Is measuring the benefits of digital a dark art?
- 29 May, 2018 15:02
Every business case for digital investment should include a section that describes, preferably in exquisite detail, the benefits that the organisation can expect in return for investing time, money, many staff and customer goodwill.
We have all encountered such works of fiction (business cases that is) during our careers. Promises of a capital payback within a short period, or a positive net present value (NPV) or perhaps even a mouth-watering double or even triple digit ROI.
Seeing such promises, governing boards and decision makers then nod approvingly as they comfort themselves that this, usually significant, often risky investment in technology is somehow de-risked because of the predicted financial windfall.
Of course the reality of technology investment is invariably different to this fanciful focus on financial ROI. Part of the reason why digital projects fail is that organisations fail to explore in sufficient detail the actual value from such investments.
Benefits versus value
Many things purport to offer benefits but do those things deliver value? Value, like beauty, is often in the eye of the beholder. Frequently, business cases list benefits that neither staff, customers nor business partners (and other stakeholders) find valuable or desirable.
When investing in technology, organisations need to be realistic about whether or not this is an investment in new capability (i.e. value creation) or it is simply a cost of doing business.
For example, if you are replacing your finance system, human resource system or asset management system, chances are you’re not going to yield a positive NPV. Sure, you may well create new efficiencies in processing or yield higher levels of compliance, but be honest about whether these benefits equate to bankable dollars or market differentiation.
For investments that will lead to new value creation, you need to be realistic about the lead time to value realisation. For significant business process transformation involving substantial staff change management, organisations often experience an initial decline in productivity as staff jostle with the new system.
Genuine benefits (the ones that create value) have their own lifecycle that invariably needs to be managed. This lifecycle begins when benefits are but a twinkle in the eye of the initial investment proposal or feasibility study. It is uncommon for benefits to be well-understood at these early stages of conception.
As the proposal progresses to a fully-fledged business case then the understanding of the benefits should mature to the point where the organisation has confidence that the stated benefits are legitimate and achievable.
Sadly, many organisations appear to forget about benefits once a business case is approved, at least until such time as a post-implementation review is (hopefully) conducted, which is usually accompanied by moderate levels of chaos and confusion as the organisation scrambles to find supporting data.
In my experience, organisations really struggle with managing benefits, sometimes due to a lack of benefits management competency, but generally it is simply due to apathy. This lack of focus on benefits (and what is really important to the organisation) is a common contributor to IT project failure.
Much like a new sapling, benefits need to be nurtured to evolve to their full potential. Recognising the lifecycle of benefits and then actively cultivating benefits requires organisations to establish a benefits management framework. This framework should define the following three important elements involved in benefits management: benefits identification; benefits planning; and benefits monitoring and realisation.
Organisations should recognise that benefits identification is possible throughout the execution of a project and not just during the development of the business case. Similarly, the planning needed to realise a benefit is also able to continue beyond project delivery and well into benefits monitoring and realisation.
In my previous CIO article, I spoke about the importance of the project sponsor role. The project sponsor should be the person in the organisation with ultimate accountability for the investment outcomes. It follows then that the project sponsor should be responsible for benefits realisation. In principle, this is of course a totally reasonable expectation; in practice however, such an expectation is problematic.
A better, more pragmatic approach is to assign each significant benefit a ‘benefit owner’, that is an individual who is well-positioned in the organisation to champion the benefit on a daily basis. Such an approach requires the benefit owner to be identified and engaged early in the lifecycle of the benefit.
The importance of baselining
An important part of benefits management is the process of defining each benefit during the benefits planning phase. This includes identifying how a benefit will be measured and any dependencies associated with obtaining the necessary data. Once the benefit has been fully described in terms of how it will be measured, it is important to establish a baseline for the measure, i.e. the qualitative or quantitative data that represents the current state of the business before the project is delivered. Unfortunately, this step is often missed and consequently it is difficult to objectively assess the impact of the new system.
Once the definition of each benefit is agreed, establishing a baseline for each measure also has the advantage of validating that the benefit is actually measurable!
Digital investment is not a dark art
Is it even conceivable that an organisation would invest capital in a bricks and mortar type investment without a clear understanding of the value created from that investment? Why then are we so laissez-faire about benefits when it comes to investing in technology?
In reviewing digital governance maturity within organisations, I have found that few businesses have a consistent approach to managing benefits, and consequently, few do it well. Is this because organisations view technology and investment in technology as a dark art?
As technology leaders, it is our responsibility to demystify technology investment. One of the best ways for us to achieve this demystification is to assist business leaders within the organisation to articulate the benefits from technology investment in meaningful terms and to ensure that these benefits can be measured and tracked.
If you would like to know more about benefits management and tracking, please refer to my book on digital governance mentioned below.
In my next article in this series on digital governance, I will be tackling the important issue of strategic planning, including guidance for what to include in your organisation’s digital strategy as well as some tips on the process of developing a digital strategy.
Dr Malcolm Thatcher is CEO of Strategance Group – a consulting firm focussing on assisting organisations with Digital Strategy and Governance. Previously, Dr Thatcher has served as CIO for Queensland Health and for the Mater Hospital Group in Brisbane. In early 2018, Dr Thatcher published a new book titled “The Digital Governance Handbook for CEOs and Governing Boards”, available from Amazon and other online outlets.