This article was originally published on APM International.
Safe brakes are worth a month of beans on toast
Katie told me she’d been worried about her car, so she took it to the garage. The problem turned out to be the brakes, but the mechanic also mentioned her tyres were going to need replacing soon. “The brakes needed doing immediately, but the tyres I could defer until the MOT in the autumn. I realised afterwards, I’d basically done a cost benefit analysis and decided not getting killed was worth the unexpected expense!”
As we chatted I realised she’d also, without realising it, thought about her benefit risks. Traditional risk management focuses on, for example, risk to schedule, costs or reputation. I see very few risk matrices which consider impact on benefits, but, whether it’s getting our car repaired or doing up a kitchen, we all subconsciously think this way.
Benefits are the point of investments
If I’m being blunt, I don’t care that a piece of kit is going to be rolled out three months late. I care that the change relying on that bit of kit can’t happen, so I’m losing three months of benefits. Cost overrun? That’s the ‘price’ of my benefits and lowers my return on investment (in addition to the other impacts: Katie will be eating beans on toast this month to pay for those brake pads).
Teams should consider the impact on benefits
Let’s look at this using a basic risk matrix you might find in any organisation. Impact is scored from, say, one to five, with one being minor and five being disaster. I often see, for example, a three month overrun as being a four, i.e. very serious. But what if that overrun isn’t on my critical path, or what if the benefits which rely on it are not worth much, compared to the rest of the initiative? Is it really that important?
Impact scores have implications for those who manage the fallout, if the risk event occurs. I’m not too worried about something which the business change manager can handle alone, but something which could change the balance of the portfolio is damn important!
So, here’s my suggestion for a basic impact matrix for benefits. The scoring doesn’t work for infrastructure (which will always have a negative ROI) and doesn’t consider non-monetised benefits. However, it’s a starting point and indicative of a mindset, which can be extended to infrastructure and non-monetised benefits by at least adopting this as a way of thinking (that’s a whole other blog!).
Looking at it from our benefit perspective, our three month schedule delay might just affect one minor benefit: we can live with it in the grand scheme of things. However, what if all the important benefits are reliant on it? Suddenly it might score significantly higher and require a totally different level of interest and management by the programme. This is a much more nuanced approach.
Tolerances can be a blunt instrument
ROI is not just about how much you’re left with at the end. There’s also the break-even point to consider.
This is where tolerances are important and, in my experience, are underused. Yes, I need limits on how much variation I can accept, and these indicate the levels of escalation (local, programme, portfolio). However, I might also need to set a tolerance on the break-even point. How long can I wait to make my money back?
There are two things going on here. First, while the money is tied up in this initiative, it can’t be used for something else. This is the opportunity cost: if Katie pays for new brake pads, she can’t also spend the money on a night out.
Secondly, as Keane sings, “everybody’s changing, and I don’t know why”. Nothing is static: organisations operate in a kaleidoscopic environment. At some point, the aim of your current investment might be rendered irrelevant as a result of shifting priorities. If you haven’t broken-even by the time your programme becomes moribund you’ve lost that money entirely: it cannot now be invested in the new priority.
Your mission, should you choose to accept it…
For some, this may be a new way of thinking about risk and benefits and there is much to explore.
I challenge you: revisit your risk register and reframe every risk in it to take account of the impact on benefits (and ultimately therefore ROI). If the benefit is going to be delayed, reduced or cost more to achieve, this is a vital focus for risk mitigation. Mission possible is not just limiting it to concentration on fixed percentage variations from budgets, timescales and so on. Mission possible is to bring benefits thinking into risk management.