Governance

Project management and the Finance Director

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Governance
Written by Chris Mills, Partner in the Enterprise Portfolio Management (EPM) Practice at PIPC   
Friday, 13 November 2009

A critical role for the FD in making businesses better, post-crunch.

 

In the current climate, where some organisations are beginning to see a soft landing at the end of the credit crunch and others are still feeling the squeeze, the Finance Director has a crucial role in both managing cost in the short term and creating a fit-for-purpose structure for the future.

PIPC research has shown that, on average, major companies waste up to 50% of the potential value of their investments, through a combination of factors.

These include poor selection – choosing projects and programmes that fail to align with their strategic goals – and poor execution – failing to deliver on time or on budget (if at all), or failing to deliver the promised benefits from major investments because of a lack of follow up once projects are finished.

While the responsibility for project selection, approval and monitoring has traditionally been the domain of IT or a junior PMO function, decisions which will significantly impact the strategic direction of the organisation (not to mention its short-term financial health) should no longer escape the scrutiny of the Finance Director. 

So, in an environment where financial constraints remain tight and cuts are still inevitable, how can the Finance Director decide where to wield the knife most effectively?

Traditionally, ‘hit lists’ have been created based on perceived corporate priorities. However, these can be – and have been – influenced by factors such as lack of clarity around the real strategic goals of the organisation, lack of reliable information relating to what certain projects are really expected to deliver and the force of personality exerted by some key boardroom players to ensure their own pet projects survive, come what may.   It’s an all-too-familiar picture but what’s the answer?

For an increasing number of organisations, it’s Enterprise Portfolio Management (EPM) - the practice of aligning the complete portfolio of projects and programmes to the corporate strategy.  EPM isn’t new, but it is the most accurate, considered and transparent way of prioritising a portfolio and, as executives ponder the consequences of cutting the ‘wrong’ project, it is becoming standard practice, globally, for organisations of all sizes.

Furthermore, it can have staggering financial benefits: potential short-term savings of 20% of the overall cost of the portfolio and a 30% improvement in time-to-market for revenue-generating projects, for example.

By adopting a portfolio management approach, supported by one of the sophisticated software tools which are now available, Executives can exercise stronger and more dynamic control over the allocation of funds to strategically important projects. They can also change and adapt that portfolio according to both performance and external / environmental factors.

 

Key elements of this control include:

 

  • An investment approval process where cost and benefit estimates are validated rigorously before submission

 

  • Analysis and prioritisation of projects against agreed strategic drivers for the business (or the department under scrutiny)

 

  • Optimisation of the portfolio against additional constraints such as resource availability, risk and potential financial return, as well as cost

 

  • Scenario planning and sophisticated ‘what-if’ analysis to ensure agility and to provide reassurance that investments are worthwhile even if corporate goals change, budgets need to be cut drastically or external factors intervene

 

  • Regular monitoring of investments at project and portfolio levels to ensure performance is maintained throughout the life of the initiative

 

  • A willingness to stop investing in under-performing projects and reallocate funds into other areas which will generate better returns, no matter what the history

 

  • Continuing pressure on project sponsors to deliver the promised benefits after the projects themselves are complete – too many organisations allow this focus to slip over time and this is a major contributor to the 50% loss of ‘value mentioned earlier

And the value of such an approach?  Decisions based on fact and insight, not personality and prejudice.

From a financial perspective, significant short-term savings plus an improvement in time to market and, in the longer term, the creation of an organisation that invests in value-adding projects and manages them to deliver the greatest possible value.
Surely, a worthwhile job for the CFO?

About the Author:


Chris Mills is a Partner in the Enterprise Portfolio Management (EPM) Practice at PIPC, a leading global management consultancy responsible for some of the highest value business and IT transformations in corporate history. PIPC (head-quartered in London, UK) operates from 14 international offices, servicing clients in over 25 counties. The company's EPM Practice works with organisations to deliver significant cost reductions within project and programme portfolios while maintaining momentum and the achievement of strategic goals. www.pipc.com
 
 
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