DER Management

Our practice work in IT Project Management has included considerable time spent on benefits analysis and benefits realization.  In this article I caution the reader concerning benefits capture strategies that contemplate recapturing staff hours.

Every IT project should perform a benefits analysis and should try to demonstrate a positive value to the organization.  This is a fundamental step in portfolio management as it serves to align investment funds and valuable resources.  Those projects that cannot demonstrate a compelling value case should not ordinarily be pursued until all other initiatives with value have been considered and/or scheduled for engagement.

Often an IT project - particularly those that concern the development or deployment of a new or upgraded application - will define benefits in several key areas such as i) new functionality, ii) efficiencies, iii) strategic alignment, etc.  A temptation in producing such a “business case” is to quantify the number of hours of staff time recaptured through i) introducing “efficiencies”, ii) removal of “work arounds”, or iii) changes to business process.  

This practice of asserting benefits through recapture of staff hours is a dangerous area.  I argue that benefits/value analysis work that includes this partiular valuation element is leveraging some shaky numbers that I believe experienced project governance panel members view with a skeptical bias.

Why would saving staff hours not be a valuation worth capturing?  I assert that only a few circumstances legitimize this approach; in most cases it is not appropriate to “recapture” staff time.  Here’s my argument.

The first case where recapture of staff time/cost is legitimate is the situation where you will literally terminate staff as the result of successfully deploying the project.   In this case, the business (or your own IT team) will be able to directly demonstrate savings to the organization (after severance costs, etc) by reducing headcount through the implementation of the project.

The next case where recapture of staff time/cost is legitimate is when you will transfer existing employees to another area of the company and when you have an internal accounting process that would recognize the potential transfer of the resources into someone else’s cost center/allocation.  This case should feel quite similar to outright dismissal of employees in somuch as it removes their costs from your own operating budget(s).  However, you need to take great care in how this is demonstrated as a real savings to the company.  You obviously have not saved the company money, but rather have transferred expense outside of your budget.  Depending upon circumstances this can be an internal winner or it is quickly shot down as an innapropriate measure of value.

The least acceptable - and most frequently attempted - method of documenting project value is from purely saving staff hours from efficiencies gained and workarounds removed.  In this scenario, benefits are proposed where hours saved are ostensibly made available back to the organization.  No mention is made that the actual costs to the organization for the staff remain unchanged.

This case really falls apart quickly under experienced scrutiny.  The discussion usually goes this way:

Benefits Presenter: “We will save 2 FTEs over the next 12 months after this system is implemented.”

Governance: “Really?”

Benefits: “Yes, over the ten staff members using the tool, we see savings of up to 400 hours per year per person.  We believe that the two FTEs of time saved can be leveraged on higher-value work.”

Governance: “So you think we are creating value that way?”

Benefits: “Oh yes!  The two FTEs worth of time can be multiplied by our internal, fully-burdened, blended rate of $140/hr - we see benefits of around $560,000!  That easily justifies the $375,000 of project cost we envision over the same time period.  Our ROI is fabulous!”

Governance: “That’s interesting.  So you say that we should spend $375,000 in new dollars to recapture $560,000 of value in employee time that we’re already going to spend and that we’re not going to reduce through this proposal?”

Benefits: “Well, yes.”

Governance: “Can you describe what new, higher value activities these newly available hours will be applied to?  What incremental revenue will these new hours add to our bottom line?  Do you have other departments or projects that will sign off on your assertion that these hours can be immediately used for these higher value activities?”

… and so the questions fly until the Benefits Presenter realizes that the measure of hours saved doesn’t hold sway with the Governance team as had been anticipated.

Benefits estimation for justification purposes should also require an after-project effort at benefits capture analysis.  If you cannot envision a way for your proposed benefit to be measured after the project is completed, then your proposed benefit is probably a dog.  You should include the number of recaptured hours for conversational purposes and you should communicate this within the organization.  But, again, if you cannot forecast how you’ll prove that you’ve saved real dollars, then you should not propose value from that savings.