how Siemens focuses on benefits to accelerate value delivery
Senior Consultant, Siemens Corporation, Corporate Technology, Princeton, NJ
Andrea Demaria, PMP, MSP
Senior Consultant, Siemens Corporate Technology, Munich, Germany
Lack of formal benefits management is a significant cause of program failure. Yet, few organizations practice it well. Organizations change their culture when the benefits to the people or to the organization are clarified, agreed and measured. The processes that are involved in benefits management are relatively new to project-oriented organizations. This paper will discuss the processes for defining, measuring and aligning benefits to the program components. Case study examples of programs using benefits management processes and techniques will be discussed. Relevant reference standards are The Standard for Program Management —Third Edition (Project Management Institute, 2012) and Managing Successful Programmes (U.K. Cabinet Office, 2011).
When one discusses the difference between projects and programs, the answer can be found simply by examining the expected results by which the success of each is measured. Projects are deemed successful if they produce the desired deliverables at the desired time and on budget. Programs have expectations beyond project deliverables and focus on how these deliverables are applied to realize benefits. In the end, programs success is measured against the effectiveness of which they deliver benefits. Programs are the mechanisms through which benefits are defined, planned and realized by organizations. The process of benefit management is common to program standards whether it is The Standard for Program Management —Third Edition (Project Management Institute, 2012) or Managing Successful Programmes (U.K. Cabinet Office, 2011).
To expect benefits, we must manage benefits
Like anything else, what is not measured is often not managed. The need for focus on benefits is not new. In the 2005 Global Programme Management Survey conducted by KPMG (2005), the following general findings regarding benefits were identified:
- Nearly one in three organizations do not always define financial benefits in their business cases.
- The most popular definition of success today is meeting promised project benefits—in other words, keeping commitments.
- For the majority of survey participants, project success appears to equate to achieving an acceptable level of failure or reducing lost benefits.
- In only 23 percent of cases is delivery of project benefits tied to individual executive performance plans and rewards.
- Inadequate benefits management processes prevent the articulation of program and project success and this creates a largely unquantifiable degree of benefits leakage.
- Only 2 percent of organizations claimed they achieved targeted benefits all the time in the past 12 months.
In more recent research, many of these findings remain valid today. According to a 2012 KPMG survey, projects have become larger and more complex. In spite of an increase in best practices, the KPMG survey tells us that organizations admit that the implementation of better processes still lags behind expectations. This is also reflected in the Pulse of the Profession (PMI, 2013a) where the average organization in the survey is not improving their organizational project management (OPM) maturity which is the measurement of process maturity in the organizations. And, with the current global economy, there are less people to perform the work. The result is more focus on the value projects and programs deliver.
Why focus on benefits?
In short, focus on benefits enables better decisions regarding program and project resource allocation while accelerating organizational transformation. When you hear advertisements that state that the best-in-class companies use a certain vendor's products, they would like you to think that the reverse is also true. Buy our product and instantly become one of the best companies. If this were the case, then finishing projects as planned would be sufficient for business success. The fact is that the “best” company in reality is defined by having delivered a vision of a future state that is measured by the realization of specifically targeted benefits. To the organization, simply having a new enterprise IT system or a newly developed product does not on its own ensure status as a best-in-class company. Further, while projects are typically measured by the efficiency by which they deliver a result (e.g., cost/schedule performance indices), programs are often investments that expect a leveraged return on investment over a sustained period. This requires not only delivering new capabilities, but also enabling organizational transformation as well as realizing the expected benefits.
Organizational transformation requires commitment of leadership as well as the people who must change. People more easily commit to change if they are convinced that there is a benefit either to them, their organization, or the customer. Further, when benefits are defined and program components aligned to them, the program becomes a stream of projects and processes that deliver value to the organization. This readily enables the program to engage in value optimization methodologies such as lean. In a recent research project conducted by MIT, PMI, and INCOSE, focus on value formed the basis of several lean enablers for managing engineering programs (Oehmen, et al. 2012).
In 2007, Siemens Corporation in the United States was trying to accelerate the OPM maturity of its regional businesses. Despite numerous directives to do so, organizations were lagging behind in meeting corporate OPM maturity expectations. Siemens Corporate Technology was engaged to help understand the reasoning behind this and to help provide a path forward. After a review of ~70 maturity assessment results and several organizational interviews, it was determined that the business organizations were focused on the effort to attain OPM capabilities, but not the business case to improve OPM maturity. They lacked two things: definition of benefits (the positive side of the OPM improvement business case) and an effective program management approach to achieve those benefits. Without understanding the benefits, all the organizations could define was the cost side of the business case (e.g., the improvement projects). In one Siemens organization, the application of both these principles was directly credited with not only accelerate OPM maturity, but also business recovery and benefits sustainment through the most difficult economic times they ever experienced (from 2008 to present), a major reorganization in Siemens in 2008 and the recovery of a new business which was added to the Division. A discussion of this case study as well as lessons learned can be found in Sopko and Strausser (2010) and Sopko, Yellayi, and Clark (2012).
Another attribute of benefits alignment is that every activity of the program is validated by its alignment to benefit objectives. Benefit maps can be created that graphically show the alignment of component project outputs to program benefits. In this manner, program component activities that support intended benefits are easily identified and each project's impact on the program value can be derived. Exhibit 1 shows the pathway from the component projects to program benefits.
Exhibit 1: The Pathway From Projects to Strategic Objectives
Benefits versus capabilities
One reason that benefits are not often achieved by programs is due to the lack of defining them and measuring their realization. Shifting from measuring the achievement of project results (e.g., capabilities) to defining and measuring the achievement of benefits is a paradigm shift for many project organizations. Capabilities are enablers of the program, not the benefits of the program. According to The Standard for Program Management—Third Edition (Project Management Institute, 2012), “A benefit is an outcome of actions or behaviors that provide utility, value, or a positive change to the intended recipient.” Managing Successful Programmes (U.K. Cabinet Office, 2011) further defines a benefit as “the measureable improvement resulting from an outcome perceived as an advantage by one or more stakeholders, which contributes towards one or more organizational objective(s)” (p. 75). Siemens, defines a benefit as measurable improvements providing a business advantage to one or more stakeholders. Benefits can be both tangible and intangible and are often interconnected and stakeholder specific. These are some examples:
- Increase of market share
- Shorter time to market
- Higher employee retention
Benefits often contain words like “better”, “cheaper”, “faster” or “greater” and reflect the achievement of the strategic vision of the program. A program vision is important. According to the Managing Successful Programmes (MSP) (U.K. Cabinet Office, 2011), a program vision should be a “postcard from the future” (p. 54) that describes the organization's future state when the program goals are achieved. One example of a program vision might be to improve market share to 35% of the available market while remaining profitable. In this case, improved market share and improved project profit margin could be easily defined as benefits that could be quantifiably measured to confirm achievement of the program vision.
However, if a methodology like MSP is not used, the benefits may not be so clear. As an example, let's say that one of the expected outcomes of this program is to improve organizational project management maturity. The resulting discussion resembles a “five whys” approach to root cause analysis.
When the program manager is asked to define what the benefit of the OPM improvement program is, the answer is typically related to the measurement of maturity such as, “We will achieve Maturity Level 3.” Maturity Level 3 is not a benefit; it is a measurement of OPM capability maturity of the organization. The only benefit of achieving Maturity Level 3 might be the incentive bonus of the program manager or the business executive leadership, but not more. The real question is why does the organization want to be rated at Maturity Level 3? Then the series of questions begins.
Q: What is the benefit of achieving Level 3?
A: We will have standardized processes.
Q: What is the benefit of standardized processes?
A: All projects will be following A Guide to the Project Management Body of Knowledge
(PMBOK® Guide)—Fifth Edition (PMI, 2013) recommended practices.
Q: What is the benefit of all projects following the PMBOK® Guide?
A: We will deliver more consistently to plan and improve project predictability.
Q: Why is that important?
A: We will improve customer satisfaction and improve project profit margin.
Now we have the true benefits! Improved customer satisfaction ratings and improved project profit margins reflect the vision of the program organization to grow its market share and improve profitability. This analogy can easily take place for new product development, strategic account management or other programs.
There are benefits that are not easily measured and often termed as intangible; such as employee satisfaction or brand recognition. But, if you truly can't observe or measure it, it is not a benefit. If you ask enough experts, there are indicators that can be observed to confirm the benefit achievement, even if it as simple as less complaints from the staff or improved recruiting or retention metrics. There is a quantifiable reason that companies pay large sums of money to have their name on race cars or host global sporting events. Surveys and polls play a role in measuring these “soft” benefits, but the end result is often reflected on the executive's dashboard in terms of improved market share, more effective public service or other organizational performance metric.
Another term introduced in MSP is the concept of dis-benefits. These are measureable impacts resulting from an outcome that detracts negatively from the organizational objectives. Examples of dis-benefits are the effects of employee morale as a result of organizational restructuring or the impact on the sales of current product on store shelves when a new, improved product is launched early. The balance of benefits and dis-benefits form the basis of the program value. When the net benefits are compared to the program costs, we have the complete program business case.
Benefits drive organizational transformation
The achievement of benefits accelerates organizational change and positively adjusts the behavior of the component project teams. Which would be more appealing to the component project teams of this program – achieving Maturity Level 3, or improving market share, project profitability and employee satisfaction? Further, people perform the processes. If they are not motivated, the new processes will not be effectively transitioned and implemented (Exhibit 2). People like to know that they are making a difference and not simply creating processes and filling out forms. With this focus, it is now possible for the component project teams to view their work on the improvement program through the lens of organizational value optimization. When there are project changes or when decisions are required due to environmental factors, the focus is on optimizing program value. When the budget is cut, resources removed or the market has a downturn, the people find innovative ways to continue to deliver value.
In another case in 2001, a project team in the telecommunications semiconductor industry was experiencing a constant loss of resources due to crises in other projects in the organization. This became almost a routine practice. To recover the project, the program manager communicated the value of on-time delivery to the project team and the impact to the organization. Knowing that each week of delay had an impact to the program business case of over $125, 000, the behavior of the team changed. Additionally, if two weeks could be gained, the value per week would be over $250, 000 due to increased market capture. The very next week, resources were being pulled of the project again for three days. One team member exclaimed, “That's $80,000! What can we do to prevent an $80,000 impact?” The team now had a business case for project recovery that was present in every team members mind. The result was 41 days of recovered schedule and doubling of the program net present value (NPV). It should be noted that there were no financial incentives for the team; only the satisfaction that they were contributing to the organization's success.
Exhibit 2: Typical Timeline From Project start to Benefit Realization
Defining benefits using benefit profiles
If a benefit cannot be defined or measured in some fashion, it is not realizable. A benefit profile contains four things: description, observable outcomes, attribution and measurement. Examples of benefit profiles for various programs are shown in Exhibit 3.
Description of a benefit is easiest when a program vision is available and communicated. However, many programs are emergent in nature, meaning that the collection of projects and related work is well underway when someone realizes that it is really a program. Whether a program is vision led or emergent, a vision should always be established and the benefits of that vision defined. This will play a key role in validating and optimizing program component work. Even in the case of compliance programs (e.g., regulatory mandates) where non-compliance may result in loss of market participation, other benefits to the organization should be considered.
Observable outcomes are discernible differences between the current state and the future state (post-transition) organization. In many cases this is closely related to the measurement of the benefit. However, is the case on intangible metrics, the observable outcomes may be significant in determining program success.
Attribution aligns the benefit to the program work that is accountable and responsible for creating it. This is especially important in evaluating program component effectiveness. A benefits map, described next, is a very effective tool for graphically depicting alignment or project component outputs and capabilities with benefits.
Measurement of benefits can be as straight forward as business financial metrics or a complicated as predicting air superiority for a new jet fighter aircraft. The key is to agree on credible metrics that can clearly be attributed to the benefit identified. Also, benefits are critical characteristics of program performance and should be base-lined at the beginning of the program (or latest before the start of the transition) to correctly measure trends and differences between the new state and the old one. Many programs have difficulty demonstrating benefits realization mainly because they never identified or developed a capability to measure the benefit, since it was simply expected to happen as a result of capability delivery.
Exhibit 3 – Examples of Benefit Profiles With Benefit Descriptions, Observations, Attribution, and Measurements for Different Types of Programs
Communication of program benefits and the relationship to component project performance is also very important. Too often, project teams are incentivized on the classical triple constraints of cost, schedule and scope, but not of the value they contribute to the program. Be careful of what you incentivize – you may get it! If a project team is incentivized on cost, they will optimize their project to achieve it, even at the loss of program value improvement opportunities. Every project is part of someone's program investment. That project is often on the critical path of delivering program benefits. Time is money! The value lost of gained by the program due to time lost or gained is the business case for project optimization. Excellent metrics for project value optimization are described by Devaux (1999) and include DRAG, which is the amount of time a critical path activity can be reduced that has a direct effect on the project completion date and DIPP which is the ratio of project's contribution to the estimated monetary value (EMV) of the program divided but estimate to complete (ETC) the project. The DIPP can be base-lined at the beginning of the project and monitored for the duration of the project. As long as the DIPP ratio is greater that the baseline (e.g., either improving value or reducing ETC), the expected benefits to cost ratio is greater than the plan. Projects on the program critical path directly affect the program's expected value and benefit delivery as related to time of completion.
Benefits management and business innovation
Programs are always managing change. As the pace of change and improvement in the organizations keeps increasing, innovation has become the key success factor in order to stay ahead in modern business. The deeper the level of innovation, the more organizational change is involved. As a result of this acceleration in finding and implementing new ways of doing business, programs are actually becoming more stable or longer lasting than traditional line organizations. It is actually more likely for a program to see the original organization who promoted its vision more or less drastically change than remain the same during the entire program lifecycle. Of course changes in the sponsorship and program vision also need to be effectively managed and reflected into the aimed program benefits (or even the beneficiaries).
Changes in the other programs framework itself such as market development, economic climate, or technological progress, not only create new chances for more effectively deliver the aimed benefits, these changes also open new opportunities for pursuing additional, unforeseen benefits. In Siemens we deal with this increasing turbulence by actively reviewing and updating the visions and benefits maps of our programs to ensure that all stakeholders still are aligned with what the programs are going to deliver.
Benefits management and the program organization
Every program involves some form of transformation, whether it is to the marketplace, the community, the customer or the organization that created it. In most cases, the program organization plays a leading role in planning and orchestrating that change. Of course, the program manager is the center of all this activity and is responsible for benefits realization planning and the overall orchestration and success of the program. However, since organizational change is complex, having dedicated people on the program core team can be critical to program effectiveness.
In Siemens, MSP was the basis for the methodology used in the pilot programs. Two roles were added to the typical program core teams (See Exhibit 4) – the program executive sponsor and the change agent. For organizational improvement programs, the end recipient of the programs delivered capabilities as well as the expectation of benefits realization is the operations side of the organization. This often extends beyond stakeholder engagement. It requires a dedicated member on the core team to represent the interests of the business-as-usual side of the organization.
Exhibit 4 – Program organization and roles. The program board consists of the program executive or sponsor, program manager, and the change agents. The program board provides the governance for the program (U.K. Cabinet Office, 2011).
In practice, the program manager is typically an expert in the planning, orchestration and control of the program, component projects and their deliverables. However, the program manager is not always an expert in the operations side of the business where change must take place. Rather than have an outsider decide what is best for the organization, the change agents are selected from the organization that is both a subject matter expert in the business operations but also a respected leader who can orchestrate change. The change agent is responsible for the actual realization of benefits and is a peer to the program manager. In practice, this enables “buy in” from the user organizations. Since the change agents represent the end user group, they are ideal candidates for benefit definition, defining the requirements of the future state of the organization and transition leadership. As in the MSP model, the change agent is a peer to the program manager and responsible for the transition phase, embedding change and realizing the benefits of the program.
As in the case of project sponsors on projects, the program sponsor is critical to program success. The program sponsor represents the organization leadership and the alignment of the program with strategic organizational objectives as well as the funding of the program. It is important that the program sponsor has both the agreement and support of the organization's senior leadership team as well as influence over the organizations to be changed. Two important scenarios can and did occur on Siemens programs. In the first, the change agent may define a capability that is needed by the organization, but the program manager cannot support it due to funding or resource constraints. Another situation is that the organization, in spite of great innovative ideas of the program team, does not wish to change. In both these cases, the program comes to a halt if there is not senior leadership member to consult regarding the importance of the program objectives to the organization.
Case study example
Exhibit 5 shows an example of benefits alignment with capability development for an organizational project management (OPM) improvement program in Siemens. The internal Siemens model for OPM capability maturity assessment is the maturity in project management (MPM) model which is described in Sopko and Strausser (2010) and Sopko, Yellayi, and Clark (2012). The program was targeted at three key organizational objectives (benefits): Improving customer satisfaction, improving project profit margins, and improving project delivery reliability.
Exhibit 5 – Program Benefit Results After the Initial Phase of the OPM Improvement Program at Siemens Industry, Industry Automation (US). (Sopko, Yellayi, & Clark, 2012)
As the global marketplace places higher priority on the value resulting from investments in projects, benefits realization through effective program management is gaining attention. Projects deliver outputs which form enabling capabilities. Program management is the vehicle through which organizational transformation takes place and benefits are realized and sustained. For a program to deliver value, benefits must be defined, measured and actively managed. Focus on benefits is a key enabler for value optimization techniques and methodologies such as lean or value analysis/value engineering as well as a key enabler that positively influences the culture of the team towards innovation and program value optimization. Processes for benefit management described in global program standards such as PMI and the U.K. Cabinet Office should be developed and implemented to ensure consistent program success.
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“PMI and PMBOK are registered trademarks of the Project Management Institute, Inc.”
“OPM3 is a registered trademark of the Project Management Institute, Inc.”
Managing Successful Programmes and MSP™ are registered trademarks of the U.K. Cabinet Office
© 2013, Joseph Sopko/Andrea Demaria
Originally published as a part of 2013 PMI Global Congress Proceedings – New Orleans, Louisiana