Making a business case - score carding business benefits

By John Flynn

 

In the first part of this article we talked about how project managers are increasingly responsible for the business case of their project. 
We saw how contradictory many of the expectations of our stakeholders can be, and how hard it is to determine priorities between what are often irreconcilable objectives.

In many cases the critical business drivers of our project are either relatively intangible or else extremely difficult to measure. 
For example, consider the following set of objectives for an IT project:

• Staff reduction
• Lower assets
• More sales
• Better information
• Faster information
• Positive staff reaction
• Market reaction
• Access to new staff

 

All of these objectives are quite reasonable "asks" from a senior executive, and often will be clearly implied in the requirements gathering phase of the project.  However, since they are hard to track and may also be hard to measure upon completion, we often give them second priority behind achieving our time deadlines and budget constraints.

As a result, the naive project manager yet again delivers perfect technical result without satisfying the real objectives of the business case.

We need to recognise there are a number of factors influencing the choice of our project:

• Qualitative factors (eg, equipment replacement and obsolescence or legal compliance factors such as privacy or tax laws)
• Economic factors (Return on Investment)
• Scoring models (combining both)

Whether they consciously acknowledge it in a formal process or just do it based upon experience, most senior managers will use a "scoring" approach.  That is, they will weigh up a number of factors including financial return an attempt to optimise a decision by balancing the factors against each other.

For example, at its crudest, no executive conscious of his/her due diligence requirements would go mindlessly into a new investment without considering the risk factors.  Given two investments with the same rate of return, it is common sense to choose the less risky.

This intuitive or "gut feel" approach is almost universal.  However, most don't realise that this can be formalised relatively easily by giving a set of scores to project alternatives and attempting to weight them against the required factors.

For example, with a bit of discussion your sponsor may acknowledge that he/she places about twice the weight on risk factors as on financial return.  If we can then rate or prioritise two projects against risk we could then develop an overall weighted average between the risk ratings and financial return.

Such a weighting system is called a balanced scorecard, named after the famous business evaluation methods developed at Harvard Business School.  The most practical weighting systems follow a KISS principle by keeping the selection factors to a minimum, and making sure the weighting factors are reasonably simple to understand and apply.To use a simple example, let's assume two projects provide a financial return of 10 million and 20 million respectively.

 We could therefore rate their financial scores as 5/10 and 10/10, if we were to use a simple rating scale from 1 to 10.

 If the first project also had only five major risks, whereas the second project had 20, you might create a system that gave the first a relatively low risk score (eg 1) versus the second project which would rate much higher on the risk score (eg, 4).  Of course, it might be sensible to turn the risk score around so that the riskier project rates low and the safer project rates high, eg, rates 4 versus project 2 rating 1.

You could then develop a very simple scoring system where the weighted score for a project equals (financial score + 2 x risk score) or:
   Project 1 = 5 + 8 = 13
   Project 2 = 10 + 2 = 12.

By a nose, project 1 would work out better than project 2!

Without getting very mathematical, such weighting systems are widely used to evaluate alternative projects, and offer a major advantage in that changing priorities can be quickly incorporated into decision-making in project selection. 

While your executives may not consciously use such methods, the process is simply documenting their intuitive weighing up the factors, and provided a more professional repeatable process to the organisation.

Even when organisations don’t do this in a formal way, you can apply the same idea to evaluating the relative importance of some of the business objectives.  Try discussing those objectives with your sponsor - if their priorities are clear try to convert their opinions into a simple weighting.  It will help you assess the overall importance of those ambiguous objectives and ensure you maximise stakeholder satisfaction to If you are curious about this and would like to read more, try a simple Google using the phrase "project selection balanced scorecard".

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