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Slide 2: PORTABLE MBA in PROJECT MANAGEMENT EDITED BY ERIC VERZUH John Wiley & Sons, Inc.
Slide 4: PORTABLE MBA in PROJECT MANAGEMENT
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Slide 6: PORTABLE MBA in PROJECT MANAGEMENT EDITED BY ERIC VERZUH John Wiley & Sons, Inc.
Slide 7: This book is printed on acid-free paper. Copyright © 2003 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or other wise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate percopy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, e-mail: permcoordinator@wiley.com. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. The publisher is not engaged in rendering professional services, and you should consult a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at www.wiley.com. Chapter 3 is abridged from Project Management: A Managerial Approach, 5th edition, by Jack R. Meredith and Samuel J. Mantel Jr. Copyright © 2003 by John Wiley & Sons, Inc. This material is used by permission of John Wiley & Sons, Inc. Chapter 8 is from The Pfeiffer Book of Successful Team-Building Tools, edited by Elaine Beich. Copyright © 2001 by John Wiley & Sons, Inc. This material is used by permission of Pfeiffer/JosseyBass, Inc., a subsidiary of John Wiley & Sons, Inc. Chapter 9 is from Managing Sof tware Development Projects, 2nd edition, by Neal Whitten. Copyright © 1995 by John Wiley & Sons, Inc. All rights reserved. Chapter 10 is from Mastering Vir tual Teams, 2nd edition, by Deborah L. Duarte and Nancy Tennant Snyder. Copyright © 2001 by Jossey-Bass, Inc. This material is used by permission of Jossey-Bass, Inc., a subsidiary of John Wiley & Sons, Inc. Chapter 12 Copyright © 2003 by the pci group. Chapter 13 is from Creating an Environment for Successful Projects, by Robert J. Graham and Randall L. Englund. Copyright © 1997 by Jossey-Bass, Inc. This material is used by permission of Jossey-Bass, Inc., a subsidiary of John Wiley & Sons, Inc. ISBN 0-471-26899-2 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 ➇
Slide 8: To my parents, Jim Verzuh and Julie Welle Verzuh, and to my parents-in-law, Larry and Fran Kissler, whose lives and accomplishments continue to be an inspiration.
Slide 10: Preface In the 1990s, project management moved from a little-used industrial engineering discipline to the engine of managing America’s work. Prior to 1990, project management techniques were unknown to most corporate managers who considered projects to be the realm of engineers or the IS department. In universities, with few exceptions, the only place to learn project management was the industrial and management engineering program—not even “real engineering.” Fast forward to 2003 and project management has leapt to center stage. Corporations are using the “project management office” to implement consistent project management practices across the enterprise and manage mission-critical strategic initiatives. From the CEO’s office down to the frontlines, business and government organizations have “projectized” their work and are looking to the classic discipline of project management to give them greater productivity and faster response to changing market conditions. This shift has not gone unnoticed on campus where business schools now offer masters programs in project management and many graduate and undergraduate curriculums include at least one course on project management. What prompted this revolution? The American economy is increasingly characterized by change and change means projects; project management is the tool set of the twenty-first century. The growing use of project management mirrors the growing number of projects we find in our workplace. In every industry and profession, organizations find a greater proportion of their time and resources are committed to projects, giving rise to the project-based organization. In the past, many firms considered themselves project based. Consulting firms, construction-related businesses, aerospace companies, and agencies such as the U.S. Army Corps of Engineers can find that 80 percent to 100 percent of their revenue/budget is attributable to projects. However, a firm need not be completely devoted to projects to face the challenges of managing multiple projects or to gain the benefits of applying the project management discipline. If even 20 percent of your organization’s budget or revenue is represented by projects, consider yourself a project-based organization. That isn’t suggesting you try to jam the operations of your entire department or company into the project mold—it is vii
Slide 11: viii Preface suggesting that if one-fifth of your budget /revenue is project-based, significantly improving the performance of your projects will have an impact on your overall bottom line. This book is intended for the leaders of this emerging entity known as the project-based organization. CIOs, department managers, program managers, and senior project managers being challenged to implement project management—to formalize the processes of managing projects—will find strategies and standards for leveraging the proven discipline of project management. For our purposes, the project-based organization can be a department, division, or entire company. Government agencies and nonprofits should consider themselves candidates as well as for-profit businesses. The traditional projectbased firms often focused on a few very large projects or programs. The new breed of multiproject enterprise is often comprised of many smaller, independent projects. Optimizing performance on one project is already difficult. Optimizing performance across many concurrent projects requires a conscious method of management. As we optimize the project portion of the business, we cannot afford to ignore the nonproject side. The goal of this book is to provide the methods and framework necessary to run an organization that must successfully deliver many independent projects. The discipline of project management is well developed. There exist, literally, hundreds of books intended to help us better manage a project. The body of knowledge for managing a multiproject organization is far less developed. This book, intended as a resource for leaders of the project-based organization, must address both topics. It is impossible for a CIO, engineering director, vice-president of new product development, or owner of a construction or consulting firm to optimize their organization’s project performance if she or he cannot speak the language of project management. At the same time, the discipline of project management is insufficient for managing the entire firm. Therefore, the strategy of this book is to provide a condensed view of the traditional project management topics and to assemble the guidelines for managing the organization. Part One introduces the dual tiers of project focus and enterprise focus. It provides an introduction to the project management discipline and also exposes the opportunities available to firms who choose to focus on project management as a strategic advantage. You’ll be able to assess the strategic benefits of project management to your organization and have a vision for the components of a successful project-based organization. Part Two contains the proven discipline of project management including project selection, detailed planning, project control, quality management, and risk management techniques. These chapters are designed to present enough detail for executives to understand the techniques their own project managers should be using. In these chapters, the focus is on the methods for managing a single project, but the role of the executive is always stressed. With this level of understanding, leaders of the project-based organization will understand what
Slide 12: Preface ix processes and activities should be taking place on projects as well as their own critical contribution to project success. Experienced project managers should be able to use these chapters as a condensed resource outlining the must have project management activities. Be aware, however, that if you are seeking detailed tips and how-to advice for managing projects, that is better found in my previous book, The Fast Forward MBA in Project Management, also published by John Wiley & Sons. Part Three addresses the human dimension of project success. No experienced project leader or manager can deny the importance of a unified team and a positive atmosphere. Nor can we ever discount the value of a driven, can-do team attitude. To some, achieving these environmental team factors far outweighs the importance of critical path analysis or risk planning. Rather than argue over their relative importance, this book presents both the science of project management (Part Two) and the art of team leadership (Part Three) as essential to a successful project. As with Part Two, Part Three presents wellestablished principles, but it differs in one important respect: The books on building successful teams outnumber even those on project management. Topics in this section were specifically chosen because they serve the project environment—temporary teams, often composed of people who work in different organizations (sometimes different companies) and who may even be geographically dispersed. Because of their unique perspective, these three chapters address the heart of building a successful project team. Good project management is essential for project success, but it is not enough for the project-based organization. Part Four presents the macro view of the project-based organization: the processes and systems required to oversee multiple projects, the leadership challenge involved in formalizing project management practices, and the other capabilities—beyond project management—required for a successful project-based organization. One-third of the content of this book has been previously published, ref lecting the fact that project management is a mature discipline. Rather than rewrite what has been previously well done, we have compiled it. Other sections are necessarily new: They either present classic techniques with a new perspective (Chapters 4, 5, 6, and 7 condense large topics to provide a detailed overview) or they represent some of the newest thinking on the topic of managing the project-based organization. If you read only one book about project management, you cannot hope to understand all there is to know about the topic. As with any good project, this book has a specific purpose that has limited its scope. Because the book attempts to cover a broad scope, it is prevented from covering all its topics in great depth. The target reader—experienced project managers, project office personnel, and leaders of multiproject organizations—do not want all the details of how to manage a project. Likewise, certain valuable project-related topics such as procurement and estimating were ultimately determined to be too specialized.
Slide 13: x Preface Devotees of the Project Management Institute’s A Guide to the Project Management Body of Knowledge (PMBoK) will notice that all of the content of this book is in alignment with the PMBoK. The terminology used in this book does not conf lict with PMBoK definitions. However, the scope of this book is different than that very thorough glossary, so not every topic found in either book can be referenced to the other. Ultimately, the content of this book rests on my observations about the challenges of managing a project-based organization. For over a decade, my firm has been delivering the time-tested principles of project management to firms across the economic spectrum. We have seen huge changes in the enthusiasm for project management and the organizational assets committed to formalizing its practice. Firms that were initially hesitant to purchase a few days of training later have staffed a project management office with fulltime, experienced project leaders and invested in enterprise project management software. For those of us who work in this field and see the potential for projectbased organizations, the momentum is both gratifying and cause for alarm. Our satisfaction is easy to understand. Our alarm stems from the dangers associated with management fads. Nearly everyone with more than 10 years of work experience has seen at least one fad wash over his or her organization— complete with training, slogans, and accompanying software—only to have the new ideas and better ways disappear as everyone “got back to work.” That can happen with project management, too. Leading the charge to building a better project-based organization makes sense for many organizations, but that doesn’t make it easy. This book is intended to make that journey a little bit straighter, a little less painful, and, ultimately, to improve the quality of work life of every person who is working in the project environment. ERIC VERZUH
Slide 14: Acknowledgments On every project, one of my greatest pleasures is recognizing the people whose individual contributions lead to the ultimate success of the team. Particularly in this case, I am privileged to have my name on the cover of a book that is the product of many, many hands. To all those who have given me their time and trust, I offer my thanks and these acknowledgments: Larry Alexander and Karen Hansen of John Wiley & Sons, Inc. conceived this project. Paula Sinnott of John Wiley & Sons, Inc. assisted me with editorial duties and handled the administration necessary to secure permissions for portions of this book that were previously printed. Her commitment to quality ensured we kept our standards high. Denis Couture, Robert Cooper, and Ned Hamson contributed hard-won expertise in the form of their individual chapters. Their content is golden. Previously printed works appear in this book courtesy of their publishers. I thank the authors: Elaine Biech, Jack Meredith, Samuel Mantel, Neal Whitten, Randall Englund, Robert Graham, Deborah Duarte, and Nancy Tennant Snyder. I read many books in my search to build the best content for this book and your writings were selected for their enduring value and accessible style. Michelle Actis and Greg Smiley are members of the Versatile team who made it possible for me to build a book and hold down a job. Michelle developed many of the diagrams and Greg assisted in writing Chapter 5. I am fortunate to have many colleagues who have provided insights, encouragement, and, importantly, criticism. Tammy Bare, Fred Black, Patrick Bryan, Denis Cioffi, Mandy Dietz, Kristian Erickson, Jeff Lynch, Donna McEwen, Jean Miller, Clive Schuelein, Larry Spallanzani, Pen Stout, and Kim Ring all offered their time and shaped some aspect of this book. Sam Huffman, Cynthia Actis, Dave Bush, and Thomas “TJ” Filley are colleagues at Versatile. They have contributed to this work through their ideas, criticism, and day-to-day examples of commitment to excellence. xi
Slide 15: xii Ack nowledgments Barbara Lowenstein and Norman Kurz are my agents. They have been invaluable in making this project possible. Marlene Kissler, my wife, has once again proved herself a partner for all occasions. On this project, she acted as critic, editor, and coach. Together, Marlene and I manage a portfolio of projects that include a business and a family. I could ask for no stronger, more reliable, more joyful partner in any endeavor. E. V.
Slide 16: About the Editor Eric Verzuh is president of The Versatile Company, a project management training and consulting firm based in Seattle, Washington. His company trains thousands of professionals every year in the proven principles of project management including how to get the most out of Microsoft Project®. Versatile’s consulting practice focuses on helping firms establish consistent, practical methods for managing their projects. The company’s client list includes large corporations such as Adobe Systems, General Electric, and Lockheed Martin, as well as government agencies and small businesses. Verzuh is a frequent keynote speaker at conferences on project management. Verzuh is the author of The Fast Forward MBA in Project Management, also published by John Wiley & Sons. He has been certified as a project management professional (PMP) by the Project Management Institute. He can be reached via his company’s Web site at www.versatilecompany.com. xiii
Slide 18: About the Contributors Elaine Biech is president and managing principal of Ebb Associates, an organizational development firm that helps organizations work through large-scale change. She has been in the training and consulting fields for 22 years working with for-profit and nonprofit organizations such as McDonald’s, Land’s End, the U.S. Navy, and the IRS. Author and editor of two-dozen books, and recipient of the 1992 National American Society for Training and Development (ASTD) Torch Award, Elaine Beich has presented at numerous national and international conferences. Robert G. Cooper, PhD, is a world expert in the field of new product management. He has been called “the quintessential scholar” in the field of new products in the Journal of Product Innovation Management and is a Crawford Fellow of the Product Development & Management Association. Mr. Cooper is the father and developer of the Stage-Gate™ process, now widely used by leading firms around the world to drive new products to market. He is also the developer of the NewProd™ system for screening and diagnosing new product projects, also used by a number of companies. Cooper has written six books on new product management, including Winning at New Products: Accelerating the Process from Idea to Launch, which has sold over 100,000 copies. He is president and cofounder of The Product Development Institute, Professor of Marketing at the School of Business, McMaster University in Hamilton, Ontario, Canada, and also ISBM Distinguished Research Fellow at Penn State University’s Smeal College of Business Administration. Denis Couture, PMP, is president and cofounder of the pci group, a consulting firm based in Troy, Michigan, that specializes in project and portfolio management, business consulting and training. His company trains hundreds of individuals each year at such corporations as General Motors, DaimlerChrysler, and ADP in the application of project management best practices, including the steps required for increasing project management maturity. The xv
Slide 19: xvi About the Contributors pci group’s consulting practice focuses on helping firms build an effective project management environment, based on the three cornerstones of success: process, organization, and information technology. Couture can be reached via his company’s site, www.pcigroup1.com. Deborah L. Duarte, PhD, is an expert in the areas of leadership development, knowledge management, virtual project team leadership, performance management, and organizational culture change. She consults in these areas with a number of private and public organizations, including the National Aeronautics and Space Administration (NASA), the Federal Aviation Administration (FAA), the United Nations, Whirlpool Corporation, NORTEL Networks, Johnson & Johnson, and Gap, Inc. Duarte is a faculty member at George Washington University and teaches courses in leadership, organizational learning, and research methods. She also teaches at the Singapore Institute of Management and at the International Space University in France. She holds a doctorate in Human Resource Development from George Washington University, and is a frequent presenter at conferences and workshops, and has published extensively in the areas of global and virtual teaming leadership, project management, and knowledge management. Randall L. Englund, MBA, NPDP, CBM, is an author, speaker, trainer, and consultant. He is a partner in a new advanced project management training venture called Madeline Learning and an associate to the Human Systems Knowledge Network and the Strategic Management Group. He was a project manager for Hewlett-Packard Company (HP) in Palo Alto, California, for 22 years. As a workshop facilitator and consultant, he draws on his experience releasing high-technology products, developing a system product life cycle, resolving computer system architectural issues, researching effective practices for project success, and designing management processes, courses and Web shops. Englund is a member of PMI and a former board member for the Product Development and Management Association (PDMA), and is a certified New Product Development Professional (NPDP). With Robert J. Graham, he co-authored the book Creating an Environment for Successful Projects: The Quest to Manage Project Management. Their next book is Creating the Project Office: A Manager’s Guide to Leading Organizational Change. Graham and Englund also present executive briefings for Stanford University, ProjectWorld, Strategic Management Group (SMG), and PMI. Robert J. Graham is an independent project management consultant and senior associate with the Strategic Management Group. Graham was a senior staff member at the Management and Behavioral Sciences Center at the Wharton School, University of Pennsylvania. He taught in the MBA and PhD programs and the Wharton Effective Executive program. With Randall L. Englund he co-authored the book Creating an Environment for Successful Projects: The Quest to Manage Project Management and Creating the Project
Slide 20: About the Contributors xvii Office: A Manager’s Guide to Leading Organizational Change. Graham and Englund also present executive briefings for Stanford University, ProjectWorld, Strategic Management Group (SMG), and PMI. Ned Hamson is currently a strategic innovation consultant. He served as editor of the Journal for Quality and Participation from 1985 to 2002, and has coauthored three books: Managing Quality (Wiley, 2002); Global Innovation (Wiley, 2002); and After Atlantis: Working, Managing and Leading in Turbulent Times (Butterworth-Heinemann, 1997). Samuel J. Mantel Jr. is the Joseph S. Stern Professor Emeritus at the College of Business Administration at the University of Cincinnati, where he taught courses in Operations Management and Project Management. He holds A.B., M.P.A., and Ph.D. degrees from Harvard University. Prior to his 20 years of service on the faculty of the University of Cincinnati, he also served on the faculties of the Georgia Institute of Technology and Case Western Reserve University. At CWRU he was Director of the Economics-in-Action program. He also founded and directed the University of Cincinnati’s Graduate Center for the Management of Advanced Technology and Innovation. Mantel has published over seventy papers on the application of economics and quantitative methods to the management of projects, research and development, technological change, and the operation of service agencies. He has published in such journals as Project Management Journal, IEEE Transactions on Engineering Management, Technology Management, and Operations Research. He currently serves on the Editorial Board of the international journal Technovation. He has conducted more than three hundred seminars at universities across the United States and consulted in the areas of operations management and project management to more than 200 for-profit and not-for-profit organizations. He co-wrote the article on Project Management for the International Encyclopedia of Business and Management (2001), published by Thomson Learning, London, and he has co-authored several books, including two popular college textbooks—Project Management in Practice, and Project Management: A Managerial Approach (2003), now in its fifth edition—both from Wiley. Jack R. Meredith is Professor of Management and Broyhill Distinguished Scholar and Chair in Operations at the Babcock Graduate School of Management at Wake Forest University. He received his Ph.D. and MBA degrees from the University of California, Berkeley. He has worked as an astrodynamicist for Douglas Aircraft Company and TRW Systems Group on the Viking, Apollo, and other space programs. His current research interests are in the areas of research methodology and the strategic planning, justification, and implementation of advanced manufacturing technologies. His recent articles have been
Slide 21: xviii About the Contributors published in Management Science, Operations Research, Journal of Operations Management, Sloan Management Review, Strategic Management Journal, Decision Sciences, and others. He has co-authored five popular college textbooks: Operations Management for MBAs (Wiley), Quantitative Business Modeling (South-Western), Project Management: A Managerial Approach (Wiley), Operations Management: A Process Approach with Spreadsheets (Wiley), and Project Management in Practice (Wiley). He was the founding editor of Operations Management Review, and is currently the Editor-in-Chief of the Journal of Operations Management, and a member of the editorial advisory board for Production and Operations Management. Nancy Tennant Snyder is vice president for leadership and strategic competency creation at the Whirlpool Corporation, based in Benton Harbor, Michigan. Neal Whitten, PMP, is a speaker, trainer, consultant, mentor, and author in the areas of both project management and employee development. He has over 30 years of front-line experience in project management, software engineering, and human resource management. In his 23 years at IBM, Whitten held both project leader and management positions. He managed the development of numerous software products, including operating systems, business and telecommunications applications, and special-purpose programs and tools. For three years, he also managed and was responsible for providing independent assessments on dozens of software projects for an Assurance group. He is president of The Neal Whitten Group, created shortly after leaving IBM in 1993. He is also a contributing editor for the Project Management Institute’s PM Network magazine.
Slide 22: Contents PART ONE THE CASE FOR PROJECT MANAGEMENT 1. Project Management Is a Strategic Strength Eric Verzuh 2. Leading the Change to a Project-Based Organization Robert J. Graham and Randall L. Englund 5 26 PART TWO THE PROJECT MANAGEMENT DISCIPLINE 3. Project Selection Jack R. Meredith and Samuel J. Mantel Jr. 4. Building the Action Plan: Scheduling, Estimating, and Resource Allocation Eric Verzuh 5. Achieving Stakeholder Satisfaction through Project Control Eric Verzuh 6. Project Risk Management Eric Verzuh 59 98 142 179 xix
Slide 23: xx Contents 7. Quality, Quality Management, and Project Management Ned Hamson 207 PART THREE BUILDING A HIGH-PERFORMANCE PROJECT TEAM 8. A Model for Building Teamwork Elaine Biech 9. Discipline: The Glue That Holds It All Together Neal Whitten 10. Virtual Team Critical Success Factors Deborah L. Duarte and Nancy Tennant Snyder 251 262 287 PART FOUR MANAGING THE PROJECT-BASED ORGANIZATION 11. Stage-Gate™ New Product Development Processes: A Game Plan from Idea to Launch Robert G. Cooper 12. Enterprise Project Management: The Path to Maturity Denis Couture 13. Creating an Environment for Successful Projects in Your Organization Robert J. Graham and Randall L. Englund 14. Integrating Project Management into the Enterprise Eric Verzuh Index 309 347 378 394 423
Slide 24: PART ONE THE CASE FOR PROJECT MANAGEMENT Modern project management has been in use since the early 1950s, yet it experienced explosive growth during the 1990s. Firms in every sector of the economy, including nonprofit and government agencies, discovered this proven discipline as though for the first time. The shif t toward project management ref lects many other shif ts in the workplace: global competition, the increased use of temporary labor at all levels of the organization, and the rapid pace of technological advancement. To a certain degree, the project management discipline is stable and ready for ser vice. The fundamentals of managing a successful project have not changed much over the past 25 years. Project leaders can look to existing tools and texts to understand how to set up and manage a project. But many firms have already reached the limits of the discipline: The principles of managing a single project are insufficient for managing a collection of independent projects. The nature of projects— each is unique in its duration, budget, product, personnel requirements, and risks—is magnified as the number of projects grows. As departments and entire firms spend a greater proportion of their time, budget, and personnel on projects, they need to master the principles of managing a project and a project-based organization. To fully understand the problem, we need to understand how we arrived here. Management theory was born and raised in the twentieth century. Frederick Taylor, Peter Drucker, Alfred Sloan, W. Edwards Deming, and many others developed and practiced theories of managing organizations that became the foundation of the world’s leading businesses. 1
Slide 25: 2 The Case for Project Management Along the way, project management techniques were developed, the first in the mid-1950s. For the most part, project management was ignored by schools teaching management and by professional managers because most people weren’t working on projects. That began to change by the mid1980s. Economic and technology factors combined to increase the number of projects in many firms. Initially, the problems of projects were considered the domain of engineers, programmers, and others who actually worked on project teams. The answers were found in the existing project management discipline. Today, however, executives are taking an active interest in projects and project management. What has changed is not only that more people are working on projects, but also that the proportion of budget and/or revenue attributable to projects has jumped significantly. When projects represented less than ten percent of our activities, they could be treated as anomalies. The fact that they are difficult to estimate and demand cross -functional staffing is challenging, but the project management tool set addresses these problems. When projects become 30, 50, or 70 percent of a department’s activities, they demand a different kind of attention. Executives trained in the theories of twentieth-century management recognized a gap—theories of economies of scale and process improvement were focused on getting better at doing the same thing. But projects are always doing something new. The disciplines we use to make the trains run on time are not necessarily the ones that will help us build a new railroad. Here’s another way to view the problem: When our work is primarily repeatable activities (manufacturing is a classic example), the old metaphor for an organization as a machine where the structure and processes are cogs and gears ser ves a purpose. Fine tuning the machine means analyzing and improving specific processes or authority structures. But imagine that the cogs and gears are constantly changing size and speed, and they come and go on a seemingly random basis. How do we manage that kind of machine? Part One of this book helps us understand the problems of the project-based organization, the answers provided within the project management discipline, and the new directions that firms have chosen to capitalize on the opportunities created by projects. Chapter 1 provides an over view of project management. It begins by explaining why managing a project is different from managing an ongoing operation and why a separate management discipline has evolved to address these differences. We see, at a high level, how a project is selected; how the project manager establishes a clear direction for the effort, including detailed action and risk management plans; and how these
Slide 26: The Case for Project Management 3 upfront activities become the basis for successfully managing and delivering the product. The shif t to project-based work has brought opportunities as well as challenges. Chapter 1 also poses the question of whether a firm’s ability to manage projects is merely a tactical competency or actually forms a strategic competitive advantage. If it is a strategic capability, that means understanding project management is important to executives and that the firm is justified in adapting its structure and processes to further improve project performance. Chapter 2 provides a vision for an environment conducive to successful projects. Authors Graham and Englund identify the organization structure and processes necessary to foster project success. They also emphasize the critical role that upper management plays in a projectbased organization: Consistent project performance relies on honest, consistent management support. The transformation to a project-friendly organization has dangers. Chapter 2 also describes the risks associated with large -scale organizational change and provides insights into the change process and the attributes of the successful change agent. By the end of Part One, you will understand the case for project management—the relative importance of projects to your firm and what constitutes a successful project-based organization.
Slide 28: 1 PROJECT MANAGEMENT IS A STR ATEGIC STRENGTH Eric Verzuh The dawn of the twenty-first century is characterized by pervasive change throughout the global economy. The ability to rapidly adapt to change and, more importantly, drive that change, has become a survival factor for firms across the economic spectrum. This chapter describes how the project management discipline has evolved to be a strategic capability in firms of every size as we all adapt to the increasing pace of change. The content of this chapter is broken into two parts: The first part provides a general overview of the discipline of project management; the second part demonstrates why project management is a strategic capability and what firms are doing to leverage project management techniques. THE PROJECT MANAGEMENT DISCIPLINE The basis of understanding project management is the understanding of project. A project is defined as “work that is temporary and produces a unique product or service.” Temporary work has a beginning and an end. When the work is finished, the team disbands or moves on to new projects. Producing unique products or services is why projects are often referred to as one-time shots. It is often easiest to understand what projects are by also stating what they are not. If projects are temporary and unique, ongoing operations are neither; for example: 5
Slide 29: 6 The Case for Project Management • Developing a more accurate weather forecasting software model is a project; using the model to forecast the weather week after week is an operation. • Implementing a software package to process loan applications at a credit union is a project; processing the loan applications becomes an ongoing operation. • Installing robots to paint automobile bodies at an assembly plant is a project; painting cars is an operation. • Writing a professional development class on risk management is a project; presenting the class repeatedly to many customers is an ongoing operation. THE NEED FOR A DIFFER ENT DISCIPLINE The definition of a project gives us clues as to why projects can be so troublesome—if we get only one chance to do it right, how can we ever hope to succeed? Refer to Exhibit 1.1 and consider the challenges inherent in managing one-time shots: • Staffing. As the project has a start and a finish, so does the project team. The more unique the project is to your firm, the greater the difficulty in assembling a team with the appropriate skill mix. Compound that problem by trying to run many projects simultaneously, all with different durations and different team size requirements. You may have the need for 500 people to work on projects this quarter but need only half that many next quarter. Where do the people come from? Where do they go? Balancing the projects undertaken against the staff and resources available is a critical organizational capability. • Budgeting. Most budget cycles are set to ref lect accounting cycles dictated by the Internal Revenue Service and other government agencies. However, projects are driven by other factors and often cannot wait for the next budgeting cycle. If you are beginning your fiscal year and find EXHIBIT 1.1 Projects versus operations Operations Projects Totally Unique Completely Repetitive All of our work falls somewhere on the spectrum between repetitive and unique. Projects are unique, and the more unique they are the more difficult they are to manage. At the extreme end of the scale, research projects attempt to manage discovery. At the other extreme, work that is almost completely repetitive has been automated and is performed by computers or robots.
Slide 30: Project Management Is a Strategic Strength 7 out your nearest competitor is gearing up to release an improved product, you don’t want to wait until next year’s budgeting process to find money to launch your own product development effort. • Authority. When “politics” gets in the way of project progress, we usually mean that the authority structures set up to manage the ongoing operation aren’t serving the project. That’s not surprising, given that projects often require cooperation and participation across the normal functional boundaries within the firm. The unique nature of projects means that a single vertical line of authority is more the exception than the norm on projects. • Estimating. As new projects are considered, deadlines and budgets are estimated to set financial goals such as return on investment. However, given that estimating requires forecasting the future, these cost and schedule goals are often built more on assumptions than facts. The project team is being asked to create something unique; that means it will solve new problems and encounter unexpected obstacles. Even projects that are similar to previous efforts can be difficult to forecast because most projects contain so many variables. • Communication. If people are the engine of accomplishing work, communication is the heart of true productivity. It is easy to understand why “constant effective communication among everyone involved in the project” is considered a project success factor.1 Projects that require cooperative, concerted effort from temporary, cross-functional project teams must re-create basic communication channels on every project. As challenging as it can be to manage a project, the problem is magnified when a firm or department has tens or even hundreds of projects. Each project has its own risks, stakeholders, communication channels, and resource requirements. The project management discipline has evolved to address the challenges of individual projects and continues to evolve to address the problems faced by project-based organizations. A BR IEF HISTORY OF PROJECT MANAGEMENT Although human history is marked by projects—from the Roman aqueducts to the American transcontinental railroad—project management was not developed as a separate discipline until the mid-twentieth century. Beginning with the nuclear weapons programs after World War II, specific techniques emerged for planning and managing their enormous budgets and workforce. The most well-known, PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method), have become synonymous for project scheduling techniques. (Both PERT and CPM were much more than scheduling techniques, but the scheduling graphics they produced, called PERT charts and Critical Path
Slide 31: 8 The Case for Project Management charts, were so distinctive that many people have mistakenly equated project management with PERT and Critical Path charts.) PERT and CPM evolved through the 1950s and 1960s to become commonplace on major space and defense programs, but they saw limited use beyond those industries. From the mid-1960s through the mid-1980s, project management methods grew and matured but still found a relatively limited audience. Even at universities, project management was usually taught on a limited basis in some engineering schools. However, in the 1990s, interest in project management soared because of a convergence of several factors. Computer technology was making a huge difference in the way we worked. More powerful computers and software also made it easier to use the classic project management techniques. Project management methods today are not that much changed from a generation ago, but they have become commonly accepted in every industry. FUNCTIONS OF PROJECT MANAGEMENT The project management discipline covers a broad spectrum of concepts, tools, and techniques designed to enable the best possible project selection and execution. Exhibit 1.2 breaks down the discipline of project management into the major functions an organization must perform to take a project from concept to delivery. EXHIBIT 1.2 Selection Project management f unctions Definition Planning Control Close Out Risk Management Quality Management Feedback, Changes, and Corrective Action
Slide 32: Project Management Is a Strategic Strength 9 Selection Pursuing the correct projects is easily as important as the effectiveness with which the project is carried out. Project selection contains the following activities: • Create a business case for the project. The business case describes the project’s purpose and benefits in relation to the goals of the firm; identifies financial targets for the project such as return on investment, internal rate of return, and payback period; and estimates resources in cost and personnel. It serves as a basis for documenting commitment to the project. • Align the project’s goals in the organization. Aligning the project tests project goals against strategic goals for the firm and other involved stakeholders. For instance, if multiple departments must cooperate to accomplish a project, understand how the project will help the departments meet their goals. • Prioritize the project relative to other projects and ongoing operations. Every firm has limited time, people, and money to spend on projects. Therefore, each new project must be weighed against existing commitments and available resources. It is important to recognize that the project manager responsible for delivering the project is rarely involved in any of the selection activities. Operational or product managers typically develop the business case and test the project for goal alignment. Executives prioritize the project. That is a risk for the project, the project manager, and the organization, which is why the risk management function overlaps project selection. Def inition After a project is selected, a project manager is assigned and goes to work building the foundation for the project’s success. Project definition activities include the following: • Identify all stakeholders on the project and document their goals and involvement. Stakeholders include customers, vendors, core team members, and supporting management in the firm. • Develop a relationship with the project sponsor. A sponsor is an executive in the organization who is responsible for the success of the project. While the project manager performs the day-to-day oversight of the project, the sponsor provides the executive authority necessary to overcome organizational obstacles. • Record the goals and constraints of the project using a statement of work or similar document. Goals and constraints can include the scope, budget,
Slide 33: 10 The Case for Project Management key schedule milestones, authority structure for the project, measures of success, communication standards, and other facts or assumptions that will affect the project. This document is then signed by the project stakeholders, establishing a baseline agreement. Project definition is the foundation for success because it establishes a common understanding of the goals and constraints of the project. Without it, the project team is shooting at a moving target. Planning With a clear goal in place, documented by the statement of work and business case, the project manager builds the action plan that describes the who, what, when, where, and how of accomplishing the project. Planning typically includes the following activities: • Develop a detailed description of the work on the project using a work breakdown structure (WBS). The WBS breaks the overall work of the project into small, individual tasks, much the same way an organization chart for a company breaks down authority. • Analyze the sequence of the tasks. For all the tasks on the WBS, understand which tasks have to be performed before others. The classic diagram for this analysis is called a network diagram. (Both PERT and Critical Path charts are forms of network diagrams.) • Estimate the tasks to determine the required skills, effort, equipment, and materials. Even though the business case provides a high-level cost estimate, it is necessary to have detailed estimates to assign resources to accomplish tasks. • Use the detailed information derived from the work breakdown structure, network diagram, and task estimating to create “bottom-up” estimates for the project. In other words, add up the cost, and schedule estimates of the individual tasks to determine the cost and duration of the entire project. • Establish detailed project schedules documenting specific start and finish dates, responsibilities, and completion criteria for each task. • Determine the number of people on the team and what skills are necessary. For part-time team members, identify the dates their skills and effort are required. Staffing the project team often requires negotiating with other project managers or functional managers. • Prepare contracts for vendors who are participating in the project. Control The control function can be likened to driving a car: The driver monitors the vehicle and the environment, intentionally steers toward the destination, and
Slide 34: Project Management Is a Strategic Strength 11 takes corrective action as obstacles or unexpected events arise. For project managers, driving the project includes: • Monitor the progress of the project against the plan. Projects are typically too large for subjective assessments of progress to be valuable. Instead, we need specific measurements, such as the percent of the budget consumed to date. The detailed nature of the project plan allows for detailed measurements of cost and schedule progress. We can see which tasks are late, which are early, and which are consuming more or less effort than was estimated. • Communicate with the project team and stakeholders. Because life and projects rarely go as planned, continuous, purposeful communication is necessary to keep all project participants informed and working together in harmony. Stakeholder communication includes formal reporting to customers and management. • Form the project team and attend to its health. Forming the team means assembling a disparate group of people into a team with a shared goal. Consciously build and maintain trusting relationships within the team. Monitor the quality of team decision making to ensure appropriate participation and productivity. • Maintain the cost-schedule-quality equilibrium. During project selection and definition, the stakeholders agreed on what to create, how much to spend, and when it had to be delivered. The greatest threat to that balance comes from adding scope (additional work) during the project. Any changes to the project that affect the cost, schedule, or product must be approved by the project manager, customer, and other affected stakeholders. • Take corrective action to keep the project on track. Risk Management Because every project is unique, every project includes a high degree of uncertainty. Risk management is the systematic practice of identifying and reducing the threats that exist in the project and the project’s environment. Planning for risk begins during the development of the business case and continues through definition and planning as each successive function provides a more detailed view of the project. During the control function, risk management activities mirror the other control activities as we monitor and communicate each risk and, if necessary, take action to respond to the risk. Quality Management Delivering the correct product or service, which performs as the customer expects, is no accident. Practices developed and established within the quality discipline (as defined by Deming, Crosby, et al.) can be applied to the project
Slide 35: 12 The Case for Project Management management discipline. This integration begins as the project is conceived and carries forward until the outcome of the project is created and is accepted by the customer. These practices focus on clearly understanding what the customer wants and consciously planning to deliver it, including methods for ensuring the product will be correctly built. Close Out Project completion goes beyond delivery of the product. In addition to ensuring customer acceptance, the project manager will disband the project team and dismantle the project infrastructure. A significant goal of project close out is capturing the lessons of the project so that they can be passed on to the organization. As demonstrated in Exhibit 1.2, the functions of definition, planning, and control are ongoing throughout the project. It is important to recognize that no matter how well a project is defined or planned, during the course of the project, changes can occur that require the scope, cost, schedule, or some other constraint to be modified. When that happens, the project manager will revisit the activities included in project definition and planning. PROJECT SUCCESS: THE TR IPLE CONSTRAINT The functions of project management provide for gaining agreement on what should be built, the cost or price of the product, and when it must be delivered. In project management jargon, we term this the cost-schedule-quality equilibrium or triple constraint. These three variables define the overall goals of a project; therefore, any project that is “on time, on budget, high quality” is declared a success. The difficulty, however, exists in their relationship to one another. The term equilibrium sums up the challenge: The quality of the product we create depends on the time and money we are willing to spend. After a balance between these variables is struck, a change to one will affect the other two. Achieving the proper balance of cost, schedule, and quality is beyond the control of the project manager alone. All stakeholders, particularly those involved in project selection, inf luence the choices and trade-offs that make up the triple constraint. PROJECT MANAGERS MUST BE LEADERS The discipline of project management can lead us astray. With all its structured methods and specialized reports, it can create the illusion that if a person learns the discipline, he or she will surely lead successful projects. Projects are much too messy to be ruled merely by organized documentation. The
Slide 36: Project Management Is a Strategic Strength 13 methods and mechanics of project management are essential, but they are not sufficient. Forming a team to build something from nothing requires a range of leadership skills and characteristics. Effective project managers are able to: • Communicate a vision. Projects start with problems and finish with products. They begin with fuzzy ideas and result in tangible services. To lead all the stakeholders on this journey requires the ability to communicate the destination and the path to achieve it. • Motivate and inspire the team. Every project—from the daunting to the mundane—benefits from a motivated team. • Build trust within the team. A fundamental component of a highperformance team is the trust that enables team members to rely on one another both for support and appropriate criticism. Project managers set the tone that fosters open communication and honesty, which fosters trust and strong relationships. • Inf luence stakeholders beyond the project team. Customers, vendors, other projects, and senior management all contribute to the project but do not report directly to the project manager. Gaining cooperation outside official authority is essential for project managers. • Make abstract things concrete. Transforming a concept to reality requires the ability to sift through assumptions and generalities to take meaningful results-oriented action. • Demonstrate persistence and determination. Not every project is tough, but few are easy. Projects are full of unexpected problems, which require a leader who will not give up easily. • Manage and resolve conf lict. Conf lict is a natural part of change. As people struggle to invent new products and processes, the project team must not run from conf lict; rather it must work through it to reach the best decisions while respecting and maintaining team relationships. • Know when to make a decision. Balance the need for more information, more participation, and the urgency of the situation. • Maintain the big picture perspective while organizing details. Project managers are responsible for achieving the overall goals by directing the details. This list could go on. The nature of projects makes them unruly and prone to chaos. It takes a firm, disciplined hand at the wheel to keep the project and all the stakeholders moving in a purposeful, concerted direction toward success. The discipline or “science” of project management makes up an essential tool set. The “art” of leadership lifts the human component of the project to its potential. Neither the art nor the science is sufficient on its own. Together, they form a powerful force that overcomes great adversity and enables us to accomplish any goal.
Slide 37: 14 The Case for Project Management PROJECT MANAGEMENT IS A GROWTH INDUSTRY Projects are temporary and produce unique products. Both of these characteristics make managing projects not just difficult, but different from managing ongoing operations. The project management discipline contains methods, tools, and concepts that were specifically developed to ensure that each project meets cost, schedule, and quality goals. The use of project management methods has grown tremendously over the past decade, and all indications are that the trend will continue. Computerbased project management tools continue to add powerful features that make it more practical to apply the classic techniques. Growing demand for project managers has led to explosive growth in the number of universities offering degrees or certification in project management. However, these factors are merely proof that this discipline is becoming a necessary skill in most organizations. The root cause of the growing use of project management is the increasing rate of change in our economy and our places of work. PROJECT MANAGEMENT AS A STRATEGIC STR ENGTH What is the single largest factor driving the increased use of project management methods? The ever-present, ever-increasing pace of change present in our world today. Whether you work in health care, banking, professional services, manufacturing, aerospace, computer hardware and software, telecommunications, or entertainment, you feel the changes all around you. You can be employed by a government agency, nonprofit firm, small business, or Fortune 500 corporation, and you will experience the constant change that comes from rapidly growing computing power and global competition. The number and variety of changes surrounding us have many sources, and each change spawns others, creating an ever-growing web of change. This climate of ever-faster change has created new challenges and new opportunities. All firms are challenged to keep up with the pace or risk being left behind. The opportunities for the quick and agile are exemplified by technology companies that started from scratch and made their founders billionaires within a decade or less. However, the opportunities are not limited to wireless telecommunications, computer networking, or software businesses. Starbucks, the Seattle-based coffee retailer, has grown from a few friendly shops in Seattle to a worldwide chain in less than ten years. Business gurus and corporate chieftains noticed this shift in the late twentieth century: • Tom Peters characterized the challenge in the title of his 1987 book, Thriving on Chaos. • Andy Grove, CEO of Intel, titled his 1996 book, Only the Paranoid Survive.
Slide 38: Project Management Is a Strategic Strength 15 • Peter Senge described the “learning organization” as the new paradigm for corporate survival in his landmark book The Fifth Discipline, published in 1990. He quotes an executive as saying, “The ability to learn faster than your competitors may be the only sustainable competitive advantage.”2 • Jack Welch, of GE, perhaps the most respected CEO of the 1990s, observed in 1994, “I’m in my 14th year of running a global company, and I’ve been wrong about a lot of things in those 14 years; but one prediction I’ve made at least 14 times that has always come true is that things are going to get tougher; the shakeouts more brutal and the pace of change more rapid.”3 As change becomes a constant, the project management discipline moves to the forefront of organizational capability because change is accomplished through projects. The ability to properly select and effectively execute projects is as integrally tied to the success of a firm as its choice of products and markets. A NEW STRATEGIC STR ENGTH Effective execution of projects has always been important. It has never been acceptable to be over budget, behind schedule, or delivering the wrong product. In the past, however, project management has been seen as a tactical strength. In the words of Steve Weidner, president of Program Navigators, executives’ attitudes toward project management was “I hire people, who hire people, who hire people to manage projects.” Because projects were carried out far from the strategic planning sessions in the executive offices, senior management could ignore the details and discipline of project management. Has anything really changed? Are CIOs and CFOs paying attention to project schedules? Can the ability to manage projects actually become a competitive advantage? Before we assess whether project management is a strategic strength for your firm, we must first define the term itself. Strategic strength refers to a competitive edge that inf luences the strategy of the firm. At best, it is such a dominant strength that it keeps competitors from entering the marketplace, shaking their heads, and exclaiming “I can’t compete with that!” Consider some strategic strengths of the past: • Economies of scale allowed manufacturers to produce more products at a cheaper rate. Henry Ford pioneered this idea, and it was refined throughout the twentieth century. By 2000, this strength was cited by banks and entertainment companies, such as Bank of America and Disney, as they rapidly acquired or merged with their competitors. • Large, established distribution networks provide channels for delivering products to the customer. U.S. automakers have a much larger share of rural U.S. markets because their dealer network is stronger than that of
Slide 39: 16 The Case for Project Management foreign competitors. Coca-Cola and McDonalds also enjoy worldwide distribution networks. • Specialized skills and processes enable a firm to produce better products less expensively. Sony has proven repeatedly that it is the master of consumer technology. Sony’s products often work better and are more userfriendly even though they are cost competitive. Can project management capability be as important to an organization as these strategic strengths have been in the past? The determining factor is how dependent the firm is on successful projects. TACTICAL OR STRATEGIC? Project management is not a strategic strength for every firm, because not every firm is project-based. For example, it would be difficult to make a case for most retail stores to focus on project management as a strategic competency. The following factors help you assess the relative importance of projects to your firm and your career. The more that these factors are true for an organization, the more project management will be a strategic competency. Realize that these factors may be assessed for the entire enterprise or for a specific division or department. The statements are organized so that the first five assess the importance of projects to your career and the last six apply to your firm. Respond to the following statements as to strategic importance of project management skills to your career: • Project management is an important tactical skill for me. If you manage projects, project management is an important tactical skill because it helps you perform your current job better. The more projects you manage and the larger the projects are, the more important this skill becomes. • My organization has a high proportion of budget or revenue attributed to projects. If your firm derives a significant portion of revenue from project-based work, your ability to manage projects well is a direct ref lection of your value to your firm. This is also true if your firm has a high proportion of its budget allocated to projects because you will be instrumental in creating the most value for the money spent. If you work for a consulting firm or general contractor whose primary source of revenue is delivering project-based services, this factor applies to you. However, you could also agree highly with this statement if you work in a project-based support group in a nonproject-based company. For instance, most information technology (IT) departments have a high proportion of their budgets devoted to projects, even though the company as a whole might be a manufacturer or a retail chain. • My profession is driven by projects. This factor applies to you if most people in your profession or with your skill set work a large proportion of
Slide 40: Project Management Is a Strategic Strength 17 their time on projects. For instance, engineers tend to spend much of their time on projects, so any engineer will find his or her career opportunities expand as he or she masters project management skills. Because fewer professionals are spending their entire careers with a single employer, this factor has an even greater impact on your career. • I have many projects under my span of control. Ironically, strong agreement with this statement has often been associated with people who don’t understand project management principles. They prefer “to leave the details to the people managing the projects.” However, if you have many projects that you are responsible for, your ability to monitor and mentor multiple project managers will improve if you use project management techniques. • I have career goals to significantly increase my responsibilities. Whether you work in a project-based organization or not, your ability to manage a new initiative, pioneer a new product, or solve a unique problem will make you stand out among your peers. The career ladders are packed with people who are competent at the normal requirements of your firm; you will distinguish yourself because you can handle what isn’t normal. As these factors are considered, it may be useful to distinguish between the overall purpose of a company or agency and the purpose of a department. As noted in the previous questions, a support department can be very projectdriven while the business as a whole is not. It is useful to respond to these statements from both perspectives. Respond to these statements about project management as a strategic competency for your firm: • Project management is an important tactical skill for my firm. If there are projects in the firm, it is at least a tactical skill because it is always important to execute tasks efficiently. • My firm has a high proportion of budget/revenue attributed to projects. The connection here is obvious. If the business derives a large proportion of revenue from project-related work, project management capability will make the firm more competitive; it will be able to provide lower cost, higher quality products to customers. Similarly, when a significant amount of the budget is spent on projects, strong project management gives a firm more value for the money spent. • My industry is driven by projects. When your industry is driven by projects, your competitors are also engaged in managing projects. Who will be faster to market? Who will have the better product or the more competitive cost? A number of factors cause an industry to be driven by projects: —If your firm and your competitors deliver project-based services, your industry is driven by projects. A wide variety of service businesses, from construction to accounting to information technology, falls into this category.
Slide 41: 18 The Case for Project Management —Shelf life and complexity of your products drive projects. In the software product industry (e.g., Microsoft, Novell, Adobe, Oracle), the products are complex and difficult to create (though simple to manufacture), and they have a relatively short shelf life with significant new releases coming out every 18 to 30 months. Therefore, these firms are constantly engaged in product-development projects. —The complexity and uniqueness of your products drive projects. Aerospace and pharmaceutical companies have these factors in common. Military aircraft and cancer-fighting drugs are tremendously expensive and take years to develop. In these industries, shaving 10 percent off a budget can generate millions of dollars in savings. —If you are in a growth industry, it is driven by projects, because at the least you are rapidly adding capacity. However, growth industries are typically characterized by innovation as well—meaning you will need to change rapidly to stay in the game. —Industries associated with technology are forced to change rapidly and constantly as they either produce new technology or use it to leverage other competitive strengths. • My firm has many independent projects. Independent projects—where the products or customers are unrelated—magnify the challenges of managing projects. Compare managing a wide variety of unrelated projects to juggling a basketball, an apple, a golf shoe, and a f laming torch. Juggling is difficult enough, but the difference in weight, size, and shape of all these items compounds the difficulty. So, too, with a variety of projects, all of which ultimately share the same set of corporate or department resources. • My firm has significant growth goals. Growth comes through change, and change is accomplished by projects. Too often, a company with a hot product is choked by its inability to grow its infrastructure to support the demand. When that happens, the revenues grow but the costs grow faster, cutting the profits and squeezing cash f low. • My firm has important projects whose failure will cripple the firm. If you have strategic projects, the ability to carry them out is a strategic strength. Many of these factors probably apply to you. For firms with many of these factors, project management is more than a tactical strength—it is a capability that can fundamentally change the organization’s ability to compete. THE STRATEGIC ADVANTAGE The factors outlined previously show that projects play a large role in an organization. However, just because a firm has many projects, and many important projects, how does that make project management a strategic strength? There
Slide 42: Project Management Is a Strategic Strength 19 are two fundamental answers to that question: outperforming your competition and reducing risk. In athletic competition, a coach often emphasizes the fundamentals of the game during all practices because of the obvious reality that no game plan can succeed without mastery of the fundamentals. Projects in every endeavor share this emphasis on fundamentals. No matter how good our strategy, poor execution causes us to fail, which is a tactical issue. It becomes a strategic strength when the consistency and speed of our execution enables us to change our strategy. The following examples demonstrate how project management— once considered mere “blocking and tackling”—can change the game plan: • Through the use of good project management and process improvement methods, a financial services firm was able to slash its product development cycle from 14 months to 8 months. Now this firm can deliver a new product in about 60 percent of the time it takes a competitor. That provides a cost advantage (therefore, a profit advantage), but the strategic advantage is the ability to always be first to market when new opportunities appear. • There is perhaps no better example of the strategic importance of speed than in computer hardware and software development companies. Moore’s Law has postulated that computing power doubles every 18 months. So far, it is holding true. The implication for firms that develop hardware is that they need to constantly be designing and developing new products, often with two or more generations of products in development at the same time. Software development companies are in the same situation. They are constantly working on the next release of their product to take advantage of new processing power and memory capabilities, as well as responding to shifts in the marketplace. In this never-ending product development race, the firm that can consistently deliver the best product to the market window has the advantage. When firms fail to maintain this pace, they not only fall behind, they are out of the race. Project management is one of the fundamental abilities that enable a firm to consistently deliver a better product faster and at less cost. • One of the factors fueling the economic expansion of the 1990s was improved productivity. New technology enabled firms to accomplish more with fewer people. The firms who have mastered project management quickly take advantage of new cost-saving ideas without throwing their operations into an uproar. On the other hand, firms that struggle with every new project often spend far more implementing the new idea than they will ever realize from the cost savings. For instance, companies that have installed so-called enterprise resource planning systems (ERP systems such as PeopleSoft, Baan, SAP, and many others) reduce information system costs and, importantly, gain greater understanding of their operations through more integrated information management. ERP systems enable these firms to fine-tune operations and produce significant cost savings.
Slide 43: 20 The Case for Project Management Implementing these productivity tools and processes is often complex; therefore, good project management is essential. Too many firms have spent millions of dollars on the software and services required to implement these ERP systems yet have nothing to show for it. They are mired in the complexity of adjusting their way of doing business and matching it to the new computer system. It is a complete lose-lose situation, wasting money and failing to gain the competitive advantages that an ERP system can provide. • Hospitals and health-care networks also face the need to morph rapidly for survival. They are refining and updating internal business practices to rein in costs and improve service. Organizations that have been successful with these reengineering initiatives have become the new leaders—while those that fail have had to merge with or be taken over by competitors. These examples demonstrate how effective project execution allows a firm to adopt more aggressive growth goals. When every project costs less and is consistently performed faster, we can take on more new initiatives—whether they are for efficiency, customer satisfaction, or new products and markets. Outperforming the competition is one reason project management is a strategic competency. Risk management is the other reason. Every new endeavor—from ERP system implementation to new product development—is filled with uncertainty, both good (opportunities) and bad (risks). Often, the greater the opportunity is, the greater the risk. The uncertainty is why we tend to get nervous while working on projects. Then add to the problem that most projects are initiated based on more assumptions than facts, and the project-based organization begins to look like a high-stakes gamble. However, avoiding all projects to reduce risks also means avoiding all opportunities. The answer is being able to engage in projects and to better manage the associated uncertainty—to play the game but improve our odds of winning. The gambling analogy is apt. Casinos with blackjack tables know the odds are in favor of the house. But those gamblers who have learned to “count cards”—by some method, remember the cards that have already been dealt— tip the odds in their favor. They don’t win every hand, but they win more than they lose—enough so that when a card counter is recognized, the casino may not allow him or her to play. Project management techniques are methods for reducing uncertainty and, therefore, improving our odds of success. Whether you manage a cost center or a profit center, every time you take on a project, you take on a risk. The more projects you have, the more the risk can be magnified or reduced, depending on your ability to plan and manage projects. Project management techniques reduce risk in three fundamental ways: 1. Forecasting the future: When you can see the future, you improve your odds dramatically. That’s why good sailors watch the weather reports so carefully. Project management techniques do not provide a clear picture
Slide 44: Project Management Is a Strategic Strength 21 of the future. Rather, they are like weather forecasting techniques; they leverage past experience to understand the present and provide a range of probable outcomes for the future. 2. Early problem recognition: Simply put, small problems are easier to solve than big ones. The structured tools of project management enable early problem recognition and resolution. That includes canceling or dramatically redirecting projects that have gone off track or no longer make sense. The difference is that these problem projects are found earlier, after spending less corporate resources, therefore reducing the loss. 3. Improved communication: There is no more common cause of project failure than communication breakdowns. Whether the misunderstanding is over what, why, or how to build the product, communication failures lead to wasted effort, time, and money. Every facet of project management improves communication, from techniques to gain early stakeholder cooperation, to scope management and cost control methods. The discipline provides a structured, systematic way to know and agree on every what, why, when, how, where, and who. Reduced risk makes project management a strategic competency because it alters the opportunity-versus-risk equation. It changes the long-standing financial rule that high returns require high risk. Because of that, it allows firms to play in high-stakes games and win more consistently. In summary, project management can be a strategic strength because it makes firms stronger competitors. It produces consistently better project performance, more accurate cost and schedule forecasts, and early problem recognition. That, in turn, improves the ability to manage the project portfolio—to select the projects with the greatest return and cancel those that are not living up to expectations. A strategic strength is an ability that provides a competitive advantage. In this world of rapid change, it is increasingly difficult to sustain operational advantages, making it all the more important to master the discipline of change. STRATEGIC COMPETENCIES Firms that have recognized project management as a strategic competency are responding by adding three primary components: project portfolio management, consistency in project management tools and techniques, and a project management office. Project portfolio management refers to the methods used to select and oversee projects. The term portfolio management conjures up the appropriate analogy to managing an investment portfolio because each project is an investment of the firm’s limited resources. The project portfolio management capability typically has four components:
Slide 45: 22 The Case for Project Management 1. Project selection criteria: Consistent criteria are used to accept projects and to set performance measurements. The first sign the selection criteria are working is that some proposed projects are rejected. 2. Goal alignment: The people charged with project portfolio oversight clearly understand the overall goals of the firm and ensure that all projects support these goals. 3. Resource planning: Projects are prioritized and chosen with the knowledge that the firm has limited people and budgets available. Most firms that lack this component find they are working on far more projects than they can accomplish—therefore, they get only partial completion on all but a few projects. 4. Ongoing oversight: Given that projects are unique, changes in budgets, schedules, and priority are to be expected. Regularly scheduled progress reports allow the portfolio management team to spot run-away projects early, cancel projects that no longer meet selection criteria, or divert additional resources to projects that increase in priority. Consistent project management tools and techniques are the basis for improving overall project performance. Early in the chapter, we established that many of the challenges of managing projects arise from the fact that projects are, to some degree, unique. Exhibit 1.3 illustrates the goal of using consistent project management practices on all projects in a firm—that consistent project management practices leverage what is similar about projects, thereby making them less unique. This, in turn, should reduce some of the challenges inherent in managing unique work. Exhibit 1.4 lists potential project management tools that could be standardized in an organization. Firms seek several benefits from these consistent tools and methods: • A common vocabulary exists across all projects. Mistakes caused by miscommunication are reduced as all project participants use common terms to discuss project issues. • The ability to exchange project data, particularly to combine data from multiple subprojects to gain an overall “super project” view. EXHIBIT 1.3 Project management maturity Operations Completely Repetitive Projects Totally Unique Consistent project management practices—from project selection through close-out—leverage the similarities between projects in order to make them less unique and therefore, more manageable.
Slide 46: Project Management Is a Strategic Strength EXHIBIT 1.4 Define • • • • • Charter Statement of work Responsibility matrix Communication plan Order-of-magnitude estimating guidelines Potential standard deliverables by project phase 23 Plan • • • • • • • • Risk profiles Risk log Risk management plan Work breakdown structure Guidelines for task size Network diagram (PERT) Gantt chart Cost-estimating worksheet Execute • • • • • • • Status reports for different audiences Cost and schedule tracking charts Meeting agendas, including open task reports Cost-tracking guidelines Issues log Change request form Change log Close Out • • • • • Postproject review agenda and guidelines Postproject review report Client satisfaction assessment Project history file guidelines Project summary report • Consistent format improves communication with management and customers. • The common methods and decision points form the firm’s project management process. After a baseline process is established, it becomes possible to improve the common process based on the successes and failures encountered on individual projects. • Common practices form the basis for building project management skills. A project management office (PMO) is some organizational unit that is responsible for the project management capabilities of the firm. In practice, this office has been called a variety of names and has a range of responsibilities, which are described in Exhibit 1.5. Whatever the overall responsibilities of the PMO, the fundamental reason a PMO must exist is that it gives some person or
Slide 47: 24 The Case for Project Management EXHIBIT 1.5 Project of f ice forms and responsibilities Project Project Program Accountable Center of Support Management Management Project Excellence Office Office Office Office ○ ○ ○ ○ ○ ○ Responsibility Maintain standards Organize training Mentoring and consulting support Schedule and budget analysis Enterprise project information Make project management decisions Supervise project managers Meeting project objectives Career growth for project managers Supply project managers to the organization Participate in project portfolio management Legend: ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ = Full responsibility ○ = Partial responsibility Blank = No responsibility group ownership of the project management process. Without a PMO, any efforts to create consistent project management practices will be viewed as optional and will soon become out of date. It is almost impossible to think of a firm having a portfolio management capability in place without some form of PMO to create and enforce the necessary project initiation and reporting standards. How does a department or entire firm implement these capabilities? That is the subject of this entire book. The chapters that follow detail both the discipline of project management and the path to project management maturity. SUMMARY OF PROJECT MANAGEMENT AS A STRATEGIC STR ENGTH The opening of the twenty-first century is characterized by an increasing pace of change, and change is accomplished through projects. Whether you work in government, nonprofit, or large or small business, your firm must adapt; it must either drive change or, at a minimum, keep up with your peers. The increasing pace of change causes greater uncertainty for all organizations. The discipline of project management can reduce the risks of uncertainty. This discipline uses proven techniques to select, plan, and execute projects to reduce the cost and schedule required and to improve the quality of the result.
Slide 48: Project Management Is a Strategic Strength 25 As firms are increasingly driven by projects, the ability to manage projects consistently and competently is changing from a tactical competency to a strategic competency. Firms that recognize project management as a strategic capability—an ability that gives them a competitive advantage—are viewing project management as a process that can be defined and consistently improved. These firms are focusing on three components: 1. A rigorous portfolio management process to correctly choose which projects to invest in and to oversee existing projects. 2. Consistent project management methods so that each project is using reliable techniques for planning and managing. 3. A project management office responsible for maintaining and improving the portfolio management process and project management methods. This book describes the proven discipline of project management and how project-based organizations can use that discipline to thrive. NOTES 1. Eric Verzuh, The Fast Forward MBA in Project Management (New York: Wiley, 1999), p. 8. 2. Peter Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday, 1990), p. 4. 3. Janet Lowe, Jack Welch Speaks: Wisdom from the World’s Greatest Business Leader (New York: Wiley, 1998), p. 98.
Slide 49: 2 LEADING THE CHANGE TO A PROJECT-BASED ORGANIZATION Robert J. Graham and Randall L. Englund Most future growth in organizations will result from successful development projects that generate new products, services, or procedures. Such projects are also a principal way of creating organizational change; implementing change and growth strategies is usually entrusted to project managers. However, project success is often as much a result of the organizational environment as of the skills of the project manager. As the size and importance of projects increase, the project manager becomes the head of a complex development operation with an organizational dimension that can make important contributions to project success or failure. That this organizational dimension may help explain project performance has been strangely neglected in the literature, a problem addressed here by examining the role of upper management in creating an environment that promotes project success. All too commonly, people become project managers by accident. One way to become a project manager is to ask a question at a meeting and then be told, “That’s a good question. Why don’t you take on the project of dealing with that problem?” Or somebody comes up with an idea and is tapped to make it happen, or the generator of the idea looks around for the first person in sight to whom it can be assigned for implementation. Experience indicates that in the process of developing projects, upper managers often appoint inexperienced or accidental project managers (APMs), given them a project to manage—and then systematically undermine their ability to achieve success. Upper managers do not usually undermine APMs on purpose, but too often they apply assumptions and 26
Slide 50: Leading the Change to a Project-Based Organization 27 methods to project management that are more appropriate to regular departmental management. Projects are in many ways a totally different beast. Everyday management generally is a matter of repeating various standard processes, but projects create something new. In addition, upper managers are often unaware how their behavior inf luences project success or failure. Because previous examinations of project success focus almost exclusively on the functions of the project manager, there is an understandable lack of awareness of the importance of the project environment and the behavior of middle and higher managers in organizations—those managers of project managers that we refer to as upper managers. It is important to understand the impact of their behavior on the future survival of organizations. Roles and responsibilities are changing as organizations become organic and project-based—that is, driven by internal markets and team accountability for specific results. Any lapses by upper managers in the authenticity and integrity of their dealings with project managers and with managers in other departments are likely to have a severe impact on the achievement of project goals. A SCENAR IO Many upper managers voice increasing frustration with the results of projects undertaken in their areas of responsibility. They lament that despite sending people out for training and buying project management software, projects seem to take too long, cost too much, and produce less than the desired results. Why is that? To help understand the problem, consider the following scenario. An upper manager gets an idea, perhaps from reading a book or attending a conference, and has a vision of a product or service that the organization can offer. This vision may differ from what the company normally provides, so creating the product becomes a special project. Talking it over with associates, the manager is delighted when one of the best engineers becomes interested. To get the concept rolling, the manager asks this engineer to manage the project. They both figure the project can be done quickly because the engineer has achieved good results on past work. The new project manager talks to a few friends, and soon a team of engineers begins working on the design. After a while, the team comes back to the upper manager with good news and bad news. The good news is that one needed technology is available inside the organization; it was developed in another division, however, so the team needs to borrow a few people from there to get it. The bad news is that another needed technology is not available in the organization, so new people will have to be hired. The upper manager arranges to borrow people from the other division and authorizes the new outside hires. Delay begins about here. The new hires must be approved by the executive committee and then must have job descriptions defined and developed by the personnel department. As these new people know the latest technology, they are
Slide 51: 28 The Case for Project Management expensive; even so, once on board it takes them longer than expected to become productive because they are not used to the ways of their new employer. Eventually, however, the whole group gets working—until a manager from the other division, for which this special project is not a priority, takes back the borrowed engineers. Work slows again as the upper manager tries to negotiate their return. Some engineers are finally freed for the project, but not the same ones as before, so there are more delays until they are brought up to speed. When work finally resumes, questions arise about marketing the new product and about using patented technology to create it. The upper manager must therefore add people from the marketing and legal departments to the project. Sure enough, the lawyers ascertain that the new hires inadvertently used a technology patented by another company; the upper manager must decide if it is cheaper to pay for its use or develop an alternative technology. The new project team members from marketing are difficult to communicate with because marketing uses a different e-mail system than that of engineering and legal. Decision making is further delayed as upper managers argue over a number of manufacturing issues that had come up on previous projects but were never resolved. The team grows disgruntled as it becomes clear that the great engineer is not skilled in planning and conf lict management; the situation is not improved when the engineer disappears for several weeks to fix problems that have arisen from a previous project. Elsewhere in the organization, people begin to grumble that the project is costing lots and accomplishing little. The upper manager spends time justifying the project to other department managers but cannot avoid finally being called before the executive committee to explain why it is taking so long and costing so much. If this scenario seems at all far-fetched, consider this letter received by one of the authors: I work in a planning and distribution organization. My duties include leading efforts that are called projects and generally I’m fixing a problem with a process or system. Rarely do I get due dates or objectives . . . and when I press my sponsor[s] on this point they tell me essentially that they just want it done. Coupled with this the department has difficulty achieving the full intent of the objectives, and we are pretty unproductive (we don’t get many projects completed in a year). We are putting together a proposal including development of dedicated project managers in the organization whose entire job is to lead the projects of the organization (as opposed to the current method of choosing people whose work is closely aligned to the project). Unfortunately, some managers feel strongly that they do not want their resources utilized by the project managers (and subject to the project manager ’s discretion). Plus they want to have access to their people to pursue their own objectives (this includes assigning one of their people as project lead[er] regardless of skill). At this point we need help in convincing these managers to support the process of project management. . . .
Slide 52: Leading the Change to a Project-Based Organization 29 You can almost hear the voice trailing off in a sigh of frustration. Another problem is the assumption that project work should take about as long as traditional work. This sets expectations that can never be met, so projects always seem slower and more costly than other activities. Actually, they should take longer; project work represents something new and different, so the inevitable unknowns, such as those in the scenario, should be factored into the expected length. It is also a false assumption that project work can be handled in the same way and using the same organization and the same people as other work. In reality, because project work is different it requires a projectbased organization. The project in the scenario failed because upper management had not created an environment for project success. CR EATING AN ENVI RONMENT FOR SUCCESSFUL PROJECTS What environmental components foster successful projects? Many misconceptions develop into folklore over time, such as the Humpty Dumpty nursery rhyme (see Box 2.1). The king’s men may not have been able to put Humpty’s pieces together, but the key pieces needed to create a picture of a supportive project environment (see Exhibit 2.1) can be readily assembled. A word of caution: the pieces we are assembling will not stay together without glue, and the glue has two vital ingredients: authenticity and integrity. Authenticity means that upper managers really mean what they say. Integrity Box 2.1 A Challenge Humpty Dumpty sat on a wall Humpty Dumpty had a great fall All the King’s Horses and all the King’s Men couldn’t put Humpty together again. The character in this nursery rhyme is usually represented as an egg that falls and breaks. In reality, a humpty dumpty was a type of military cannon. During a battle it was put up on a wall. When the cannon was fired, the recoil sent it off the wall to the ground, where it came apart. The king’s horses were the cavalry, and the king’s men were the army. They were there to win the battle, but they couldn’t put Humpty the cannon together again: they were not able to put together all the pieces required for success.
Slide 53: 30 The Case for Project Management EXHIBIT 2.1 1. The change to project-based organizations. The components of an environment for sucessf ul projects 2. Strategic emphasis for projects. 4. Develop a core team process. 10. Develop project management in your organization. 5. Organize for project manangement. 3. Understand upper management influence. 9. Develop a project management initiative. 6. Develop a project management information system. 8. Develop a learning organization. 7. Develop a plan for project manager selection and development. means that they really do what they say they will do, and for the reasons they stated to begin with. It is a recurring theme in our experience and our writing that authenticity and integrity link the head and the heart, the words and the action; they separate belief from disbelief, and often make the difference between success and failure. 1. Change to project-based organizations. The balance of this chapter examines a process for changing organizations and discusses the requirements of change agents. Changing to a project-based organization requires changes in the behavior of upper managers and project managers. For example, a projectbased organization must also be team-based; to create such an organization, upper managers and project managers must themselves work as a team. 2. Emphasize the link between strategy and projects. It is important to link projects to strategy. Upper managers must work together to develop a strategic emphasis for projects. One factor in motivating project team members is to show them that the project they are working on has been selected as a result of a strategic plan. If they instead feel that the project was selected on a whim, that nobody wants it or supports it, and that it will most likely be canceled, they will probably (and understandably) not do their best work. Upper managers can help avoid this problem by linking the project to the strategic plan and developing a portfolio of projects that implements the plan. Many organizations use upper-management teams to manage the project portfolio; this approach would certainly have reduced the problems and delays depicted in the previous scenario. Chevron, for example, developed the Chevron Project Development and Execution Process (CPDEP), which provides a formalized discipline for managing projects.1 A key element of CPDEP is the involvement of all stakeholders at
Slide 54: Leading the Change to a Project-Based Organization 31 the appropriate time. In the initial process phase to identify and assess opportunities, a multifunctional team of upper managers meets to test the opportunity for strategic fit and to develop a preliminary overall plan. The project does not proceed from this phase unless there is a good fit with the overall strategy. 3. Understand top management inf luence. Many of the best practices of project management often fail to get upper-management support. Many upper managers are unaware of how their behavior inf luences project success. To help ensure success, they are advised to develop a project support system that incorporates such practices as negotiating the project deadline, supporting the creative process, allowing time for and supporting the concept of project planning, choosing not to interfere in project execution, demanding no useless scope changes, and changing the reward system to motivate project work. 4. Develop a core team system. A core team consists of people who represent the various departments necessary to complete a project. This team should be developed at the beginning of the project, and its members should stay with the project from beginning to end. Developing a core team system and making it work are essential to minimizing project cycle time and avoiding unnecessary delays. Important as they are, however, core teams are rarely implemented well without the implicit and explicit support of upper management. Firms that have used core teams, however, often report dramatic results; Cadillac, for example, found that core teams can accomplish styling changes that previously took 175 weeks in 90 to 150 weeks.2 5. Organize for project management. In the scenario earlier in this chapter, much of the delay can be attributed to the lack of an organizational design that supports project management. In contrast, the decentralized corporate culture of Hewlett-Packard (HP), for one, gives business managers a great deal of freedom in tackling new challenges. Upper managers have a responsibility to set up organizational structures that support successful projects. 6. Develop a project management information system. In the past, organizational policies, procedures, and authority relationships held things together. The project-based organization lacks much of that structural framework; instead, the project organization is kept intact by an information system. For example, HP executive vice president Rick Belluzzo envisions a “people-centric information environment that provides access to information any time, anywhere . . . and that spurs the development of a wide range of specialized devices and services that people can use to enrich their personal and professional lives.”3 Upper managers need to work in concert to develop an information system that supports successful projects and provides information across the organization. In this regard, online technological capabilities are increasingly attractive and important but do not replace the need for upper management to determine what information is necessary and develop a system to provide it. 7. Develop a plan for project manager selection and development. Future organizations will see the end of the accidental project manager. Project management must be seen as a viable position, not just a temporary annoyance, and
Slide 55: 32 The Case for Project Management project management skill must become a core organizational competence. This requires a conscious, planned program for project manager selection and training. HP, Computer Science Corporation (CSC), Keane, and 3M are among the companies that have spent large amounts on project manager training and development. The development emphasis of these organizations seems justified because the project managers of today will become the leaders of the projectbased organization of tomorrow. This is such an important topic that Bowen, Clark, Halloway, and Wheelwright have advised organizations to “make projects the school for leaders.”4 8. Develop a learning organization. One key to organizational learning is the postproject review, which helps project participants and the rest of the organization learn from project experiences. Although its value may be priceless and its cost nil, this learning process takes place only if upper managers set up a formal program and require the reviews. When they do, many tools for project improvement can be developed that can help eliminate frustrating delays. For example, British Petroleum (BP) has operated a postproject appraisal unit since 1977, and BP managers attribute dramatic results to it; by learning from past projects, they say that they are much more accurate in developing new project proposals, have a much better idea of how long projects take, and thus experience less frustration at perceived project delays.5 Learning from project experience becomes a major emphasis in project-based organizations and can be seen as a competitive advantage. 9. Develop a project management initiative. HP has an ongoing initiative to continually improve its project management practices. Dubbed the Project Management Initiative, it is part of senior management’s breakthrough objective to get the right products to market quickly and effectively. The initiative group works with upper managers and project managers to increase project management knowledge and practice throughout the organization. Project management has become very important to HP’s success because more than half of customer orders now come from products it introduced within the previous two years. Shorter product life cycles mean more new projects are needed to maintain growth. Marvin Patterson, a former director of corporate engineering at HP, says, “Due to my experience since I left HP, I would say that HP probably has the best project managers in the world, or at least in this hemisphere. The Project Management Initiative made a huge contribution to this success.” 10. Apply project management concepts to any organization that needs them. For example, Honeywell developed a global information technology project management initiative, based on its chief information officer’s desire to have modern project management disciplines throughout Honeywell Information Systems be “the way of doing business” and a “core competency.” To accomplish this, the initiative group developed a project management focus group of fifteen people from different departments to discuss the basis of good project management. With input from this group, the initiative team developed a project management model, a project management process, and a
Slide 56: Leading the Change to a Project-Based Organization 33 supporting training and education curriculum; it also promotes a professional project manager certification process. The team’s vision is for Honeywell Information Systems to be recognized “as a world-class leader in modern Information Technology Project Management principles, processes, and practices.”6 3M has developed a Project Management Professional Development Center, which consists of people and services from three information technology organizations. The center offers consulting help for project teams, research on the latest best practices and help in applying them, and a project management competency model supported by a project leader curriculum. It also sponsors a project leader forum, where project leaders can meet in person to share stories and problems. An “electronic post office,” a communications network linking all project managers enhances communication.7 All of these examples represent significant efforts on the part of major corporations to meet the challenge of developing project management expertise. Such major effort is needed because the change to project management means changing some ingrained habits of organizational behavior. Many cherished and highly rewarded practices must be replaced by new practices, and this often requires major upheaval. Major upheaval requires authenticity and integrity on the part of upper managers. Most change efforts do not fail from lack of concepts or from lack of a description of how to do it right. Most change programs fail when upper managers are hoisted on their own petard of inauthenticity and lack of integrity. This failure happens because people involved in the situations where managers violate authenticity and integrity sense the lack of resolve, feel the lack of leadership, and despair of the situation. When upper managers speak without authenticity, they stand like the naked emperor: they think they are clothed, but everyone else sees the truth. When upper managers lack integrity they do not “walk the walk,” they only “talk the talk,” and people sense the disconnection and become cynical. Management cannot ask others to change without first changing themselves. Implementing the concepts in this chapter depends on upper management’s resolve to approach the needed changes with authenticity and integrity. THE NEED FOR PROJECT MANAGEMENT Forces outside the organization are pushing the need for project management. An important shift in the marketplace is that customers who were formerly content with products now demand total solutions to problems. In the past, customers bought an array of products to solve their problems; the functional or bureaucratic organization provided standard products, each of which was a partial solution to problems. Thus, bureaucratic organizations put out products and the consumers moved across organizations to put together solutions to their problems.
Slide 57: 34 The Case for Project Management But to provide today’s customers with total solutions, project-based rather than product-based organizations are best. The new organization uses multidisciplinary project teams that move across the organization on the customer’s behalf to provide a total solution. This continuing trend means that project management is the future of organizational management. The project management concept is based on cross-functional teams that are assembled to achieve a specific purpose, usually in a specific time and within a limited budget. These teams are temporary; once they achieve their objective, they are disbanded and the team members assume traditional work or are assigned to yet another project. Because project teams cut across traditional functional lines, they are best suited to provide total customer solutions. Typically, one person is in charge of the team: the project manager or project leader. Project management is fairly new in organizations. In the past, the staff of the functional organization developed new products. But with increasing pressure to get products to market, special project teams were formed; they also proved useful in developing systems solutions for customers. People in organizations suddenly found themselves working on many special projects. There seems to be general agreement that project management is a trend that will continue to accelerate in the twenty-first century. During workshops and consulting engagements with numerous participants, the authors find that more and more people, from administrative assistants up to CEOs, are doing project-based work. The role of upper management is of paramount importance in developing a project-based organization. Such development involves a lot more than moving lines and boxes on an organization chart, sending a few managers out to training, and telling them to “do project management.” The process of developing a project-based organization mirrors the desired new organization because the process is itself a project. It requires a vision of how the organization will function and what it will achieve. It requires that upper managers act as a team among themselves and with project managers to change the organization. It requires a change in behavior, as an organization is not a chart but rather the sum total of the behavior of the people who work in it. It also requires a plan and the participation of important stakeholders, such as customers. A shift to projects cannot be accomplished simply by adding projects to department work because there are substantial differences between department and project work. For one, departments do not foster change; the hallmark of a good department is repeat processes or products, and good department management involves setting procedures that allow the repeat work to be done as efficiently as possible. This is not conducive to doing something new, because departments support the status quo—in fact, they are the status quo. Projects, however, foster change and thus disturb the status quo. Furthermore, departments normally are not cross-functional, whereas projects require a cross-functional view of the entire organization because the target of projects is often a system (i.e., payroll, customer profiles, customer interface, or a set of products) that is itself part of a larger system, or at least
Slide 58: Leading the Change to a Project-Based Organization 35 connected to some other system. For a project to be successful, its effects on all other systems must be considered. People skills in departments are more often focused on production rather than on developing processes to achieve unique new results. Tales of failures caused by unexpected consequences are legend in any new operation. It takes a total view of the organization to ensure successful projects, and this requires a cross-functional team. This wide view is normally not found in departments. Also, departments are assumed to last forever, whereas projects have a limited life. Because projects are temporary, they are not seen as the departments “real work” and so are given low priority and not assigned the best people. This is a recipe for project failure. Departments are also level-conscious. Much of the power and leadership in departments depends on the level in the hierarchy. Projects require multilevel participation. The power should f low to the person who can get the job done, and this may often require that people work for someone below their level. This could be difficult to achieve in departments. Organizations have found cross-functional project teams to be very effective for project work. For example, when Chrysler went to a platform team for its cab-forward design, it cut the new model development time from three and a half or four years down to only two years. In addition, the number of people necessary went from 1,500 to 700. When PECO Energy attempted to refuel nuclear reactors using a departmental approach, it took 120 days. With a cross-functional team approach, PECO set a company, U.S., and world record for refueling time of just under 23 days in February 1995.8 Refining the team approach, they set another world record in October 1996, completing the refueling in 19 days and 10 hours. PECO officials attribute this achievement to two years of planning, superb coordination, and great teamwork. Examples like this are commonplace when organizations begin to take the project management approach seriously. Clearly the payoff is well worth the effort. TOWARD THE PROJECT-BASED ORGANIZATION In initial attempts to respond to the need for project management, many organizations attempted to integrate projects into a functional organization by using the matrix approach, in which functional managers (designated as FMs in Exhibit 2.2) control departments such as engineering and marketing while project managers (PMs) coordinate the work across functions. But in general, the matrix organization tended to cause more problems than it solved. The major fault was that it was a marginal change—a mere modification to the old hierarchical organization. This meant that many of upper management’s assumptions were based on the functional organization or mechanistic model. As a result, many of the behaviors that were rewarded by upper management were actually counterproductive to successful projects. Project team members felt that organizational rewards favored departmental work and that
Slide 59: 36 The Case for Project Management EXHIBIT 2.2 Matrix organization Matrix FM A FM B FM C PM A PM B PM C working on projects was actually bad for their careers. Many people working in a matrix complained of being “caught in a web” of conf licting orders, conf licting priorities, and reward systems that did not match the stated organizational goals (see Exhibit 2.3). Effective behavioral change requires a change in the reward system, and this did not occur in many matrix organizations. The use of a matrix for project management is a classic case of rewarding one behavior while hoping for another; that is, rewarding departmental work EXHIBIT 2.3 Caught in a web 1. 2. 3. C. B. A. Go tta
Slide 60: Leading the Change to a Project-Based Organization 37 while hoping for project work. Although people were told that working for two bosses would be beneficial to their careers, experience proved to them that doing project work decreased their chances for promotion. Because people did not see project work as compatible with their personal interests, the project work suffered. The rewarded behaviors were those the organization wanted to discourage, and the desired behaviors were those that went unrewarded. Such organizational perversity is an example of the type described in Kerr’s classic article “On the Folly of Rewarding A While Hoping for B”9 (see Box 2.2). Because the matrix approach represented only a marginal change, the typical problems of bureaucracy often appeared. In many cases, the money continued to reside in the departments, with projects having limited budgets. Project members were treated as second-class citizens. In addition, individual positions and promotions continued to reside in the departments, making those groups much more important for long-term career success. Even if projects were given budget authority, conf licts over priorities continued to arise. Rules were then needed to resolve conf licts, and these rules tended to accumulate. Whenever a mistake was made or a conf lict noticed, a rule was made to prevent its recurrence. As a result, operational responsibility tended to drift upward and conf lict resolution required top management involvement. Finally, the rules began to guide behavior and became a concern in themselves. People Box 2.2 Organizational Perversity Steven Kerr realized that individuals seek to know what activities will be rewarded by the organization and then carry them out “often to the virtual exclusion of activities not rewarded.” However, he found numerous organizations where the types of behavior rewarded are those that the rewarder is actually trying to discourage, even as the desired behavior is not being rewarded at all. Kerr cites examples such as universities, where “society hopes that professors will not neglect their teaching responsibilities, but rewards them almost entirely for research and publications,” as well as “sports teams [that] hope for teamwork but usually reward based on individual performance” and “business organizations [that] hope for performance but reward attendance.” We, the authors, have experienced organizations that say they want upper managers to oversee and mentor projects but reward them based on the number of people in their department. They are, in other words, organizationally perverse: their organization members say they want one behavior but reward activity that will ensure that it cannot be accomplished.
Slide 61: 38 The Case for Project Management acted with concern for the rules, not with concern for the success of the whole. This is classic bureaucracy in action. The weakness of bureaucracy brings the tenets of the organic organization into focus. The organic organization is one in which everyone takes responsibility for the success of the whole. When this happens, the basic notion of regulating relations among people by separating them into specific predefined functions is abandoned. The challenge is to create a system where people enter into relations that are determined by problems rather than by structure (see Exhibit 2.4). In essence, people market their services to those projects inside the organization that need them and are capable of paying for those services. The tenets of such an organization are described in The Post-Bureaucratic Organization, in which the basic building block is considered to be the team.10 Consensus on action is reached not by positional power but by inf luence—the ability to persuade rather than to command. The ability to persuade is based on knowledge of the issues, commitment to shared goals, and proven past effectiveness. Each person in the group understands how his or her performance affects the overall strategy. Ability to inf luence is based on trust, and trust is based on interdependence—an understanding that the fortunes of the whole depend on the performance of all participants. The empowered manager assesses the level of trust and agreement that exists with another person and plans an approach to that person that leverages the strengths of that relationship.11 EXHIBIT 2.4 Organic organization: A market-based approach to projects Internal Market FM A FM B FM C PM A PM B PM C
Slide 62: Leading the Change to a Project-Based Organization 39 Highly effective people in this organization can inf luence without authority by using reciprocity as the basis for inf luence. People need to learn to exchange “currencies” based on respective needs, leading to win-win situations.12 Communications need to be explicit and out in the open. A strong emphasis on interdependence and strategy leads to a strong emphasis on organizational mission. In order to link individual contributions to the mission, there is increased emphasis on information about the organizational strategy and an attempt to clarify the relationship between individual jobs and the mission. This calls for a new type of information system where information linking individuals to the strategic plan is readily available. Guidelines for action take the form of principles rather than rules. Principles are based on the reasons why certain behaviors contribute to the accomplishment of strategy. One important principle is a relatively open system of peer evaluation, so that people get a relatively detailed view of each other’s strengths and weaknesses. This calls for a change in the evaluations and reward system. In addition, the organization of the future has no boundaries. There is far more tolerance for outsiders coming in and insiders going out. The boundary between the organization and its customers blurs and the boundaries between levels and departments within the organization disappear. In addition, the postbureaucratic organization eliminates the idea of permanence, where decisions are final. The emphasis is now on decision processes. Because this type of structure is currently embodied in project teams, the organization of the future will be project-based. Customers want to buy solutions, not standard products, and the organizational unit that can respond to this market is the customer-oriented project team. The team works to understand the customer’s problems and what the team should achieve. With this understanding, the team can develop new solutions, perhaps ones that the customer had not imagined. This requires a new relationship between the company and the customer: the customer becomes a vital part of the team. Customer-driven teams abandon the level-consciousness prevalent in many functional organizations. Project leaders are appointed because of their expertise in running projects, not because they have attained a particular level in the organization. Because the ability to inf luence is not based on position, level-consciousness decreases. In addition, as there are fewer levels, position becomes less important. A team member may be one or two levels above the project manager on the organization chart but still report to the project manager for that project (as in Exhibit 2.4). Team members no longer think of themselves as members of a particular function but as members of a team that is doing something for the good of the entire organization. Several customers may become members of the team, as was the case on the Boeing 777 airliner project.13 Many team members may be from outside the organization, doing work on contract for that particular project. The project manager thus assembles the project team based on what is best for the project, not on what people the organization can spare.
Slide 63: 40 The Case for Project Management Becton-Dickinson, an organization that embodies this trend, provides innovative technology and advanced solutions in f low cytometry systems.14 In designing an organization to be more responsive to the needs of development programs, this company found that embedded functional management was delaying the cycle time. To help reduce cycle time, it eliminated functional managers and their departments. The important tasks of functional managers were put into focused groups, and a project management office was established to develop direction for project management in the new organization. In the future, most organizations will consist of a smaller group of fulltime employees and a large contractual fringe of individual contractors or strategic alliances that provide goods or services for given projects. In other words, the customer-based team properly comprises a small core of employees plus relationships with outside experts who work contractually for all or part of a project. The new internal market organizations are based on areas of expertise and have profit and loss responsibility. Each area provides services to other areas in exchange for a fee. Rather than having their performance measured by how well they stick to a budget, these areas are measured according to how well they complete an internal project that helps the rest of the organization achieve its mission. In this way, everyone knows how their actions affect both profitability and the attainment of a mission that is stated in a strategic plan. Moving to a project-based organization presents unique challenges to upper managers, as outlined by Wilson and others:15 • The leader has little or no “position power.” The position power inherent in functional organizations has to change as the project-based organization is introduced. The team leader has little direct control over the career path of team members. Instead, team members require an independent career path over which they themselves have control and to which the project work can contribute. Developing such a scheme is similar to the development of individual retirement accounts where the individual has control of the fund and the employer merely makes contributions. This type of scheme has been used in universities for years; it allows professors to move easily from place to place, taking their retirement account with them. Now organizations need to make it easy for team members to move from project to project, taking their career path progress with them. Asked by a gathering of project managers whether the project management skill set was transferable to other functions in HP, CEO Lew Platt (1994) replied: “I think if you learn the skills of project management that you can manage a project in manufacturing, or a project in IT, or a project in marketing just as easily as you can manage a project in development. The issues are different, but I think the basic skills are pretty much the same. . . . In these times, it is quite important that you actually do think about moving around from one function to another as a
Slide 64: Leading the Change to a Project-Based Organization 41 • • • • • way of getting a fresh set of experiences, re-igniting your interest in the job. . . . It’s a tremendous growth experience.” Upper managers need to develop project managers and project management so that the project managers can lead based on inf luence rather than positional authority. Conf licts over team member time and resource requirements. Thus, upper managers must have a good plan and work out priorities. Alternatively, internal market pricing may be used to allocate scarce resources—individuals or organizations pay with internal charge accounts, sometimes called location code dollars, for services they find valuable. Value-based pricing mechanisms are a feature of internal market-based organizations. Organizational boundaries are unclear. Project management often requires quantum leaps in the level of cooperation among organizational units. If people see evidence that cooperation is not valued, then achieving cooperation is almost impossible. The alternatives to cooperation are turf wars and as-needed appeals to higher authorities, neither of which is beneficial in the long run. Upper management needs to create a structure where cooperation is rewarded. Time and organizational pressures abound. Upper management must be ready to support the best practices that allow reduction in cycle time. This includes developing a core team system, developing project goal statements, allowing time for project planning, not interfering with project operations, facilitating communication with customers, and supplying necessary resources. In addition, an adequate project time frame must be negotiated so that the team has a chance for a win. Team members do not know one another. Effective project teams require unprecedented levels of trust and openness. The climate of trust and openness starts at the top. If upper managers are not trustworthy, truthful, and open with each other, there is little chance that project team members will be so with one another. Trust and openness are the antithesis of most bureaucratic organizations. Upper managers coming from a less trusting organization may have difficulty developing high levels of trust. Team members are independent and self-motivated. Because team members may not even work for the organization, project managers need to develop inf luence skills, and upper management must support that process. All these challenges require that upper managers work together to develop a process aimed at encouraging new types of behavior. Members of the organization look to the upper managers for guidance in both strategy and behavior, and if there is a lack of integrity between what is said and what is done, skepticism rises and morale falls. How can upper managers expect good teamwork when they are fighting among themselves? Organizational change requires not just a concept of a new organization but the resolve to create it. If
Slide 65: 42 The Case for Project Management upper managers expect team members to change their behavior, they should be ready to change their own behavior as well. Sending people to project manager training is not enough; the shift to a project-based organization requires a concerted effort from all upper managers. A MODEL OF ORGANIZATIONAL CHANGE The revitalization process model described by Wallace considers the time and processes necessary to change behavior.16 He uses this model to describe a society moving through a series of temporally overlapping but functionally distinct phases of change. Any group of people may be said to have a culture—a set of beliefs, values, norms, and practices that help the group solve its problems. Business organizations are groups of people and thus have a culture; because this is so, the revitalization model can be used to describe the phases of change in organizational cultures. For changes in organizational culture to occur, behavioral changes in the people that make up the culture must be brought about. However, the steps to achieve actual change in behavior are difficult indeed. Few believe in the benefits of change until they actually experience them. Change agents often feel like the person described by Plato (see Box 2.3), particularly when their visions of the future only provoke ridicule. When new ideas provoke ridicule in an organization, it usually means that the people Box 2.3 Response to Change Agents [According to Plato’s Republic] human beings are like prisoners chained to the wall of a dark subterranean cave, where they can never turn around to see the light of a fire that is higher up and at a distance behind them. When objects outside the cave pass in front of the light, the prisoners mistake as real what are really shadows created on the wall. Only one who is freed from his chains and leaves the cave to enter the real world beyond can glimpse true reality. . . . Once he habituates himself to the light and comes to recognize the true cause of things, he would hold precious the clarity of this new understanding. . . . Were he required to return to the cave and contend with the others in their usual activity of “understanding” the shadows, he would likely only provoke their ridicule and be unable to persuade them that what they were perceiving was only a dim ref lection of reality. Source: Tarnus, R., The Passion of the Western Mind (New York: Ballantine, 1991, p. 42).
Slide 66: Leading the Change to a Project-Based Organization 43 in it are not ready for change because they do not yet see the need. If upper managers start a change process before they really believe change is necessary, others will sense this lack of authenticity and the process will fail. A change process is effective when the change leaders believe it is necessary and show the way to others. The revitalization process acknowledges this fact and describes the stages an organization goes through until the majority of its members are ready for change. The stages of the revitalization process are shown in Exhibit 2.5. The basically successful organizations develop procedures that allow them to achieve a steady state such that the organizational system handles any problems that arise. But as the environment changes, continued use of the old procedures causes people to enter a period of individual stress. If this is allowed to continue, the organization falls into a period of cultural distortion, where the procedures cause many problems. However, enlightened upper managers can bypass that state and go directly to a period of revitalization, in which new procedures are adopted to match the problems in the new environment. The Steady State Every organization begins with a set of problems that need to be solved in order to carry on its business. (The case of early AT&T is a good example; see Box 2.4.) Successful organizations develop a culture—a set of beliefs, values, norms, and practices—that help the members of the organization solve these problems. This EXHIBIT 2.5 Stages of the revitalization model Adopt, adapt, and apply Steady State Environmental change Revitalization Voice with power Individual Stress New leadership and/or radical change Loyalty Cultural Distortion Voice and exit Organizational disaster Exit
Slide 67: 44 The Case for Project Management Box 2.4 Procedures at AT&T Functional organizations were a necessary step in the evolution of organization design. For example, consider the American Telephone and Telegraph Company, a forerunner of today’s AT&T, which was established on February 28, 1885. It was formed to operate long-distance telephone lines to interconnect local exchange areas of the Bell companies. Although it must have seemed incomprehensible in 1885, the plan was to extend those lines to connect “each and every city, town and place in the State of New York with one or more points in each and every other city, town or place in said state, and each and every other of the United States, and in Canada and Mexico . . . and by cable and other appropriate means with the rest of the known world.”* Such a lofty goal required massive generation of and attention to standard procedures. Without each and every city, town, and place following the same procedures, there is no way the AT&T network could have been completed. The procedures helped to solve problems. After all, there was no way to call to discuss and fix connection problems until the phone was actually connected. So bureaucracy was created by necessity, allowing the next generation of organizations to emerge from it. * Shooshan, H. M. III, Disconnecting Bell: The Impact of the AT&T Divestiture (New York: Pergamon, 1984). culture is embodied in a set of organizational rules that are passed on from one generation of workers to the next. Application of these rules keeps the organization in a state of equilibrium. Each year looks much like the last, as the organization produces similar products through repeatable processes. The members of the organization become more and more efficient at applying the rules, and the organization thrives. This is the steady state, which we could equate to the mechanistic or functional model of organizations. To keep an organization in the steady state, a control system must be developed. Whenever outside disturbances threaten the equilibrium of the organization, the control system is capable of detecting and interpreting them and setting in motion practices that counteract them. Control systems are both internal and external. The external control system attempts to regulate the environment in a way favorable to the organization, such as by gaining patents, monopolies, or other favorable government rulings. The internal control system regulates members’ behavior and works to eliminate any threat to the smooth functioning of the organization. Organizations in the steady state are characterized by large and onerous control systems that, as we shall see, become their undoing.
Slide 68: Leading the Change to a Project-Based Organization 45 During the steady state the organization is usually successful and often able to affect its environment more than the environment is able to affect it. This is often due to some patent, monopoly, or new process the organization has developed that is not yet general knowledge. When this is so, there is little time pressure on projects; the control system acts to fend off the need for change. As a result, project management is not really necessary. Projects wend their way through the bureaucracy in due course. For example, AT&T reached its steady state in the period 1934–1960.17 By 1934, the Bell system had operating companies in most major American cities and AT&T could proceed to tie them together and provide the dream of universal service. To provide this service, AT&T was given a telephone monopoly in the United States. Given the lack of competition, AT&T developed a steady, stable, predictable, and military-like culture that allowed the efficient realization of the goal. The antitrust cases brought against AT&T during this period were defeated. The Period of Increased Individual Stress Over time, the environment of an organization changes such that the existing culture is no longer appropriate to the problems it faces. When, for example, customers begin to demand new and different products and solutions, the assumptions on which the organizational culture was built become increasingly invalid. Following old procedures at such times begins to cause problems rather than solve them. Some individuals in the organization begin to realize that major changes are necessary, but they often go unheeded as others continue to find success using the old ways. During this phase the organization continues to be successful—it may even experience its most successful period—so it is not surprising that many members of the firm do not see the need for change. The problems are exacerbated because those who see the need for change and sound the alarm are often forced out of the organization (as Dagwood learns in Exhibit 2.6). In the process of exit, voice, or loyalty described by Hirschman, people who see the need for change often leave the firm (exit) and join other organizations where the change has already been made or is being implemented—firms that are already in their period of revitalization.18 An alternative to exiting is to voice strong opinions about the needed changes. This is often followed by exiting; as other members of the firm do not see the need for change, the advocate of it is likely to be accused of not being a team player. If the individual still does not want to exit, the final alternative is loyalty—succumbing to pressure and going along with the others. No change takes place; the fate of potential change agents during the period of increased individual stress is that they leave the organization or join the majority. During this period, individual managers may see the need to improve project management in order to cut cycle time. The usual response is to send some engineers to training so they can learn the latest best practices. But when
Slide 69: 46 The Case for Project Management EXHIBIT 2.6 Exits [Image not available in this electronic edition.] they return, they find they cannot practice the new ideas because others in the organization still see no need for it. They know that best practices require cooperation from all parts of the organization, and because they cannot practice what they know is best, they leave the organization (exit) or decide to ignore the practices (loyalty). For example, in 1961 AT&T set up a school to teach customized sales. However, managers who finished the course returned to find that noncustomized, mass sales were still what really counted in the organization. The frustration level was such that 85 percent of the graduates quit, and AT&T disbanded the school.19 As a result, the best practices were never implemented. This is why sending individuals out for training but not supporting the new practices they bring back is so notoriously ineffective. During the time of increased individual stress, the organization continues to decline as its practices become increasingly outmoded. If the leaders realize the need for change at this point and are ready to make them, they can skip directly to the period of revitalization and direct the change process themselves. This path is shown as “voice with power” in Exhibit 2.5. It is possible even for individuals to invoke the voice-with-power path if they are willing, have skill as change agents, learn how to communicate with upper management, and are able to “speak truth to power.”20 However, the leaders should realize that organizational forces are working against them, which is why organizations often fall into the next phase, cultural distortion, before meaningful changes occur. AT&T experienced its period of increased individual stress from 1960 to 1974. By 1960 the goal of universal service had been reached, so the AT&T monopoly was no longer necessary; many competitors wanted to enter the telephone business but AT&T fought them off in the courts. Between 1960 and 1970, however, it lost a number of legal battles, culminating in the “Above 890” decision that opened the way for microwave communication and competition in long-distance service. During this period, several attempts were made to make
Slide 70: Leading the Change to a Project-Based Organization 47 AT&T a marketing organization, but as all the company’s marketing organizations were structured in typical AT&T mode, they were never elevated above the operations department and thus were never effective. The process of using old structures for new applications is typical of the period of increased individual stress and typically ineffective. The Period of Cultural Distortion In this period, old practices begin to cause more problems than they solve. The number of organizational inconsistencies becomes so great that people begin to suffer marked decreases in productivity. The organization may begin to lose money for the first time in its history. During this phase there may be a concerted and systematic effort to teach and implement best practices for project management. However, it is usually done only at the lower levels of the organization; upper managers do not change their behavior, or do so only ever so slightly. In addition, typically no change in the reward system is made to support the new practices—indeed, the system usually continues to reward and support the old practices, and the people in the organization experience the perversity of Kerr’s folly.21 In effect, upper managers are systematically undermining the efforts of project managers. The project managers quickly discover that their efforts are not rewarded, so they leave and things get worse. The period of cultural distortion is usually accompanied by the failure of one or two large and highly visible projects. The response is often to find and fire one person, usually the project manager, who is thought to be obviously responsible for the failure. As indicated by Cohen and Gooch (see Box 2.5), however, this usually merely demonstrates a lack of understanding of the real causes of misfortune.22 In complex situations, such as large projects with many players, many conf licting stakeholders, and many different departments involved, failure is rarely due to one person’s poor judgment. Firing a scapegoat may make upper managers feel good, but because it ref lects no understanding of the true causes of failure, it certainly will be woefully inadequate in preventing future failure. So as heads roll, morale sinks and problems continue to get worse. At this point the members of the organization face a crisis. Things are so bad that they now realize radical changes must be made. Perhaps this phase is necessary to increase the upper managers’ level of authenticity, for now when they say change is needed they really mean it. Sometimes the needed changes are so radical that upper managers are unable to make them and the organization dies, or the organization installs new leadership. New leadership, if needed, will be most effective if brought in from outside the organization. AT&T experienced its period of cultural distortion from 1974 to 1983. In 1974, the U.S. Justice Department filed suit, seeking to break the company up. The AT&T response was to fight it in the courts, a tried and true method.
Slide 71: 48 The Case for Project Management Box 2.5 Causes of Misfortune Cohen and Gooch studied military misfortunes in an attempt to avoid them in the future. Much of the interest in similar studies of project management comes after a disaster on one or more projects. Part of the solution to a disastrous project is understanding what caused the disaster so it can be avoided in the future. When military disaster happens, how can it be understood and explained? The “man on the dock” approach is common, which is the notion that disaster occurs because one person, typically the commander, commits unpardonable errors of judgment. But this assumes that the person in charge has control over all pertinent variables, which is not usually true. The modern commander is much more akin to the managing director of a large conglomerate; he is the head of a complex military operation, and as its size has increased, the business of war has developed an organizational dimension that can make mighty contributions to triumph or tragedy. In project management, not all failure can be laid at the project manager’s feet. Often an organizational component is also important. The “man on the couch” view says that failure is due to some collective way of thinking that blinds people to the correct actions. Cohen and Gooch argue, however, that if this were true, disaster would be much more common than it is, and the problem would be to explain the reasons for success. Because this is not the case, any collective way of thinking of military leaders is of limited use in explaining misfortune. The “collective incompetence and the military mind” explanation says that simply living in and serving a hierarchical institution such as an army encourages and intensifies potentially disastrous habits of mind. However, analysis indicates that supposed collective incompetence is more a result of the reward system than of supposed deficiencies of the military mind. Cohen and Gooch recommend looking instead to the organizational systems within which such minds have to operate. “Institutional failure” is another possible explanation. When the blame cannot be put on one person, it is often given to an entire institution, such as the U.S. Navy. However, knowing what the Navy is does not explain how it works, and explaining failures requires knowing how it works. Thus, Cohen and Gooch say we must think of the armed forces not as institutions but as organizations. They point to the interaction of people, systems, and organizations to explain failure. People cannot be put aside in explaining failure, but they respond to the organization and the characteristics of it that determine
Slide 72: Leading the Change to a Project-Based Organization 49 how tasks are approached, that shape decisions, and that affect the management of disaster. In addition, organizations have systems that sometimes go awry when failure in two or more components interact in unexpected ways. When this happens people lose control of the system, and their response is often dictated by the organizational procedures. Examining this interaction of people, organizations, and systems is most fruitful in explaining misfortune. However, some people saw the futility of fighting and began to establish some new patterns aimed at developing a competitive organization. To accomplish this, the marketing department was expanded and many people were brought in from other organizations. By design, these people had different assumptions, values, and practices that often clashed with those of traditional Bell system managers. As the process continued, it became increasingly clear that the culture was internally distorted and the elements not harmoniously related. The group that wanted the monopoly maintained could not continue to exist alongside the group that wanted competition. Something had to give. The Period of Revitalization During this period, leaders are able to eliminate old practices and behaviors. When the organization gets to this point, things are so bad that its members usually bring in a new leader to make changes. The new leader installs a new behavioral code to bring company practices in line with today’s problems. There are two phases to this period; the first involves establishing a new code for behavior and the second involves adopting the code as the new organizational norm. The first phase begins with a new leader, often from outside the organization, who paints a picture of the new process that the organization must adopt in order to survive. This new code normally includes an increased emphasis on projects and satisfaction of customer expectations. The new code for behavior must then be communicated to all members of the organization. This communication is typically accompanied by a change in the organization’s structure to help accomplish the objectives of the new code. The second phase is directing the process of adapting the new code. People need to learn to discard old behavior patterns and adopt new ones. This phase involves training people in the new behavior and then directing the process of cultural transformation so that the new code becomes natural and routine. The period of revitalization is often traumatic to members of the organization. If the process has followed its normal course through the period of cultural distortion, the organization is near collapse. Typically, the new leader
Slide 73: 50 The Case for Project Management brings in new upper managers who trumpet a behavior code that is so radical that 30 to 50 percent of the organization members leave, in one way or another. AT&T entered its period of revitalization in 1983 with the consent decree that separated the competitive aspects of the business from the remaining aspects of the Bell system. As of January 1, 1984, those who wanted free market competition could go with AT&T, and those who wanted monopoly could remain with the local Bell operating companies. This change was traumatic for those who went with AT&T, for it required implementation of entirely new ways of looking at the business. During the next ten years, AT&T laid off many employees and hired many new people who had never been exposed to the old Bell ways. The transformation continues to this day. Part of the reason for the turmoil at AT&T was that its managers did not make the necessary changes back in 1970, during the period of individual stress. If they had, members of the organization could have spent time getting ready for the change rather than fighting it. When upper managers see the need for change during the period of individual stress, it can be accomplished more rationally and with much less upheaval. The authors feel that for most organizations, the time for the change to project-based organizations is now. The New Steady State Here, the organization is again in harmony with its environment. This stage continues until new changes in the environment force the revitalization process to begin again. THE SUCCESSFUL CHANGE AGENT Any successful change requires a successful change agent. History is replete with agents of change who were killed by the very individuals they were trying to help. As shown in the last section, part of a change agent’s success is timing. People who offer advice during the period of individual stress are often unheeded, but those who offer the same advice during the period of revitalization are seen as heroes. This occurs because during the period of cultural distortion, more people begin to vividly see the need for change and to seek the very advice they previously shunned. To skip the period of cultural distortion, upper managers must act together as change agents and direct the change before distortion begins. According to Rogers, successful change agents fill seven critical roles:23 1. They develop the need for change. Change agents show others what the problems are and convince them that they can and must grapple with these problems in order to improve. The successful change agent leads the organization around the period of cultural distortion. After one or two
Slide 74: Leading the Change to a Project-Based Organization 51 2. 3. 4. 5. 6. 7. project failures the change agent must argue that this is not just an aberration or the fault of a single project manager. Change agents take the lesson of Cohen and Gooch that failure is not usually caused by just one person but is the result of a combination of problems. Repeated failure is a systematic problem, one that needs to be tackled by the entire organization. They make others accept them as trustworthy and competent. People must accept the messenger before they will accept the message. Upper managers must act with integrity and authenticity, or they will be seen as incompetent; if they “talk the talk” but do not “walk the walk,” they will not be seen as trustworthy and their attempts to bring about change will most likely fail. This has been the fate of many a change process. They diagnose problems from the perspective of their audience. Successful change agents must see problems from the project manager’s point of view. If they regard the project manager as the culprit, the upper manager will never see the project manager’s point of view. This indicates that the best project managers in the organization should be involved in the change process. They create the intent to change through motivation. Lasting change cannot be dictated from a position of power; it comes from motivating people to solve their problems. Change that is seen as helping to solve the project manager’s problems while contributing to the organization’s welfare will be enthusiastically applied because the participants are motivated. Change that is seen as benefiting only upper management, however, will be resisted. The change agent motivates the entire community by showing that the change benefits everyone. People readily adopt practices that are in their best interest. They work through others in translating intent into action. A team of project managers who can translate the intent of the change into action is necessary. They stabilize the adoption of innovation. All too often, change leaves with the change agent. Upper managers may put in a set of procedures to help make project management more effective, but then their attention gets directed to other matters. When this happens, the changes often fade. An initiative team can outlast the change initiators and help stabilize the adoption of the innovation throughout the organization. They go out of business as change agents. If all the previous steps have been successful, the need for the initial change agents vanishes. So should they. The successful complete upper manager understands the inf luences that shape organizations, embraces the changes that are required for continued vitality, takes on the role and responsibilities of change agent, and works to develop the postbureaucratic organization through the project management
Slide 75: 52 The Case for Project Management function. If done right, the project management function of today will become the postbureaucratic organization of tomorrow. THE COMPLETE UPPER MANAGER The successful complete upper manager: • Understands the need for better project management in organizations of the future. • Understands that the role of upper management is critical in developing successful project management practices throughout the organization. • Understands that past organizational forms, such as the functional or matrix organization, may be detrimental to developing good project practices. • Embraces the tenets of the postbureaucratic organization that emphasize teams, consensus action, empowerment, trust, and open communication. • Believes in and behaves with integrity and authenticity as a requirement for leading others. • Leads an organization through the revitalization process. • Acts with other upper managers as a team of change agents to develop an environment that supports project management. NOTES 1. D. Cohen and J. Kuehn, “Navigating between a Rock and a Hard Place: Reconciling the Initiating and Planning Phases to Promote Project Success.” Paper presented at the Project Management Institute 27th annual seminar/symposium (Boston, 1996). 2. Cadillac Motor Company, Information Book (Detroit, MI: Cadillac Motor Company, 1991). 3. R. Belluzzo, Presentation at the IDC European IT Forum (Paris: September 1996). 4. K. H. Bowen, K. Clark, C. Halloway, and S. Wheelwright, “Make Projects the School for Leaders,” Harvard Business Review (September/October 1994): 131–140. 5. F. R. Gulliver, “Post Project Appraisals Pay,” Harvard Business Review (March/April 1987). 6. J. W. Koroknay, “Global Information Technology Project Management Initiative.” Paper presented at the Hewlett-Packard Project Management Conference 1996 (San Diego, CA: April 1996). 7. R. Storeygard, “Growing Professional Project Leaders,” Proceedings of the Project Management Institute 26th Annual Seminar/Symposium (Upper Darby, PA: Project Management Institute, 1995).
Slide 76: Leading the Change to a Project-Based Organization 53 8. “Company Sets Industry Standard with Limerick Refueling Outage,” Perspectives: PECO Energy Company Newsletter (February 1996). 9. S. Kerr, “On the Folly of Rewarding A While Hoping for B,” Academy of Management Executive (February 1995). (Original work published 1975 in Academy of Management Journal.) 10. C. Keckscher and A. Donnellon, “The Post-Bureaucratic Organization: New Perspectives on Organizational Change (Thousand Oaks, CA: Sage, 1994). 11. P. Block, The Empowered Manager: Positive Political Skills at Work (San Francisco: Jossey-Bass, 1987). 12. A. R. Cohen and D. L. Bradford, Inf luence without Authority (New York: Wiley, 1989). 13. C. G. King, “Multi-Discipline Teams: A Fundamental Element in the Program Management Process,” PM Network, vol. 6 (1992): 12–22. 14. R. Stoy, “Experiment with Reducing Cycle Time,” Proceedings of the Project World Conference, Session C-11 (Washington, DC: August 9, 1996). 15. Jeanne M. Wilson, Jill George, Richard S. Wellins, and William C. Byham, Leadership Trapeze: Strategies for Leadership in Team-Based Organizations (San Francisco: Jossey-Bass, 1994), pp. 253–255. 16. A. Wallace, Culture and Personality, 2nd ed. (New York: Random House, 1970). 17. R. J. Graham, “Organizational Culture Change and Revitalization at AT&T.” Unpublished master ’s thesis (Philadelphia: University of Pennsylvania, Anthropology Department, 1985). 18. A. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations and States (Cambridge, MA: Harvard University Press, 1970). 19. “Corporate Culture,” BusinessWeek (October 27, 1980): 148, 154. 20. R. J. Graham and R. Englund, “Communicating with Upper Management: The Problems with Speaking Truth to Power,” Proceedings of the Project Management Institute 26th Annual Seminar/Symposium (Upper Darby, PA: Project Management Institute, 1995), pp. 462– 468. 21. See note 9. 22. E. Cohen and J. Gooch, Military Misfortunes: The Anatomy of Failure in Way (New York: Free Press, 1994). 23. E. Rogers, Diffusion of Innovations, 3rd ed. (New York: Free Press, 1983).
Slide 78: PART TWO THE PROJECT MANAGEMENT DISCIPLINE To many people, project management equates to the scheduling graphics they see in popular project management sof tware. Gantt charts and critical path analysis are certainly well-k nown techniques developed specifically for managing projects, but the discipline of project management extends far beyond these scheduling methods. Project management is a discipline. It contains well-developed, repeatedly proven principles, methods, and techniques. These concepts are well documented in textbooks, consistently presented at colleges and universities, and automated in sof tware programs. There is debate over which topics are within the discipline and which are related. For example, effective project teams need sound decision-making processes but that is true of any work group. The chapters in Part Two represent the accepted core of the discipline, the techniques that have been developed specifically to handle the unique challenges of managing projects. The structured, sometimes mathematical, nature of many of these processes causes some to distinguish them from the sof t or more human factors in managing projects. This duality is important to recognize because both the structured methods and the human factors are important in project success. But it is equally important to recognize that both the sof t and hard side of project management is mutually dependent. Successful projects need clear communication and commonly understood goals and detailed plans. They also need teamwork, mutual trust, and accountability from all sides. Methods that facilitate specific, detailed agreements and rational decisions go a long way toward establishing all 55
Slide 79: 56 The Project Management Discipline these success factors. The principles and techniques described in Part Two form a foundation that is complementary to the human and teaming factors described in Part Three. The mechanics of project management have another benefit. Because of their structured nature, they can be learned by individual project managers, standardized within the organization, and clearly visible to other stakeholders. In other words, these methods can become a k nown, repeatable process for managing projects. If your firm is attempting to standardize project management, it will be able to add an element from every chapter in Part Two. Each chapter in this section presents a set of mature processes and techniques that address some challenge of the project environment. Let’s look at how they all fit together in a systematic process that takes a project from concept through delivery. Pursuing the correct project is easily as important as the effectiveness with which the project is carried out. Chapter 3 presents several methods for assessing ideas before they become projects. The detailed action plan, replete with work breakdown structure, Gantt chart, and critical path is almost a cliché for project managers. These are the methods we use to break down the big picture into specific, manageable actions. Chapter 4 presents the step -by-step model for analyzing the project and building the action plan—the foundation for every successful project. These are the tools that enable rational, fact-based decisions about achieving the optimal cost-schedule -quality equilibrium. Every project manager who swears by the necessity of a detailed plan will also, in his or her next breath, caution that plans never match reality. Chapter 5 shows us how to use the plan—despite its limitations—to steer the project to completion and success. Since success is in the eye of the project stakeholders, the chapter begins with identifying and understanding who our stakeholders are, in order to design our control systems to measure what is important to the customer. The calculations used in project selection and project planning have one weak ness: They assume an ability to accurately forecast the future. Since this ability is rare, the savvy project manager will continuously seek out the hidden dangers and unexpected problems that derail our careful plans. Chapter 6 presents a process k nown as project risk management, which is used to systematically identify and manage the uncertainty inherent in our projects. The trilogy of project success has long been on time, on budget, high quality. On time and on budget are easily measured with a calendar and a checkbook. The quality of our deliverables, however, is too frequently debatable. If your team has ever struggled with the challenge of “how good is good enough” or had your budget and schedule blown away by rework, you’ll find the quality management framework in
Slide 80: The Project Management Discipline 57 Chapter 7 invaluable. This chapter translates the discipline of quality management—which is of ten associated with mass production—into its application in the project environment. Projects are managed by project managers, and that’s who will primarily apply the techniques in these chapters. But every project needs management support. These chapters are designed to give the manager overseeing multiple projects a thorough over view of the techniques he or she should use to communicate with the project manager and project team. Given the long history of project management (well, relatively long—since the mid-twentieth century) it might seem that these methods are actually at risk of becoming out of date. Yet nothing could be further from the truth. Active application by professionals in every field continues to prove the value of the fundamental principles of project management.
Slide 82: 3 PROJECT SELECTION* Jack R. Meredith and Samuel J. Mantel Jr. Project selection is the process of evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved. This same systematic process can be applied to any area of the organization’s business in which choices must be made between competing alternatives. For example, a manufacturing firm can use evaluation/selection techniques to choose which machine to adopt in a part-fabrication process; a television station can select which of several syndicated comedy shows to rerun in its 7:30 P.M. weekday time-slot; a construction firm can select the best subset of a large group of potential projects on which to bid; or a hospital can find the best mix of psychiatric, orthopedic, obstetric, and other beds for a new wing. Each project will have different costs, benefits, and risks. Rarely are these known with certainty. In the face of such differences, the selection of one project out of a set is a difficult task. Choosing a number of different projects, a portfolio, is even more complex. In the following sections, we discuss several techniques that can be used to help senior managers select projects. Project selection is only one of many decisions associated with project management. To deal with all of these problems, we use decision-aiding models. We need such models because they abstract the relevant issues about a problem from the plethora of detail in which the problem is embedded. Realists cannot solve problems, only idealists can do * This chapter has been abridged. It can be found in its entirety in Meredith, Jack R. & Samuel J. Mantel Jr., Project Management: A Managerial Approach, Chapter 2. Hoboken, NJ: John Wiley & Sons, Inc., 2002. 59
Slide 83: 60 The Project Management Discipline that. Reality is far too complex to deal with in its entirety. An “idealist” is needed to strip away almost all the reality from a problem, leaving only the aspects of the “real” situation with which he or she wishes to deal. This process of carving away the unwanted reality from the bones of a problem is called modeling the problem. The idealized version of the problem that results is called a model. We live in the midst of what has been called the “knowledge explosion.” We frequently hear comments such as “90 percent of all we know about physics has been discovered since Albert Einstein published his original work on special relativity”; and “80 percent of what we know about the human body has been discovered in the past 50 years.” In addition, evidence is cited to show that knowledge is growing exponentially. Such statements emphasize the importance of the management of change. To survive, firms must develop strategies for assessing and reassessing the use of their resources. Every allocation of resources is an investment in the future. Because of the complex nature of most strategies, many of these investments are in projects. To cite one of many possible examples, special visual effects accomplished through computer animation are common in the movies and television shows we watch daily. A few years ago they were unknown. When the capability was in its idea stage, computer companies as well as the firms producing movies and TV shows faced the decision whether or not to invest in the development of these techniques. Obviously valuable as the idea seems today, the choice was not quite so clear a decade ago when an entertainment company compared investment in computer animation to alternative investments in a new star, a new rock group, or a new theme park. The proper choice of investment projects is crucial to the long-run survival of every firm. Daily we witness the results of both good and bad investment choices. In our daily newspapers we read of Cisco System’s decision to purchase firms that have developed valuable communication network software rather than to develop its own software. We read of Procter and Gamble’s decision to invest heavily in marketing its products on the Internet; British Airways’ decision to purchase passenger planes from Airbus instead of from its traditional supplier, Boeing; or problems faced by school systems when they update student computer labs—should they invest in Windows®-based systems or stick with their traditional choice, Apple®. But can such important choices be made rationally? Once made, do they ever change, and if so, how? These questions ref lect the need for effective selection models. Within the limits of their capabilities, such models can be used to increase profits, select investments for limited capital resources, or improve the competitive position of the organization. They can be used for ongoing evaluation as well as initial selection, and thus are a key to the allocation and reallocation of the organization’s scarce resources. When a firm chooses a project selection model, the following criteria, based on Souder,1 are most important:
Slide 84: Project Selection 61 1. Realism: The model should ref lect the reality of the manager’s decision situation, including the multiple objectives of both the firm and its managers. Without a common measurement system, direct comparison of different projects is impossible. For example, Project A may strengthen a firm’s market share by extending its facilities, and Project B might improve its competitive position by strengthening its technical staff. Other things being equal, which is better? The model should take into account the realities of the firm’s limitations on facilities, capital, personnel, and so forth. The model should also include factors that ref lect project risks, including the technical risks of performance, cost, and time as well as the market risks of customer rejection and other implementation risks. 2. Capability: The model should be sophisticated enough to deal with multiple time periods, simulate various situations both internal and external to the project (e.g., strikes, interest rate changes), and optimize the decision. An optimizing model will make the comparisons that management deems important, consider major risks and constraints on the projects, and then select the best overall project or set of projects. 3. Flexibility: The model should give valid results within the range of conditions that the firm might experience. It should have the ability to be easily modified, or to be self-adjusting in response to changes in the firm’s environment; for example, tax laws change, new technological advancements alter risk levels, and, above all, the organization’s goals change. 4. Ease of use: The model should be reasonably convenient, not take a long time to execute, and be easy to use and understand. It should not require special interpretation, data that are difficult to acquire, excessive personnel, or unavailable equipment. The model’s variables should also relate one-to-one with those real-world parameters the managers believe significant to the project. Finally, it should be easy to simulate the expected outcomes associated with investments in different project portfolios. 5. Cost: Data-gathering and modeling costs should be low relative to the cost of the project and must surely be less than the potential benefits of the project. All costs should be considered, including the costs of data management and of running the model. We would add a sixth criterion: 6. Easy computerization: It must be easy and convenient to gather and store the information in a computer database, and to manipulate data in the model through use of a widely available, standard computer package such as Excel®, Lotus 1-2-3®, Quattro Pro®, and like programs. The same ease and convenience should apply to transferring the information to any standard decision support system. In what follows, we first examine fundamental types of project selection models and the characteristics that make any model more or less acceptable.
Slide 85: 62 The Project Management Discipline Next we consider the limitations, strengths, and weaknesses of project selection models, including some suggestions of factors to consider when making a decision about which, if any, of the project selection models to use. Finally, we comment on some special aspects of the information base required for project selection. Then we turn our attention to the selection of a set of projects to help the organization achieve its goals and illustrate this with a technique called the Project Portfolio Process. THE NATUR E OF PROJECT SELECTION MODELS There are two basic types of project selection models, numeric and nonnumeric. Both are widely used. Many organizations use both at the same time, or they use models that are combinations of the two. Nonnumeric models, as the name implies, do not use numbers as inputs. Numeric models do, but the criteria being measured may be either objective or subjective. It is important to remember that the qualities of a project may be represented by numbers, and that subjective measures are not necessarily less useful or reliable than so-called objective measures. Before examining specific kinds of models within the two basic types, let us consider just what we wish the model to do for us, never forgetting two critically important, but often overlooked, facts. 1. Models do not make decisions—people do. The manager, not the model, bears responsibility for the decision. The manager may “delegate” the task of making the decision to a model, but the responsibility cannot be abdicated. 2. All models, however sophisticated, are only partial representations of the reality they are meant to ref lect. Reality is far too complex for us to capture more than a small fraction of it in any model. Therefore, no model can yield an optimal decision except within its own, possibly inadequate, framework. We seek a model to assist us in making project selection decisions. This model should possess the characteristics discussed previously and, above all, it must evaluate potential projects by the degree to which they will meet the firm’s objectives. To construct a selection/evaluation model, therefore, it is necessary to develop a list of the firm’s objectives. A list of objectives should be generated by the organization’s top management. It is a direct expression of organizational philosophy and policy. The list should go beyond the typical clichés about “survival” and “maximizing profits,” which are certainly real goals but are just as certainly not the only goals of the firm. Other objectives might include maintenance of share of specific markets, development of an improved image with specific clients or
Slide 86: Project Selection 63 competitors, expansion into a new line of business, decrease in sensitivity to business cycles, maintenance of employment for specific categories of workers, and maintenance of system loading at or above some percent of capacity, just to mention a few. When the list of objectives has been developed, an additional refinement is recommended. The elements in the list should be weighted. Each item is added to the list because it represents a contribution to the success of the organization, but each item does not make an equal contribution. The weights ref lect different degrees of contribution each element makes in accomplishing a set of goals. Once the list of goals has been developed, one more task remains. The probable contribution of each project to each of the goals must be estimated. A project is selected or rejected because it is predicted to have certain outcomes if implemented. These outcomes are expected to contribute to goal achievement. If the estimated level of goal achievement is sufficiently large, the project is selected. If not, it is rejected. The relationship between the project’s expected results and the organization’s goals must be understood. In general, the kinds of information required to evaluate a project can be listed under production, marketing, financial, personnel, administrative, and other such categories. Exhibit 3.1 is a list of factors that contribute, positively or negatively, to these categories. In order to give focus to this list, we assume that the projects in question involve the possible substitution of a new production process for an existing one. The list is meant to be illustrative. It certainly is not exhaustive. Some factors in this list have a one-time impact and some recur. Some are difficult to estimate and may be subject to considerable error. For these, it is helpful to identify a range of uncertainty. In addition, the factors may occur at different times. And some factors may have thresholds, critical values above or below which we might wish to reject the project. We will deal in more detail with these issues later in this chapter. Clearly, no single project decision need include all these factors. Moreover, not only is the list incomplete, also it contains redundant items. Perhaps more important, the factors are not at the same level of generality: profitability and impact on organizational image both affect the overall organization, but impact on working conditions is more oriented to the production system. Nor are all elements of equal importance. Change in production cost is usually considered more important than impact on current suppliers. Shortly, we will consider the problem of generating an acceptable list of factors and measuring their relative importance. At that time we will discuss the creation of a Decision Support System (DSS) for project evaluation and selection. Although the process of evaluating a potential project is time-consuming and difficult, its importance cannot be overstated. A major consulting firm has argued2 that the primary cause for the failure of R&D projects is insufficient
Slide 87: 64 The Project Management Discipline EXHIBIT 3.1 Project evaluation factors Production Factors 1. Time until ready to install 2. Length of disruption during installation 3. Learning curve—time until operating as desired 4. Effects on waste and rejects 5. Energy requirements 6. Facility and other equipment requirements 7. Safety of process 8. Other applications of technology 9. Change in cost to produce a unit output 10. Change in raw material usage 11. Availability of raw materials 12. Required development time and cost 13. Impact on current suppliers 14. Change in quality of output Marketing Factors 1. Size of potential market for output 2. Probable market share of output 3. Time until market share is acquired 4. Impact on current product line 5. Consumer acceptance 6. Impact on consumer safety 7. Estimated life of output 8. Spin-off project possibilities Financial Factors 1. Profitability, net present value of the investment 2. Impact on cash f lows 3. Payout period 4. Cash requirements 5. Time until break-even 6. Size of investment required 7. Impact on seasonal and cyclical f luctuations Personnel Factors 1. Training requirements 2. Labor skill requirements 3. Availability of required labor skills 4. Level of resistance from current workforce 5. Change in size of laborforce 6. Inter- and intragroup communication requirements 7. Impact on working conditions Administrative and Miscellaneous Factors 1. Meet government safety standards 2. Meet government environmental standards 3. Impact on information system 4. Reaction of stockholders and securities markets 5. Patent and trade secret protection 6. Impact on image with customers, suppliers, and competitors. 7. Degree to which we understand new technology 8. Managerial capacity to direct and control new process
Slide 88: Project Selection 65 care in evaluating the proposal before the expenditure of funds. What is true for R&D projects also appears to be true for other kinds of projects, and it is clear that product development projects are more successful if they incorporate user needs and satisfaction in the design process.3 Careful analysis of a potential project is a sine qua non for profitability in the construction business. There are many horror stories4 about firms that undertook projects for the installation of a computer information system without sufficient analysis of the time, cost, and disruption involved. Later in this chapter we will consider the problem of conducting an evaluation under conditions of uncertainty about the outcomes associated with a project. Before dealing with this problem, however, it helps to examine several different evaluation/selection models and consider their strengths and weaknesses. Recall that the problem of choosing the project selection model itself will also be discussed later. TYPES OF PROJECT SELECTION MODELS Of the two basic types of selection models (numeric and nonnumeric), nonnumeric models are older and simpler and have only a few subtypes to consider. We examine them first. Nonnumeric Models The Sacred Cow In this case the project is suggested by a senior and powerful official in the organization. Often the project is initiated with a simple comment such as, “If you have a chance, why don’t you look into . . . ,” and there follows an undeveloped idea for a new product, for the development of a new market, for the design and adoption of a global data base and information system, or for some other project requiring an investment of the firm’s resources. The immediate result of this bland statement is the creation of a “project” to investigate whatever the boss has suggested. The project is “sacred” in the sense that it will be maintained until successfully concluded, or until the boss, personally, recognizes the idea as a failure and terminates it. The Operating Necessity If a f lood is threatening the plant, a project to build a protective dike does not require much formal evaluation, is an example of this scenario. XYZ Steel Corporation has used this criterion (and the following criterion also) in evaluating potential projects. If the project is required in order to keep the system operating, the primary question becomes: Is the system worth saving at
Slide 89: 66 The Project Management Discipline the estimated cost of the project? If the answer is yes, project costs will be examined to make sure they are kept as low as is consistent with project success, but the project will be funded. The Competitive Necessity Using this criterion, XYZ Steel undertook a major plant rebuilding project in the late 1960s in its steel-bar-manufacturing facilities near Chicago. It had become apparent to XYZ’s management that the company’s bar mill needed modernization if the firm was to maintain its competitive position in the Chicago market area. Although the planning process for the project was quite sophisticated, the decision to undertake the project was based on a desire to maintain the company’s competitive position in that market. In a similar manner, many business schools are restructuring their undergraduate and MBA programs to stay competitive with the more forward-looking schools. In large part, this action is driven by declining numbers of tuition-paying students and the stronger competition to attract them. Investment in an operating necessity project takes precedence over a competitive necessity project, but both types of projects may bypass the more careful numeric analysis used for projects deemed to be less urgent or less important to the survival of the firm. The Product Line Extension In this case, a project to develop and distribute new products would be judged on the degree to which it fits the firm’s existing product line, fills a gap, strengthens a weak link, or extends the line in a new, desirable direction. Sometimes careful calculations of profitability are not required. Decision makers can act on their beliefs about what will be the likely impact on the total system performance if the new product is added to the line. Comparative Benef it Model For this situation, assume that an organization has many projects to consider, perhaps several dozen. Senior management would like to select a subset of the projects that would most benefit the firm, but the projects do not seem to be easily comparable. For example, some projects concern potential new products, some concern changes in production methods, others concern computerization of certain records, and still others cover a variety of subjects not easily categorized (e.g., a proposal to create a daycare center for employees with small children). The organization has no formal method of selecting projects, but members of the Selection Committee think that some projects will benefit the firm more than others, even if they have no precise way to define or measure “benefit.”
Slide 90: Project Selection 67 The concept of comparative benefits, if not a formal model, is widely adopted for selection decisions on all sorts of projects. Most United Way organizations use the concept to make decisions about which of several social programs to fund. Senior management of the funding organization then examines all projects with positive recommendations and attempts to construct a portfolio that best fits the organization’s aims and its budget. Of the several techniques for ordering projects, the Q-Sort5 is one of the most straightforward. First, the projects are divided into three groups—good, fair, and poor—according to their relative merits. If any group has more than eight members, it is subdivided into two categories, such as fair-plus and fairminus. When all categories have eight or fewer members, the projects within each category are ordered from best to worst. Again, the order is determined on the basis of relative merit. The rater may use specific criteria to rank each project, or may simply use general overall judgment. The process described may be carried out by one person who is responsible for evaluation and selection, or it may be performed by a committee charged with the responsibility. If a committee handles the task, the individual rankings can be developed anonymously, and the set of anonymous rankings can be examined by the committee itself for consensus. It is common for such rankings to differ somewhat from rater to rater, but they do not often vary strikingly because the individuals chosen for such committees rarely differ widely on what they feel to be appropriate for the parent organization. Projects can then be selected in the order of preference, though they are usually evaluated financially before final selection. There are other, similar nonnumeric models for accepting or rejecting projects. Although it is easy to dismiss such models as unscientific, they should not be discounted casually. These models are clearly goal-oriented and directly ref lect the primary concerns of the organization. The sacred cow model, in particular, has an added feature; sacred cow projects are visibly supported by “the powers that be.” Full support by top management is certainly an important contributor to project success.6 Without such support, the probability of project success is sharply lowered. Numeric Models: Prof it/ Prof itability As noted earlier, a large majority of all firms using project evaluation and selection models use profitability as the sole measure of acceptability. We will consider these models first, and then discuss models that surpass the profit test for acceptance. Payback Period The payback period for a project is the initial fixed investment in the project divided by the estimated annual net cash inf lows from the project. The ratio of these quantities is the number of years required for the project to repay its
Slide 91: 68 The Project Management Discipline initial fixed investment. For example, assume a project costs $100,000 to implement and has annual net cash inf lows of $25,000. Then Payback period = $100, 000 = 4 years $25, 000 This method assumes that the cash inf lows will persist at least long enough to pay back the investment, and it ignores any cash inf lows beyond the payback period. The method also serves as an (inadequate) proxy for risk. The faster the investment is recovered, the less the risk to which the firm is exposed. Average Rate of Return Often mistaken as the reciprocal of the payback period, the average rate of return is the ratio of the average annual profit (either before or after taxes) to the initial or average investment in the project. Because average annual profits are usually not equivalent to net cash inf lows, the average rate of return does not usually equal the reciprocal of the payback period. Assume, in the example just given, that the average annual profits are $15,000: Average rate of return = $15, 000 = 0.15 $100, 000 Neither of these evaluation methods is recommended for project selection, though payback period is widely used and does have a legitimate value for cash budgeting decisions. The major advantage of these models is their simplicity, but neither takes into account the time-value of money. Unless interest rates are extremely low and the rate of inf lation is nil, the failure to reduce future cash f lows or profits to their present value will result in serious evaluation errors. Discounted Cash Flow Also referred to as the net present value method, the discounted cash f low method determines the net present value of all cash f lows by discounting them by the required rate of return (also known as the hurdle rate, cutoff rate, and similar terms) as follows: NPV (project) = A0 + ∑ t= 1 n Ft (1 + k) t where Ft = the net cash f low in period t, k = the required rate of return, and A0 = initial cash investment (because this is an outf low, it will be negative).
Slide 92: Project Selection 69 To include the impact of inf lation (or def lation) where pt is the predicted rate of inf lation during period t, we have NPV (project) = A0 + ∑ t= 1 n Ft (1 + k + p ) t t Early in the life of a project, net cash f low is likely to be negative, the major outf low being the initial investment in the project, A0. If the project is successful, however, cash f lows will become positive. The project is acceptable if the sum of the net present values of all estimated cash f lows over the life of the project is positive. A simple example will suffice. Using our $100,000 investment with a net cash inf low of $25,000 per year for a period of eight years, a required rate of return of 15 percent, and an inf lation rate of 3 percent per year, we have NPV (project) = −$100, 000 + = $1, 939 ∑ t= 1 8 $25, 000 (1 + 0.15 + 0.03) t Because the present value of the inf lows is greater than the present value of the outf low—that is, the net present value is positive—the project is deemed acceptable. Internal Rate of Return If we have a set of expected cash inf lows and cash out-f lows, the internal rate of return is the discount rate that equates the present values of the two sets of f lows. If At is an expected cash outf low in the period t and Rt is the expected inf low for the period t, the internal rate of return is the value of k that satisfies the following equation (note that the A0 will be positive in this formulation of the problem): A0 + A1 (1 + k) (1 + k) + A2 2 +L+ An (1 + k) n = R1 (1 + k) 2 + R2 (1 + k) 2 +L+ Rn (1 + k) n The value of k is found by trial and error. Prof itability Index Also known as the benefit–cost ratio, the profitability index is the net present value of all future expected cash f lows divided by the initial cash investment. (Some firms do not discount the cash f lows in making this calculation.) If this ratio is greater than 1.0, the project may be accepted.
Slide 93: 70 The Project Management Discipline Box 3.1 PsychoCeramic Sciences, Inc. PsychoCeramic Sciences, Inc. (PSI), a large producer of cracked pots and other cracked items, is considering the installation of a new marketing software package that will, it is hoped, allow more accurate sales information concerning the inventory, sales, and deliveries of its pots as well as its vases designed to hold artificial f lowers. The information systems (IS) department has submitted a project proposal that estimates the investment requirements as follows: an initial investment of $125,000 to be paid up-front to the Pottery Software Corporation; an additional investment of $100,000 to modify and install the software; and another $90,000 to integrate the new software into the overall information system. Delivery and installation is estimated to take one year; integrating the entire system should require an additional year. Thereafter, the IS department predicts that scheduled software updates will require further expenditures of about $15,000 every second year, beginning in the fourth year. They will not, however, update the software in the last year of its expected useful life. The project schedule calls for benefits to begin in the third year, and to be up-to-speed by the end of that year. Projected additional profits resulting from better and more timely sales information are estimated to be $50,000 in the first year of operation and are expected to peak at $120,000 in the second year of operation, and then to follow the gradually declining pattern shown in the table at the end of this box. Project life is expected to be 10 years from project inception, at which time the proposed system will be obsolete for this division and will have to be replaced. It is estimated, however, that the software can be sold to a smaller division of PSI and will thus have a salvage value of $35,000. PSI has a 12 percent hurdle rate for capital investments and expects the rate of inf lation to be about 3 percent over the life of the project. Assuming that the initial expenditure occurs at the beginning of the year and that all other receipts and expenditures occur as lump sums at the end of the year, we can prepare the Net Present Value analysis for the project as shown in the table below. The Net Present Value of the project is positive and, thus, the project can be accepted. (The project would have been rejected if the hurdle rate were 14 percent.) Just for the intellectual exercise, note that the total inf low for the project is $759,000, or $75,900 per year on average for the 10 year project.
Slide 94: Project Selection 71 The required investment is $315,000 (ignoring the biennial overhaul charges). Assuming 10 year, straight line depreciation or $31,500 per year, the payback period would be: PB = $135, 000 = 2.9 years $75, 900 + 31, 500 A project with this payback period would probably be considered quite desirable. Year A 1996* 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2005 Total Inf low B $0 0 0 50,000 120,000 115,000 105,000 97,000 90,000 82,000 65,000 35,000 $759,000 Outf low C $125,000 100,000 90,000 0 15,000 0 15,000 0 15,000 0 0 $360,000 Net Flow D = (B − C) $−125,000 −100,000 −90,000 50,000 105,000 115,000 90,000 97,000 75,000 82,000 65,000 35,000 $399,000 Discount Factor 1/(1 + k + p) t 1.0000 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 0.2472 Net Present Value D (Disc. Fact.) $−125,000 −86,960 −68,049 32,875 60,039 57,178 38,907 36,462 24,518 23,313 16,068 8,652 $18,003 * t = 0 at the beginning of 1996 Evaluating Prof itability Models There are a great many variations of the models just described. These variations fall into three general categories: (1) those that subdivide net cash f low into the elements that comprise the net f low; (2) those that include specific terms to introduce risk (or uncertainty, which is treated as risk) into the evaluation; and (3) those that extend the analysis to consider effects that the project might have on other projects or activities in the organization. Several comments are in order about all the profit-profitability numeric models. First, let us consider their advantages: 1. The undiscounted models are simple to use and understand. 2. All use readily available accounting data to determine the cash f lows. 3. Model output is in terms familiar to business decision makers.
Slide 95: 72 The Project Management Discipline 4. With a few exceptions, model output is on an “absolute” profit /profitability scale and allows “absolute” go/no-go decisions. 5. Some profit models account for project risk. The disadvantages of these models are the following: 1. These models ignore all nonmonetary factors except risk. 2. Models that do not include discounting ignore the timing of the cash f lows and the time–value of money. 3. Models that reduce cash f lows to their present value are strongly biased toward the short run. 4. Payback-type models ignore cash f lows beyond the payback period. 5. The internal rate of return model can result in multiple solutions. 6. All are sensitive to errors in the input data for the early years of the project. 7. All discounting models are nonlinear, and the effects of changes (or errors) in the variables or parameters are generally not obvious to most decision makers. 8. All these models depend for input on a determination of cash f lows, but it is not clear exactly how the concept of cash f low is properly defined for the purpose of evaluating projects. A complete discussion of profit /profitability models can be found in any standard work on financial management—see Moyer7 or Ross, Westerfield, and Jordan,8 for example. In general, the net present value models are preferred to the internal rate of return models. Despite wide use, financial models rarely include nonfinancial outcomes in their benefits and costs. In a discussion of the financial value of adopting project management (that is, selecting as a project the use of project management) in a firm, Githens9 notes that traditional financial models “simply cannot capture the complexity and value-added of today’s process-oriented firm.” In our experience, the payback period model, occasionally using discounted cash f lows, is one of the most commonly used models for evaluating projects and other investment opportunities. Managers generally feel that insistence on short payout periods tends to minimize the risks associated with the passage of time. While this is certainly logical, we prefer evaluation methods that discount cash f lows and deal with uncertainty more directly by considering specific risks. Using the payout period as a cash-budgeting tool aside, its only virtue is simplicity, a dubious virtue at best. Numeric Models: Scoring In an attempt to overcome some of the disadvantages of profitability models, particularly their focus on a single decision criterion, a number of evaluation/
Slide 96: Project Selection 73 selection models that use multiple criteria to evaluate a project have been developed. Such models vary widely in their complexity and information requirements. The examples discussed illustrate some of the different types of numeric scoring models. Unweighted 0–1 Factor Model A set of relevant factors is selected by management and then usually listed in a preprinted form. One or more raters score the project on each factor, depending on whether or not it qualifies for an individual criterion. The raters are chosen by senior managers, for the most part from the rolls of senior management. The criteria for choice are (1) a clear understanding of organizational goals and (2) a good knowledge of the firm’s potential project portfolio. Exhibit 3.2 shows an example of the rating sheet for an unweighted, 0–1 factor model. The columns of Exhibit 3.2 are summed and those projects with a sufficient number of qualifying factors may be selected. The main advantage of EXHIBIT 3.2 Project Rater Sample project evaluation form Date Qualifies Does Not Qualify No increase in energy requirements Potential market size, dollars Potential market share, percent No new facility required No new technical expertise required No decrease in quality of final product Ability to manage project with current personnel No requirement for reorganization Impact on workforce safety Impact on environmental standards Profitability Rate of return more than 15% after tax Estimated annual profits more than $250,000 Time to break-even less than 3 years Need for external consultants Consistency with current line of business Impact on company image With customers With our industry Totals x x x x x x x x x x x x x x x x x 12 5
Slide 97: 74 The Project Management Discipline such a model is that it uses several criteria in the decision process. The major disadvantages are that it assumes all criteria are of equal importance and it allows for no gradation of the degree to which a specific project meets the various criteria. Unweighted Factor Scoring Model The second disadvantage of the 0–1 factor model can be dealt with by constructing a simple linear measure of the degree to which the project being evaluated meets each of the criteria contained in the list. The x marks in Exhibit 3.2 would be replaced by numbers. Often a five-point scale is used, where 5 is very good, 4 is good, 3 is fair, 2 is poor, 1 is very poor. (Three-, seven-, and ten-point scales are also common.) The second column of Exhibit 3.2 would not be needed. The column of scores is summed, and those projects with a total score exceeding some critical value are selected. A variant of this selection process might choose the highest-scoring projects (still assuming they are all above some critical score) until the estimated costs of the set of projects equaled the resource limit. However, the criticism that the criteria are all assumed to be of equal importance still holds. The use of a discrete numeric scale to represent the degree to which a criterion is satisfied is widely accepted. To construct such measures for project evaluation, we proceed in the following manner. Select a criterion, say, “estimated annual profits in dollars.” For this criterion, determine five ranges of performance so that a typical project, chosen at random, would have a roughly equal chance of being in any one of the five performance ranges. (Another way of describing this condition is: Take a large number of projects that were selected for support in the past, regardless of whether they were actually successful or not, and create five levels of predicted performance so that about one-fifth of the projects fall into each level.) This procedure will usually create unequal ranges, which may offend our sense of symmetry but need not concern us otherwise. It ensures that each criterion performance measure utilizes the full scale of possible values, a desirable characteristic for performance measures. Consider the following two simple examples. Using the criterion just mentioned, “estimated annual profits in dollars,” we might construct the following scale: Score 5 4 3 2 1 Performance Level Above $1,100,000 $750,001 to $1,100,000 $500,001 to $750,000 $200,000 to $500,000 Less than $200,000
Slide 98: Project Selection 75 As suggested, these ranges might have been chosen so that about 20 percent of the projects considered for funding would fall into each of the five ranges. The criterion “no decrease in quality of the final product” would have to be restated to be scored on a five-point scale, perhaps as follows: Score 5 4 3 2 1 Performance Level The quality of the final product is: Significantly and visibly improved Significantly improved, but not visible to buyer Not significantly changed Significantly lowered, but not visible to buyer Significantly and visibly lowered This scale is an example of scoring cells that represent opinion rather than objective (even if “estimated”) fact, as was the case in the profit scale. Weighted Factor Scoring Model When numeric weights ref lecting the relative importance of each individual factor are added, we have a weighted factor scoring model. In general, it takes the form Si = ∑s j= 1 n ij wj where Si = the total score of the ith project, si j = the score of the ith project on the jth criterion, and wj = the weight of the jth criterion. The weights, wj, may be generated by any technique that is acceptable to the organization’s policy makers. There are several techniques available to generate such numbers, but the most effective and most widely used is the Delphi technique. The Delphi technique was developed by Brown and Dalkey of the RAND Corporation during the 1950s and 1960s.10 It is a technique for developing numeric values that are equivalent to subjective, verbal measures of relative value. The method of successive comparisons (or pairwise comparisons) may also be used for the same purpose.11 Another popular and quite similar approach is the Analytic Hierarchy Process, developed by Saaty.12 For an extensive example involving finance, sales, and purchasing, see pages 306–316 of Turban and Meredith.13 This example also illustrates the use of Expert Choice®, a software package to facilitate the application of the Analytic Hierarchy Process.
Slide 99: 76 The Project Management Discipline When numeric weights have been generated, it is helpful (but not necessary) to scale the weights so that 0≤ wj ≤ 1 n j= 1 j = 1, 2, 3, . . . , n ∑w j =1 The weight of each criterion can be interpreted as the “percent of the total weight accorded to that particular criterion.” A special caveat is in order. It is quite possible with this type of model to include a large number of criteria. It is not particularly difficult to develop scoring scales and weights, and the ease of gathering and processing the required information makes it tempting to include marginally relevant criteria along with the obviously important items. Resist this temptation! After the important factors have been weighted, there usually is little residual weight to be distributed among the remaining elements. The result is that the evaluation is simply insensitive to major differences in the scores on trivial criteria. A good rule of thumb is to discard elements with weights less than 0.02 or 0.03. (If elements are discarded, and if you wish Swj = 1, the weights must be rescaled to 1.0.) As with any linear model, the user should be aware that the elements in the model are assumed to be independent. This presents no particular problems for these scoring models because they are used to make estimates in a “steady–state” system, and we are not concerned with transitions between states. It is useful to note that if one uses a weighted scoring model to aid in project selection, the model can also serve as an aid to project improvement. For any given criterion, the difference between the criterion’s score and the highest possible score on that criterion, multiplied by the weight of the criterion, is a measure of the potential improvement in the project score that would result were the project’s performance on that criterion sufficiently improved. It may be that such improvement is not feasible, or is more costly than the improvement warrants. On the other hand, such an analysis of each project yields a valuable statement of the comparative benefits of project improvements. Viewing a project in this way is a type of sensitivity analysis. We examine the degree to which a project’s score is sensitive to attempts to improve it—usually by adding resources. It is not particularly difficult to computerize a weighted scoring model by creating a template on Excel® or one of the other standard computer spreadsheets. The logic of using a “selection” model for the termination decision is straightforward: Given the time and resources required to take a project from its current state to completion, should we make the investment? A “Yes” answer to that question “selects” for funding the partially completed project from the set of all partially finished and not-yet-started projects.
Slide 100: Project Selection 77 Box 3.2 Gettin’ Wheels Rather than using an example in which actual projects are selected for funding with a weighted factor scoring model (hereafter “scoring model”) that would require tediously long descriptions of the projects, we can demonstrate the use of the model in a simple, common problem that many readers will have faced—the choice of an automobile for purchase. This problem is nicely suited to use of the scoring model because the purchaser is trying to satisfy multiple objectives in making the purchase and is typically faced with several different cars from which to choose. Our model must have the following elements: 1. A set of criteria on which to judge the value of any alternative. 2. A numeric estimate of the relative importance (i.e., the “weight”) of each criterion in the set. 3. Scales by which to measure or score the performance or contribution-to-value of each alternative on each criterion. The criteria weights and measures of performance must be numeric in form, but this does not mean that they must be either “objective” or “quantitative.” Criteria weights, obviously, are subjective by their nature, being an expression of what the decision maker thinks is important. The development of performance scales is more easily dealt with in the context of our example, and we will develop them shortly. Assume that we have chosen the criteria and weights shown in Table A to be used in our evaluations.* The weights represent the relative TABLE A. Criteria and Weights for Automobile Purchase 4 3 7 5 10 7 5 41 (.10) (.07) (.17) (.12) (.24) (.17) (.12) .99 Appearance Braking Comfort Cost, operating Cost, original Handling Reliability Total (continued)
Slide 101: 78 The Project Management Discipline importance of the criteria measured on a 10-point scale. The numbers in parentheses show the proportion of the total weight carried by each criterion. (They add to only .99 due to rounding.) Raw weights work just as well for decision making as their percentage counterparts, but the latter are usually preferred because they are a constant reminder to the decision maker of the impact of each of the criteria. Prior to consideration of performance standards and sources of information for the criteria we have chosen, we must ask, “Are there any characteristics that must be present (or absent) in a candidate automobile for it to be acceptable?” Assume, for this example, that to be acceptable, an alternative must not be green, must have air conditioning, must be able to carry at least four adults, must have at least 10 cubic feet of luggage space, and must be priced less than $34,000. If an alternative violates any of these conditions, it is immediately rejected. For each criterion, we need some way of measuring the estimated performance of each alternative. In this case, we might adopt the measures shown in Table B. Our purpose is to transform a measure of the degree to which an alternative meets a criterion into a score, the si j , that is a general measure of the utility or value of the alternative with respect to that criterion. Note that this requires us to define the criterion precisely, as well as to specify a source for the information. Table C shows the scores for each criterion transformed to a 5-point scale, which will suffice for our ratings. Using the performance scores shown in Table C, we can evaluate the cars we have identified as our alternatives: the Leviathan 8, the NuevoEcon, the Maxivan, the Sporticar 100, and the Ritzy 300. Each TABLE B. Automobile Selection Criteria, Measures and Data Sources Subjective judgment, personal Distance in feet, 60–0 mph, automotive magazinea Subjective judgment, 30 min. road test Annual insurance cost plus fuel costb Dealer cost, auto-cost servicec Average speed through standard slalom, automotive magazinea Score on Consumer Reports, “Frequency-of-Repair” data (average of 2 previous years) Appearance Braking Comfort Cost, operating Cost, original Handling Reliability a Many automotive periodicals conduct standardized performance tests of new cars. Annual fuel cost is calculated as (17,500 mi /DOE ave. mpg) × $1.25/gal. c There are several sources for dealer-cost data (e.g., AAA, which provides a stable data base on which to estimate the price of each alternative). b
Slide 102: Project Selection 79 TABLE C. Performance Measures and Equivalent Scores for Selection of an Automobile Scores Criteria Appearance Braking Comfort Cost, operating* Cost, original* Handling Reliability * Cost data in $1000s. 1 Ugh >165 Bad >$2.5 >$32.5 >45 Worst 2 Poor 165–150 Poor $2.1–2.5 $26 –32.5 45– 49.5 Poor 3 Adequate 150–140 Adequate $1.9–2.1 $21–26 49.5–55 Adequate 4 Good 140–130 Good $1.6 –1.9 $17–21 55–59 Good 5 WOW <130 Excellent <$1.6 <$17 <59 Excellent car is scored on each criterion according to the categories shown in Table C. Then each score is multiplied by the criterion weight and the result is entered into the appropriate box in Table D. Last, the results for each alternative are summed to represent the weighted score. According to this set of measures, we prefer the Ritzy 300, but while it is a clear winner over the Leviathan 8 and the Maxivan, and scores about 8 percent better than the Sporticar, it rates only about 0.13 points or 4 percent above the NuevoEcon. Note that if we overrated the Ritzy by one point on comfort or handling, or if we underrated the NuevoEcon by one point on either of these criteria, the result would have been reversed. (We assume that the original cost data are accurate.) With the scores this close, we might want to evaluate these two cars by additional TABLE D. Scores for Alternative Cars on Selection Criteria Criteria and Weights Cost, Cost, Appearance Braking Comfort Operating Original Handling Reliability (0.10) (0.07) (0.17) (0.12) (0.24) (0.17) (0.12) Εs ij w j 3 × .10 = 0.30 3 × .10 = 0.30 2 × .10 = 0.20 5 × .10 = 0.50 4 × .10 = 0.40 1 × 0.07 = 0.07 3 × 0.07 = 0.21 1 × 0.07 = 0.07 4 × 0.07 = 0.28 5 × 0.07 = 0.35 4 × 0.17 = 0.68 2 × 0.17 = 0.34 4 × 0.17 = 0.68 3 × 0.17 = 0.51 5 × 0.17 = 0.85 2 × 0.12 = 0.24 5 × 0.12 = 0.60 4 × 0.12 = 0.48 2 × 0.12 = 0.24 2 × 0.12 = 0.24 1 × 0.24 = 0.24 4 × 0.24 = 0.96 3 × 0.24 = 0.72 2 × 0.24 = 0.48 1 × 0.24 = 0.24 2 × 0.17 = 0.34 2 × 0.17 = 0.34 1 × 0.17 = 0.17 5 × 0.17 = 0.85 4 × 0.17 = 0.68 3 × 0.12 = 0.36 4 × 0.12 = 0.48 3 × 0.12 = 0.36 2 × 0.12 = 0.24 5 × 0.12 = 0.60 2.23 3.23 2.68 3.10 3.36 Alternatives Leviathan 8 NuevoEcon Maxivan Sporticar 100 Ritzy 300 (continued)
Slide 103: 80 The Project Management Discipline criteria (e.g., ease of carrying children, status, safety features like dual airbags or ABS) prior to making a firm decision. All in all, if the decision maker has well delineated objectives, and can determine how specific kinds of performance contribute to those criteria, and finally, can measure those kinds of performance for each of the alternative courses of action, then the scoring model is a powerful and f lexible tool. To the extent that criteria are not carefully defined, performance is not well linked to the criteria, and is carelessly or wrongly measured, the scoring model rests on a faulty foundation and is merely a convenient path to error. * The criteria and weights were picked arbitrarily for this example. Because this is typically an individual or family decision, techniques like Delphi or successive comparisons are not required. Constrained Weighted Factor Scoring Model The temptation to include marginal criteria can be partially overcome by allowing additional criteria to enter the model as constraints rather than weighted factors. These constraints represent project characteristics that must be present or absent in order for the project to be acceptable. In our example concerning a product, we might have specified that we would not undertake any project that would significantly lower the quality of the final product (visible to the buyer or not). We would amend the weighted scoring model to take the form: Si = ∑s j= 1 n ij wj ∏ cik k= 1 v where cik = 1 if the ith project satisfies the kth constraint, and 0 if it does not. Other elements in the model are as defined earlier. Although this model is analytically tidy, in practice we would not bother to evaluate projects that are so unsuitable in some ways that we would not consider supporting them regardless of their expected performance against other criteria. For example, except under extraordinary circumstances, Procter & Gamble would not consider a project to add a new consumer product or product line: • That cannot be marketed nationally. • That cannot be distributed through mass outlets (grocery stores, drugstores). • That will not generate gross revenues in excess of $—million.
Slide 104: Project Selection 81 • For which Procter & Gamble’s potential market share is not at least 50 percent. • That does not utilize Procter & Gamble’s scientific expertise, manufacturing expertise, advertising expertise, or packaging and distribution expertise. Again, a caveat is in order. Exercise care when adopting constraints. It may seem obvious that we should not consider a project if it has no reasonable assurance of long-run profitability. Such a constraint, however, can force us to overlook a project that, though unprofitable itself, might have a strong, positive impact on the profitability of other potential projects. Evaluating Scoring Models As was the case with profitability models, scoring models have their own characteristic advantages and disadvantages. The advantages are: 1. These models allow multiple criteria to be used for evaluation and decision making, including profit /profitability models and both tangible and intangible criteria. 2. They are structurally simple and therefore easy to understand and use. 3. They are a direct ref lection of managerial policy. 4. They are easily altered to accommodate changes in the environment or managerial policy. 5. Weighted scoring models allow for the fact that some criteria are more important than others. 6. These models allow easy sensitivity analysis. The trade-offs between the several criteria are readily observable. The disadvantages are the following: 1. The output of a scoring model is strictly a relative measure. Project scores do not represent the value or “utility” associated with a project and thus do not directly indicate whether or not the project should be supported. 2. In general, scoring models are linear in form and the elements of such models are assumed to be independent. 3. The ease of use of these models is conducive to the inclusion of a large number of criteria, most of which have such small weights that they have little impact on the total project score. 4. Unweighted scoring models assume all criteria are of equal importance, which is almost certainly contrary to fact. 5. To the extent that profit /profitability is included as an element in the scoring model, this element has the advantages and disadvantages noted earlier for the profitability models themselves.
Slide 105: 82 The Project Management Discipline An interesting alternative to scoring models is an iterative rating process developed by Raz.14 His method starts with a set of attributes that can be used to rank potential projects. He then removes all attributes that do not differentiate between the alternatives and all projects that are dominated by others. If a choice can then be made, it is made. If not, the process is repeated. In another paper, Pascale, et al. compare a weighted scoring model with an unweighted scoring model for the evaluation of innovations. They conclude that the former works well with incremental change, and the latter works better when the innovation is a “new idea.”15 They also investigate the impact of the evaluation methods on idea generation. Choosing a Project Selection Model Selecting the type of model to aid the evaluation/selection process depends on the philosophy and wishes of management. Liberatore and Titus16 conducted a survey of 40 high-level staff persons from 29 Fortune 500 firms. Eighty percent of their respondents report the use of one or more financial models for R&D project decision making. Although their sample is small and nonrandom, their findings are quite consistent with the present authors’ experience. None of the respondent firms used mathematical programming techniques for project selection or resource allocation. We strongly favor weighted scoring models for three fundamental reasons. First, they allow the multiple objectives of all organizations to be ref lected in the important decision about which projects will be supported and which will be rejected. Second, scoring models are easily adapted to changes in managerial philosophy or changes in the environment. Third, they do not suffer from the bias toward the short run that is inherent in profitability models that discount future cash f lows. This is not a prejudice against discounting and most certainly does not argue against the inclusion of profits/profitability as an important factor in selection, but rather it is an argument against the exclusion of nonfinancial factors that may require a longer-run view of the costs and benefits of a project. For a powerful statement of this point, see Hayes and Abernathy.17 It is also interesting to note that Liberatore and Titus18 found that firms with a significant amount of contract research funded from outside the organization used scoring models for project screening much more frequently than firms with negligible levels of outside funding. It was also found that firms with significant levels of outside funding were much less likely to use a payback period. The structure of a weighted scoring model is quite straightforward. Its virtues are many. Nonetheless, the actual use of scoring models is not as easy as it might seem. Decision makers are forced to make difficult choices and they are not always comfortable doing so. They are forced to reduce often vague feelings to quite specific words or numbers. Multiattribute, multiperson decision
Slide 106: Project Selection 83 making is not simple. (For an interesting discussion of this process, see Irving and Conrath.19) COMMENTS ON THE INFORMATION BASE FOR SELECTION Our bias in favor of weighted scoring models is quite clear and weighted scoring models can be simulated because both the scores and the weights are usually estimates. But irrespective of which model is chosen for project selection, a data base must be created and maintained to furnish input data for the model. Directions for the actual construction of the data base go beyond the scope of this book, but some comments about the task are in order. The use of any project selection model assumes that the decision-making procedure takes place in a reasonably rational organizational environment. Such is not always the case. In some organizations, project selection seems to be the result of a political process, and sometimes involves questionable ethics, complete with winners and losers.20 In others, the organization is so rigid in its approach to decision making that it attempts to reduce all decisions to an algorithmic proceeding in which predetermined programs make choices so that humans have minimal involvement—and responsibility. Here too, Saaty’s21 Analytic Hierarchy Process can lend rationality to a sometimes irrational process. In an interesting paper, Huber 22 examines the impact that the organizational environment has on the design of decision support systems. The remainder of this section deals with three special problems affecting the data used in project selection models. Accounting Data Whether managers are familiar with accounting systems or not, they can find it useful to ref lect on the methods and assumptions used in the preparation of accounting data. Among the most crucial are the following: 1. Accountants live in a linear world. With few exceptions, cost and revenue data are assumed to vary linearly with associated changes in inputs and outputs. 2. The accounting system often provides cost-revenue information that is derived from standard cost analyses and equally standardized assumptions regarding revenues. These standards may or may not be accurate representations of the cost-revenue structure of the physical system they purport to represent. 3. As noted in the previous section, the data furnished by the accounting system may or may not include overhead costs. In most cases, the decision
Slide 107: 84 The Project Management Discipline maker is concerned solely with cost-revenue elements that will be changed as a result of the project under consideration. Incremental analysis is called for, and great care must be exercised when using pro forma data in decision problems. Remember that the assignment of overhead cost is always arbitrary. The accounting system is the richest source of information in the organization, and it should be used—but with great care and understanding. Measurements It is common for those who oppose a project, for whatever reason, to complain that information supporting the project is “subjective.” This epithet appears to mean that the data are biased and therefore untrustworthy. To use the scoring methods discussed or to practice risk management in project selection, we need to represent though not necessarily collect expected project performance for each criterion in numeric form. If a performance characteristic cannot be measured directly as a number, it may be useful to characterize performance verbally and then, through a word / number equivalency scale, use the numeric equivalents of verbal characterizations as model inputs. Subjective versus Objective The distinction between subjective and objective is generally misunderstood. All too often the word objective is held to be synonymous with fact and subjective is taken to be a synonym for opinion—where fact = true and opinion = false. The distinction in measurement theory is quite different, referring to the location of the standard for measurement. A measurement taken by reference to an external standard is said to be “objective.” Reference to a standard that is internal to the system is said to be “subjective.” A yardstick, incorrectly divided into 100 divisions and labeled “meter,” would be an objective but inaccurate measure. The eye of an experienced judge is a subjective measure that may be quite accurate. Quantitative versus Qualitative The distinction between quantitative and qualitative is also misunderstood. It is not the same as numeric and nonnumeric. Both quantity and quality may be measured numerically. The number of words on this page is a quantity. The color of a red rose is a quality, but it is also a wavelength that can be measured numerically, in terms of microns. The true distinction is that one may apply the law of addition to quantities but not to qualities.23 Water, for example, has a volumetric measure and a density measure. The former is quantitative and the latter qualitative. Two one-gallon containers of water poured into one larger
Slide 108: Project Selection 85 container give us two gallons, but the density of the water, before and after joining the two gallons, is still the same: 1.0. Reliable versus Unreliable A data source is said to be reliable if repetitions of a measurement produce results that vary from one another by less than a prespecified amount. The distinction is important when we consider the use of statistical data in our selection models. Valid versus Invalid Validity measures the extent to which a piece of information actually means what we believe it to mean. A measure may be reliable but not valid. Consider our mismarked 36-inch yardstick pretending to be a meter. It performs consistently, so it is reliable. It does not, however, match up accurately with other meter rules, so it would not be judged valid. To be satisfactory when used in the previous project selection models, the measures may be either subjective or objective, quantitative or qualitative, but they must be numeric, reliable, and valid. Avoiding information merely because it is subjective or qualitative is an error and weakens decisions. On the other hand, including information of questionable reliability or validity in selection models, even though it may be numeric, is dangerous. It is doubly dangerous if decision makers are comfortable dealing with the selection model but are unaware of the doubtful character of some input data. A condition a colleague has referred to as GIGO—garbage in, gospel out—may prevail. Uncertain Information In the section on weighted scoring models, we noted some useful methods for finding the numeric weights and criteria scores when they take the form of verbal descriptors rather than numbers. These same methods are also useful when estimating the inputs for risk analysis models. Indeed, one of the first applications of the Delphi method24 was technological forecasting—forecasting the time period in which some specific technological capability would be available. These methods are commonly used when a group must develop a consensus concerning such items as the importance of a technological change, an estimate of cash f lows, a forecast of some economic variable, and similar uncertain future conditions or events. PROJECT PORTFOLIO PROCESS (PPP) Important inputs to this process are the organization’s goals and strategies, and we assume here that the organization has already identified its mission,
Slide 109: 86 The Project Management Discipline goals, and strategies—by using some formal analytic method such as SWOT analysis (strengths, weaknesses, opportunities, threats), and that these are well known throughout the organization. If this is not the case, then any attempt to tie the organization’s projects to its goals is folly and the PPP will have little value. If the goals and strategies have been well articulated, however, then the PPP can serve many purposes: • To identify proposed projects that are not really projects and should be handled through other processes. • To prioritize the list of available projects. • To intentionally limit the number of overall projects being managed so the important projects get the resources and attention they need. • To identify projects that best fit the organization’s goals and strategy. • To identify projects that support multiple organizational goals and crossreinforce other important projects. • To eliminate projects that incur excessive risk and /or cost. • To eliminate projects that bypassed a formal selection process and may not provide benefits corresponding to their risks and /or costs. • To keep from overloading the organization’s resource availability. • To balance the resources with the needs. • To balance short-, medium-, and long-term returns. The PPP attempts to link the organization’s projects directly to the goals and strategy of the organization. This occurs not only in the project’s initiation and planning phases, but also throughout the life cycle of the projects as they are managed and eventually brought to completion. Thus, the PPP is also a means for monitoring and controlling the organization’s strategic projects. On occasion this will mean shutting down projects prior to their completion because their risks have become excessive, their costs have escalated out of line with their expected benefits, another (or a new) project does a better job of supporting the goals, or any variety of similar reasons. The steps in this process generally follow those described in Longman, Sandahl, and Speir25 and Englund and Graham.26 Step 1: Establish a Project Council The main purpose of the project council is to establish and articulate a strategic direction for those projects spanning internal or external boundaries of the organization, such as cross-departmental or joint venture. Thus, senior managers must play a major role in this council. Without the commitment of senior management, the PPP will be incapable of achieving its main objectives. The council will also be responsible for allocating funds to those projects that
Slide 110: Project Selection 87 support the organization’s goals and controlling the allocation of resources and skills to the projects. In addition to senior management, others who should be members of the project council are: • • • • • The project managers of major projects. The head of the Project Management Office, if one exists. Particularly relevant general managers. Those who can identify key opportunities and risks facing the organization. Anyone who can derail the progress of the PPP later on in the process. Step 2: Identif y Project Categories and Criteria In this step, various project categories are identified so the mix of projects funded by the organization will be spread appropriately across those areas making major contributions to the organization’s goals. In addition, within each category criteria are established to discriminate between very good and even better projects. The criteria are also weighted to ref lect their relative importance. Identifying separate categories not only facilitates achievement of multiple organizational goals (e.g., long term, short term, internal, external, tactical, strategic) but also keeps projects from competing with each other on inappropriate categories. The first task in this step is to list the goals of each existing and proposed project—what is the mission, or purpose of this project. Relating these to the organization’s goals and strategies should allow the council to identify a variety of categories that are important to achieving the organization’s goals. Some of these were noted above but another way to position some of the projects (particularly product /service development projects) is in terms of their extent of product and process changes. Wheelwright and Clark27 have developed a matrix called the aggregate project plan illustrating these changes, as shown in Exhibit 3.3. Based on the extent of product change and process change, they identified four separate categories of projects: 1. Derivative projects: These are projects with objectives or deliverables that are only incrementally different in both product and process from existing offerings. They are often meant to replace current offerings or add an extension to current offerings (lower priced version, upscale version). 2. Platform projects: The planned outputs of these projects represent major departures from existing offerings in terms of either the product /service itself or the process used to make and deliver it, or both. As such, they become “platforms” for the next generation of organizational offerings, such as a new model of automobile or a new type of insurance plan. They thus
Slide 111: 88 The Project Management Discipline EXHIBIT 3.3 R&D projects R1 C1 Extensive process changes G1 R2 S1 Platform projects Breakthrough projects C2 An example aggregate project plan Extensive product changes Minor product changes G5 S2 S3 C3 G4 G2 Minor process changes G3 Derivative projects form the basis for follow-on derivative projects that attempt to extend the platform in various dimensions. 3. Breakthrough projects: Breakthrough projects typically involve a newer technology than platform projects. It may be a “disruptive” technology that is known to the industry or something proprietary that the organization has been developing over time. Examples here include the use of fiber-optic cables for data transmission, cash-balance pension plans, and hybrid gasoline-electric automobiles. 4. R&D projects: These projects are “blue-sky,” visionary endeavors oriented toward using newly developed technologies, or existing technologies in a new manner. They may also be for acquiring new knowledge, or developing new technologies themselves. The size of the projects plotted on the array indicates the size/resource needs of the project and the shape may indicate another aspect of the project (e.g., internal/external, long/medium/short term, or whatever aspect needs to
Slide 112: Project Selection 89 be shown). The numbers indicate the order, or time frame, in which the projects are to be (or were) implemented, separated by category, if desired. The aggregate project plan can be used for many purposes: • To view the mix of projects within each illustrated aspect (shape). • To analyze and adjust the mix of projects within each category or aspect. • To assess the resource demands on the organization, indicated by the size, timing, and number of projects shown. • To identify and adjust the gaps in the categories, aspects, sizes, and timing of the projects. • To identify potential career paths for developing project managers, such as team member of a derivative project, then team member of a platform project, manager of a derivative project, member of a breakthrough project, and so on. Next, the council must develop separate criteria and cost ranges for each category that determine those projects that will support the organizational strategy and goals. Example criteria might include alignment with the organization’s goals/strategy, riskiness of the project, financial return, probability of success, likelihood of achieving a breakthrough in a critical offering, appeal to a large (or new) market, impact on customer satisfaction, contribution to employee development, knowledge acquisition, and availability of staff/ resources. Scales also need to be determined for each criterion to measure how different projects score on each of them. The scales on which these criteria are measured must be challenging so that the scores separate the best projects from those that are merely good. The scales should also serve as an initial screen, to start the process of winnowing out the weakest projects. Thus, they should include limits on their extremes, such as minimum rate of return (if a financial criterion is appropriate), maximum probability of technical failure given proposed budget and schedule, or minimum acceptable potential market share. Finally, the council needs to set an importance weighting for the various criteria in each category. Note that even if the same criteria apply to multiple categories, their weights might be different. For example, if a firm needs to develop high-level, skilled project managers for their strategic projects, employee development might be more important for breakthrough projects but less important for derivative projects. Also, the weights might change depending on the life cycle stage of the project. For example, early in a project’s life, strategic considerations are often most important while in the midpoint of a project, tactical considerations might be more important. The model we have described above is a “weighted, factor scoring model,” as described earlier. As noted then, there are some standard, well-known tools
Slide 113: 90 The Project Management Discipline to help develop the weights, scales, and criteria such as the Delphi method,28 the analytic hierarchy process (AHP),29 a simplified version of AHP by Frame,30 and even software such as Expert Choice®. For more complex situations, with large numbers of projects and or large councils, the more sophisticated approaches are often more helpful, particularly if used with software that automatically calculates the scores and ranks the projects. Step 3: Collect Project Data For each existing and proposed project, assemble the data appropriate to that category’s criteria. Be sure to update the data for ongoing projects and not just use the data from the previous evaluation. For cost data, use “activity based costs” rather than incremental costs. Challenge and try to verify all data; get other people involved in validating the data, perhaps even customers (e.g., market benefit). Include the timing, both date and duration, for expected benefits and resource needs. Use the project plan, a schedule of project activities, past experience, expert opinion, whatever is available to get a good estimate of this data. Then document any assumptions made so that they can be checked in the future as the project progresses. If the project is new, you may want to fund only enough work on the project to verify the assumptions or determine the windowof-opportunity for the proposed product or process, holding off full funding until later. Similarly, identify any projects that can be deferred to a later time period, those that must precede or follow other projects, those that support other projects or should be done in conjunction with them, those that can be outsourced, and other such special aspects of the projects. Next, use the criteria score limits to screen out the weaker projects: Have costs on existing projects escalated beyond the project’s expected benefits? Has the benefit of a project lessened because the organization’s goals have changed? Does a competitor’s new entry obviate the advantages of a project? Does a new (or old) project dominate an existing or proposed project in terms of its benefits, furtherance of organizational goals, reduced costs? Also, screen in any projects that do not require deliberation, such as projects mandated by regulations or laws, projects that are operating or competitive necessities, projects required for environmental or personnel reasons, and so on. The fewer projects that need to be compared and analyzed, the easier the work of the council. Step 4: Assess Resource Availability Next, assess the availability of both internal and external resources, by type, department, and timing. Note that labor availability should be estimated conservatively, leaving time for vacations, personal needs, illness, holidays, and most important, regular functional (nonproject) work. After allowing for all of these things that limit labor availability, add a bit more, perhaps 10 percent, to allow for the well-known fact that human beings need occasional short breaks
Slide 114: Project Selection 91 to rest or meet other human needs. Timing is particularly important, since project resource needs by type typically vary up to 100 percent over the life cycle of projects. Needing a normally plentiful resource at the same moment it is fully utilized elsewhere may doom an otherwise promising project. Eventually, the council will be trying to balance aggregate project resource needs over future periods with resource availabilities so timing is as important as the amount of maximum demand and availability. Step 5: Reduce the Project and Criteria Set In this step, multiple screens are employed to try to narrow down the number of competing projects. As noted earlier, the first screen is each project’s support of the organization’s goals. Other possible screens might be criteria such as: • • • • • • • • • • • Whether the required competence exists in the organization. Whether there is a market for the offering. How profitable the offering is likely to be. How risky the project is. If there is a potential partner to help with the project. If the right resources are available at the right times. If the project is a good technological/knowledge fit with the organization. If the project uses the organizations strengths, or depends on its weaknesses. If the project is synergistic with other important projects. If the project is dominated by another existing or proposed project. If the project has slipped in its desirability since the last evaluation. One way to evaluate the dominance of some projects over others, and at the same time eliminate nondifferentiating criteria, is by comparing the coefficients of variation of each of the criteria across the projects. This technique allows an analyst to maximize the variation within the project set across relevant criteria, eliminating similar projects that are dominated, and identifying criteria that, at least in this evaluation round, do not differentiate among the projects. See Raz 31 for an example of this approach. The result of this step may involve canceling some ongoing projects or replacing them with new, more promising projects. Beware, however, of the tendency to look more favorably upon new, untested concepts than on current projects experiencing the natural problems and hurdles of any promising project. Step 6: Prioritize the Projects within Categories Apply the scores and criterion weights to rank the projects within each category. It is acceptable to hold some hard-to-measure criteria out for subjective evaluation, such as riskiness, or development of new knowledge. Subjective
Slide 115: 92 The Project Management Discipline evaluations can be translated from verbal to numeric terms easily by the Delphi or other methods and used in the weighted factor scoring model. It must be remembered that such criteria as riskiness are usually composite measures of a set of “risks” in different areas. The same is true of criteria like “development of new knowledge.” When checking the results of this step, however, reconsider the projects in terms of their benefits first and their resource costs second. The former are commonly more difficult to assess and a reconsideration based on more familiarity with the project profiling process and other project evaluations may suggest interchanging the priority of neighboring projects. This could be especially critical around the project cutoff point. Because the projects competing around the cutoff point are typically quite close in benefit /cost scores there are usually no serious consequences resulting from “errors.” This is, however, an excellent problem on which to use sensitivity analysis. It is also possible at this time for the council to summarize the “returns” from the projects to the organization. However, this should be done by category, not for each project individually since different projects are offering different packages of benefits that are not comparable. For example, R&D projects will not have the expected monetary return of derivative projects; yet it would be foolish to eliminate them simply because they do not measure up on this (irrelevant, for this category) criterion. Step 7: Select the Projects to be Funded and Held in Reserve The first task in this step is an important one: determining the mix of projects across the various categories (and aspects, if used) and time periods. Next, be sure to leave some percent (often 10 to 15 percent) of the organization’s resource capacity free for new opportunities, crises in existing projects, errors in estimates, and so on. Then allocate the categorized projects in rank order to the categories according to the mix desired. It is usually a good practice to include some speculative projects in each category to allow future options, knowledge improvement, additional experience in new areas, and such. Overall, the focus should be on committing to fewer projects but with sufficient funding to allow project completion. Document why late projects were delayed and why some, if any, were defunded. One special type of delayed project mentioned earlier is sometimes called an “out-plan” project (in contrast to the selected “in-plan” projects).32 Out-plan projects are those that appear promising but are awaiting further investigation before a final decision is made about their funding, which could occur in the next PPP cycle or sooner, if they warrant the use of some of the 10–15 percent funding holdout. The result of this step (and most of the project portfolio process) is illustrated in the Plan of Record shown in Exhibit 3.4. Here, the mix across
Slide 116: Project Selection EXHIBIT 3.4 Plans of Record Project Resources May R K M 500 800 300 1600 (1800) June July Aug Sept 93 Category Priority Derivative 50% of mix 1 2 3 Total Available External 20% of mix Oct ————— — ————— ——— ——— ——— 1 2 out-plan S V LT 500 150 650 (720) ————— ——— Total Available Strategic 30% of mix 1 2 0ut-plan A W SB 600 370 970 (1080) 3220 380 400 4000 ————— — —— —— Total Available Aggregate Total Unspent 10% reserve Total Available categories is listed, the priorities and resource needs of each project are given, the timing (schedule) of each project over the PPP cycle (6 months assumed here) is shown (to match resource availability), the out-plan projects, if any, are shown, and the total resource needs and availabilities are listed. Step 8: Implement the Process The first task in this final step is to make the results of the PPP widely known, including the documented reasons for project cancellations, deferrals, and nonselection as was mentioned earlier. Top management must now make their
Slide 117: 94 The Project Management Discipline commitment to this project portfolio process totally clear by supporting the process and the results. This may require a PPP champion near the top of the organization. As project proposers come to understand the workings and importance of the PPP, their proposals will more closely fit the profile of the kinds of projects the organization wishes to fund. As this happens, it is important to note that the council will have to concern itself with the reliability and accuracy of proposals competing for limited funds. Senior management must fully fund the selected projects. It is not appropriate for senior management to undermine PPP and the council as well as strategically important projects by playing a game of arbitrarily cutting X percent from project budgets. The council needs to be wary of interpersonal or interdepartmental competition entering the scene at this point also. In some organizations, individuals with their own particular agenda will ignore committees and processes (they may be heard to argue that committees never affect anything anyway) until implementation time rolls around, and then they attempt to exercise their political power to undermine the results of others’ long labors. If this does occur, it is indicative of serious organizational problems and the PPP process will fail until the problems are corrected. Of course, the process will need to be repeated on a regular basis. The council should determine how often this should be, and to some extent it depends on the speed of change in the industry the organization is in. For some industries, quarterly analysis may be best while in slow-moving industries, yearly may be fine. Finally, the process should be f lexible and improved continuously. Instinct may suggest ways that the process may be altered to better match the competitive environment, or to ref lect more closely the organization’s goals. The process should be changed when it is found appropriate to do so, including categories, criteria, steps, the order of tasks, and so on. SUMMARY This chapter initiated our discussion of the project management process by describing procedures for strategically evaluating and selecting projects. We first described the strategic objective of using projects to help achieve the organization’s goals and strategy, and a project portfolio process to help achieve this. We then outlined some criteria for project selection models and then discussed the general nature of these models. The chapter then described the types of models in use and their advantages and disadvantages. Considering the degree of uncertainty associated with many projects, a section was devoted to evaluating the impact of risk and uncertainty. Concluding the discussion, some general comments were made about data requirements and the use of these models. The final section discussed the documentation of the evaluation/selection process via project proposals.
Slide 118: Project Selection 95 The following specific points were made in this chapter: • The role of projects in achieving the organization’s goals and strategy is critical. • The eight-step project portfolio process is an effective way to select and manage projects that are tied to the organization’s goals. • Primary model selection criteria are realism, capability, f lexibility, ease of use, and cost. • Preparatory steps in using a model include: (1) identifying the firm’s objectives; (2) weighting them relative to each other; and (3) determining the probable impacts of the project on the firm’s competitive abilities. • Project selection models can generally be classified as either numeric or nonnumeric; numeric models are further subdivided into profitability and scoring categories. • Nonnumeric models include: (1) the sacred cow; (2) the operating necessity; (3) the competitive necessity; (4) comparative benefit; and (5) the product line extension. • Profitability models include standard forms such as: (1) payback period; (2) average rate of return; (3) discounted cash f low; (4) internal rate of return; and (5) profitability index. • Project management maturity measurement is a way of assessing an organization’s ability to conduct projects successfully. • Scoring models—the authors’ preference—include: (1) the unweighted 0–1 factor model; (2) the unweighted factor scoring model; (3) the weighted factor scoring model; and (4) the constrained weighted factor scoring model. • Special care should be taken with the data used in project selection models. Of concern are data taken from an accounting data base, how data are measured and conceived, and the effect of technological shock. NOTES 1. W. E. Souder, “Utility and Perceived Acceptability of R&D Project Selection Models.” Management Science (August 1973). 2. Booz, Allan, and Hamilton, Inc. Management of New Products (New York: Booz, Allen, and Hamilton, Inc., 1966). 3. K. Matzler and H. H. Hinterhuber, “How to make product development projects more successful by integrating Kano’s model of customer satisfaction into quality function deployment,” Technovation (January 1998). 4. J. Meredith, “The Implementation of Computer Based Systems,” Journal of Operations Management (October 1981).
Slide 119: 96 The Project Management Discipline 5. A. F. Helin and W. E. Souder, “Experimental Test of a Q-Sort Procedure for Prioritizing R&D Projects,” IEEE Transactions on Engineering Management (November 1974). 6. See note 4. 7. R. C. Moyer, J. R. McGuigan, and W. J. Kretlow, Contemporary Financial Management, 7th ed. (Cincinnati, OH: South-Western, 1998). 8. S. A. Ross, R. W. Westerfield, and B. D. Jordan, Fundamentals of Corporate Finance, 3rd ed. (Homewood, IL: Irwin, 1995). 9. G. Githens, “Financial Models, Right Questions, Good Decision,” PM Network (July 1998). 10. N. C. Dalkey, The Delphi Method: An Experimental Study of Group Opinion, RM-5888-PR (Santa Monica, CA: The RAND Corporation, June 1969). 11. R. Khorramshahgol, H. Azani, and Y. Gousty, “An Integrated Approach to Project Evaluation and Selection,” IEEE Transactions on Engineering Management (November 1988). 12. T. S. Saaty, Decision for Leaders: The Analytic Hierarchy Process (Pittsburgh: University of Pittsburgh, 1990). 13. E. Turban and J. R. Meredith, Fundamentals of Management Science, 6th ed. (Homewood, IL: Irwin, 1994). 14. T. Raz, “An Iterative Screening Methodology for Selecting Project Alternatives,” Project Management Journal (December 1997). 15. S. Pascale, J. W. Carland, and J. C. Carland, “A Comparative Analysis of Two Concept Evaluation Methods for New Product Development Projects,” Project Management Journal (December 1997). 16. M. J. Liberatore and G. J. Titus, “The Practice of Management Science in R&D Project Management,” Management Science (August 1983). 17. R. Hayes, and W. J. Abernathy, “Managing Our Way to Economic Decline,” Harvard Business Review (July/August 1980). 18. See note 16, p. 969. 19. R. H. Irving and D. W. Conrath, “The Social Context of Multiperson, Multiattribute Decision-Making,” IEEE Transactions on Systems, Man, and Cybernetics (May/June 1988). 20. B. Baker and R. Menon, “Politics and Project Performance: The Fourth Dimension of Project Management,” PM Network (November 1995). 21. See note 12. 22. G. P. Huber, “The Nature of Organizational Decision Making and the Design of Decision Support Systems,” MIS Quarterly (June 1981). 23. J. P. van Gigch, Applied General Systems Theory, 2nd ed. (New York: Harper & Row, 1978). 24. See note 10. 25. A. Longman, D. Sandahl, and W. Speir, “Preventing Project Proliferation,” PM Network (July 1999). 26. R. L. Englund and R. J. Graham, “From Experience: Linking Projects to Strategy,” Journal of Product Innovation Management, Vol. 16, No. 1 (1999).
Slide 120: Project Selection 97 27. S. C. Wheelwright and K. B. Clark, “Creating Project Plans to Focus Product Development,” Harvard Business Review (March/April 1992). 28. See note 10. 29. See note 12. 30. J. D. Frame, The New Project Management: Tools for an Age of Rapid Change, Corporate Reengineering, and Other Business Realities (San Francisco: Jossey-Bass, 1997). 31. See note 14. 32. See note 26.
Slide 121: 4 BUILDING THE ACTION PLAN: SCHEDULING, ESTIMATING, AND RESOURCE ALLOCATION* Eric Verzuh One of the marvels of a Broadway musical performance is the exuberant fullcast dance number. These action-packed scenes thrill us with precise choreography and the beauty and excitement of a full chorus. On stage, it often appears that the whole song and dance was just a spur-of-the-moment sing-along, and that’s just what the producer would have us believe. The reality is hours and hours of practice to perfect the number. But what perfection! When the stage comes alive with song and dance, the exhilaration sweeps us to our feet in a cheering ovation! The precision of the Broadway cast sets a standard few project teams will ever reach. Why? Because the cast practices day after day to get that dance number right. Once the show premiers, the cast performs that same finale night after night. In the language of management, the show is an operation, better compared to a production team than a project team. A project is a temporary endeavor that produces a unique product. The project team rarely gets a chance to practice, and it gets only one performance, so it had better be right the first time. Yet, many teams do get it right, and they too are a wonder to behold. The Broadway musical has a choreographer to carefully script and rehearse the dancers. Project managers rely on detailed action plans to choreograph the team. These plans form the basis for estimating, coordination, status * Significant portions of this chapter were derived from Eric Verzuh, The Fast Forward MBA in Project Management, (New York: Wiley, 1999). 98
Slide 122: Building the Action Plan 99 reporting, communication, scope management, and many other project management functions. This chapter presents the classic project planning techniques that project managers, customers, and management use to provide a detailed plan of action. Together, these techniques answer a range of questions that enable the team to perform in choreographed harmony. The questions include: • • • • • • • What work, exactly, is entailed in completing the project? What skills are required for this work? Who, specifically, performs each task? How many days and how much effort and expense will each task require? How many days and how much effort and expense for the project? Should the tasks be performed in a specific sequence? How large is the project team? The answers to these questions can be found in network diagrams, Gantt charts, resource spreadsheets, and the work breakdown structure. All of these techniques have been used for decades. Together, they describe the schedule and cost of the project in precise detail. DETAILED PLANS PROVIDE AN EXECUTIVE ADVANTAGE How do executives of project-driven organizations participate in and benefit from detailed planning actions? The answers lie in the challenges of the projectdriven organization. Establishing a Standard for Project Information Our ability to interpret data is heavily inf luenced by our experience with the data. Travelers often encounter this phenomenon as they move from country to country. Prices become meaningless when quoted in a new currency. Is a hotel room for 20,000 lira in Rome within the $75/day budget you set? How about the room in Liverpool for £75? The traveler must translate these prices into a common currency to make decisions. Because projects are unique, executives are often faced with this same problem. Individual project managers invent their own methods for communicating the plan or progress reports, causing confusion for management, who must translate the inconsistent data into meaningful information. As with travelers, executives need a standard currency, one that has the same meaning on every project. The planning techniques described in this chapter serve that purpose. The planning techniques we explore have been in use for decades and are recognized around the world. Consistent rules and guidelines exist for their use, and they work the same on every kind of project, large or small, in
Slide 123: 100 The Project Management Discipline any industry. Because of their consistency, they lead to transparency, a term used in finance and accounting to describe the importance of using standard accounting techniques that enable investors and loan officers to interpret the financial reports of every firm. The framework established by these techniques provides several specific benefits: • Project estimates are created with a logical, repeatable process, which makes analyzing and validating an estimate easier. It also makes it possible to compare an estimate for a project to the actual cost and schedule results to understand why estimates are right or wrong. • Project managers in the firm share a common language. The project-driven organization often finds relationships among its many projects. A common language is essential to understand schedule and resource interdependencies among these projects. • These universally accepted techniques have been automated in readily available project management software tools. Because the software tools are based on these techniques, the tool reinforces correct use of each technique and, at the same time, makes it easier to apply the techniques. • Vendors and subcontractors can be expected to adhere to these practices, which adds control during every phase, from the initial bid through project control and close-out. Future Accounting Managers rely on accounting information to understand the health of the organization. Routine reports on sales, expenses, orders, inventory levels, and financial data provide the facts required for both tactical and strategic decisions. That information is good to a certain extent, but it is all about the past. Nothing we do will change the profit and loss statements of the previous year. Wouldn’t you like to have the same information about the future? For projectdriven firms, detailed planning techniques provide at least part of the picture. These techniques are a framework for forecasting the costs of a project, the resources required, and the schedule for accomplishing the work. It is true that these forecasts are seldom precise—but they are valuable. Just as accounting reports provide the facts and data necessary for business decisions, the detailed cost and schedule plan provides a basis for rational decision making. The importance of making project decisions based on facts and data should not be underestimated. The detailed action plan is the math that illustrates the cost-schedule-quality equilibrium of the project. Managers and executives in project-driven organizations who understand these mechanics will have more realistic expectations for their projects. They are able to do the math to calculate how many people, hours, and months it requires to meet the product specifications. They can speak the language of the estimators, project manager, and project team. If disagreements arise over cost or schedule estimates,
Slide 124: Building the Action Plan 101 all parties have a common framework for analyzing the project. That becomes a motivator for the project team because it perceives management to be honestly and rationally engaged in supporting the project. Finally, the detailed plan is a meaningful framework for investigating project performance, the basis for measuring progress during every step of the project. Steering the Enterprise Executive management’s job is to marshal the resources of the firm to set and meet organizational goals. The mechanics of bottom-up planning enable management to see how the resources of the organization are being applied to the strategic goals of the firm in two ways: 1. Each goal is associated with one or more projects, so individual project progress becomes an indication of progress against strategic goals. 2. Planning methods that show resource requirements (people, money, equipment) for individual projects form a framework for forecasting the resource demands for the enterprise. Exhibit 4.1 illustrates how this information is assembled. Strategic goals are broken into projects. Each project forecasts the resources it will require. Resource forecasts from individual projects are combined to estimate resource needs for the enterprise. This information enables the all-important capability of prioritizing projects. Without this information, it is very common for firms to pursue more projects than they have the resources to complete. When that happens, they find that rather than finishing 6 of 10 projects, they complete 60 percent of all 10 projects—and get 100 percent completion on none of them. Chapter 12 provides a more comprehensive description of the processes, organizational structure, and technology required to achieve an enterprise view of all projects. This chapter describes the techniques that provide the foundation of the capability. The Six Steps of Detailed Planning Assembling the who, what, and when of a project can be a daunting task. Even small projects can have an overwhelming amount of detail. Fortunately, project planning techniques have evolved to provide a systematic approach for breaking the project down and assembling the details in an organized, informative format. The planning model in Exhibit 4.2 illustrates a systematic method to create an action plan. This chapter explores each step in detail. First, however, we summarize the steps: • Use the output of project definition. Planning isn’t the first step in initiating a project. Before detailed planning, the project manager created a statement of work that lists the purpose, scope, and deliverables of the
Slide 125: EXHIBIT 4.1 Detailed project plans form the basis of enterprise personnel requirements 102 PROJECT X PROJECT C PROJECT B PROJECT A PERSONNEL REQUIREMENTS J F M A M J J A 2 3 2 .5 0 2 2 .5 0 1 1 .5 0 1 1 .5 0 0 0 0 2 3 2 .5 2 3 2 .5 2 3 2 .5 N 2 3 2 .5 O 3 3 1 .5 S 3 2 1 .5 Scientist Engineer Technical Writer Project Manager 3 2 1 .5 D Mission Vision Mission and vision translate into defined goals Goal 1 Goal 2 Goal 3 Project A Project B Goals are broken into projects. Projects are broken down into individual tasks for estimating labor and skill requirements PERSONNEL REQUIREMENTS ENTERPRISE PERSONNEL REQUIREMENTS Scientist Engineer Technical Writer Project Manager QA Analyst • • • PRIORITIZED GOALS PERSONNEL AVAILABLE • Schedule projects • Match people to projects • Delay projects • Acquire temporary personnel for projects J 57 71 33 6 12 F 28 77 28 7 18 M 34 82 40 10 11 A 48 63 42 7 23 M 21 57 35 6 27 J 30 50 30 5 20 J 28 42 25 8 15 A 36 38 22 8 13 S 50 48 31 7 9 O 57 58 20 6 18 N 61 50 32 7 22 D 50 65 33 8 17 • Attainable Goals • Realistic Schedules • Optimized Personnel
Slide 126: Building the Action Plan EXHIBIT 4.2 Detailed planning model From project definition 103 Project rules Planning Scope and deliverables Preplanning Risk management • Development approach • Risk management tasks Step 1 Develop a work breakdown structure All project tasks Step 2 Sequence the tasks Network diagram Step 3 Estimate the work packages Duration estimates Step 4 Calculate an initial schedule Equipment requirements and labor and skill estimates Nonlabor costs Critical path, float, milestones Resource constraints Step 5 Assign and level resources • Realistic schedule • Resource forecast Step 6 Develop budget Materials cost from product specifications Project Plan • All project tasks • Schedule • Responsibilities • Budget • Resource forecast
Slide 127: 104 The Project Management Discipline project and defines the overall responsibilities of the project team. Use this document as the launching point for detailed planning. Develop a risk management strategy. Risk management can be viewed as preplanning because risk strategies become specific tasks during the project. (See Chapter 6, “Project Risk Management,” for more on the relationship of risk and detailed planning.) Build a work breakdown structure (WBS) (step one). The team identifies all the tasks required to build the specified deliverables. The scope statement and project purpose help to define the boundaries of the project. Identify task relationships (step two). The detailed tasks, known as work packages, are placed in the proper sequence. Estimate work packages (step three). Each of these detailed tasks is assigned an estimate for the amount of labor and equipment needed and for the duration of the task. Calculate initial schedule (step four). After estimating the duration of each work package and figuring in the sequence of tasks, the team calculates the total duration of the project. (This initial schedule, while useful for planning, will probably need to be revised further down the line.) Assign and level resources (step five). The team adjusts the schedule to account for resource constraints. Tasks are rescheduled to optimize the use of people and equipment used on the project. Develop the budget (step six). Combine the costs associated with materials, labor, equipment, and external services to create a detailed cost estimate and cash f low projection. • • • • • • • These steps generate all the information required to understand how a project will be executed. The steps are systematic, but they don’t necessarily come up with the “right answer.” It may take several iterations of these steps to find this answer, which is the optimal balance between cost, schedule, and quality. PLANNING WITH PROJECT MANAGEMENT SOFTWAR E Detailed planning techniques have become synonymous with project management because many professionals first encountered these techniques when using project management software. Although great differences exist among the features and functionality of all these products, with few exceptions, they are all based on the simple six-step planning model in Exhibit 4.2. Therefore, it is always easier to use the software after you understand the six-step model. However, it must be acknowledged that using the software makes it much easier to create detailed plans. Many of the figures in this chapter were created using simple, affordable, desktop project management software. Just remember, computers manage data—you manage the project.
Slide 128: Building the Action Plan 105 PLANNING STEP ONE: WOR K BR EAKDOWN STRUCTUR E If you take a car trip to a town less than 100 miles away, it may not take much planning. Just hop in the car, check the gas gauge, and go. But if you were going to drive from the Florida Keys to Anchorage, Alaska, you would probably spend some time looking at maps and researching your route. Somehow, you would break the big trip down into pieces. Maybe you would do this with geographic borders, such as states. Or you could plan it by how far you might go each day. Whatever approach you use, the only way to accurately plan a trip of this size is to break it down. The same is true for projects. You may understand a project well enough to balance its cost-schedule-quality equilibrium, but you also need to be able to break it down—to understand the whole project by understanding its parts. The work breakdown structure (WBS) is the tool for breaking down a project into its component parts. It is the foundation of project planning and one of the most important techniques used in project management. If done well, it can become the secret to successful project management. Def ining the Work Breakdown Structure The WBS identifies all the tasks in a project. In fact, a WBS is sometimes referred to simply as a task list. It turns one large, unique, perhaps mystifying, piece of work—the project—into many small manageable tasks. The WBS uses outputs from project definition and risk management and identifies the tasks that are the foundation for all subsequent planning (see Exhibit 4.2). Work breakdown structures can be set up in either graphic or outline form (see Exhibits 4.3 and 4.4). Either way, they list the various tasks involved. For example, designing and putting in a new lawn with a sprinkler system, surrounded by a new fence, involves a number of different tasks. The graphic WBS paints a picture that makes it easy to understand all the parts of a project, but the outlined WBS is more practical because you can list hundreds of tasks on it—far more than can be listed using the graphic approach. The WBS clarifies and provides necessary details for a number of project management activities. Building a WBS helps to: • Provide a detailed illustration of project scope. Though the statement of work defines scope at the conceptual level, a comprehensive look at a project’s scope can be accomplished only with a WBS. • Monitor progress. The tasks on the WBS become the basis for monitoring progress because each is a measurable unit of work. • Create accurate cost and schedule estimates. The WBS provides a detailed structure to estimate and capture costs for equipment, labor, and materials on each task.
Slide 129: 106 Landscape project 1.0 Design home landscape 2.0 Put in lawn 3.0 Build fence 2.2 Install sprinkler system 2.3 Plant grass 2.4 Plant shrubs 3.1 Acquire fence material 3.2 Construct fence 2.2.4 Cover sprinkler system 2.3.1 Remove debris 2.3.2 Prepare soil 2.3.3 Plant lawn seed 3.2.1 Mark fence line and posts 3.2.2 Install posts 3.2.3 Install fencing and gates 3.2.4 Paint/stain fence EXHIBIT 4.3 Work breakdown structure in chart form 2.1 Acquire lawn material 2.2.1 Identify sprinkler locations 2.2.2 Dig trenches 2.2.3 Install pipe and hardware
Slide 130: Building the Action Plan EXHIBIT 4.4 Work breakdown structure in outline form 107 Home landscape project 1.0 Design home landscape 2.0 Put in lawn 2.1 Acquire lawn material 2.2 Install sprinkler system 2.2.1 Identify sprinkler locations 2.2.2 Dig trenches 2.2.3 Install pipe and hardware 2.2.4 Cover sprinkler system 2.3 Plant grass 2.3.1 Remove debris 2.3.2 Prepare soil (fertilize, rake) 2.3.3 Plant lawn seed 2.4 Plant shrubs 3.0 Build fence 3.1 Acquire fence material 3.2 Construct the fence 3.2.1 Mark fence line and posts 3.2.2 Install posts 3.2.3 Install fencing and gates 3.2.4 Paint/stain fence Work packages Summary tasks • Build project teams. Every team member wants clear work assignments and a sense of how his or her work fits into the overall effort. A good WBS does both. You can also increase the team’s commitment to the plan by having the team participate in building the WBS. Understanding the WBS The WBS breaks all the work in the project into separate tasks (tasks may also be referred to as activities). There are two kinds of tasks on a WBS: summary tasks and work packages. “Install the sprinkler system” for a lawn is a summary task, because it includes several subordinate tasks. Installing a sprinkler system might include several of these distinct, subordinate tasks, such as digging trenches or installing pipes. Each of these separate tasks is called a work package. By performing all these simple work packages, you accomplish a summary task (see Exhibit 4.4). Note that a summary task is not actually executed; it is, rather, a summarization of the subordinate work packages. The work packages are the ones that are actually executed. Understanding the relationship between summary tasks and work packages is fundamental to building a good WBS. Organizing the WBS for Better Communication The WBS is the basis for communication during the project. The team, including vendors and subcontractors, refers to it at a detailed level to coordinate
Slide 131: 108 The Project Management Discipline daily activities. Customers and management watch progress against the summary tasks and, if they need more detailed status, can drill down to look at work package problems and progress. To fully take advantage of this communication tool, we must design the WBS with our audience in mind. After all the work packages are identified, it is possible to rearrange them in different ways. For example, it can be useful to place work packages under different summary task headings; in this case, the overall project remains the same even though the work packages are grouped differently. Exhibit 4.5 demonstrates how it is possible to have two different breakdowns of the same project tasks. The same work packages are reorganized under different summary tasks. Different ways of organizing work packages may emphasize different aspects of a project. For example, one grouping of work packages might highlight the various components of a new product, while another arrangement might emphasize the major phases of the product’s release. This kind of difference is illustrated in Exhibit 4.5, where the WBS on the top provides high-level visibility on the widget’s two main components. By contrast, the WBS on the bottom provides high-level visibility on the major phases of the new release. Both may be useful when communicating with the various groups involved in the project, because the focus of each arrangement may speak to the concerns of individual stakeholders. When organizing the WBS, remember that the sole purpose of summary tasks on the WBS is for communication, or visibility. (Recall that summary tasks are not actually executed; they are just a summarization of work packages.) Therefore, every summary task should be meaningful to some stakeholder (including the project manager). If there are summary tasks that have no audience, erase them. As long as the work packages remain, the scope of the project is the same. Even though each project is different, there are often enough similarities among projects that certain standard work breakdown structures have been placed on file. Project-driven firms create WBS templates as one of the first steps when implementing project management standards. There is enormous value in having these standard templates: • Similar projects have a common starting point when the project team begins to plan. • The template is improved over time, capturing the experience of multiple projects and ensuring key tasks are not forgotten. • Using templates results in every project’s having the same tier one summary tasks, which makes it easier for managers and customers to understand the plans and reports of all projects. • Consistent task breakdowns lead to consistency in estimating, and the actual performance data for each project becomes more useful as a basis for estimating.
Slide 132: Building the Action Plan EXHIBIT 4.5 There is more than one way to organize tasks on a project 109 Widget Release 4.0 Project 1.0 Develop Component M1B 1.1 Define M1B product requirements 1.2 Design M1B 1.3 Build M1B 1.3.1 Upgrade M1B core modules 1.3.2 Build new M1B modules 1.4 Test and certify M1B 2.0 Develop Component R45 2.1 Define R45 product requirements 2.2 Design R45 2.3 Build R45 2.4 Test and certify R45 3.0 Integrate and test Release 4.0 Emphasize visibility of the two main components. Widget Release 4.0 Project 1.0 Define Release 4.0 requirements 1.1 Define M1B product requirements 1.2 Define R45 product requirements 2.0 Design Release 4.0 2.1 Design M1B 2.2 Design R45 3.0 Build Release 4.0 3.1 Upgrade core modules 3.1.1 Upgrade M1B core modules 3.1.2 Upgrade R45 core modules 3.2 Build new modules 3.2.1 Build new M1B core modules 3.2.2 Build new R45 modules 3.3 Test components 3.3.1 Test and certify M1B 3.3.2 Test and certify R45 4.0 Integrate and test Release 4.0 Emphasize visibility on the major phases of the new release. Work Package Size The most common problem with projects that are dramatically over schedule is that work packages are so large that they can spin out of control. If a task is estimated to be eight months long and 3,800 labor hours (that is, three people working full-time on the task), it’s not a task, it’s a subproject! This is the kind of task that is right on schedule for seven months, suddenly hits rough going in
Slide 133: 110 The Project Management Discipline the eighth month, and ends up taking 12. The size of this task has made it unmanageable. If the entire project were to be planned in the same manner, the trouble would be multiplied many times over. To ensure that the work packages are the correct size, follow these common rules of thumb: • The 8/80 rule: No task should be smaller than 8 labor hours or larger than 80. This translates into keeping your work packages between 1 and 10 days long. (This is a guideline and not an ironclad law.) • The reporting period rule: No task should be longer than the distance between two status points. In other words, if you hold weekly status meetings, no task should be longer than one week. This rule is especially useful when it is time to report schedule status because you will no longer have to hear about task statuses that are 25 percent, 40 percent, or 68 percent complete. If you have followed a weekly reporting rule, tasks are reported as either complete (100 percent), started (50 percent), or not started (0 percent). No task should be at 50 percent for two status meetings in a row. • The “if it’s useful” rule: As you consider whether to break tasks down further, remember that there are three reasons to do so: 1. The task is easier to estimate. Smaller tasks tend to have less uncertainty, leading to more accurate estimates. 2. The task is easier to assign. Large tasks assigned to many people lose accountability. Breaking down the task can help to clarify who is responsible. Another potential benefit is that having smaller tasks assigned to fewer people can give you greater f lexibility in scheduling the task and the resource. 3. The task is easier to track. The same logic applies as in the reporting period rule. Because smaller tasks create more tangible status points, you will have more accurate progress reports. If breaking down a task in a certain way is not useful—that is, if it does not make it easier to estimate, assign, or track—don’t break it down. When Very Small Tasks Make Sense Is it possible that tasks broken down into one-hour increments would be useful? Talk about micromanagement! While projects spanning months probably would not benefit from such small tasks, it is common to plan to this level for complex projects of short duration. Preventive maintenance for manufacturing plants can require the entire operation to be shut down for a day or a week. To minimize the time the plant is down, these projects are often planned out in hourly increments, which allow close coordination among many people and quick identification of any behind-schedule work that could delay reopening the plant.
Slide 134: Building the Action Plan 111 While many managers might balk at having to reduce a large project into relatively small increments, the results can be rewarding. Consider these examples: • An upgrade to a municipal wastewater treatment plant had a project budget of over $500 million. In spite of the size of this project, contractors were required to plan and report work packages in units of no more than two weeks or $50,000. By requiring this detailed level of information, the municipal government’s project office could identify any problems within a matter of weeks—no small feat for a project of this size. The project finished on time, under budget. • In an article in Sloan Management Review on Microsoft, Michael Cusumano observed, “Managers generally allow team members to set their own schedules but only after the developers have analyzed tasks in detail (e.g., half-day to three-day chunks) and have agreed to commit personally to the schedules.” Yet, in a company the size of Microsoft, hundreds of people may be required to develop a new product. While working with these small increments produces an enormous amount of detail, it dramatically increases the accuracy of estimating and tracking a project.1 Put Project Management into the WBS You can benefit by putting project management activities into the WBS. List them under a summary task called “project management” (as shown in Exhibit 4.6). Though some of the tasks are finite, such as hiring a subcontractor, the EXHIBIT 4.6 Project management on the WBS Project Develop product A Develop product B Project management Select subcontractors Manage the project
Slide 135: 112 The Project Management Discipline majority consists of everyday work, such as communication and problem resolution. These everyday duties may be grouped under a heading called “Managing the project.” Now you have a place to assign all the time spent on project management duties. A project can best be understood by a thorough understanding of its parts. The WBS breaks the project down into many small, manageable tasks. An accurate, descriptive WBS becomes the basis for all project communication, providing a day-to-day view of the project at the work package level and a meaningful overview of the project for executives and customers. It is the detailed description of project scope, the framework for reporting progress, and the first step of building the action plan. With this foundation in place, we move on to the next step of planning: understanding the correct sequence of the work packages. PLANNING STEP TWO: IDENTIFY TASK R ELATIONSHIPS The sequence in which detailed tasks—work packages—are performed is determined by the relationship between the tasks. To illustrate this point, consider the following five tasks from the landscaping project described earlier. These tasks constitute a subset of that project: 1. 2. 3. 4. 5. Acquire lawn materials. Remove debris. Prepare soil. Plant lawn seeds. Plant shrubs. As the homeowner and the teenage children who will be working on this project contemplate these tasks, the question arises: What is the proper sequence? Any time a series of tasks is performed, there are sequence constraints; that is, certain tasks must be performed before others. Sequence constraints are governed by the relationships of different tasks. For instance, the rocks, weeds, and other debris must be removed before the lawn seed can be planted. Performing these tasks in the reverse order does not make sense because the seed would be lost when the weeds were removed. Exhibit 4.7 shows both a predecessor table and a network diagram, two different ways of recording sequence constraints. A predecessor table is a common way to display task relationships (in fact, this is exactly the way most project management software records the relationships). Notice that tasks 1 and 2 have no predecessors. Either one can be done first, or, if there are enough people, they could be done at the same time. Tasks that can be performed at the same time are known as concurrent tasks.
Slide 136: Building the Action Plan EXHIBIT 4.7 Network diagram developed from a predecessor table 113 Predecessor Table Task 1 2 3 4 5 Acquire lawn materials Remove debris Prepare soil Plant lawn seeds Plant shrubs Predecessor Resources Homeowner Teen and youth groups Teens Teens Teens 1, 2 3 2 Correct 1 Start 2 3 4 Finish 5 • Network diagram with milestones at the start and finish. • This network has two concurrent paths. Incorrect 1 Start 2 3 4 5 Finish • The most common network diagram mistake is removing all concurrent tasks for the same resource. • Resource constraints may prevent tasks 4 and 5 from being performed at the same time, but that shouldn’t change the network. The network only represents task sequence constraints. There are just two basic rules when graphing task relationships with a network diagram: 1. Define task relationships only between work packages. Even though a project might have hundreds of work packages and several levels of summary tasks, keep the sequence constraints at the work package level. Summary tasks, remember, are simply groups of work packages, so it would not make sense to put a task relationship between a summary task and its work package. (The only exception to this rule occurs, occasionally, on very large projects, where networks can be created to illustrate project relationships at the summary level.) 2. Task relationships should ref lect only sequence constraints between work packages, not resource constraints. Changing a network diagram because
Slide 137: 114 The Project Management Discipline of resource constraints is the most common error in building network diagrams. The fact that there are not enough people or other resources to work on multiple tasks at the same time is irrelevant here. Regardless of resources, the tasks still have to be performed in the same order. (Exhibit 4.7 demonstrates the mistake of rearranging the network because the same resource—in this case, the teenagers—are working on tasks 4 and 5.) Milestones Are Usef ul Markers In setting up the sequence of events, many project managers find it useful to mark significant events in the life of a project. These markers—called milestones—are often used in work breakdown structures and network diagrams (see Exhibit 4.8). Milestones have zero duration; therefore, adding them to a project does not affect the schedule at all. There are three great reasons to use milestones: 1. Project start and finish milestones are useful anchors for the network. The milestones don’t change anything on the project, but many people find it easier to read. 2. Milestones can be used to mark input from one party to another. Many projects are dependent on inputs from certain external sources (they have external dependencies). For example, a government agency might release an environmental impact report for an electric utility on a certain date. A project in that electric utility can use that release date as a milestone. Exhibit 4.8 shows a milestone representing an external dependency. EXHIBIT 4.8 Milestones can show external dependencies July 14 Federal agency releases report 4.1 Compare study data to federal report 3.11 Complete salmon data collection • During an envirormental impact study, the project uses data from a federal agency. • Task 4.1 will not be able to start until at least July 14, the day the federal report is released.
Slide 138: Building the Action Plan 115 3. A milestone can represent significant events that are not already represented by a work package or summary task. For example, if a firm receives progress payments based on work accomplished, these payment points could be shown with milestones. Milestones are useful to show major progress points, but the real progress indicators remain the detailed work packages. Every work package has specific completion criteria and a tangible result—which is the ultimate progress indicator. Finish-to-Start Relationships The finish-to-start relationship states that one task must be completed before its successor task can begin. The network diagrams in this chapter all follow this simple assumption because it is the most common, but there are other types of relationships. Tasks with start-to-start (SS) relationships allow the successor task to begin when the predecessor begins. Finish-to-finish (FF) tasks can start independently of each other, but the successor cannot finish until the predecessor finishes. Exhibit 4.9 shows the value of using these other types of task relationships. PLANNING STEP THR EE: ESTIMATE WOR K PACKAGES To determine the cost and duration of an entire project, it is necessary to build a cost and schedule estimate for each work package; this is called bottom-up estimating. A lot of information is generated in the estimating process, so it is critical to record it in a systematic manner. (Exhibit 4.10 shows the work package estimates for the home landscape project.) The schedule estimate for a task measures the time from initiation to completion. This estimate is usually referred to as duration of a task. When building a schedule estimate, it is important to include all the time the task will span. For instance, it may take only 1 day to order materials, but if it takes 10 days for delivery, the total duration of the task is 11 days. Similarly, while a certain decision might take only two hours to make, it might be more realistic to estimate duration at five days if the decision maker is likely to be busy at that time. Cost estimates come from four sources: 1. Labor estimates: These projects how much human effort will be put into a task. If three people work eight hours a day for three days, the total labor estimate is 72 hours. On small work packages, labor is estimated in hours. (At the project level, labor can be such a large item that it is sometimes expressed in years.) In addition to recording the labor estimate, you
Slide 139: 116 The Project Management Discipline EXHIBIT 4.9 Task relationships Finish-to-start The most common task relationships on the network are finish-to-start. The first task must finish before the next one can start. M T W T F M T W T F A B Task A must finish before Task B can start. Start-to-start The successor task can start as soon as the predecessor task starts. The example shows a painting company, painting all the rooms on one floor of an office building. After the first room is prepared, both the prep crew and the paint crew can be working at the same time. Overlapping the tasks reduces the total duration of the project. M Prep A Paint B Task A must start before Task B can start. Finish-to-finish The successor task can finish only when the predecessor task is finished. The example shows the last two tasks of a design phase. Planning for the construction phase can begin before the final design approval, but it cannot finish until design is complete. M T W T F M T W T F T W T F M T W T F Design approval A Planning for the next phase B Task A must finish before Task B can finish.
Slide 140: Building the Action Plan EXHIBIT 4.10 ID 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 117 Home landscape project work package estimates Task Name Duration (Days) 5 2 1 2 3 1 4 4 1 6 2 1 5 6 3 Labor Hours 80 64 Fixed Fixed Fixed Fixed fee, 8 fee fee fee Resource Names Homeowner [0.5], teens [1.5]* Homeowner, teens [3] Contractor, homeowner Contractor Contractor Contractor Teens Teens Teens Teens [3], youth group [5] [3], rototiller [2] [2] Design home landscape Put in lawn Acquire lawn materials Install sprinkler system Identify sprinkler locations Dig trenches Install pipe and hardware Cover sprinkler system Plant grass Remove debris Prepare soil Plant lawn seed Plant shrubs Build fence Acquire fence material Install fence Mark fence line Install posts Install fencing and gates Paint /stain fence and gates 256 128 16 96 16 32 80 144 72 Homeowner Homeowner, teens [3] Teens [2] Teens [3] Teens [3] * On task 1, both the homeowner and teens are working 4 hours per day. need to record the skill requirement. For example, a task might specifically require an electrician eight hours a day for three days. If more than one skill type is required, list them all. 2. Equipment estimates: Equipment requirements need to be identified at the work package level. These estimates then become the basis for estimating the total equipment cost for the project. Equipment, in this case, includes the tools necessary to perform the task, from cranes to specialized software. (Don’t bother to list common tools such as word processors, copy machines, or hammers.) Like labor, equipment use should be estimated in hours. 3. Materials estimates: Materials for the project can be a major source of project cost—or virtually nonexistent. While a construction project may have a significant portion of its total cost represented by raw materials, a project to institute new hiring guidelines will have no raw materials. Software development projects have no raw materials, but an information system project to install commercial off-the-shelf (COTS) software has to include the cost of the software. Even though materials costs can be a major portion of the project’s cost, total materials cost should be estimated from the product specifications—not estimated bottom-up using the WBS. (See Planning Step Six later in this chapter.) Including
Slide 141: 118 The Project Management Discipline materials in the work package estimate helps to identify exactly when each of the materials will be needed; these schedule requirements, in turn, determine order and delivery dates. 4. Fixed-price bids: Fixed-estimate costs can replace the three previous cost sources. For example, a vendor or subcontractor might make a fixed-price bid that includes labor, equipment, and materials. Fixed-price bids mean that the vendor takes responsibility for costs; should there be overruns, the cost to the project will not change. (The landscape project in Exhibit 4.10 includes fixed-priced bids by the sprinkler contractor.) Is it necessary to concentrate on costs when trying to build a realistic schedule? It is, because each cost represents a resource constraint. Costs such as hiring subcontractors and purchasing materials constrain the schedule. Later on, the schedule will be adjusted to account for these resource constraints (this is the fifth step of planning); but before adjusting the schedule, we need to identify all the resource requirements, one work package at a time. PLANNING STEP FOUR: CALCULATE AN INITIAL SCHEDULE Calculating a schedule may be one of the most well known, but unappreciated, of all project management techniques. It can be particularly tedious and timeconsuming when done by hand for large projects. Yet, it is the key to establishing realistic schedules and meeting them. (The tedium involved is a compelling reason to use project management software.) As mentioned earlier, program evaluation and review technique (PERT) has become synonymous with calculating schedules and is based on network diagrams. PERT relies on the method for calculating schedules that is demonstrated here. The initial schedule is calculated by using the network diagram and the duration of each work package to determine the start and finish dates for each task and for the entire project. Exhibit 4.11 shows how the network and task duration can work together to produce an initial schedule. Schedule calculation provides a set of detailed schedule data for every work package, as shown in the following: Early start—The earliest date a task can begin, given the tasks preceding it. Early finish—The earliest date a task can finish, given the tasks preceding it. Late start—The latest date a task can begin without delaying the finish date of the project. Late finish—The latest date a task can finish without delaying the finish date of the project.
Slide 142: Building the Action Plan 119 Calculating the schedule to determine these four dates is a three-step process. Referring to Exhibit 4.11 helps clarify this process. Step One: Forward Pass The forward pass helps you determine the early start (ES) and early finish (EF) for each task. It is so named because it involves working through a network diagram from start to finish (the next step involves the reverse—a backward pass). In Exhibit 4.11, we follow a forward pass through the diagram, step by step. Exhibit 4.12 shows another way of displaying this information. It is called a time-scaled network because it uses a time scale across the top and each task is laid out across the calendar. Notice that all the early start dates are the same in Exhibits 4.11 and 4.12. Step Two: Backward Pass The backward pass determines the late start (LS) and late finish (LF) dates. All of us have made this calculation hundreds of times—whenever we set an alarm clock. The goal of the backward pass is literally to work backward from the project finish date to determine how late any task can begin or end. The late start and late finish are calculated in Exhibit 4.11. Step Three: Calculate Float Some tasks have f lexibility in when they can be performed in the schedule, and others have no f lexibility. The term for this schedule f lexibility is f loat. (Another common term is slack.) Float is calculated by subtracting early start from the late start. (How to calculate f loat is demonstrated graphically in Exhibits 4.11 and 4.13.) Critical Path When the initial schedule has been calculated, the project schedule begins to take shape. One of the key features of the initial schedule is the critical path. The term critical path is one of the most widely used—and most widely misunderstood—of all project management terms. However, the concept is simple: The critical path is defined as all of the tasks with zero or negative f loat. When outlined on a network diagram, the critical path is the longest path through the network. (The critical path is boldly outlined in Exhibits 4.11 and 4.13.) The tasks that have zero f loat must be completed at their early finish date or the project finish will be delayed. Making sure that all critical path tasks begin and end on time is the surest way of making the project end on time. That’s why you will hear a project manager motivating someone to complete a task by telling the person, “It’s on the critical path!”
Slide 143: 120 Legend Duration ES EF LS LF FL 9 7 Start 2 1 1 12 16 16 0 0 4 4 4 5 5 5 7 Finish ES = Early start EF = Early finish LS = Late start LF = Late finish FL = Float days 1 1 10 2 2 11 3 5 12 4 8 15 4 9 16 1 9 16 2 1 1 0 4 4 4 EXHIBIT 4.11 Calculating a schedule Task ID Milestone Task ID Duration Step one: Forward pass—Work forward from the start to calculate all early start and early finish dates. 1 2 3 4 5 2 days 4 days 4 days 1 day 12 days Forward pass steps: 1. The early start of task 2 is assumed to be the first day of the project. (Task 1 also has an ES of day 1.) 2. The early finish of task 2 is determined by counting forward the duration of the task. Since it is a four-day task that begins on day 1, the earliest it can finish is day 4. 3. The early start of task 5 is one day after task 2 finishes. That’s because the start of a task is assumed to be 8 A.M. and the finish is 5 P.M. If task 2 ends at 5 P.M. on day 4, task 5 can begin at 8 A.M. on day 5. 4. Again, determine the EF of 5 by counting forward the duration of the task. It begins on day 5 and is 12 days long; therefore, it will finish on day 16. Repeat these steps along each path of the network. Notice that task 3 has two predecessors. The predecessor that finishes latest will dictate the ES of 3. In this case, that is task 2.
Slide 144: Step two: Backward pass—Work backward from the finish to calculate all late start and late finish dates. Backward pass steps: 1. Set the project finish date. The project’s finish date can come from two places. It can be the EF of the last task on the project, or it can be an externally imposed finish date, such as April 15 for filing income tax. (An “externally imposed finish date” means that the finish date is set by someone outside the project team.) The project finish date becomes the late finish (LF) for the last task on the project, in this case, task 5. 2. Count backward the duration of the task to determine the late start (LS) for 5. The finish is day 16, so the LS is 5. That means if task 5 does not start by day 5, it will cause the project to miss the final completion deadline. 3. Work the network backward. Task 2 must be finished no later than 4 in order for task 5 to begin by day 5. 4. Repeat these steps along all paths of the network. When a task has multiple successors, its late finish must be early enough for all the successors to meet their late start time. Task 2 has multiple successor tasks. It must be finished no later than day 4 to allow task 5 to begin on time. Step three: Calculate float and identify the critical path. Calculating float: Looking at the set of schedule dates for each work package, (in this Exhibit and Exhibit 4.12), it is obvious that some have the same early start and late start. Practically speaking, that means those tasks have no schedule flexibility. Float is calculated by subtracting ES from LS. Float is really the measure of schedule flexibility for a task. Notice how tasks 3 and 4 in this Exhibit have 7 days of float. These tasks have a lot of flexibility as to when they will actually be performed—task 3 can start as early as day 5 or as late as day 12. 121
Slide 145: 122 The Project Management Discipline EXHIBIT 4.12 Time-scaled network. This contains the same network information as Exhibit 4.11, but the format is dif ferent. Work days 1 2 3 4 5 6 7 Acquire lawn materials Prepare soil 1 Start Remove debris 2 Plant shrubs 5 3 8 9 10 Plant grass 4 Finish 11 12 13 14 15 16 Because it is the longest path through the network (the longest path means the longest duration, not necessarily the most tasks), the critical path is one measure of schedule viability. This is because it demonstrates the minimum time the project will take. Sometimes it takes a network diagram with the critical path outlined to show stakeholders that their optimistic schedule estimate is unrealistic. Shop Early and Avoid Negative Float Not every project has a critical path. If a project has an externally imposed finish date that allows more than enough time to complete the project, all tasks will have f loat. A simple example is Christmas shopping. December 25 is the externally imposed finish date. Early in the year, when there are 200 shopping days until Christmas, nobody is stressed because there is still plenty of f loat. Like Christmas shopping, most projects with no critical path are put off until all the f loat is used up. When all the f loat has been used up, a new term emerges to describe the situation: negative f loat. Negative f loat results when externally imposed finish dates are impossible to meet (such as 10 presents to buy at 6 P.M. on December 24). Exhibit 4.14, for example, shows a network diagram with a critical path that is longer than the allotted schedule. When there is negative f loat, it means that adjustments will have to be made to bring the schedule in line with the critical path. This is the kind of information you need when you renegotiate the cost-schedule-quality equilibrium. Gantt Charts and Time-Scaled Networks A picture is worth a thousand words. The network diagram is essential in calculating the schedule, but it can be terribly difficult to decipher on a large project. Thankfully, there are two very good alternatives, which display both the schedule information and the task relationships.
Slide 146: EXHIBIT 4.13 Home landscape project network with initial schedule data Legend 13 6 16 10 10 1 7 6 3 6 9 3 5 6 14 8 17 6 7 1 6 7 1 0 18 8 8 5 12 12 15 6 6 0 2 7 7 3 3 1 6 14 6 12 15 7 14 17 2 13 16 3 16 19 8 17 20 3 1 17 20 12 18 21 3 1 18 21 3 2 7 10 11 8 11 4 11 14 4 4 10 Task ID Duration Early Early finish start Late Late finish start Float 6 11 21 Start 1 1 1 0 5 5 5 Finish Critical path is bold 19 13 13 0 6 18 18 20 19 19 0 3 21 21 123
Slide 147: 124 1 1 9 8 Start 2 1 –6 12 16 10 –6 –6 –6 4 4 –3 5 5 –2 6 17 11 5 21 15 6 6 Finish 2 2 10 3 5 11 4 9 15 1 9 15 4 8 14 Imposed completion date is day 15. ES = Early start EF = Early finish LS = Late start LF = Late finish FL = Float days Calculate late start dates backward from the deadline. EXHIBIT 4.14 Negative f loat. When imposed deadlines result in negative f loat, that is a warning the project is out of equilibrium. The cost, schedule, or quality objectives must be revised. Legend Task ID Duration ES EF LS LF FL Milestone 2 1 1 4 4 4 0 Task ID Duration 1 2 3 4 5 6 2 days 4 days 4 days 1 day 12 days 5 days
Slide 148: Building the Action Plan 125 Gantt charts, named after Henry Gantt, who developed them in the early 1900s, have become the most common method for displaying a project schedule. Exhibit 4.15 is a Gantt chart for the home landscape project. It has the same schedule dates as the network in Exhibit 4.13. Notice that all the tasks are currently scheduled at their early start date—you can tell that because all noncritical tasks display f loat. The great advantage of the Gantt chart is its clarity. The horizontal axis shows the schedule and the vertical axis lists the WBS. The initial schedule represents the combination of task sequence and task duration. It is called an initial schedule because it has not taken into account people and equipment limitations. The next planning step uses the initial schedule as a starting point and balances it against the resources available to the project. PLANNING STEP FIVE: ASSIGN AND LEVEL R ESOURCES The goal of resource leveling is to optimize the use of people and equipment assigned to the project. It begins with the assumption that, when possible, it is most productive to have consistent, continuous use of the fewest resources possible. In other words, it seeks to avoid repeatedly adding and removing resources, particularly people, time and again, throughout the project. Resource leveling is the last step in creating a realistic schedule. It confronts the reality of limited people and equipment and adjusts the schedule to compensate. Using the home landscape project as an example, we can see how resource leveling makes a project schedule more realistic. The network (Exhibit 4.13) shows, in terms of task scheduling, that it is possible to put in the lawn and build the fence at the same time. But when we consider that the family has only the three teenagers available to work on the project, that means they have just a total of 24 labor hours available per day (3 teens × 8 hours a day). Trying to put in the lawn and build the fence concurrently is unrealistic because it would require each teen to work far more than eight hours a day for more than half the project. (The resource spreadsheet on the Gantt chart in Exhibit 4.16 indicates clearly how unrealistic the schedule is.) Resource leveling will adjust the schedule to keep the teens busy at a consistent, reasonable rate. (Exhibit 4.18 shows the same project as Exhibit 4.16, but with the resources leveled.) Not only does resource leveling take unreasonable overtime out of their project, but it keeps the teens employed for a longer time at a steady rate. That is usually an advantage for any project team. We next consider a few of the problems faced by project managers in this process of leveling resources. Every project faces the reality of limited people and equipment. The idea is to avoid both over- and underallocation. As the home landscape project demonstrates, too many concurrent tasks can call for more resources than are
Slide 149: 126 Week of June 15 Week of June 22 Week of June 29 Week of July 6 S SM T S MTWT F S S S MTWT F S S MT WT F Labor Hours S MTW T F 80 624 64 64 16 16 24 8 400 256 128 16 96 344 16 328 32 80 144 72 Summary start corresponds to subordinate start Early start Late finish Week of July 13 Summary finish corresponds to subordinate finish Float Summary EXHIBIT 4.15 Gantt chart for home landscape project ID Task Name 1 Design home landscape 2 Put in lawn 3 Acquire lawn materials 4 Install sprinkler system 5 Identify sprinkler locations 6 Dig trenches 7 Install pipe and hardware 8 Cover sprinkler system 9 Plant grass 10 Remove debris 11 Prepare soil 12 Plant lawn seed 13 Plant shrubs 14 Build fence 15 Acquire fence material 16 Install fence 17 Mark fence line 18 Install posts 19 Install fencing and gates 20 Paint/stain fence and gates Legend Critical Noncritical • The duration of a summary task is driven by its subordinate tasks. • The float for a noncritical task begins at its early start and ends at its late finish. • This chart shows an early start schedule—all tasks are currently scheduled to begin on their early start date.
Slide 150: EXHIBIT 4.16 Gantt chart with resource spreadsheet for home landscape project Week of June 15 S MTW T F S S MT WT S MTWT F F S Homeowner, teens S MTWT F S S SM Week of June 22 Week of June 29 Week of July 6 Labor Week of July 13 T ID Task Name Hours 1 Design home landscape 80 2 Homeowner, teens Put in lawn 624 3 Acquire lawn materials 64 4 Contractor, homeowner Contractor Install sprinkler system 64 5 Identify sprinkler locations 16 6 Dig trenches 16 7 Install pipe and hardware 24 Contractor Contractor Teens, youth group Teens, rototiller Teens Teens 8 Cover sprinkler system 8 9 Plant grass 400 10 Remove debris 256 11 Prepare soil 128 12 Plant lawn seed 16 13 Plant shrubs 96 14 Build fence 344 Homeowner 15 Acquire fence material 16 16 Install fence 328 Homeowner, Teens Teens Teens Teens 17 Mark fence line 32 18 Install posts 80 19 Install fencing and gates 144 127 20 Paint/stain fence and gates 72 (continued)