Mbo management by objectives example. Personnel motivation using the MBO method - Management by Objectives. Then the bonus percentage will be

SCIM solution

How to line up control system, focused on relevant business goals. How to achieve team coordination and focus on results from management and ordinary employees. How to improve the efficiency of planning and forecasting systems in business.

Description of the overall business solution

Imagine:

Company "A"

In business, there is no system of management norms and rules; there is no sustainable culture of making management decisions and monitoring their implementation until results are achieved. Emerging tasks are poorly predicted, often arise urgently and force majeure and are more suitable under the definition of “Problem”.

There are no stable algorithms and decision-making rules. Decisions most often are not prepared; they have to be made “according to the situation,” “under time pressure,” based on the information that is available “at the moment.” Collecting information is difficult and not systematized. The quality of decisions made is low.

Control over the execution of decisions is very often in “manual mode”, when the manager individually deals with each specific task. Or he doesn’t do it, and then the fulfillment of the task is in question.

A business leader is constantly dependent on the human factor. There are not enough good workers. And if they do exist, they are constantly dissatisfied with the level of pay and working conditions. The execution of tasks and the functioning of processes in a company is directly dependent on the identity of authorized employees.

Each business unit/functionality has its own idea of ​​the rules of work, and because of this, tensions and conflicts constantly arise. Very often these conflicts are destructive. Coordination and overall results suffer.

All of the above leads to increased stress in a business forced to operate in a constant situation of uncertainty. Overall result We forecast poorly.

When communicating with shareholders, the manager takes a more justifiable position, trying to justify the existing state of affairs. Shareholders are unhappy.

Company "B"

The business management system is streamlined and focused on its effectiveness. The company has a set of algorithms, norms and rules for goal setting and managing tasks and processes to a specific result. An appropriate corporate culture has been formed. All functional processes are formalized and coordinated with each other. The situation of uncertainty in business is reduced to a minimum.

The principles and algorithms of management and decision-making are clear and understandable to team members. Decisions are made based on the principle of expediency. The collection of information and assessment of its quality necessary for decision-making are prescribed in the system.

Every employee is part of a results-oriented system. Team members are clearly coordinated with each other. Conflicts and disputes are constructive and their result is the development of better solutions.

Execution is under the necessary control. Sufficient to minimize the risk of non-fulfillment and at the same time not requiring excessive resources.

We plan and predict the result.

Communication with shareholders is in a constructive manner, discussing plans and their implementation.

Of course, every business owner or top manager would like his company to be similar to company “B”. But how to achieve this?

Company “B” built a management system focused on relevant business goals, achieved team coordination and focus on results from management and ordinary employees, increased the efficiency of planning and forecasting systems in business thanks to:

• Decentralization control systems,
• The predominant type of control - output control,
• Methodologies MBO (management by objectives),
• Methodologies project management.

It is these principles and management methods, as well as the practical aspects of their implementation, that this decision is devoted to.

Types of management and control (Extreme models)

The problem of delegation of authority in business is related to setting up a system for making decisions and monitoring their execution. This task is subtle and complex, and in each organization its solution goes through its own path of evolution. Naturally, the larger and more extensive a business becomes, the more urgent the task of setting up a system for setting and monitoring the execution of tasks becomes.

Centralization - Decentralization

Delegation of authority is directly related to the degree of centralization of power in the company. The term "centralization" refers to the degree to which decision making is concentrated in one hand. While the business is young, the manager/owner, one way or another, alone makes most of the decisions. This means high centralization of power. The larger/complex a business becomes, the more complex decisions have to be made, and the higher their pace and cost. Excessive centralization becomes an obstacle to business development and the manager has to share powers and dilute centralization. Each organization has its own path to decentralization.

Centralized organizations are organizations in which senior management retains most of the authority necessary to make critical decisions.

Decentralized organizations- these are organizations in which powers are distributed among lower levels of management. In highly decentralized organizations, middle managers have very large powers in specific areas of activity.

Advantages centralization:

1. Centralization improves control and coordination of management, reduces the number and scale of erroneous decisions made by less experienced managers.
2. Centralized management involves the widespread use of management's experience and knowledge, since the final responsibility rests with them.

Advantages decentralization:

1. In large organizations, the complexity of decision making is increasing. Making effective decisions requires a large amount of heterogeneous information. This becomes possible only as a result of delegation of authority and decentralization.
2. Decentralization gives the right to make decisions to the leader who is closest to the problem and, therefore, knows it best.
3. Decentralization stimulates initiative and allows the individual to identify with the organization.
4. Decentralization helps prepare a young leader for higher-level positions by giving him the opportunity to make important decisions early in his career.

The essence of centralized organizations is the separation of decision-making processes and their implementation: top managers make decisions, middle managers transmit and coordinate them, and employees carry them out. Comparative analysis in studies and works on management theory shows that centralized organizations tend to be costly. They are slow to adapt to market changes and poorly responsive to changing customer needs, limited in creativity and initiative to operate effectively in a competitive environment.

Organizations with fewer levels of management tend to be more flexible and dynamic than centralized hierarchical structures. Conditions are being created for the activities of more professionally trained managers, reducing the communication network, and reducing the administrative distance between management levels.

Decentralized structures have many supporters. However, decentralization does not mean abolishing control. Control must be so effective that decentralized actions can be properly assessed.

Control by “input” - Control by “output”

Based on the specifics of setting and monitoring the execution of tasks, two extreme models can be distinguished: “input” control and “output” control.

Entrance control– involves a deep immersion in the structure and nature of the execution of assigned tasks by a subordinate/performer. Constant intermediate control and, if necessary, intervention in the adoption of intermediate decisions by the manager are assumed. An extreme case is when all decisions, including operational ones, are made by the manager and the subordinate/performer is under manual control. It is often said in this case that the manager is engaged in “micromanagement”. Execution is controlled from the “entry” into the task when making decisions - how to achieve it, right up to specific orders and actions on the part of the controlling person.

Output control– the main task of the manager in this case is to develop for the performer effective, clear, measurable indicators of achieving the assigned tasks (KPI), which will serve as an indicator of success in achieving the goals. Control of the activities of subordinates/performers is carried out by monitoring the achievement of target performance indicators set for them at the end of execution - “at the exit”. In other words, in this case, the leader formulates goals for subordinates, while subordinates themselves make decisions about how to achieve these goals. Interim management intervention is minimal.

The first case gives the manager a feeling of minimizing the risk of execution errors (making wrong decisions - how to complete a task). Proponents of this model often say: “If you want it done well, do it yourself!” However, this model requires personal resources and personal involvement of the manager. This is its disadvantage. Because a manager's resource is always limited.

The second model gives greater freedom for the performer in ways to achieve the goal and operational space. For the manager, there are two most important tasks: 1) correctly formulate the task and determine the parameters for its achievement for the performer, 2) select a performer of appropriate qualifications.

These models are extreme/extreme. In practice, more often there are “mixed” models with a bias in one direction or another. It is also possible to use one form or another depending on the priority and importance of tasks: for more priority, important and risky tasks - “input” control - more attention and control of execution, less risks, for more familiar, less priority and important - rather control “ on the way out."

If you ask me what type of control I personally prefer, I will answer - this is a “mixed” type of control with a fundamental shift towards “output” control, but with the ability to also control (and adjust if necessary) those actions that are taken to achieve given result.

Management by Objectives (MBO)

Management by Objectives(English) Management by Objectives, MBO) - formation of a hierarchy (tree) of interrelated and interdependent business goals of the organization, from top-level strategic to operational tactical. And then - management of these goals through assigning those responsible for their achievement, monitoring and evaluating the achievement of goals, and adjusting them, if necessary.

MBO is a systematic and methodological principle of business management. It assumes that the management of an organization is based on a system of interrelated and interdependent goals. Normatively, such a rule in a company assumes that at the beginning of the planning period (month, quarter, year) the company, divisions, departments and managers are given specific goals and objectives that are directly related to strategic goals of a higher order (often stemming from them) , on the implementation of which bonuses, bonuses and other motivational components depend. The MBO method in a broad sense is the identification of the key goals of the company and their distribution among the organizational structure and managers of the organization through a tree of goals on a top-down basis.

When constructing a tree of goals, all goals of lower levels work to achieve top-level goals. In this way, the overall subordination of all the company’s activities to its strategic goals, consistency in the work of the divisions and business areas of the company is achieved.

Another important task that the MBO system must solve is increasing the agility and controllability of both the business as a whole and all its constituent units, throughout the hierarchy, right down to any employee. Developing clear criteria for achieving goals improves overall coordination, and focusing on a specific result increases the efficiency of both the organization and each individual manager.

In the classic version, described in many textbooks, when using MBO, it is assumed that the tree of goals during planning is outlined and detailed down to the level of the organization’s employees. However, my experience of using MBO shows that such a system becomes too cumbersome, resource-intensive and difficult to manage. At the same time, the key goal of using the MBO system - increasing business agility - is not only not achieved, but becomes significantly more complicated.

In our practice, we built a tree of goals to the tactical level of managers and functional leaders. The level of operational tasks of ordinary employees is not excluded from the system; their planning is delegated to managers and functional heads in their areas of responsibility. Managers and line managers set goals and motivate employees, engaging them to achieve their business goals. At their level, they plan to achieve goals, decomposing them into operational tasks, for the execution of which resources are assigned/agreed in the form of performers/employees of the organization.

As a result, a unified operational plan is created according to the structure of the tree of the organization’s business goals and consistency and interconnectedness of all goals and objectives in the organization at all levels is achieved. This increases flexibility in management and creates the prerequisites for increasing business agility.

The main characteristic of a manager as a business unit, developed by this approach, is a focus on strategic goals business, focus on results.

Advantages/benefits of MBO system

• Improving the planning system in the organization. MBO encourages managers to think in terms of results. Developing an action plan, providing resources to achieve goals, discussions and localizing areas of uncertainty require clear planning.
• Increasing work efficiency due to the fact that each manager has a clear understanding of both his own goals and the goals of the organization as a whole.
• Increased motivation to work, since in these conditions everyone feels a personal interest in achieving goals.
• Visibility of achieving the final result, because the criteria and time frame for its achievement are clearly formulated.
• Improved relationships between managers and subordinates due to transparency and alignment of goals. Improving the communication system.
• Improving the system of monitoring and evaluating the work of each member of the organization (in accordance with the results achieved).

Disadvantages of the MBO system

• It is not applicable to the management of an organization, where it is customary to determine goals only by top management, without involving managers at all levels in this process.
• Additional resource costs for the development and maintenance of the system.
• System distortions:
  • Managers may have difficulty interpreting unclear or unrealistic goals;
  • Problems with goal setting: managers tend to set the bar high and subordinates to set it low;
  • Goals that are easier to measure are favored over goals that are truly meaningful.

Hierarchy of business goals

In the MBO system, it is important to build a system of vertical dependence of goals - a “tree of goals” (“pyramid of goals”). The main task of implementing the idea of ​​vertical dependence of goals is to link business goals and the process of planning their achievement with the hierarchy levels in the organization. It is necessary to find out which positions of individual levels of the hierarchy, how and in what sequence should participate in achieving the business goals of the organization.

The result of such work is the so-called “tree of goals”, where a clear dependence of the goals of all levels of the hierarchy in the organization is visible. The “tree” of goals in the classic version includes the following necessary elements:

• strategic goals;
• tactical goals;
• operational goals.

Bringing the diagram closer to the realities of a specific business structure, the tree of goals (pyramid of goals) takes on approximately the following form (depending on the complexity of the organizational structure and the number of business levels in it).

Project management as a management tool by objectives

As I described above, MBO (Management by Objectives) is a system for developing a tree of company goals from top to bottom, assigning resources to achieve these goals, managing them and coordinating them. Each goal is final and specific. And it can be considered as a project, since it has the characteristics of a project. Thus, we come to the point that the project can be considered as a component, a tool of a management system by objectives.

“A project is a temporary undertaking designed to create a unique product, service, or result. The temporary nature of a project means that any project has a definite beginning and end. Completion occurs when the project's objectives are achieved; or it is recognized that the project's objectives will not or cannot be achieved; or the need for the project has disappeared.”[Guide to the Project Management Body of Knowledge (PMBOK Guide) - Fifth Edition. - Project Management Institute, Inc., 2013].

Features of the project:

1. Focus on specific results.
2. Time limit. The project must end at some point.
3. Resource management: people, finances, time.
4. Team motivation.

Project management: planning, organizing and controlling human, financial and material and technical resources of the project, aimed at effectively achieving project goals.

To manage the project, a project plan, a project budget are developed, and project risks are managed.

From this brief description it is clear that the project can be considered as a component, an element of the tree of company goals in a synonymous pair: “Goal” - “Project / project goal”.

There is an intersection of PM (Project Management) and MBO (Management by Objectives) systems - the key parameter is focus on a specific result. And further, the combination of two management systems in other respects occurs organically: planning, resource management, motivation of participants.

How is it possible to use project management methodology in a company where there are many cyclical processes? The main difference between a project and a business process is that a project is a one-time, non-cyclical activity. However, recently the project approach has increasingly been applied to processes. In particular, in our company we have packaged processes (financial management, HR, risk management, Compliance management, accounting, etc.) into projects, setting very specific goals for the processes over a finite period of time (one year, six months). This does not cancel the described business processes and regulations, but complements them. Project coordination and management is carried out taking into account the activities described, among other things, in business processes. And compliance with regulations, business processes, and quality standards become standard functional (process) goals.

Thus, in managing the company, we combined several methodological principles.

Combining methodological principles of company management

I will give an illustration of the combination of several methodological principles in our company:

• MBO– “Management by Objectives”;
• BPM– “Business Process Management”;
• P.M.– “Project Management”.

At the intersection of using these principles, the company receives the following important components of the management system

I. MBO – PM

• Determination of strategic, top-level goals of the company.
• Development of the “Goal Tree” from top to bottom. Using a management system by goals, the company receives a tree of goals and a system of subordination/coordination/coordination of all company goals to achieve the company's strategic goals.
• Each of the tree's goals becomes the goal of a specific project.
• Those responsible for achieving goals become managers of the corresponding projects.
• The assignment of resources (human, financial) to achieving business goals, their coordination and management is carried out within the framework of project management procedures.

II. MBO – BPM

• Description and development of business processes as part of the goal tree. Typical, repeatable processes are described in a notation convenient for the company.
• Development of regulations. Based on the described business processes, internal local regulations, regulations.

III. PM – BPM

• Resource management (finance, people). The project management ideology makes it possible to integrate into the regulated process part a description, methodology and practices of financial and human resource management processes that are uniform for the entire company (for all goals and projects of the company).
• Risk management in project management becomes uniform for the entire company and allows you to build a risk map of the company's entire business.

IV. MBO – PM – BPM

• Goal-oriented, specific results. Subordination of all company activities at all levels to the achievement of strategic goals.
• Staff motivation. Motivation through a focus on the conscious result of each employee at any level of the organization’s hierarchy. Opportunities for staff incentives and a flexible approach to payment through bonus payments and a variable part of wages. Assessing the effectiveness of each employee by assessing his performance in the system and stimulating the most effective employees.
• Drawing up a company operating plan. Based on the consolidation of plans to achieve all components of the company’s “Tree of Goals”.
• Budget development and approval. At the intersection of all methodological principles, after building all plans for achieving goals (projects), taking into account all activities and regulations, it is possible to obtain budget planning by projects and, ultimately, the consolidated budget of the company.

Personnel motivation in MBO

The concept of management by objectives is based on the assumption that people perform better if they know what is expected of them and can align their personal goals with the goals of the company. The goals of the organization are achieved not by issuing directions and instructions, but by ensuring cooperation and involvement of all employees in achieving the business goals of the organization, focusing on business results.

Management researchers argue that the productivity of employees who have specific goals is higher than the productivity of those who simply work according to a job description, whose goals are not defined, or who are asked in the abstract to “Try to do better!” We have already noted such a motivating effect by the very presence of the MBO system above. However, in addition to the indirect motivational effect, the MBO system should be supplemented with additional incentives and conditions for the company’s personnel.

These include:

1. Direct incentive bonus programs based on achievement of set goals. When assigning goals for execution, it is logical to assign bonus payments for achieving these goals. Taking into account the complexity of goals, their weight and degree of implementation. Using such payments as bonuses, or for payments of a variable part of wages.
2. Assessing the effectiveness of managers during personnel certification/assessment. Thus, the presence of a system of goals with clear criteria already makes it possible to evaluate the effectiveness of managers based on the results of fulfilling the goals set for them. And, accordingly, give more preferences to more effective managers. This approach objectively produces non-discriminatory differentiation of company managers on a scale of efficiency. As a result, effective people are in demand, earn more and grow up the career ladder faster.
3. Special conditions for employees who make a significant contribution to the implementation of the company’s tree of goals. For example, in our company, project managers were not required to be present at the workplace (except for mandatory meetings and reporting events). They did not keep track of their working hours. All that was required of them was to fulfill the goals/tasks/projects assigned to them. In what mode they do this is their own business. Managers had significant autonomy and discretion in determining how to achieve goals, selecting and managing resources.

MBO Business Hacks

In this section I will talk about what problems we encountered during the implementation and implementation of a management system by objectives and how we solved them

How to shift functional activities to project ones

Description of the problem. Let's imagine that company N has a portfolio of various projects. It adopts the guiding methodology of project management. As we remember, projects have universal characteristics (see above), which include such a parameter as the finiteness of projects in time.

At the same time, in most companies, including project-oriented ones, there are significant layers of activity that are not project-based, they are not finite in time (cyclical), they are functional and in the terminology of management theory are described as processes.

The activities of these functional areas do not have an ultimate goal; they perform a specific function within the company, for the execution of which the activities are organized as regular, cyclical, according to repeating algorithms. For example:

• Accounting – accounting and tax reporting;
• Marketing – organizing a system for promoting the company’s products and services;
• Financial service – company financial management, budget management, financial planning;
• IT department – ​​IT support for the company’s activities;
• HR department – ​​providing the company with human resources, increasing their efficiency;
• And so on.

Such methodological and methodological discrepancies in management (projects/processes) give rise to some inconveniences when building general management approaches, developing common management principles companies.

So, the question! How to deal with functional, process activities in this case? How to shift functional activities to project ones?

Answer: the main idea is to break down process activities into time periods and set goals for these time periods.

As I described above, the use of project management principles is a very convenient tool for unifying the company’s activities within the framework of the management by objectives methodology. The solution to the described problem is to assign specific, measurable goals to processes in the company over a finite period of time.

In our company, the description of each functional project card included 3 types of project goals:

1. Typical functional goal. This is a typical goal for this specific functionality. The goal is essentially constant and repeatable for the functionality in each period (every year). To formulate such a goal, you need to think about what the purpose of this function is for the business, what value it creates for the business. Based on this, formulate a typical goal.

Examples of typical special functional goals:

Functional	Target	Criteria for achieving the goal
HR	Control staff turnover	Conduct an analysis of staff turnover. Personnel turnover corresponds to the acceptable parameters in the State Bill
IT	Carry out target settings based on IT infrastructure efficiency criteria	The IT infrastructure efficiency criteria are met. Measures have been taken to ensure the service reliability coefficient (the ratio of the time of registered downtime/unavailability of a service to the total working time) is no worse than 0.95. The preventive action plan is being followed.
Accounting / Back office	Follow the Compliance action plan	The Compliance action plan in the functional area of ​​responsibility was completed in the proper quality and in full within the specified time frame (EC Compliance 1 assessment). No claims from external regulators that resulted in negative consequences for the business. The annual auditors' report was accepted at PC 2 as "Acceptable"
Financial department	Manage liquidity effectively	All payment requests submitted in accordance with the regulations were executed on time. The actual payment dates correspond to the scheduled payment dates.

1 EC Compliance – collegial body “Expert Committee on Compliance”
2 PCs – collegial body “Project Committee”

2. Goal for the period. To perform some specific tasks, it is not the current period (development or formation of something new).

Examples of goals for the period for functionality:

Functional	Target	Criteria for achieving the goal
HR	Develop and implement a motivation system for client managers	The KM 1 motivation system has been developed, agreed upon and approved on the PC
HR	Implementation of an internal training system	The goals for conducting internal training were introduced into the FP 2 KP by 04/30/14 (subgoal weight - 30%). The general training plan was drawn up by 05/30/14 (70%).
IT	Ensuring Remote Desktop Reliability	No problems with remote desktop. The desktop reliability quality rating based on a consumer survey is 4 and higher.
Management of risks	Convert the risk management system to SCIM format	A module has been created in SCIM that allows you to manage the main processes of RMS 3
Accounting	Acquiring competencies in the field of IFRS	Ensure readiness for the transition to IFRS. Acquire the necessary competencies for this and develop a transition plan by September 30, 2014 (in accordance with regulatory requirements).
Project office	Form the principles of portfolio project management	The principles of portfolio management of STB projects are formulated and approved on the PC
Financial department	Analyze the possibilities for developing the financial and legal structure of the N group of companies	Analytical report/proposal presenting options for reorganizing the financial and legal structure of the Group of Companies “N”, analysis of the feasibility of reorganization according to the holding type with the inclusion of non-residents in the structure of the Group of Companies “N” within the framework of international taxation.

1 KM – Client Managers
2 KP FP – Cards of Projects of Functional Units
3 RMS – risk management system

3. General standard goals for all projects. These are goals that are the same for all functional projects and are repeated in each period.

Common typical goals for all projects:

1 COGS - English Cost of sales or Cost of goods sold. General vocabulary: sales costs, (Cost Of Goods Sold) cost products sold. Project expenses.

As a result of formulating goals and criteria for their achievement, we receive a control document - a (functional) Project Card - for the work of the functional unit for the entire upcoming period. All wording and details of the Project Card are honed, thought through and agreed upon with all stakeholders. As a rule, the most interested and active in this process are the Functional Curator (from among the company's TOP managers) and the Project Manager (as the owner of the process and the future project manager).

The (functional) Project Card, agreed upon by all stakeholders, is approved by the collegial executive body of the company - the Project Committee.

Further, control over the implementation of the goals of the functional project is carried out by the Project Committee using the same algorithms as regular projects. In the current mode - regular reporting to the Project Committee on the progress of the project. At the end of the project (selected time period), the achievement of goals is assessed in accordance with the developed criteria.

How to create a business function using a project

The company may be in demand, but has not yet established certain processes that are important for the successful functioning of the business. The task is set to set up and put into operation the appropriate system - a business function. What's the best way to do this? It is very convenient for this to launch a separate project, the result of which should be the required system. The so-called development project.

Why is this convenient? Firstly, the goal of getting the right business system is finite in time. Secondly, by writing down the goals of the project, we think through the structure of the desired result. Thirdly, by managing this project we get the opportunity to control the progress of execution and the specific goals of the project.

This is exactly how the formation of such divisions with their processes and goals as:

• HR department;
• Risk Management Department;
• Project office;
• Front office;
• Marketing department;
• Compliance department.

Projects for the formation and optimization of certain business processes and system procedures can also be launched separately:

• Document management system.
• As a separate project, we also launched a system for establishing functional projects in the company (KP Support). We fix the costs of paying for the work of an employee of a certain qualification and the cost of his man-hour. Total according to his life history.

The point of this approach is that at the end of the project the company receives a functioning system. Which ultimately becomes a business process, or a set of business processes and company regulations.

The customers of such projects can be shareholders, collegial bodies of the company, top managers of the company interested in the formation and development of certain areas of activity in the company.

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Example. Project cards for the formation of functional projects.

The appointment and payment of bonus pools and bonuses is a very delicate and emotional procedure. This issue initially poses a potential conflict of interests between the two most important participants in the project management system:
- Project managers naturally want a bigger bonus
- Project customers (shareholders or their representatives, also interested in reducing costs) - want to pay less.

If there are no objective criteria and algorithms for determining the project bonus, a systemic conflict of interest arises. Which provokes unnecessary, unconstructive trading for a bonus. The consequences of such a conflict are serious, which, in particular, include the demotivation of the MP, who is offended by what is, in his opinion, an unfairly small bonus. Moreover, this issue sensitively arises both at the stage of assigning the planned bonus pool, and when calculating it at the end of the project and assigning actual payments based on the results of the project.

The solution to this problem is the development of clear rules/algorithms and procedures for assigning, calculating and paying out the bonus pool. From which the subjective component in matters of making such decisions should be excluded as much as possible. The rules must be agreed upon in advance, understood by all participants in the process and accepted by them before the project is launched.

Let's split the question into two.

1. How to calculate the planned project bonus, which is assigned when the project starts. The planned project bonus is the most important parameter assigned in the Project Card before its launch. The planned bonus is the motivational incentive for which the Project Manager undertakes its implementation.
2. How to calculate the actual project bonus based on the results of achieving the project goals. The actual project bonus is the estimated amount of the bonus payment based on the results of the implementation of the project goals. Appointed after protection and completion of all project goals. The actual bonus pool is the actual bonuses paid to the project team after its completion.

Planned bonus pool of the project

The planned bonus pool for achieving current project goals is established based on the strategic importance of the project for the company, the objective complexity of its implementation and the riskiness of the project.

We have developed principles of calculus bonus pool. First of all, the project is assessed according to 7 key parameters:

1. Transformative component of the project
2. Project uncertainty level
3. Novelty of the project
4. Long-term project
5. Prospects of the project
6. Impact of the project on the financial result of the business
7. Project risks

The assessment is made on a 5-point scale: from “absent” to “very high”.

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The listed parameters have different weights when calculating the bonus pool.

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Based on these project criteria, we developed an electronic bonus pool calculator.

The general calculation coefficient that the calculator gives is - first factor, which affects the size of the bonus pool.

The GKV used a system of grades for project managers. The higher the grade of the PM (project manager), the higher its cost, the larger the bonus pool for a project with one importance/complexity coefficient. Thus, the grade of a project manager is second factor, affecting the size of the project bonus.

And one more nuance was used when calculating bonuses. If a project is managed by a functional employee of the company, whose main work is not projects, but functional responsibilities, the bonus for him is calculated at lower rates than for the project office MP. This is due to the general principle of motivating SEs and functional employees. In the salary and income of functional employees, the variable part occupies a smaller part. For project managers, the main income comes from bonuses from projects.

So, the functional profile of an employee performing the role of a project manager (his belonging to a project office or functional (process) division) is third factor, affecting the size of the project bonus.

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Actual bonus pool of the project

The actual bonus pool (the amount that the manager and the project team will actually receive based on the results of its implementation) is determined based on the following principles and calculation formulas:

1. The bonus pool is paid based on the results of achieving the project goals.
2. The bonus pool is distributed among the project goals in accordance with the weights of the goals in the project.
3. The actual bonus pool is formed only if the overall degree of project implementation (Project Card) is 80 percent or more.
4. The degree of project implementation is calculated as the sum of the degrees of implementation of the project's goals, weighted by the scales of the goals in the project.

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   For example:

   Option 1:
   Goal 1:
   - Weight in the project 20% (VTs1)
   
   Goal 2:
   - Weight in the project 30% (VTs2)
   
   Goal 3:
   - Weight in the project 50% (VTs3)
   
   

   RP=VTs1*SRTS1+ VTs2*SRTS2+ VTs3*SRTS3=20%*120%+30%*60%+50%*95%=89.5% RP=89.5% - the actual bonus pool is formed

   Option 2:
   Goal 1:
   - Weight in the project 20% (VTs1)
   - Degree of goal implementation 120% (SRC1)
   Goal 2:
   - Weight in the project 30% (VTs2)
   - Degree of goal implementation 80% (SRC2)
   Goal 3:
   - Weight in the project 50% (VTs3)
   - Degree of goal implementation 60% (SRC3)
   Estimated degree of project implementation (RP):

   RP=VTs1*SRTS1+ VTs2*SRTS2+ VTs3*SRTS3=20%*120%+30%*80%+50%*60%=78% RP =78% - the bonus pool is not formed

5. The actual bonus pool of the project (FBPP) is determined as the sum of the bonus target pools (BPO) of the project:

   FBPP=BPC1+BPC2+…+BPCN

6. The bonus pool of the project goal (BPO) is formed depending on the degree of implementation of the corresponding goal (SRP), the weight of the goal in the project (WC) and the value of the planned project bonus (PBP) and is determined as follows:
   • SRC: )