Projects: two key areas to increase shareholder value

How can businesses manage projects better and increase shareholder value?

Shareholder value

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Most businesses are good at extracting shareholder value from Operations, but not from Projects, where a lot (if not most) of value should be coming from.

Businesses are expected to increase their value, over time. They are expected to create value for their owners (i.e. shareholders). To do so, they allocate their scarce resources to the most promising operations – and projects. The latter activities are where they take advantage of new opportunities and deal with threats.

A framework to better manage projects

From our research and experience, we learned that projects have a significant impact on value. We also learned that the following areas are critical to selecting and managing projects to create value:

  • Value drivers of business
  • Stakeholder mapping and engagement
  • Risk assessment and mitigation
  • Structures and systems
  • Portfolio prioritisation and balance
  • Portfolio performance
  • Project appraisal (non-financial considerations)
  • Project appraisal (financial considerations)
  • Innovation and technology
  • Continual basis

We developed a framework to assess project/ project portfolio practices of businesses – of any size and sector. A framework that helps them create value, leveraging the areas listed above.

Over the years, this framework helped our clients select and manage the projects which are most likely to succeed. And create value for their owners. (Considering their unique strengths and strategies.)

Typically, project appraisal (financial considerations) and project portfolio prioritisation are the two areas in which businesses need to improve the most. For example, make sure that your business cases either state the cost of capital assumptions specific to the project or use a risk-adjusted NPV model. In addition, your management team should decide, regularly, which projects should be in – and out of – the portfolio, through project portfolio reviews.

Final thought

We conducted the survey years ago, but our recent assignments tell us that the findings are still valid. And the recommendations are still useful.

 

If you are a member – learn more about this by downloading the following presentation:

P27 Projects and Shareholder Value in Financial Services