CFO Insights: Gaining fi nancial visibility into your project portfolio

Transcription

1 CFO Insights: Gaining fi nancial visibility into your project portfolio From simple research analyzing competitor data to complex ERP implementations, most work in modern corporations is done in projects. Yet projects are notoriously diffi cult to manage, fi nish on time, or deliver on budget a daunting challenge for CFOs, who increasingly own the delivery of enterprise-level profi ts and performance. Key to delivering those profi ts is the selection, management, and monitoring of critical projects. And increasingly, emerging Project Portfolio Management (PPM) strategies and applications that integrate people, processes, and technology into performance dashboards can help CFOs improve their visibility into critical projects allowing them to identify problems or pull the plug on projects that are no longer vital. In this edition of CFO Insights, we examine the multiple benefi ts of a PPM application, which unlike traditional project management tools, can help track the complete portfolio of projects, manage interdependencies across those projects, ensure resources are allocated to optimize portfolio-wide performance, and align project metrics with key business-performance metrics. In addition, we ll look at how PPM can enable more effective integration of fi nance into projects, such as the tax-effective allocation of resources. Plus, we ll outline steps CFOs can take to help realize greater value from projects. Keys to assessing projects and performance These days, virtually every corporation manages day-today business operations with enterprise applications such as ERP and CRM. But, surprisingly few are equally mature in their management of project-related spend. Enterprise PPM is an emerging business practice that extends many of the principles used in the management of IT project portfolios to the management of project portfolios in such areas as capital improvements, R&D, new product development, and sustainability programs. And by leveraging an Enterprise PPM application, CFOs can more effectively address fi ve key questions: 1. What are the right projects to do? Given our longer-term vision, what are the best project opportunities today? How do we translate our strategy into projects with targets that all our stakeholders can understand? How well do proposed projects align with our strategy? 2. Are the right projects being done now? Will the projects underway let us achieve our strategic objectives? What is the correct balance between growth/innovation projects and productivity/maintenance projects? Is our current portfolio of projects suffi cient to meet our business performance objectives? 3. Are we allocating scarce resources in the most effective way? Can we staff current and proposed projects in the portfolio? Do we limit the active projects due to resources or source alternative resources? Do we have visibility to resource capacity issues and confl icts before they negatively impact project execution? 1

2 4. Are the right projects done right? Will projects comply with company rules and standards? Are interdependent projects properly sequenced and resourced? 5. Are we getting the results we want? Are project metrics tracking key operational milestones and outcomes? Are we getting the hard and soft benefi ts we desire? Are we using PPM to our advantage so that we are taxeffective? Did our project portfolio increase our shareholder value? Five opportunities to realize value from PPM Having the information, processes, and resources to address these questions is vital to delivering improved company performance. With PPM, you can gain a more robust information platform for investment decision making and potentially greater visibility into the execution of critical company projects. Beyond those benefi ts, a well-executed PPM strategy can help fi nance create value in at least fi ve distinct ways. 1. Improve project budgeting, evaluation, and selection processes Implementing a PPM application can be instrumental in improving the processes for identifying, selecting, and prioritizing projects. From having a simple Web interface with different standardized templates for project proposals and business cases to having clear criteria for project evaluation, PPM applications can bring greater structure and simplifi ed workfl ows to the evaluation process. Most important, as project performance tracking is implemented, projects can be reviewed more easily, allowing opportunities to bolster revenue-generating initiatives and shut down ineffective efforts. The greater clarity and transparency that can be achieved with PPM will likely also result in the reduction in the number of proposals submitted. And that lower demand for project funding that is achieved through better processes in project submittal, evaluation, and selection can lead to signifi cant savings. In addition, by having PPM applications that enable a portfolio-level view, project synergies can be established in advance to reduce duplicative efforts and support economies of scale benefi ts in technology, real estate, or other investment categories. In short, PPM applications can better align projects to strategic priorities enabling the right projects to be selected and supported at the right level. 2. Integrate tax planning into project initiatives A tax-effective PPM solution is based on the premise that tax data can be captured more effectively as the project progresses rather than compiled at a later date using estimates and assumptions. To that end, PPM applications can be confi gured to capture information for both fi nancial reporting and tax purposes and that information can be captured in parallel. In addition, PPM processes and software can be implemented to capture attributes for local country tax reporting and regulatory purposes, where applicable. Some benefi ts that can be realized through a tax-effective PPM implementation include: Deducting IT project costs. Often a portion of the costs capitalized for fi nancial accounting purposes can be treated as deductions for tax-reporting purposes. Property tax reduction. With better data captured by PPM applications, there is the potential for annual property-tax savings on real and personal property. Research & development (R&D) credits. Having PPM as the primary source of data to support R&D activities allows for streamlined IRS audit reviews; potentially avoids the use of two systems for R&D cost tracking, (i.e. one for tax and one for operations); can be a foundation for IFRS adoption when R&D will be treated differently (capitalized vs. expensed); and can create greater visibility into what qualifi es for U.S. federal and state tax credits (generally 10% of qualifi ed research spending) and foreign research tax incentives (up to 50% of R&D spending). 2

3 With PPM, supporting information for these and other tax positions can be available and documented concurrently as the project progresses. The results can be the ability to claim deductions and credits that may otherwise be overlooked, less time spent compiling supporting data, better documents to support tax examinations, and more effi cient tax audits in general. 3. Enable what if capabilities Portfolio management is the business process of deciding which projects to start, continue, discontinue, or postpone. Because PPM enables portfolio management, it also enables what-if analysis based on different scenarios. Specifi cally, you can view and analyze your portfolio and apply different scenarios to see how changes such as budget cuts, inclusion of a required project, or a timeline shift, can affect the health of your overall portfolio. Such scenarios can help identify those projects that best align to business objectives and those that pose excessive risk and cost to the organization. 4. Improve resource allocation and resolve conflicts from interdependencies among projects Project plans that are based on unrealistic resource availability due to insuffi cient capacity or competing priorities are very expensive. But when successfully implemented, PPM can track how people, cash, materials, and other resources need to be allocated. It can also track interdependencies among projects, so that if a particular initiative is delayed, the impact on other projects in terms of time and resources can be assessed. Overall, having a portfolio view of projects helps ensure resources are more effi ciently deployed across projects and sequenced appropriately. 5.Establish greater controls over project execution and outcomes By leveraging PPM, CFOs can gain greater control and oversight of critical business initiatives. PPM can also be used to track outcomes so CFOs can assess if the right results are being achieved. Such transparency may come at a cost, however. It can shine an uncomfortable spotlight on project managers whose projects are off track. This can engender organizational resistance to implementing PPM applications and infrastructure. Nevertheless, it is any good CFO s duty to ensure transparency and expect accountability. PPM: How can CFOs drive value? As CFO, you have experienced other transformational programs involving technology solutions. In many ways, a PPM application is similar in its focus on process improvement, governance, and organizational adoption. And similar to those other programs, taking the following steps can help you gain the most out of your initiative: 1. Determine how PPM can create value for your company The PPM Diagnostic Survey offers a preliminary framework for assessing how PPM can generate benefi ts for your organization. If you answer all the questions and achieve a score of 50 or less, it suggests PPM applications can add value. 2. Select the right leadership Given your time constraints, the development of a PPM application is better delegated. If you are embarking on an Enterprise PPM, the natural candidates could be the head of FP&A or the controller, based on the focus of your initiative (improved planning discipline versus budget and operational control), and the expertise of the individual. In some organizations, PPM is delegated to a person responsible for special fi nance-transformation projects. Good working relationships across business units and the capacity to infl uence stakeholders to change processes and share project information in a timely way would be important considerations in deciding who is delegated responsibility for PPM. Even if the PPM implementation is only focused on IT, it may still be valuable for someone in fi nance to be involved to help ensure that cost visibility and tax benefi ts are achieved. 3. Prioritize how you want to leverage PPM Are you going to focus fi rst on PPM helping you gain greater visibility into the project portfolio? Or given substantial technology, R&D, training, and real-estate investments, will you fi rst leverage it as a tool to track tax benefi ts and simplify compliance to tax rules? Clarifying primary sources of value from PPM enables a more effi cient business case for its implementation. 3

4 4. Establish a (flexible) road map for change CFOs also need to be comfortable with the roadmap for that implementation. This means working with your delegate to select areas where PPM should be implemented fi rst as well as establishing timelines for managing changes to project evaluation, justifi cation, and tracking. Will you start in one function (i.e. IT, R&D), in one business unit, or at the enterprise level? While the enterprise solution is compelling, it is sometimes better to establish a proof point that demonstrates the business case and aids in organizational acceptance. In addition, as part of the process, it is also important to be open to leveraging multiple software applications to create a solution. Integrating with other ERPs can decrease duplicate entry and work, as well as extend the information platform. Moreover, at this point, you move from a PPM application to a PPM solution. 5. Champion PPM; Socialize the benefits To realize the full benefi ts of PPM, it is particularly effective for CFOs to serve as executive champions, informing peer business leaders of likely benefi ts and driving greater discipline around all aspects of project management. For example, PPM creates the opportunity to catalyze process changes around budgeting and planning. As such, it is more effective for CFOs to sponsor the design of new processes to get the value out of PPM. In addition, CFOs will need to consider how to work with peer business leaders to frame expectations of the use of PPM, and how best to utilize and respond to information from PPM systems. After all, greater visibility can shine an uncomfortable spotlight on project managers and projects off track. This will likely require framing a governance model with multiple senior stakeholders. While PPM had its roots in the management of IT projects, today PPM can be applied to everything from multinational retailers tracking store remodels to utility companies tracking critical maintenance projects. PPM can enable improved investment discipline, risk, and fi nancial management of these projects, potentially generating savings and increasing the likelihood of desirable results. For a CFO, PPM can also help fi nance deliver greater value through improved budgeting and planning processes, as well as select tax and other savings. Thus, as companies begin to initiate new projects to drive growth, this may be your moment to transform capital investment through PPM. Contacts Bryan R. Funkhouser Principal, Technology Strategy Deloitte Consulting LLP bfunkhouser@deloitte.com Dr. Ajit Kambil Global Research Director, CFO Program Deloitte Services LLP akambil@deloitte.com Deloitte s CFO Program harnesses the breadth of our capabilities to deliver forward-thinking perspectives and fresh insights to help CFOs manage the complexities of their role, drive more value in their organization, and adapt to the changing strategic shifts in the market. For more information about Deloitte s CFO Program visit our website at This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering accounting, business, fi nancial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualifi ed professional advisor. Deloitte, its affi liates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member fi rms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member fi rms. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2011 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited. 4

5 Appendix PPM Diagnostic Survey Please rate on a scale of 1 to 5 how much you agree/disagree with the following statements. If your score is below 50, it is likely you could benefi t from PPM. If your score is 30 or below, better project management could potentially unlock considerable business value. 1: Strongly disagree 2: Disagree 3: Neutral 4: Agree 5: Strongly agree 1. I am confi dent we select the right projects. Rating 2. Project information is adequately available in a timely way to support quick decisions to escalate investments in successes, or to remedy or kill troubled projects. 3. We are able to effectively match resources (people, capital, and equipment) to the needs of different projects. 4. I have clear visibility into the costs of the company s critical projects. 5. We have consistent approaches and measures for evaluating prospective project investments. 6. We have consistent measures for evaluating the outcomes of projects. 7. We can easily report how our capital projects and investments directly support strategic business initiatives. 8. We can easily evaluate project portfolio level impacts of risks and changes in business drivers and priorities. 9. I am satisfi ed by the fi nancial control we have over projects. 10. I am satisfi ed by my ability to report on critical projects to our investors. 11. We effectively take advantage of different tax credits related to our project investments. 12. We are easily able to comply with tax rules to take advantage of any project related tax credits. 5