Every Project Should Connect the Dots
In today’s business world, implementing projects is the way that things get done. Projects are conceived and reviewed nearly every day, but not every project is created equal. Some projects can create results that go straight to the bottom line, while others languish to generate any tangible results.
Hopefully, everyone will experience their fair share of good projects in their career; Good projects that deliver what was promised on-time and on-budget and ends with a ticker tape parade through the cubicle aisles.
Unfortunately, you will probably experience a few bad projects along the way as well. Projects can go bad when they are funded and approved without a clear understanding of how, or when, they will generate value for the company. Obviously, it’s important to know what your project will do for your company before you begin. In fact, every project should first connect the dots to stakeholder value BEFORE they are approved.
Nobody wants to willingly volunteer for another bad project. So, before you raise your hand to volunteer for that next project, take a moment make sure that the project covers the basics; Make sure that the project will address a critical business need and deliver tangible results that contribute to stakeholder value.
Determining if the project addresses a critical business need is subjective at best, as businesses still operate by the principle that the squeaky wheel gets the grease. Contribution to stakeholder value, however, should be an objective attribute that leaves little room for interpretation.
In order to clearly align projects to stakeholder value, we recommend that you develop a value hierarchy that describes how different activities contribute to stakeholder value for your company. Once established, the value hierarchy can serve as a framework for connecting each and every project to stakeholder value.
A well-defined value hierarchy can help to align projects with activities that generate the most value for the company. It can identify where multiple projects might be competing for the same benefit or identify where there may be a void of necessary projects. It can also help to weed out those projects that aren’t clear aligned to stakeholder value. Simply put, connecting projects to activities that maximize stakeholder value is just good business.
HOW TO CREATE A VALUE HIERARCHY
To create your own value hierarchy, begin with the highest form of value for your company, which should be stakeholder value. This represents the total value of your company to any person or stakeholder who has a financial interest. Then define the key dimensions that create or drain stakeholder value. Common value dimensions include Cost, Revenue, and Asset Value, each of which directly contribute to, or detract from, stakeholder value.
Next, define the set of value levers that influence each value dimension (e.g. revenue, cost, asset value). For example, the Revenue dimension can be influenced by adding more customers (increase breadth), selling more to existing customers (increase depth), or improving customer loyalty (increase duration).
Continue to define the value hierarchy by connecting lower-level activities to a node in the hierarchy. The final value hierarchy can be as detailed as your company requires.
CONNECT THE DOTS TO STAKEHOLDER VALUE
To reap the benefits of the value hierarchy, connect each active or proposed project to the lowest level in your value hierarchy. If the project cannot be clearly connected to the value hierarchy, it should probably be redefined, repurposed, or canceled altogether.
Connecting projects to a value hierarchy can have other benefits too. A value hierarchy creates a common language of value among various project teams, helps to align projects to the company’s strategic direction, and can help to identify areas that are either being over or under served.
Although utilizing a value hierarchy is no panacea, it can go a long way to helping your company determine which set of projects can provide the maximum contribution to stakeholder value. In our experience, companies that have learned to utilize a formal value hierarchy have found it to be a valuable tool for strategic planning, budgeting, and portfolio & program management.
ClearBrick LLC was founded in 2006 by Robert G. Howard, an experienced business advisor and management consultant with over 20 years of experience. For more information on value, get our whitepaper titled How to Find Your Customer Value.
Visit us online at http://www.clearbrick.com.