Scoping and Business case - Mike Claytonmikeclayton.co.uk/wordpress/wp-content/uploads/... · it is clearly in scope. Because the boundary is fuzzy and too poorly defined. So, to

© Dr Mike Clayton 2014 www.mikeclayton.co.uk/hmgpsp

Scoping your Engagement and Helping your Prospect build a Business Case

for your Services

Mike Clayton

Webinar: 8 August, 2014

© Dr Mike Clayton, 2014 Page 2

MANAGE A GREAT PROFESSIONAL

SERVICES PROJECT

HOW TO

Business Case An analysis of the benefits and costs of making a change to the way things are done.

Benefits and costs can be easily quantified or hard to quantify (intangible).

Quantifiable costs can be either easy to equate to financial measures (for example, the additional cost of procuring a higher quality component) or hard to put into financial terms (for example, the increased customer satisfaction survey scores that may arise).

Costs Benefits

Business Case

Quantifiable Financial Non-financial

Intangible



SERVICES PROJECT

HOW TO

Pricing Professional Services Most of the time, ERA consultants have set a price based on projected cost savings.

A more traditional consulting model has less risk for the consultant, and is more appropriate when outcomes are harder to predict with confidence, and both parties need to relate costs to work delivered.

Here, price is derived more directly from the cost of work performed in creating the deliverables, with the anticipated benefit (and hence value) influencing commercial decisions.

.

Standard ERA Approach

Total Cost

Total Benefit Profit

Price

Cost Benefit Price

Consultancy Model Approach

Work Deliverables



SERVICES PROJECT

HOW TO

Scoping

Scope answers another question:

“How much of it do you want?”

Scope is a statement of the breadth and depth of your ambition for the project. It is a description of everything that the project needs to do.

In the diagram, everything inside the circle is “in scope”. It is the work of the project to produce it: it is your job. Everything outside the project is out of scope: it is not your concern. It may be important; but somebody else or some other project will take care of it, or it may not be important enough, and it is not needed.

In the UK, scope is most often thought of as the work that needs to get done; the tasks that the project must undertake. We talk about “the scope of work”.

In Scope

Out of Scope



SERVICES PROJECT

HOW TO

Scope Creep

There are three words that project managers have come to fear above all others. People will say “while you are doing this project…” here they come:

“could you just…”

“Could you just” is their attempt to get their agenda included in your project. Which, from their point of view, is perfectly reasonable. But from your point of view, they are asking you to commit your people, your resources, your time and energy to delivering what they want – as well as what you are supposed to be doing. They are trying to expand the boundaries of your project; a process known as “scope creep”.

To stop it; you must first understand why it happens. The commonest reason is simple misunderstanding. People’s interpretation of the boundary of your scope is different to yours; what you think of as out of scope will, to them, seem like it is clearly in scope. Because the boundary is fuzzy and too poorly defined.

So, to manage scope creep, there are two things you must do.

1. Define your scope with precision 2. Get your definition of scope signed off

In Scope

Out of Scope Scope

Creep

Define your scope with

precision

Also identify what is

out of scope Authorisation



SERVICES PROJECT

HOW TO

Scoping and the Pareto Principle

Discovering your client’s requirements and turning them into a scope is an essential part of designing your project. You will need to consult a variety of people and may find that some perspectives conflict with one-another.

The end product of requirements gathering will be a statement of everything you have learned in “MoSCoW format”.

Musts Essential items. The project will fail without them. Sometimes referred to as the MUST: “Minimum Usable SubseT”.

Shoulds High priority items that supplement the Musts. These can be dropped if either: they are not truly essential, they can be delayed, or an alternative means of satisfying the requirement is available.

Coulds Low priority items that are “nice to have”. These will often be developed if the cost is marginal and an important person pushes for them. The easiest part of scope to drop, if shift happens and there is a problem, with no additional time or budget to spare.

Won’ts The lowest priority items, which we’d like to do but cannot justify the expense, risk or delay. We would if we could: but we won’t.

Your decisions about what goes into which category will often be political ones, deciding on which people to please and which to disappoint. This is one of the reasons that scoping is so difficult!

Level of effort 20% 5% 50%

Leve

l of be

nefit

80% 90%

60%

Musts Shoulds Coulds Won’ts MoSCoW Analysis



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Work Breakdown Structure (WBS)

The name might sound intimidating, but all that a work breakdown structure does is to take the work (your project) and break it down into a structured set of tasks. Let’s take an example; redecorating your kitchen.

First: Work Streams Determine the big areas of work in redecorating your kitchen. You might decide that they are: stripping out the old kitchen, electrical work, plumbing, decoration, and construction of kitchen units and cupboards.

Second: Key Jobs For each of the work streams, list out what the key jobs will be. For example, in stripping out the old kitchen, you may need to: remove the old cupboards, take up the flooring, and strip the walls. You may split the electrical work into the ring main, the lighting circuit, and radial circuits for high consumption devices like the cooker.

Third: Detailed work items For each key job, break it into the detailed pieces of work. One key job of the decorating work stream may be the walls. Detailed work items may be preparation and painting. You may further split each of these down to another level of detail, for example splitting preparation into washing, filling and smoothing.

Kitchen

Floor Ceiling Units Walls

Doors Carcasses Worktop

Sink Seals Fixings Timber

Plumbing Taps Sink Top

1 2 3 4

3.1 3.2 3.3

3.1.1 3.1.2 3.1.3 3.1.4

3.1.4.1 3.1.4.2 3.1.4.3

Work Breakdown Structure (WBS)



SERVICES PROJECT

HOW TO

Using your WBS to Resource and Cost your Project

Kitchen





Organisation Breakdown Structure

Project Manager

Kitchen





Cost Breakdown Structure (CBS)

£ £ £

£

£ £ £ £

£ £ £

£ £ £ £

Budget



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Costing a Professional Services Project

An alternative approach to costing a professional services project is based on a Linear Responsibility Chart (LRC).

Chart activities against the people who will contribute to your project on a grid – a spreadsheet is perfect. For each person, estimate the amount of time they need to commit to each activity.

Totaling for each activity, you have the total number of days of staff time. If each person has a day-rate or hourly rate assigned, you can convert their time commitment into a cost, to price each activity.

In the figure, activity A uses a total of 19 staff-days, at a total cost of £2,390.

You can also add hours or costs downwards to calculate each person’s commitment to your pr.

In the figure, Sneezy needs to commit 28 days at £120 per day: a total cost of £3,360.

Activity A Activity B Activity C Activity D

Bashful

Grumpy

Sleepy

Sneezy

Dopey

Happy

Doc

4D 8D 7D 9D

Consulting Days 28D Total Cost £3,360

Day Rate £130 £120 £120 £120 £100 £110 £150

1D 6D 8D £1,040 £720 £480 £150 £2,390

£960 £840 £1,080

Services Budget



SERVICES PROJECT

HOW TO

Business Case

A persuasive case cannot be built on facts and analysis alone. Nobody makes a decision purely on the evidence: they decide what they want to decide and use the facts to justify their decision… to themselves, to their colleagues, and to their organisations.

Therefore, your business case must be worded to ensure you give the decision makers the desire to say yes to you, as well as the evidence to justify their decision.

Aristotle told us, over 2,000 years ago, the three elements of a persuasive case:

Ethos: Character The decision maker must see you, your organization, and your documents as credible, with complete integrity and a strong track record.

Logos: Reason Give your decision-maker reasons, supported by evidence and a rigorous methodology, so that your logic is compelling

Pathos: Emotion Your decision maker needs to feel it will be the right reason, so tell them why they should say yes: not in cold logical terms, but in terms of what the savings will mean to them, and to their organization. How can they use them? Anther approach is to hint at the decision-maker’s loyalties or sense of duty. The strongest (but most dangerous if it backfires) approach is to hint at adverse consequences of not saying yes.

Business Case for Sales

Ethos Character

Logos Reason

Pathos Emotion



SERVICES PROJECT

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Business Case Process

1. Define scope options for project

• It is good practice to always offer your client a choice.

• Psychology tells us that usually, with three choices, a client will usually choose the middle one. There are to bottles of wine, A and B, to choose from, so most people will choose the cheaper one, A. If the restaurateur adds a third, higher priced bottle to the menu, C, a lot of diners will choose the middle bottle B, increasing revenues.

2. Identify opportunities for savings and benefits arising from each option.

3. Determine costs, benefits and assumptions

• These are the three components at the heart of your investment appraisal.

• Use the Pareto Principle to focus on the ‘Big 3’ benefits. This is more persuasive, avoids double counting benefits, and reduces delivery risk.

• Beware of hidden costs – to the client and to you.

4. Draft the business case

• Also use the Pareto Principle to select evaluation criteria for selecting between the options you present.

• If you propose the right criteria to your client, you can be sure that your proposal matches up to them well.

5. Secure a decision

• Binding client sign-off is crucial to a consultants’ commercial risk management.

• If realizing a benefit or saving is dependent upon actions of one or more members of your client team, sign-off must include an explicit written commitment to these actions.



SERVICES PROJECT

HOW TO

Discounted Cash Flows

Discounted Cash Flows

year payment PV factor PV

0 -£ 1.000 -£ 1 100.00£ 0.966 96.62£ 2 100.00£ 0.934 93.35£ 3 100.00£ 0.902 90.19£ 4 100.00£ 0.871 87.14£ 5 100.00£ 0.842 84.20£

@ 3.5% 451.51£

Equivalent Annual Factor 0.221 Equivalent Annual Cost 100.00£

year payment income cash flow PV @3.50% PV @13.27%

0 (100.00)£ (100.00)£ (100.00)£ (100.00)£ 1 8.00£ 8.00£ 7.73£ 7.06£ 2 16.00£ 16.00£ 14.94£ 12.47£ 3 30.00£ 30.00£ 27.06£ 20.64£ 4 42.00£ 42.00£ 36.60£ 25.51£ 5 64.00£ 64.00£ 53.89£ 34.32£

60.00£ 40.21£ -£

Internal Rate of Return 13.27%

Present Value (PV) Factor (or Discount Factor) D[n] in the nth year: D[n] = 1 / ( 1+r )^n

Discount rate; r Discount rate; r

year; n Net Present Value (NPV) is the sum of Present Values: NPV = Σ(PV) The NPV of an investment is today's value of a series of future payments and income.

The Equivalent Annual Cost A single payment (P), say of £451.51, in year zero is equivalent to n (=5) annual payments in years 1 to n of, in this case £100.00. A[n] = P x r / ( 1-D[n] )

A Discounted Cash Flow is the flow of cash with the discount factors applied - that is, the present values of each payment. The present value is the total amount that a future payment is worth now. It is calculated by multiplying the payment by the PV factor.

The Equivalent Annual Factor is: r / ( 1-D[n] )

The Internal Rate of Return (IRR) is the equivalent interest rate received for an investment consisting of payments (negative values) and income (positive values) that occur at regular periods.

The IRR is closely related to the NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a zero NPV.

The Present Value (PV) is the value in today's money of a sum in the future or the past. To calculate it, you need to know how fast the value of money changes. This is related to interest rates and inflation. Interest on cash retained increases its future value. Inflation diminishes it.!



SERVICES PROJECT

HOW TO

The Status of your Business case

The business case is one of your most powerful commercial products. With that power comes risk.

If you and your team take the lead in preparing the business case upon which your client makes their decision, you have far greater control of its contents, format and (crucially) assumptions. However, it will clearly be seen as an ERA proposal document, and you will be held to it.

If your client takes the lead on preparing their business case, you lose a large element of control, but your client will be more strongly committed to the outcome. This means their decision is more likely to be based on its findings, and they should take greater responsibility for its assumptions, reducing your risk. However, you will now be delivering to someone else’s plan.

These are, of course, two ends of a spectrum.

Less Control Less Risk

More Control More Risk

ERA team prepares BC (with client) & incorporates it into proposal

Client team prepares BC

(with ERA team) to help decision-making

Status of your Business Case



SERVICES PROJECT

HOW TO

Thank you for attending the seminar.

If you enjoyed it, please follow the link to sign up for the next webinar:

“Planning and Estimating Tools to Help Assure your Commercial Success”

Friday 21 November, at 1pm

http://mikeclayton.co.uk/era-project-management-webinar-no-2/

www.mikeclayton.co.uk

Documents

Scoping and Business case - Mike Claytonmikeclayton.co.uk/wordpress/wp-content/uploads/... · it is clearly in scope. Because the boundary is fuzzy and too poorly defined. So, to