Value Management

  • Value Based Portfolio Management

    The Value Based Portfolio Management goes definitely beyond the traditional management of project portfolios as it adds additional process steps even after a certain project has already ended.

    The difference to the usual evaluation methods is that the value of a project respectively its deliverables is measured at four different stages in the project product life cycle. The rationale for this approach is that any changes in the value of a project has an impact on the overall value of the portfolio. Nobody would measure an ivestment portfolio only at the beginning and then never again. Only the realized benefit is real the benefit.

    benefitmanagement kpi chart

    Benefit Identified (BI)

    The first point in time is when a project request is submitted in the indentification process. Not only the scope, adherence to the portfolio strategy and costs are requested but also the benefit in terms of NPV or ROI. This is the starting point of the benefit tracking, however the project request is not yet short listed and the NPV only estimated on high level.

    Benefit Planned (BP)at Project Start

    Once the project was short listed and comes now to Authorization the benefit needs to be verified again and included in the Business Case of the project candidate. Like the costs the benefit was a rough estimation in the intake phase but still should be in the range of -50% - +100%. When the benefit is smaller or higher the root cause for the deviation should be investigated to hopefully avoid such bad estimations in future.

    The Benefit Planned Variance is calculated as the difference between the identified (BI) and the planned (BP) benefit.

    bpv formula

    The Benefit Planned Performance Index (BPPI) indicates the accuracy of the initial benefit calculation or estimation. 

    bppi formula

    As mentioned in the beginning the value should here be -50% to +100%. If not the root causes for the weak estimation should be evaluated and included in Lessons Learnt to improve the project requests in the future.

    Benefit Delivered (BD) at Project End

    The third point in time to measure the benefit is when the project deliverables are handed over to production. This is also the last measurement in the project life and the benchmark for using the project deliverables.

    Similar to the first KPI the absolute and relative variation is calculated as

    bdv formula

    and

    bdpi formula

    The variation should now - similar the cost estimations not be greater than +/- 10%. If the relative value is larger than this threshold then something fundamental went wrong and a Lessons Learnt session should be performed to identify the reasons and what can be done better in the future. 

    The delivered value is the benchmark for the utilization of the project deliverables and hence an important figure. 

    Benefit Realized (BR) one year after project deliverables hand-over

    A special benefit measure point in time is the verfication of the project deliverables after the project has been completed (e.g. one year after). This is when the realized benefit is measured to demonstrate if the project was worth the effort.  Of course at this point there is nothing to change from a project management perspective anymore and you can't go back an un-do the decision to execute the project for example. But the organization can still learn to improve. The reasons for not generating the expected value can be identified and incorporated for the next project cycle. 

    The realized benefit is compared to the delivered one

    brv formula

    or respectively

     

    brpi formula

    Overall the portfolio benefit perfomance can be measured by taking the indentified - at the beginning - and the realized benfefit - at the end - in account.

    pbpi formula

    This is a very good indicator how maturized the portfolio management in the organization is. A value that is close to 0% indicates that the benefit planning is very well integrated in the processes and estimations are very realistic. If the overall performance is below or above 25% then there is still some work to do. For example if the performance index shows over multiple periods a value of -30% then you should start considering to cut right away 30% of the identified benefit. These statistical values are very important to drive the portfolio accurancy.