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Project Management
and the Finance Director
Governance
A critical role for the FD in making businesses better,
post-crunch.
Written by Chris Mills, Partner in the Enterprise
Portfolio Management (EPM) Practice at PIPC
Dirtector of Finance Online, 13 November 2009
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.
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?
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