for a software module that would automate a process. However, it was an expensive SAP solution. There would definitely be cost savings. But the size of those cost savings, after a couple of rounds of review, was not even enough to pay for the annual maintenance on the licences. In that case, I was able to say no. I’m not sure they were entirely thrilled, but the option they eventually found was for an IT developer to build a couple of Excel macros. That actually got exactly the same benefits for less than 10% of the cost.
I’m not naïve. I know that some things are not possible to predict in detail before the start of a project. But there are two things available to allow for that. But most projects skip them, and pay the price…
- Risk and sensitivity analysis – if I had £1 for every business case that doesn’t have this…! All this is doing is acknowledging that we don’t know everything. Risk analysis lays out things that may make the project non-viable (like that we haven’t done detailed design yet, so there may be additional costs we haven’t thought of). Sensitivity analysis is basically looking at it the other way round – asking what would have to happen to make the project non-viable: how much increase in cost or reduction in benefits, etc.
- Stage gate reviews – according to PRINCE2, projects are supposed to be managed by stages, and before each of those stages the business case is reviewed and represented for approval by the project board. I have never seen that happen in practice, and it’s the cause of a lot of wastage. The project board is perfectly entitled to acknowledge the uncertainties in the early business case, and request a stage gate review at a sensible point when more details are known. Funding should only be signed off up to the next stage review.
The last thing I want to say under this heading is to restate that projects are done to deliver benefits. If the benefits are not actually delivered, it doesn’t matter that the project is on time and under budget. But too many projects don’t put enough effort into planning for the realisation of benefits. Best practice is to have measurable objectives for each of the benefits, and for the benefit owners (those who will actually have to deliver them) to explicitly sign off to say they agree. The implication of that is that you have to get a clear, detailed, view of what the proposed change involves and how those changes ensure the benefits you want.
No 4 – Standing Ground
Another thing Finance business partners are not good enough at is standing their ground. As Anders Liu-Lindberg often says, the business has to trust both your ‘yes’ and your ‘no’.
Here’s the deal – if you believe what you’ve learned in your accountancy and management studies, a negative net present value is bad. If a project has a negative NPV, that is saying that doing it will destroy value. We should never allow a negative NPV project to be approved, without explicitly accepting that “soft” benefits that make that ok (and making an attempt to harden them).
Standing firm on that is critical if you’re to do a value-adding business case review. Senior Finance managers and Finance Directors have to set an example, and support the Finance business partners doing the reviews. I well remember being given a hard time by one of my Finance Directors, for bringing him a business case for approval with a negative NPV after pressure from a sponsor who “really needs this approved asap”. I learned a lesson, and it wasn’t nice at the time, but actually he was supporting me. That empowered me to stand my ground when reviewing project business cases.
Now, of course, with every ‘no’ should come an explanation that helps your business management colleagues to understand why their proposal won’t fly. And if you can pinpoint where the gaps are, and offer help to investigate and talk to people to address those, then you’ll demonstrate even more powerfully your desire to add value.
No 5 – Better Budgeting
If you’ve read some of my other articles, you will know that I’m not a great fan of traditional budgeting. There are many reasons for that, but one of key problems is that budgeting focuses on financial accounting periods.
In other words, we normally set a budget for a financial year and then measure against that.
Projects are problematic for traditional budgeting. There are a couple of main reasons for that. Firstly, anything other than small projects won’t fit within a single financial year. Secondly, when you put the annual budget together, you don’t always know exactly what projects you are going to be kicking off in 16-18 months time.
This often causes some weird behaviour. Projects that have been approved according to good business cases often still feel constrained by the corporate budget. So, if the spending profile turns out to be slower than expected, project managers fear “losing the budget” if the project spills into the following financial year. That, in turn, leads to over accruing costs, refusing to forecast spend realistically, and attempting to capitalise costs incorrectly.
The performance of projects should not be measured on the basis of a cost centre financial year budget variance analysis. And we should not withdraw funds from approved projects on the basis of underspending against a cost centre financial year budget.
If a project is worth doing, it is worth doing whatever the timing may be in relation to a financial year. So, you need to give project managers and project boards the freedom to deliver projects without financial year constraints. Find some way of allocating resources to projects, and managing costs, with more reference to business cases (rather than budgets) and with more flexibility.
No 6 – Engagement in Project Direction
Given what we’ve seen above about non-viable projects destroying business value, Finance should be able (and willing) to stop projects that become non-viable at any point. This takes guts, and I’ve only seen it done once (2 years too late), but I’m convinced that the possibility needs to be taken more seriously.
That means that Finance must have a seat on project boards, with a representative who has some influence and authority in contributing to those decisions. As a minimum, the Finance representative should ensure that viability and business case review is looked at regularly, and kept in mind.
No 7 – Setting an Example
Finally, Finance sometimes doesn’t set a good example with its own projects.
If we’re going to ask the business to be rigorous in ensuring that project proposals are robust, then we ought to ensure that our own house is in order. Are we upgrading, automating, outsourcing, offshoring? We should not cut corners in developing the business case.
Not only will this increase our credibility by proving we play by the same rules, it will give us insight into the real hard work and thinking that goes into project management.
So, there are seven things you can consider in Finance that can help your colleagues involved in business change projects.
Just one final plug – I’m giving away free business case templates for anyone who registers here. Just click the link and fill in the form. http://superchargedfinance.com/business-case-template