“The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future.” – John Maynard Keynes (1883-1946), British economist.
We are not all Avengers nor equipped with Dr. Strange’s mystic icons to enable fighting the dark forces. However, to liberally paraphrase Keynes, organizations must improve their ability to make internal investment choices to better utilize their resources and to improve their returns, while avoiding the dark forces of time and budget. One of the keys to avoiding the dark forces is appropriate planning, review, and assessment of proposed projects. Poorly conceived projects are always in the wings waiting to pull the curtain down on an organization’s ability to deliver value. Some commonly observed challenges include:
- Projects that may be focused on the benefits of the few (at the cost of the many)
- Short range delivery opportunities that overshadow long range goals
- Lack of sufficient resources that may force second tier efforts to be selected as priorities
But to begin to bring down the dark forces, start by focusing a key tool: the business case.
The enlightened use of business cases at the onset of initiatives is force of habit for many organizations. CFO’s and budget conscious leaders would have it no other way. However, in many instances, at the conclusion of a project, the financial benefits rarely match those promised at the onset. With such rigor and due diligence applied to the business case, how can this be?
Before diving into the claim that numbers may not be “accurate,” which in fact may not be an aberration but the norm, a review of definition is required. A business case is a document that outlines the problem the business needs to resolve or the opportunity which the business wants to leverage. Including business benefits, capital costs, opportunity costs of doing nothing, some option analysis and possibly some risk assessment, the business case may take many forms:
- Long detailed narratives or presentations of the financials
- Massive spreadsheet workbooks with countless tabs
- Informal impassioned pleas to management
In many cases, businesses leaders look for option #2 above. The spreadsheet approach has long been seen as the science to substantiate the fortune telling talents of management. Spreadsheet workbooks, utilizing scores of worksheets with embedded macros and detailed algorithms are seen to calculate with certainty. Numbers can’t lie! So how can it be that the financials at the end of the project seem to rarely correlate to those offered in the business case at the beginning?
The statement stands: Numbers can’t lie! One explanation, without implying any intentional fabrication on the part of those creating the business case, is that it is possible and quite easy to make numbers support any argument, for or against a project. For example, consider manufacturing. There are numerous conditions to be met through a very complex process for the business case to succeed (e.g., vendor sourcing, machine efficiency, resource productivity, sales force effectiveness). One could simply “adjust” some calculation by tweaking a financial variable for any of those processes. I am confident that the intent is never to create false statements. Those creating the models only wish to alter their assumptions to make the model meet the desired “reality.” Even though the numbers that are put into the spreadsheet may be supported, accurate, and well established, the answers that come out the other end of the model do not always match reality. The resultant numbers can be misleading.
Another challenge of the business case is that it is often filled with unsupported assumptions. I believe this is where the business case breaks down. If making assumptions – and backing into the financial actuals that drive costing models – is so straight forward, why are models so often wrong? It is NOT that easy to model well. How else does one explain the wide-spread repeat of project results that are less-than-we-hoped-for? The numbers themselves cannot be wrong! Or can they? David Byrne of The Talking Heads penned the following:
Facts are simple and facts are straight
Facts are lazy and facts are late
Facts all come with points of view
Facts don't do what I want them to
Facts just twist the truth around
— Cross-eyed And Painless
Numbers are just that: numbers! They are the facts. However, the way we use them may be flawed. In a less musical vein, Jack Brennan, former chairman and CEO for the Vanguard Group stated, “A fundamental rule about assessing … value is that spreadsheets don’t tell the whole story.”
As we continue to fight the good fight, move our organizations forward, and hold the dark forces of time and cost at length, we must focus on doing the right thing. It is not that spreadsheets are not helpful to us; it is that they must not become ends unto themselves. They must be modeled carefully and must be crafted appropriate to the situation. They should be guides to decision making. The tool should not be the decision maker.
Are you looking for help with portfolio management, work in-take, or objective decision making models? Drop me a line at cmanello@transforming.com. Or, check out our Business Process Management solutions.
