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Maximizing Shareholder Value with Value-Based Project Management

PMI Virtual Library
© 2010 Brent J. Bahnub
Maximize Shareholder Value with
Value-Based Project Management
By Brent J. Bahnub, PMP, CTP
isalignments between employee rewards and
shareholder value are pervasive throughout industry.
In a typical organization, sales personnel incentives
are based on revenue rather than profitability, and back-office
personnel incentives are based on expense reductions rather
than increased long-term shareholder value. However, it
may surprise you to learn that most project management
governance processes are also misaligned to shareholder value;
additionally, advances in business intelligence amplify the
need for better alignment of project management governance
and shareholder value.
Most companies, particularly financial services
organizations, establish project management governance based
on required investments. Typically, if a project’s planned
expenditure is greater than a pre-established threshold (for
example, $250,000), the project requires approval by a
capital spending committee and, depending on the size of the
expenditure, board of directors notification. Large projects
are prioritized based on value and managed by a central
project management office (PMO) using a pre-established,
corporate-wide project management methodology. Because
large projects are prioritized based on their value, the process
appears to be aligned with shareholder value, but what
happens to projects requiring little investment and with
relatively large benefits?
In many cases, projects requiring small investments have
significantly larger benefits than large-investment projects
supported by a small army of project managers; however,
these low-investment, high-value projects (“gems”) are not
provided the project management resources to adequately
quantify, plan, communicate, and deliver the desired results.
In order to
demonstrate how much
value is being left on
the table, hold a few
brainstorming sessions to
identify your company’s
Identify Your Gems
In order to demonstrate how much value is being left on
the table, hold a few brainstorming sessions to identify your
company’s gems. Conduct several ninety-minute sessions
with a variety of groups from each business line and major
support area. Invite open-minded and creative first-line
managers. Focus the group on finishing the following
sentence: “In order to improve our bottom line by $xx
million, I would…” The participants should write down their
ideas on large cards and then attach them to the two-by-two
matrix shown in Figure 1.
Ideas posted in the Big Payoff/Easy Implementation
quadrant of Figure 1 are viewed by the participants as gems.
From my experience in many companies across several
industries, 25% to 40% of the ideas are gems; usually, these
Ease Of Implementation
Large impact on bottom line
Requires > 8 weeks to implement
Requires multiple sponsor approvals
Difficult to implement
Requires significant $ investment
Large impact on bottom line
Requires < 8 weeks to implement
Can be approved by single sponsor
Easily implemented with minimal $
Small impact on bottom line
Requires > 8 weeks to implement
Requires multiple sponsor approvals
Difficult to implement
Requires significant $ investment
Small impact on bottom line
Requires < 8 weeks to implement
Can be approved by single sponsor
Easily implemented with minimal $
Figure 1: Two x Two Prioritization Matrix.
“gems” have no formal project management structure, are not
actively managed and, therefore, become lost in the shuffle of
the large-investment projects. Very few formal business cases are
developed for “gems,” and without a business case, it becomes
difficult to articulate the need for change to upper management.
Clearly, project management governance should
be improved to systematically identify, quantify, plan,
communicate, and deliver long-term value to the shareholder,
regardless of the required investment. This improvement
requires a shift to a holistic, value-based project management
governance process.
Improve Alignment with Value-Based Project
Value-based project management is grounded in the fact that
not all high-value opportunities require large investments;
however, these low-investment, high-value projects still
require some level of project management to realize increased
shareholder value. A model for this type of enterprise-wide
approach to project governance is shown in Figure 2.
As shown in Figure 2, decision branch #1, projects
requiring large expenditures (cash flow) are handled through
a traditional Capital Spending Committee process. Because
the financial risks of these projects are high (due to the high
investment level), these projects generally require more project
management assistance than low-investment, high-value
projects governed by the Performance Improvement process.
The Performance Improvement process, represented in
decision branch #2 of Figure 2, governs all low-investment,
high-value projects. Like the Capital Spending Committee
process, the Performance Improvement process requires
involvement from all business units. The Performance
Improvement process typically requires less onerous project
management tools. Usually, the project charter, business
case, and project plan are each a single page for these types of
projects. Remember, these projects were identified as “easy”
to implement, so they should not require much explanation
to understand. The projects require disciplined execution.
The final decision branch (#3) demonstrates that most
low-investment, low-value projects should be governed by
traditional financial planning and cost center management
processes. For example, purchasing a new conference room
table is low-investment, low-value. One note of caution:
decision branch #3 implies these efforts are also low-risk;
high-risk projects should be managed with all of the project
management discipline and tools used in high-investment
Drive Business Intelligence Improvements with
Value-Based Project Management
Over the past two decades, the need for value-based project
management has grown considerably due to the creation and
refinement of many business intelligence tools, including
activity-based costing (ABC), customer relationship
management (CRM), and data mining. Each of these
high-investment projects does not reach its full potential
without implementing a never-ending list of performance
improvement projects.
PMI Virtual Library | www.PMI.org | © 2010 Brent J. Bahnub
Is the
Use Capital
Approval Process
• The Capital Spending Committee process should focus on large, discretionary
projects such as new product launches and significant product enhancements.
These projects are discretionary expenditures.
• Business cases are required for discretionary expenditures only.
• Core expenditures (“keep the lights on”) should be approved annually and do
not require business cases.
• M&A expenses are not part of the Capital Spending Committee process.
Will this
>$100K per
Use Performance
• Performance Improvement process should be
used for significant performance management
initiatives, requiring minimal investment.
• The Performance Improvement process
captures all high-benefit projects not captured
in the Capital Spending Committee process.
Use Standard
Annual Planning
The standard annual planning process
should be used for small expenditures with
minimal profit impact.
Figure 2: Value-Based Project Management.
For example, many companies implemented activitybased costing with the expectation that “If you build it, they
will come”; unfortunately, this is not the way it works. The
value of better information is nothing…unless you use it!
It takes value-based project management and the rigor of a
performance improvement process to drive these business
intelligence improvements.
Activity-Based Costing/Profitability ValueBased Project Management Example
Situation: Customer profitability data indicate one
of the largest customer relationships (based
on revenue) is actually destroying millions of
dollars of shareholder value. Current sales
force incentives are based on revenue.
Performance Improvement needs to lead
the project efforts to identify, prioritize,
and implement:
• Internal process improvement
• Customer behavior change
• Pricing modification opportunities
Similarly, customer relationship management identifies
underserved relationships, ineffective sales processes and
pipeline inefficiencies. Because many of these opportunities
are considered “gems,” they need value-based project
management to quantify, prioritize, and drive results.
Customer Relationship Management/ValueBased Project Management Example
Situation: The Customer Relationship Management
system is used for compensation scorekeeping,
rather than sales activity tracking and
forecasting. Therefore, no sales lift has been
observed after the installation of the Customer
Relationship Management system.
Performance Improvement needs to initiate a
project to increase sales effectiveness by:
• Segmenting potential customers by
expected value
• Segmenting current customers for
relationship expansion
• Using Customer Relationship
Management for sales activity tracking
and forecasting
PMI Virtual Library | www.PMI.org | © 2010 Brent J. Bahnub
Data Mining identifies opportunities within existing
individual relationships, segments, and sectors. Also, based
on market data, future relationships can be much more
effectively targeted. Once again, these low-investment
projects need VBPM to quantify, prioritize and drive results.
Data Mining/Value-Based
Project Management Example
Situation: For a bank, data mining shows a lack of
customer transactions in the first ninety days
of a new customer checking account
relationship (the onboarding period). No
debit card transactions or direct deposits are
observed during this period.
Performance Improvement needs to initiate a
project to establish and monitor a process to:
• Identify customer “triggers” during the
onboarding process. Triggers are those
activities (or lack of activities) that should
prompt a response by the bank.
• Create and document a response for each
trigger type.
• Route and monitor trigger responses
by the bank and the bottom-line value
realized by the bank’s shareholders.
Project management governance processes and shareholder
value are often not fully aligned. Most of these governance
processes can be improved with a greater emphasis on
shareholder value, rather than a heavily risk-focused
Companies should continually identify, quantify,
prioritize, and implement low-investment, high-value projects
(“gems”). A consistent, enterprise-wide project management
structure is required to implement these projects.
Using value-based project management, projects should
be managed depending on their classification. Projects fall
into one of three distinct classifications:
1. High-investment/risk (heavy project management office
process and tools)
2. Low-investment and high-value “gems” (light project
management office process and tools)
3. Low-investment and low-risk (no project management
office process or tools)
In recent years, the advances in business intelligence
have unlocked vast opportunities. These types of tools
generate a virtually unending list of opportunities to improve
shareholder value. Unfortunately, many companies have not
created a process to capture, prioritize, and implement these
“gems.” In order to maximize long-term shareholder value,
companies need a holistic value-based project management
governance process.
About the Author
Brent J. Bahnub, PMP, CTP, is Senior Vice President and
Director of Business Intelligence at First Niagara Bank.
His team is responsible for improving profitability through
process, policy, and pricing initiatives.
Previously, Brent held several leadership positions at
National City Bank, including Group Manager for Corporate
Banking Deposit Products, Non-Earning Assets Manager,
and Chief Financial Officer of Operations and Information
Brent’s book, “Activity-Based Management for Financial
Institutions: Driving Bottom Line Results,” focuses on driving
change. What’s the value of better information? Nothing……
unless you use it!
As a development engineer and financial analyst at IBM,
Brent designed mainframe subsystems and co-authored four
Brent earned a BS in electrical engineering from the
University of Wisconsin at Madison and earned an MBA with
honors from Columbia Business School.
PMI Virtual Library | www.PMI.org | © 2010 Brent J. Bahnub