Like the old commercial, most organizations do not know if they have made “good” investments. This means that project sponsors are rarely held accountable for the delivery of the value that is cited in the business case for investment. Primarily, most organizations don’t have visibility into their ability to execute, or the areas in which they can improve execution. Additionally, it’s very difficult to grow the critical decision and execution skills of the organization’s leadership without data that can be used to highlight quality decisions, or inversely that harm value. Ultimately, we want to make sure that the organization avoids undertaking initiatives that erode shareholder value.
The Top 3 Causes of Projects that Destroy Shareholder Value
Business Case Construction
- The excuse that some costs or value drivers can’t be measured or tracked
- Lack of scenario analysis to determine sources of risk and value in the project
- Speed of execution over reasonable analysis
- Misalignment to organizational strategy
- Discount rates that do not align with the riskiness of the project
- Perfunctory analysis of alternatives
- Lack of critical review of the business case
Poor Decision Quality
- Poor assumptions that aren’t challenged by peers
- Limited involvement by affected stakeholders through the lifespan of projects
- Lack of rigor in the decision analysis leading to insufficient generation of alternatives
- Faulty logic
- Bad data or lack of key information
- Fear of challenging status quo
- Lack of project management capabilities within organization
- Insufficient resources assigned to the project
- Poorly defined project scope
- Disengaged or nonexistent project sponsorship
- Passive risk management – identifying a risk is not the same as managing a risk
- Limited adoption of change due to inadequate behavioral change management
- No tracking of realized value once the project is implemented to help the organization learn where assumptions should be modified and what areas of execution need to be improved
What is the Solution?
None of the factors covered above are terribly surprising, yet they still destroy value on a regular basis. So how can you work actively to ensure the factors above don’t trounce your next important initiative? This is where the holistic concept of value assurance can play a key role. Value assurance encompasses a set of processes and tools occurring over the lifetime of organizational initiatives. The specific goal of these activities is to make sure a given program/project aligns with organizational priorities, shows a positive NPV, is executed competently, and is reviewed to understand if the intended value is delivered. Essentially, value assurance asks:
- Are we doing the right things?
- Are we doing things right?
- Are we positioned to ensure success?
A key component of value assurance is setting up a clear value tracking process for initiatives. This process takes the specific benefits and costs outlined within the business case and tracks whether the initiative is delivering the benefits within the expected cost profile. The process allows the leadership to make informed decisions on the initiative throughout its lifespan. Additionally, the leadership, and teams, responsible for the creation and execution of the initiative can then be held accountable for the results of the initiative.
The specific quantitative lessons learned from the tracking process are key drivers of behavior that can curtail value destroying projects. Teams proposing initiatives know that the “case” they make for justifying investment will be real and not just an exercise used to pass the funding hurdle. The organization will learn where it needs to improve its ability assess benefits, costs, or risks inherent in an initiative. This will lead to better decision quality and hopefully, reduction in risk within projects. The organization will have an idea of the speed of adoption for certain initiatives as revealed by the accumulation of benefits, or reduction of costs. Finally, the organization will have hard data to determine which groups are getting the most out of their projects. These groups can then be asked to help the overall organization by sharing their processes for ensuring value is created by their initiatives.
Too often, the wrong initiatives are pushed to the forefront for execution because the advocate has the largest voice, or the most political capital. Value assurance can help to make sure we aren’t focused on just the hat, but pay attention to the actual cattle.