Quality of Resources Strong Medium Low

Life

Cycle Development

Phases

Implementation

Conversion

Implementation

a

o

O

3

3'

3

<3

(5

o

FIGURE 9-21. Typical balanced project portfolio.

Figure 9-21 shows a balanced portfolio with projects in each life cycle phase and where all quality of resources is being utilized, usually quite effectively. A very delicate juggling act is required to maintain this balance.

HORIZONTAL ACCOUNTING

In the early days of project management, project management was synonymous with scheduling. Project planning meant simply laying out a schedule with very little regard for costs. After all, we know that costs will change (i.e., most likely increase) over the life of the project and that the final cost will never resemble the original budget. Therefore, why worry about cost control?

Recessions and poor economic times have put pressure on the average company to achieve better cost control. Historically, costs were measured on a vertical basis only. This created a problem in that project managers had no knowledge of how many hours were actually being expended in the functional areas to perform the assigned project activities. Standards were very rarely updated and, if they were, it was usually without the project manager's knowledge.

FIGURE 9-22. The evolution of integrated cost-schedule management. Phase I—Budget-based planning.

Today, methodologies for project management mandate horizontal accounting using earned value measurement techniques. This is extremely important, especially if the project manager has the responsibility for profit and loss. Projects are now controlled through a series of charge numbers or cost account codes assigned to all of the work packages in the WBS.

Strategic planning for cost control on projects is a three-phase effort, as shown in Figures 9-22 through 9-24. The three phases are:

• Phase I—Budget-based planning (Figure 9-22): This is the development of a project's baseline budget and cash flow based upon reasonably accurate historical data. The historical databases are updated at the end of each project.

• Phase II—Cost/performance determination (Figure 9-23): This is where the costs are determined for each work package and where the actual costs are compared against the actual performance in order to determine the true project status.

• Phase III—Updating and reporting (Figure 9-24): This is the preparation of the necessary reports for the project team members, line managers, sponsors, and customer. At a minimum, these reports should address the questions of:

• What problems do we have now and will we have in the future, and what mitigation strategies have we come up with?

Good methodologies provide the framework for gathering the information to answer these questions.

FIGURE 9-23. The evolution of integrated cost-schedule management. Phase II— Cost/performance determination.

ORGANIZATIONAL RESTRUCTURING _

Effective project management cultures are based on trust, communication, cooperation, and teamwork. When the basis of project management is strong, organizational structure becomes almost irrelevant. Restructuring an organization only to add project management is unnecessary and perhaps even dangerous. Companies may need to be restructured for other reasons, such as making the customer more important. But successful project management can live within any structure, no matter how awful the structure looks on paper, just as long as the culture of the company promotes teamwork, cooperation, trust, and effective communication.

Analysis of The Financial Data

Comparison of Actual Versus Planned Trend

Extrapolation ■ Cash Flow Versus

Commitments

Analysis of The Financial Data

Update Corporate Portfolio

FIGURE 9-24. The evolution of integrated cost-schedule management. Phase III— Updating and reporting.

Update Corporate Portfolio

FIGURE 9-24. The evolution of integrated cost-schedule management. Phase III— Updating and reporting.

The organizations of companies excellent in project management can take almost any form. Today, small- to medium-size companies sometimes restructure to pool management resources. Large companies tend to focus on the strategic business unit as the foundation of their structures. Many companies still follow matrix management. Any structure can work with project management as long as it has the following traits:

• The company is organized around nondedicated project teams.

• It has a flat organizational hierarchy.

• It practices informal project management.

• It does not consider the reporting level of project managers to be important.

The first point listed above may be somewhat controversial. Dedicated project teams have been a fact of life since the late 1980s. Although there have been many positive results from dedicated teams, there has also been a tremendous waste of manpower coupled with duplication of equipment, facilities, and technologies. Today, most experienced organizations believe that they are scheduling resources effectively so that multiple projects can make use of scarce resources at the same time. And, they believe, nondedicated project teams can be just as creative as dedicated teams, and perhaps at a lower cost.

Although tall organizational structures with multiple layers of management were the rule when project management came on the scene in the early 1960s, today's organizations tend to be lean and mean, with fewer layers of management than ever. The span of control has been widened, and the results of that change have been mass confusion in some companies but complete success in others. The simple fact is that flat organizations work better. They are characterized by better internal communication, greater cooperation among employees and managers, and atmospheres of trust.

In addition, today's project management organizations, with only a few exceptions (purely project-driven companies), prefer to use informal project management. With formal project management systems, the authority and power of project managers must be documented in writing. Formal project management policies and procedures are required. And documentation is required on the simplest tasks. By contrast, in informal systems, paperwork is minimized. In the future, I believe that even totally project-driven organizations will develop more informal systems.

The reporting level for project managers has fluctuated between top-level and lower-level managers. As a result, some line managers have felt alienated over authority and power disagreements with project managers. In the most successful organizations, the reporting level has stabilized, and project managers and line managers today report at about the same level. Project management simply works better when the managers involved view each other as peers. In large projects, however, project managers may report higher up, sometimes to the executive level. For such projects, a project office is usually set up for proj ect team members at the same level as the line managers with whom they interact daily.

To sum it all up, effective cross-functional communication, cooperation, and trust are bound to generate organizational stability. Let's hope that organizational restructuring on the scale we've seen in recent years will no longer be necessary.

CAREER PLANNING _

In organizations that successfully manage their projects, project managers are considered professionals and have distinct job descriptions. Employees traditionally are allowed to climb one of two career ladders: the management ladder or the technical ladder. (They cannot, however, jump back and forth between the two.) This presents a problem to project managers, whose responsibilities bridge the two ladders. To solve this problem, some organizations have created a third ladder, one that fills the gap between technology and management. It is a project management ladder, with the same opportunities for advancement as the other two.

ASSESSMENT INSTRUMENT FOR

The following 16 questions concern how mature you believe your organization to be with regard to Level 5. Beside each question you will circle the number that corresponds to your opinion. In the example below, your choice would have been "Slightly Agree."

The row of numbers from -3 to +3 will be used later for evaluating the results. After answering Question 16, you will grade the exercise by completing Exhibit 5.

- 3 Strongly Disagree

- 2 Disagree

- 1 Slightly Disagree 0 No Opinion

(+1 Slightly Agree

+2 Agree

+ 3 Strongly Agree

QUESTIONS_

Answer the following questions based upon continuous improvement changes over the past 12 months only. Circle the answer you feel is correct.

The improvements to our methodology have pushed us closer to our customers. (—3 — 2 —1 0

We have made software enhancements to our methodology. (—3 —2 —1 0

We have made improvements that allowed us to speed up the integration of activities. (— 3

We have purchased software that allowed us to eliminate some of our reports and documentation. Changes in our training requirements have resulted in changes to our methodology. (—3 —2 —1 0 +

Changes in our working conditions (i.e., facilities, environment) have allowed us to streamline our methodology (i.e., paperwork reduction). We have made changes to the methodology in order to get corporate-wide acceptance. (—3 —2 —1 0

Changes in organizational behavior have resulted in changes to the methodology. (—3 —2 —1 0

Management support has improved to the point where we now need fewer gates

and checkpoints in our methodology. Our culture is a cooperative culture to the point where informal rather than formal project management can be used, and changes have been made to the informal project management system. Changes in power and authority have resulted in looser methodology (i.e., guidelines rather than policies and procedures).

Overtime requirements mandated change in our forms and procedures. (

We have changed the way we communicate with our customers. (—3

14. Because our projects' needs have changed, so have the capabilities of our resources.

15. (If your organization has restructured) Our restructuring caused changes in signoff requirements in the methodology.

16. Growth of the company's business base has caused enhancements to our methodology.

Exhibit 5

Each response you circled in Questions 1-16 had a column value between -3 and +3. In the appropriate spaces below, place the circled value (between -3 and + 3) beside each question.

Total:

The grading system for this exercise follows.

EXPLANATION OF POINTS FOR LEVEL 5_

Scores 20 or more are indicative of an organization committed to benchmarking and continuous improvement. These companies are probably leaders in their

field. These companies will always possess more project management knowledge than both their customers and their competitors.

Scores between 10-19 are indicative that some forms of continuous improvement are taking place, but the changes may be occurring slowly. There may be resistance to some of the changes, most likely because of shifts in the power and authority spectrum.

Scores less than 9 imply a strong resistance to change or simply a lack of senior management support for continuous improvement. This most likely occurs in low technology, non-project-driven organizations where projects do not necessarily have a well-defined profit-loss statement. These organizations will eventually change only after pressure by their customers or an erosion of their business base.

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Sustainable Competitive Advantage

INTRODUCTION _

To spend time and money developing a project management methodology because you believe it is the right thing to do is a wasted effort. The better approach is to develop a methodology with the intent of converting it into a sustainable competitive advantage. A sustainable competitive advantage not only placates your customers, it also puts pressure on your competitors to spend money to compete with you.

Sustainable competitive advantages can be determined for individual functional areas rather than for the entire company. As an example, consider Figure 10-1, which illustrates the efforts needed to achieve a sustained competitive advantage in research and development (R&D). As a company advances through the various stages of innovation, the technical risks will increase. The organization must have developed a good approach to the problem of assessing technical risks and must be willing to admit when a project should be cancelled because the resources could be allocated more effectively on other projects. Maintaining a competitive advantage requires a continuous stream of new and/or enhanced products or services. Risk management is an essential ingredient in the evaluation process.

As technical risks increase, so does the amount of money expended, as well as the requirement for superior technical ability. The technical skills required increase as we go from basic to applied research and on through development. Although some people may argue about the need for this increase in skill levels, the fact remains that a product that can be developed on a small laboratory bench may never be able to be mass-produced or, even if it can be mass-produced, the

FIGURE 10-1. R&D Efforts for a sustained competitive advantage. Source: Reprinted from P. Rea and H. Kerzner, Strategic Planning. New York: Wiley, 1997, p. 105.

quality may have to be degraded. Also, it is in development where one finally obtains the hard numbers as to whether the product can be manufactured at a competitive price.

STRATEGIC THRUSTS_

As shown in Figure 10-2, there are four "strategic thrusts" that must be considered before your project management methodology can be turned into a sustained competitive advantage. These strategic thrusts must be identified while the methodology is being designed and developed, not later on. Developing a methodology and then having to make major changes to it because the strategic thrusts were not considered can waste time and money, as well as lowering morale. Poor morale can cause the workers to lose faith in the methodology.

The first strategic thrust is the core values/purpose. The core values/purpose thrust describes the heart of the company, as well as the basic reason for its existence.

• Core values: There are usually three to five core values for a company, the timeless, passionately held guiding principles of the organization. At Procter & Gamble, for example, the core values are delivering consumer value, developing breakthrough innovation, and building strong brands. The core values for the Walt Disney Company might be imagination and wholesomeness, while at Nordstrom they could be service to the customer, trust, and products with style. Core values come from within the organization; they represent what the organization is at its very essence, as opposed to what it does from day to day.

• The core purpose: An organization's core purpose should last for at least 100 years; it is the organization's reason for being that goes beyond current products and services. For 3M, the core purpose is "to solve unsolved problems innovatively." For Hewlett-Packard, it is "to make technical contributions for the advancement and welfare of humanity." For McKinsey & Company, it is "to help leading corporations and govern-

ments to be more successful." For Merck it is "to preserve and improve human life." And for the Walt Disney Company it is "to make people happy." One approach to finding a core purpose is to ask five whys. Start with a description of the business and ask, "Why is that important?" five times; after a few whys you get to the very essence of the business.*

Generally speaking, all projects undertaken using the project management methodology must support the company's core values/purpose, which could very well be regarded as the most important strategic thrust.

The second strategic thrust in Figure 10-2 is the strategic focus. The strategic focus identifies the product/market element in which the organization competes. There are three primary questions that must be addressed in the strategic focus:

• Where will the organization compete? (What products are offered, which markets are served, by segment or geographically?)

• Against whom will the organization compete? (Who is the competition?)

• How will the organization compete? (By product, by proper positioning, by functional strategy as channels of distribution, etc.?)

The answers to these three questions provide guidance on the quality and competencies of the resources and assets needed. Project management methodologies must be designed around the competencies of the resources.

The third strategic thrust is the competitive focus. Although this thrust has some similarities to the strategic focus thrust, there are other overriding factors. The competitive focus emphasizes the differences between your organization and your major competitors. The differences can exist in such areas as:

• Product features

• Product design

• Product performance

• Product quality

• Products offered

• Value-added opportunities

• Brand name and image

• Cost reduction opportunities (i.e., experience curves, labor rates)

• Strategic alliances and partnerships

These strategic competitive differences can give your methodology one step up on the competition.

*D. A. Aaker, Strategic Market Management, 5th ed. New York: Wiley, 1998; p. 28.

FIGURE 10-3. Risks associated with maintaining a sustainable competitive advantage.

The final strategic thrust in Figure 10-2 is synergy. Synergy reflects the organization's ability to perform more work in less time and with fewer resources. Organizational synergy is a measure of how well the employees cooperate with one another. Does the organization have a cooperative or noncooperative culture? Cooperative cultures allow for the design of a flexible methodology that will take advantage of continuous improvement opportunities.

Because market conditions and the environment can change, continuous improvement is necessary to maintain the sustained competitive advantage. Change generates risk that, if not properly analyzed and mitigated, can cause a firm to lose its competitive advantage. The key here is for the competitive advantage to become a sustainable competitive advantage. Typical risks associated with maintaining a sustainable advantage are shown in Figure 10-3.

THE NEED FOR CONTINUOUS

IMPROVEMENT_

Sustained competitive advantages require continuous improvement for a firm to maintain its strength in the marketplace. Although new products/services are one way, strengthening one's internal position can also effective if it results in the in-

traduction of new and/or more sophisticated tools that allow a firm to make faster and better decisions. Tools for the future can be classified as follows:

Resource Analysis Tools

• Resource limited planning

• Resource leveling

• Capacity planning

• Multiproject resource analysis

Cost Analysis Tools

• Earned value forecasting

• Variance analysis

• Trend analysis

• Crashing costs

Risk Analysis Tools

• Risk analysis

• Risk quantification

• Lessons learned databases

Forecasting Analysis Tools

• Technology forecasting

• Forward pricing rates

• Escalation factors

• Market analysis

PROJECT MANAGEMENT

COMPETITIVENESS _

Figure 10-4 shows the process of developing project management competitiveness. These steps are somewhat similar to the steps in the project management maturity model (PMMM). In the first step in Figure 10-4, the organization undergoes project management training, which leads to the development of project management skills. But even with a reasonable skill base, the organization can still be reasonably immature. The project management skill base must be regarded as a company-wide project management competency designed to benefit the entire company.

This is more than simply obtaining the knowledge. It also includes developing a corporate culture that is based upon effective organizational behavior and creating a well-developed project management methodology, accompanied by the proper supporting tools. The tools can be characterized into three areas, as shown in Figure 10-4.

Leads to r

Project Management Training

Are the Foundation for

Are the Source of

Project ^ Management Competencies

Project Management Skills

Is the Pathway to

Sustained Competitive Advantage

Strategic Competency

| Immaturity | Maturity |_Excellence_|

FIGURE 10-4. Project management competitiveness.

Once the organization recognizes that project management is a core competency, the organization can convert this competency into a sustainable competitive advantage, as shown in Figure 10-4. The ultimate purpose is for the sustainable competitive advantage to become the pathway for a strategic competency that becomes a primary effort during strategic planning activities. This requires strong executive support and a firm belief that project management does, in fact, impact the bottom line of the corporation.

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Special Problems with Strategic Planning for Project Management

INTRODUCTION _

Even with strategic planning for project management, special problems can always occur, problems that end up creating difficulties for both the project manager and the organization. Not all situations can be anticipated, of course, but some that might have been anticipated, are often simply not considered. Some problems exist purely because of misconceptions.

Perhaps the most common misconception arises when the company believes that the implementation of a singular methodology is a cure-all for all ailments. Project management is not a guarantee of success, but it can drastically improve your chances for success.

The remaining sections in this chapter contain special problems and misconceptions that have recently occurred even in the best-managed companies and also in those companies with world-class methodologies for project management. If the project achieves only 86 percent of the targeted specification, is the project a failure? If the project is canceled because we were researching in the wrong area, is this a success or a failure? If the customer's deliverable was not achieved but the customer was delighted with the working relationship, is the project a success or a failure? Companies today are redefining the meanings of success and failure.

Change management is another topic that must be considered, especially if strategic planning for project management requires people to change they way they had worked for the past several years. Change management is now a top priority for companies that wish to accelerate the project management learning curve. And finally, although this book is not intended to be a course on risk management, sev-

eral risk management problems are now surfacing that affect the way we perform strategic planning for project management and impact on how we design a singular methodology. Proper design of a singular methodology for project management can simplify the way risk management planning is accomplished, and even encourage the project managers to increase their personal tolerance level for risk.

THE MANY FACES OF SUCCESS_

Historically, success has been defined as meeting the customer's expectations, regardless of whether "the customer" was internal or external. Furthermore, success has also meant getting the job done within the constraints of time, cost, and quality. Using this standard definition, success could be visualized as a singular point on a time, cost, quality/performance grid. But how many projects, especially those requiring innovation, can possibly reach this exact point?

Very few project are ever completed without tradeoffs or scope changes on time, cost, and quality. Therefore, success might still occur without exactly hitting this singular point. In this regard, success might be better defined as a cube, such as seen in Figure 11-1. The singular point of time, cost, and quality would be a point within the cube.

Another factor to consider is that there may exist both primary and secondary definitions of success, as shown in Table 11-1. The primary definitions of success

FIGURE 11-1. Success: point or cube?

The Many Faces of Failure TABLE 11-1. SUCCESS FACTORS

Primary

Secondary

• Within quality limits

• Accepted by the customer

• Follow-on work from this customer

• Using the customer's name as a reference on your literature • With minimum or mutually agreed upon scope changes

• Without disturbing the main flow of work

• Without changing the corporate culture

• Without violating safety requirements

• Providing efficiency and effectiveness of operations

• Satisfying OSHA/EPA requirements

• Maintaining ethnical conduct

• Providing a strategic alignment

• Maintaining a corporate reputation

• Maintaining regulatory agency relations are seen through the eyes of the customer. The secondary definitions of success are usually internal benefits. If achieving 86 percent of the specification is acceptable to the customer and follow-on work is received, then the original project might very well be considered as a success.

It is possible for a project management methodology to identify primary and secondary success factors. This could provide guidance to a project manager for the development of a risk management plan, as well as help the project manager decide which risks are worth taking and which are not acceptable.

THE MANY FACES OF FAILURE*_

Previously we stated that success might be a cube rather than a point. If we stay within the cube but miss the point, is that a failure? Probably not! The true definition of failure is when the final results are not what were expected, even though the original expectations may or may not have been reasonable. Sometimes customers, and even internal executives, set performance targets that are totally unrealistic, they may hope to achieve 80 to 90 percent at best. For simplicity's sake, let us define failure as unmet expectations.

When unmeetable expectations are formed, failure is virtually assured, since we have defined failure as unmet expectations. This is called a planning failure and is the difference between what was planned to be accomplished and what was, in fact, achievable. The second component of failure is poor performance or

* Adapted from Robert D. Gilbreath, Winning At Project Management. New York: John Wiley, 1986, pp. 2-6.

actual failure. This is the difference between what was achievable and what was actually accomplished.

Perceived failure is the net sum of actual failure and planning failure. Figures 11-2 and 11-3 illustrate the components of perceived failure. In Figure 11-2, project management has planned a level of accomplishment (C) lower than what is achievable given project circumstances and resources (D). This is a classic underplanning situation. Actual accomplishment (B), however, was even less than planned.

A slightly different case is illustrated in Figure 11-3. Here, management has planned to accomplish more than can be achieved. Planning failure is again assured even if no actual failure occurs. In both of these situations (overplanning and underplanning), the actual failure is the same, but the perceived failure can vary considerably.

Today, most project management practitioners focus on planning failure. If this aspect of the project can be compressed, or even eliminated, then the magnitude of the actual failure, should it occur, would be diminished. A good project management methodology helps to reduce planning failure. Today, we believe that planning failure, when it occurs, is due in large part to the project manager's inability to perform effective risk management. In the 1980s, we believed that the failure of a project was largely a quantitative failure due to:

• Ineffective planning

• Ineffective scheduling

• Ineffective estimating

• Ineffective cost control

• Project objectives being a "moving target"

During the 1990s, we changed our view of failure from being quantitatively oriented to qualitatively oriented. A failure in the 1990s was largely attributed to:

None A

Accomplishment -

Actual

Planned Achievable Perfection

CD E

Perceived i- Failure

Planned Achievable Perfection

CD E

Perceived i- Failure

Actual Failure

Actual Failure

Planning i-Failure-

FIGURE 11-2. Components of failure.

D

Accomplishment —►

Planning «-Failure-*1

FIGURE 11-3. Components of failure.

FIGURE 11-3. Components of failure.

• Poor motivation

• Poor human relations

• Poor productivity

• No employee commitment

• No functional commitment

• Delays in problem solving

• Too many unresolved policy issues

• Conflicting priorities between executives, line managers, and project managers

Although these quantitative and qualitative approaches still hold true to some degree, today we believe that the major component of planning failure is inappropriate or inadequate risk management, or having a project management methodology that does not provide any guidance for risk management.

Sometimes, the risk management component of failure is not readily identified. For example, look at Figure 11-4. The actual performance delivered by the contractor was significantly less than the customer's expectations. Is the difference between these two arrows poor technical ability or a combination of technical inability and poor risk management? Today we believe that it is a combination.

When a project reaches completion, the company performs a lessons learned review (or at least a well-managed company does). Sometimes lessons learned are inappropriately labeled and thus the true reason for the risk event remains unknown. Figure 11-5 illustrates the relationship between the marketing personnel and technical personnel when undertaking a project to develop a new product. If the project is completed with actual performance being less than customer expectations, is it because of poor risk management by the technical assessment and

FIGURE 11-4. Risk planning.

forecasting personnel or poor marketing risk assessment? The interrelationship between marketing and technical risk management is not always clear.

Another point illustrated in Figure 11-5 is that opportunities for tradeoffs diminish as we get further downstream on the project. There are numerous opportunities for tradeoffs prior to establishing the final objectives for the project, but more limited chances during project execution. Thus if the project fails, it may very well be because of the timing when the risks were analyzed.

Numerous Opportunities for Tradeoffs_^ Limited

Resulting from Risk Analyses

FIGURE 11-5. Mitigation strategies available.

Numerous Opportunities for Tradeoffs_^ Limited

Resulting from Risk Analyses

FIGURE 11-5. Mitigation strategies available.

Care must be taken that the proper identification of failure is made and that the company knows to which functional areas the lessons learned should be applied.

TRAINING AND EDUCATION_

Given the fact that most companies use the same basic tools as part of their methodology, what then makes one company better than another? The answer lies in the execution of the methodology. Training and education can accelerate not only the project management maturity process but also the ability to execute the methodology.

Actual learning takes place in three areas, as shown in Figure 11-6: on-the-job experience, education, and knowledge transfer. Ideal project management knowledge would be obtained by allowing each employee to be educated on the results of the company's lessons learned studies including risk management, benchmarking, and continuous improvement efforts. Unfortunately, this is rarely done and ideal learning is hardly ever reached. To make matters worse, actual learning is less than most people believe because of lost knowledge. This lost knowledge is shown in Figure 11-7 and will occur even in companies that maintain low employee turnover ratios.

►Education

FIGURE 11-6. Project management learning curve.

Benchmarking/ ►Continuous Improvement

On-the-Job Experience

►Education

Knowledge Transfer

Time

FIGURE 11-6. Project management learning curve.

Resignation

Termination

FIGURE 11-7. Project management learning curve.

Resignation

Complacency „Lost

| Knowledge

Termination

FIGURE 11-7. Project management learning curve.

CHANGE MANAGEMENT_

It has often been said that the most difficult projects to manage are those that involve the management of change. Figure 11-8 shows the four basic inputs needed to develop a project management methodology. Each of these four inputs has a "human" side that may require that people change.

Successful development and implementation of a project management methodology requires:

• Identification of the most common reasons for change in project management and why these reasons occur.

• Identification of the ways to overcome the resistance to change.

• Application of the principles of change management to ensure that the desired project management environment will be created and sustained.

For simplicity's sake, resistance can be classified as departmental resistance and personal resistance to change. Organizational resistance occurs when a functional unit as a whole feels threatened by project management. This is shown in Figure 11-9. Examples include:

• Sales: The sales staff's greatest resistance to change arises from fear that project management will now take credit for corporate profits, thus reducing the year-end bonuses for the salesforce. Sales personnel fear that

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