Analyzing Your Corporate Projects

Financial and aggregate value is created by activities carried out by individuals – corporate employees. However, to create value, these activities must be properly coordinated – horizontally and vertically. Coordinated by combining them into systems of activities.

In any organization, there are two categories of such systems – projects and processes. A project is a one-time system of interrelated activities aimed at achieving certain objectives during a certain period of time (‘object duration’). In other words, a project, by definition, is executed only once. A process, on the other hand, is repeated periodically.

Therefore, your corporate projects and processes are just small (or not-so-small) value-creating machines. Which means that the portfolio of your corporate projects and the system of your corporate processes are two very important components of your business entity.

Formally, every object performance maximization plan is a corporate project. However, when we are talking about corporate projects portfolio, we usually include in this portfolio only those projects that create large amounts of financial and aggregate value.

As financial value in a business entity is the ‘first among the equals’, the primary objective of every corporate project is to generate financial value. Therefore, every corporate project is first and foremost an investment project and must be treated and managed as such.

Hence, you have three fundamental project management objectives: (1) assemble the optimal portfolio of corporate objects in terms of financial value generation; (2) maximizing financial value of each corporate project and (3) maximizing financial value of the whole projects portfolio. The latter, obviously, requires maximization of the synergy between projects in your portfolio.

An investment project has four classic KPI: breakeven point, payback period, net present value (NPV) and internal rate of return (IRR or MIRR). For obvious reasons, the first two must be minimized and the latter two – maximized.

To these four, it is important to add two more – project-specific WACC that reflects risks of a specific project and economic profit – the difference between IRR and WACC of the project in question. It must be noted that individual project might be more or less risky than your business in general; therefore, its WACC may be higher or lower than your corporate WACC.

Other important KPI – specific to project management – are number of projects completed on time; under budget, meeting initial targets (KPI values) and exceeding them. In addition, each project can have its own financial and operational (functional and emotional) KPI.

As with any other KPI, you will need to choose their benchmark values, develop planned values – based on these benchmarks – ex ante and then compare with them actual values ex post.

For the project to make financial sense, it must have positive NPV and IRR; to make economic sense, it must demonstrate positive economic profit. Corporate project acceptance criteria typically require that economic profit of the project must exceed certain minimum amount for the project to be accepted for investment and implementation.

In order to maximize financial and aggregate value created by your corporate projects, you must develop and implement a highly efficient project management system. Obviously, the core of this system is proper project documentation (you can manage only what you can measure and you can measure only what you can see). Which starts with a comprehensive, accurate and up-to-date list of all of your corporate projects.

As the primary objective of every project is to generate the maximum amount of financial value, the core of your project documentation is the financial plan of the project (its financial valuation model). Financial plan must be supported by operational plan (system of coordinated activities carried out by your employees) and by comments to both plans typically referred to as the business plan of your corporate project. Which must include – in appendices – all relevant project-related corporate documentation.

Typically, corporate project management system is developed using specialized project management software such as Microsoft Project (a standard choice for most projects). For a financial model, project analysts and managers use mostly spreadsheet software such as Microsoft Excel which is tightly integrated with project management software. Business plan is usually written with some kind of word processor such as Microsoft Word.

The same software is then used to integrate documentation of individual projects into a comprehensive financial model, operational plan, a business plan for your whole corporate projects portfolio supported by all relevant corporate documentation (linked to the corresponding components of core documentation).

Obviously, all these components of your project documentation must be comprehensive, well-structured, accurate, up-to-date and developed using the appropriate project management methodology and corporate process.

No less obviously, to maximize value created by your individual projects and your projects portfolio, you will need highly competent project analysts (for developing the abovementioned documentation) and project managers (for successful execution of your projects).

In our modern fast-paced world, none of your plans – financial, operational or business – can be set in stone. Rapidly changing corporate environment requires lightning-fast adaptation of your corporate project plans to these changes. Which, in turn, requires a highly efficient process of monitoring this environment and making this adaptation.

Another process that needs to be implemented and optimized, is the one that monitors implementation of your corporate projects and performs corrective actions whenever the projects falls behind schedule or goes over budget – to return it on track.

For obvious reasons, each of your corporate projects and your whole projects portfolio must match your KEF, your DCI, your corporate mission statement (if you have one), your corporate vision statement, your corporate strategies and your strategic plans.

No corporate object – or function - is an island. Or should be. Therefore, your corporate projects management system must be tightly integrated into the overall corporate management system – strategic and operational.