"Slap my Forehead" Part 2: Moving the cloud from the mountain!

So in Part 1, I slightly dramatically layed out the position that many companies find themsleves at this point in the financial year / planning process ie a disconnect between the amount entered pragmatically into the annual plan for change initiatives and the real (greater) expectation of the combined business units.


In the past I have referred to this as the cloudy mountain scenario.

Imagine this. Senior management are at the top of the mountain in clear skies and bright sunshine. They can see for miles and have the vision of where they want to go. They genuinely endeavour to share this vision, from their perspective. In contrast most of their staff are on the lower slopes of the mountain, below the cloud level, carrying heavy loads, up through wooded slopes with no clear paths, trying to reach the top and satisfy the vision. Around the middle of the mountain is a layer of thick cloud that impedes communication and prevents anyone from knowing if any of the paths from the lower slope will reach the top.


In practice we need to remove the cloud and clarify the paths even if they are still complicated.

Does this sound at all familiar? Does it work as a metaphor?


So what can we do about this? I would like to give three real approaches to at least fitting a portfolio with a budget, mixing pragmatism and a little idealism. The best is possibly left to last so please do read it all.


BENEFIT REALISATION MANAGEMENT
The first, and maybe idealistic, way is Benefit Realisation Management (BRM). This is effectively a top down approach that looks to articulate and link a clear understanding of what needs to be done to sustain and develop the business and the components of the optimum portfolio of change required to deliver the required benefits.


Essentially this looks to four aspects:-

• The business OBJECTIVE(s)
• The BENEFIT(s) required to achieve the objective(s)
• The CHANGE(s) that will deliver the benefit(s); and
• The ENABLER(s) that support the change(s)

I don't plan to go into this in detail, but would refer you to one of the definitive texts called "Benefit Realisation Management" by Gerald Bradley. Heavily promoted by the UK Office of Government Commerce (OGC) and mandated for public sector change this has some intellectual rigour and even if you can't use all of it, some of it will help.


In my experience the failing of this approach in the financial sector is that there is insufficent clarity and/or articulation of high level strategy combined with an incredible impatience for quick answers. There are also too many personal agendas that are looking for a particular answer. This approach tends to expose these and subject "sponsors" to deeper scrutiny and expose flaws in management thinking. No bad thing you might say, but still rare and often unwelcome in many organisations.


I do know of one Bank that claims to use it, but they are in the vanguard.


Overall it is usually the time factor (ie not enough time to do it) that usually defeats this, along with the cost (it does takes some effort to do this well) in a financially challenged world.


Portfolio Triage
The second more pragmatic way is to operate an element of change triage. This is needed as Pareto's principle affects this as many other aspects of life.

In relation to planning change portfolios, Pareto's Principle (or the 80/20 rule) means that something like 80% of the information regarding a proposed change or project is held in 20% of the data, taking 20% of the effort and time to collect and collate. These are the big ticket items like estimated dates, sponsorship, deliverables, major risks, etc. The last 20% of the information (in term of value to understanding the project) would take 80% of the effort and time to gather. 

It is this last 20% that is required if we are to use mechanical tools properly(?) to rank and prioritise or indeed to build optimum portfolios using efficient investment frontiers (see note at the end). This does however miss much of the point that projects and change are new endeavours, with considerable uncertainty and a good share of unknowns. In striving to supply this detailed information (and get one's pet project selected), a false sense of certainty is often created.

So, back to the triage

In this we create a long list of possible change/projects and a call together a sensible group of people who can reasonably look across the business. Every company has them, the trick is to find, engage and empower them. The first act of this group is to split the proposals into three groups.

Group 1 - This comprises changes that are "must do". By this I don't mean that someone has shouted loudly, but rather those mandated by law or regulation or genuinely required to keep the enterprise going (ie failure to address at this point would most likely lead to a catastrophic failure). This last set includes absolute demands from major clients or repair of business infrastructure (including the control environment).

Group 3 - Yes I know, wait for it - These are highly speculative, wish-list types ideas. These probably lack strong sponsorship, credible supporting information or even any strength of vision. This can include those that seem excessively risky or improbably complicated.

Group 2 - These are the projects you would like to do as they are considered achievable and likely to bring significant benefit to the organisation.

Be brutal, be tough. Entry into Groups 1 and 2 must really be merited.

I suggest that some socialisation of these three groups outside the main team is worthwhile to check validity. Remember these are just lists and we are human, we can make changes as we go along if we recognise we have made a mistake.

When you are reasonably happy with the groups, do a sanity check. Total up the indicative investment required for the "must do" changes and see how that fits with your financial appetite? If it is already more than you wish to spend then one can pretty much disregard even Group 2. The focus then must be to review and reduce the "must do" list, challenge and reduce the cost to implement the changes and/or seeks additional funding.

Next assuming, one has some investment £ or $ left after the "must do"s one can look at Group 2. For this I suggest setting a small team to order that list in a way that makes sense. This will be different by company and indeed by year, but broadly will be about supporting the company's strategy direction. This will probably require the collection of additional data, but at least one is looking at a smaller set and not wasting effort on no-brainers and no-hopers.

I would counsel here against false precision and any sense of spurious accuracy. Just because a spreadsheet can calculate costs to pennies and cents, does not make that useful. Projects, particular at planning stage, are rife with uncertainty. The margin of error can easily be plus/minus 10% or 20% - maybe more. So if one is looking at a project circa £500k, the nearest one needs to estimate is probably £10k. So why do so many project lists report estimates down to the nearest £1 or £10?

The answer is because they can; spreadsheets make it easy and the detail oriented amongst us, often the financial planners, find comfort in that sense of accuracy, no matter how spurious it is.

I was around and used the first IBM PC XT in London back in 1980. The spreadsheet was pretty new then and the king was Visicalc - 64 columns by 256 rows if I recall correctly. It was fascinating how just putting the numbers on a spreadsheet and printing them neatly, immediately gave credibility to what had previously been "back of an envelope" calculations. This is still true today, but so many have only lived with spreadsheets that they don't realise it.

OK, back to the plot. Once you have ordered the Group 2 list draw a line, literally below the last project you could afford, given the budget you have. And now reconvene your group of wise men and women.

With the list, get the group to undertake a brief sanity check, moving any projects that are considered significantly out of order - no tinkering, just major corrections. Recast the cut of line and now focus on the few (say 5 or so) projects either side of the cut off. This is where your effort should go and where the fine tuning will happen. If a project is well above the line at this point it doesn't matter how far above the line, just that it is there; the same for below the line.

This may well be much more delphic in its execution, but supported with the data you have from planning and a knowledge of the business.

I will throw another consideration into the ring, one that has perpetually frustrated financial planners. That is that the list of projects you end up with "above the line" does not need to total the figure that goes into the finances. Yes, I know that the accountants like a sub-ledger with a set of detail that exactly matches a total and I have had to operate within such a regime in the past. The uncertainty surrounding change, means that in this instance a list that is plus/minus 10% of the budget is certainly workable, assuming one manages the commissioning of change and the emergence of new requirements as the year progresses.

So with your list and its line, perform a sanity check once more, to see what is still below the line, yet should be above. If there is anything, try and fit it in, if not at least highlight this with the relevant governing body.

Lastly, if you, have any investment appetite left, look at Group 3 and use your wise group to cherry pick from it. Avoid the wasted effort of trying to re-evaluate and prioritise every idea, instead focus on the ones with most informed support.

From this you will have a working change portfolio that can be exposed to the wider business with reasonable confidence that if there are more alterations they will be either minor tinkering or so unexpected that no one could see them coming. That is the best you can do.

The Best Bit

Now this is the best bit. Spreadsheets make it far too easy to have a negative number, to project overspending without anyone feeling the necessary pain. The neat trick is to make the issue material.

This was brought home to me a few years ago when the budget for a major programme was cut by 65%, yet the expectation for full benefit delivery remained. As Programme Manager I tried everything to establish a revised, yet reduced plan and set of change. The Sponsors held on to their expectations. The business and workstream leaders could/would do little more than pare a few % off here and there. No one was prepared to give anything up or think radically about what could be done.

I was tearing my hair out as the run rate was unsustainable, yet no one would accept the ineveitable consequences of the cut.

In the end I printed a load of monopoly money, pulled the "full" change list and called every stakeholder including the sponsors into a room. It would be fair to say there was a degree of scepticism when I dumped the monopoly money on the table and announced that it represented our remaining budget.


I then took them through the list of changes one by one as they appeared on the list, asking each stakeholder if they still needed the change and indeed how much they needed to complete it. When the meeting agreed an item I lifted the relevant amount of monopoly money and gave it to the stakeholder. This continued until somewhere around half way we ran out of money - the table was bare! There had been some give up, but not much and certainly not enough. The group saw that there were still some critical changes that had not been covered and there was no more money.


At this point the penny started to drop and the real conversations started to happen and the sponsors stepped up. They went back and challenged everything they had passed already. They then looked at each of the outstanding items and identified the must haves. When there was no money, they started horse trading between projects and workstreams. It was a joy to behold.


In the end we had a work plan that would fit within the budget. Yes, we had given something up, but we had done it together and everyone understood. Even a tough sponsor came to me after and said she never thought it would work, but it had and she was pleasantly surprised and very pleased that it had.


The trick was to make the issue real and tangible. To force the real, necessary debates by real stakeholders and not hide behind a pretty set of numbers that someone else has put in a spreadsheet, with its tolerance of negative numbers.


It also avoided spurious accuracy, keeping the process, numbers and tracking pretty simple.


Of course we had a load more work to do, but that was a real breakthrough and an approach I would commend to you if faced with the proverbial quart into a pint pot. You probably can't use it every year or it will lose its impact, but use it wisely and it will serve you well.


Please do comment on this is you think I am way off or you want to add anything?


Footnote
Efficient Investment Frontiers - this is from investment portfolio theory and looks to identify the sets of projects/investments that offer the maximum return for any set level on investment. If you select any set that is not on the frontier then it will be sub-optimal and, in theory, you can see why.

It can work reasonably well in the world of financial investment as there is plenty of pretty good quality information, but in change and projects they have less certainty, less quality data and plenty of subjective dimensions. In theory it should work if you spend the time collecting the data and trust it, but I will refer you back to the Pareto Principle.

I think that the use of this technique is another instance of spurious accuracy.