Achieving Six Sigma level project success through the integration of project management discipline and valueflow management

Abstract

We have everything we need to achieve project success rates of over 90% in less than five years.

To achieve this goal we must switch from Project Selection to Project Portfolio Generation through Valueflow Management.

Project Selection is solution focussed, presenting projects as a bundle of opportunity and solution. It is QC based using the classic feed-forward control cycle answering the question “How do we weed out bad projects?” Since solution often comes first, the benefits case is usually built around it. The project bundle is then sold or pushed to management for funding.

Valueflow Management separates the opportunity from the solution. It uses a process oriented root-cause control cycle answering the question “How do we generate only excellent projects which have a high probability of delivering substantial and measurable benefits and meet our customer-driven strategy?”

It includes management and users from the start and separates the business opportunity (revenue/benefit) from the solution (cost) with selection imbedded as an ongoing process rather than as a batch activity at the end. It uses a simple Dashboard to measure the gap between the strategy-based target performance and the actual performance. This provides a clear and measurable opportunity assessment that leads to a revenue benefit. When the opportunity is large, management buys-in and asks for a solution to be estimated. The costs are then used as a confirmation that the total benefit-cost equation makes sense. When the opportunity is not sufficient, management halts it, preventing the ultimate project failure, the successful project that produces no business benefit.

This paper will discuss how to implement a Valueflow Management process to support the Project Management discipline.

Introduction

We know why projects fail – or do we?

What makes a project successful? The Standish Group's Chaos Ten updated in 2000 (Standish Group 2000 p. 4) includes the following as the top five factors in project success/failure. Although the items have changed positions slightly over the years, they have remained remarkably stable. The factors are:

  • Executive Support
  • User Involvement
  • Experienced Project Manager
  • Clear Business Objectives
  • Minimized Scope

Each of these factors has been weighted according to its influence on a project's success. These five factors account for 60 out of 90 points attributed to the top 10.

The Change Process – a People Issue

Change Process

Exhibit 1 – Change Process

One Perspective of an Organization

We can envisage an enterprise as having at least two distinct sets of activities. The organization searches the outside world to determine CUSTOMER “needs gaps” (1) that fit into the organization's strategy. The organization then designs products (goods and services) that meet all or part of the customer's needs gap (shown as the green arrow). Then the organization works to obtain customer orders and deliver its product (2) (shown as the blue arrow).

Inside the organization and in the course of execution, people encounter what they perceive as shortcomings and generate internal needs gaps (3) (problems/opportunities) in terms of how the work is done. These gaps may be given to the IT or other groups as needs or in the form of a partly conceived solution, such as “we need a CRM system”. Eventually, a project may be defined and approved to deliver a solution that closes these gaps (4).

There may be hundreds or even thousands of these needs circulating within an organization at any time. Some may be large endeavours while others may be smaller, such as changes to existing software. The process of shaping these needs into project definitions is typically informal.

However, in order to become actual projects they must go through a relatively formal (for most) selection process. The Project Selection Process is typically a competitive process aimed at weeding out the undeserving and leaving behind only those projects that are worthy. And that's part of the problem.

When we propose a project, we are normally competing against others. We know that others’ projects are presented in their best light (Hartman, 2000, p. 43). In effect we revert to selling the project and internal selling leads to poor choices.

Project Success is not a technical issue but rather a people problem and the typical Project Selection Process aggravates the problem. The major drawbacks of the typical selection process are:

  • The opportunity (benefit) and the solution (cost) are bundled and presented together.
  • The projects are defined around functional gaps rather than performance gaps.
  • There is a significant amount of effort and time required to get the project definition to the state where it can be presented for selection. Once a project has reached this stage it will have accumulated political cost, where being selected is good and being rejected is bad. Once a project reaches this state, the decision process becomes at least partially political which will lead to poor choices.
  • The project tends to commit itself to a solution at a point when the problem is least understood.
  • The project is sold rather than bought. Management “buys-in” on the basis of promised benefits (usually exaggerated) and estimated costs (usually understated). This is a direct result of the competitive nature of the project selection. Success becomes synonymous with being selected and, therefore, the predominate mindset is to “sell” the project.

We all know the results that this process yields, overall poor return on investment

Valueflow Management Change Process

Project Redefined

In order to solve a problem it is sometimes helpful to reframe it. So let's reframe the project definition.

The PMBOK® Guide, 3rd Edition provides the following technical definition of a project.

A project is a temporary endeavour undertaken to create a unique product, service or result (PMI, 2004, p.5).

Let's replace it with the following “purpose driven” definition”:

A project is a transitional endeavour undertaken with the intent to moving an organization from one level of measured performance to a higher level of measured performance.

This definition focuses on the desired impact of the project, rather than the project itself and leads us to Valueflow Management.

Valueflows

There are four types of Valueflows:

  • Strategic Valueflows (product concept to launch)
  • Customer Valueflows (customer order to delivery for a product)
  • Management Valueflows (improvement opportunity to project selection)
  • Enabling Valueflows (selection to change implementation).

The Valueflow management approach is based on an organization's strategy. It is about propagating that strategy to the execution dimension through performance metrics and through Valueflow Management.

Valueflow Management Change Process

Exhibit 2: Valueflow Management Change Process

Exhibit 2 illustrates this model. As before, we begin by identifying CUSTOMER “needs gaps” and designing and delivering products to meet the needs. As part of the design of the product, the organization designs the Customer Valueflow and an integral part of that design is the specification of a Dashboard to measure the effectiveness with which the product quality and delivery meets the “needs gap”. This is the Strategy/Delivery cycle.

In addition, we would also implement a Manage/Change cycle which continuously monitors the effectiveness of the Customer Valueflows through Valueflow Dashboards. The Dashboard is the tool that identifies opportunities in the form of performance gaps, rather than functional gaps. A performance gap is a gap between the actual performance of a process and its target or destination performance. The value of closing a performance gap defines the potential value of a project to close that gap.

By focussing on performance gaps, which are dictated by strategy set by management, we focus first on measurable Valueflow performance rather than functional considerations.

This becomes our mechanism for managing our processes and generating projects. We select problems or opportunities rather than solutions. This would trigger an initial Process Management project that would delve into the opportunity and identify potential solutions. The solutions can be combinations of projects to address process issues, technology issues and organizational issues. A combination of projects, all of which are required to address a performance gap, would be treated as a Portfolio because it represents all the changes required to address the performance gap and deliver the benefit.

Valueflow Management begins with the identification of a business benefit (revenue focus) rather than a solution (cost focus). As a result it require us to redefine project success in terms of the bottom line (benefits – costs) rather than project budget and schedule

A Valueflow Management approach would also address all five of the top five success factors:

  1. Executive Support: Executives provide direction on which business problems, when resolved, will move the organization to a higher level of performance. By identifying the opportunity they are automatically buying into whatever solution will solve the problem. In addition, it is the value of the opportunity that dictates the budget rather than some arbitrary budgeting process.
  2. User Involvement: A benefit focus is a post-project focus. This is the users' world and responsibility. Because the focus is on what happens after the project is complete, rather than the project itself, users will have first level accountability in addition to the project manager.
  3. Clear Business Objectives: A performance based approach tied directly to a Customer Valueflow Dashboard will provide clear and measurable performance based business objectives.
  4. Minimized Scope: Internal customers with a functional focus and few project cost responsibilities generate maximum scope in order to get the most functionality. We often tell users to “blue sky” the requirements, inviting them to produce the maximum scope. Valueflow management minimizes scope by relating functionality directly to performance. Scope management becomes a process of discovering what scope provides the greatest net benefit, not the least cost. That means that we constantly update the business case (benefit and cost) rather than just cost and schedule, just like a real business.
  5. Experienced Project Manager: Improving the other four factors reduces project issues, risks and the level of experience required to successfully deliver the project.

Implementing Valueflow Management to Generate Project Portfolios

The implementation comprises the following key steps:

  1. Identify the key Strategic and Customer Valueflows.
  2. Design a Dashboard for each Valueflow based on product or product family (goods & services).
  3. Assign a Valueflow Champion
  4. Set Destination (Target) Performance and measure Current Performance.
  5. Evaluate each gap and determine which Valueflow has the greatest opportunity.
  6. Select a cross-functional team to address the gaps.
  7. Define a portfolio of projects to design and implement solutions to address the gaps.

Summary

The Valueflow Management approach implements an internal Manage/Change cycle that complements the Strategy/Delivery cycle. The Valueflow Dashboards act as the gear that links the two cycles producing a never-ending (continuous) stream of changes targeted at improving the measured performance of the organization.

The funnel shaped Project Selection process based on “selling” solutions is replaced by active management of the Valueflows, which identifies performance gaps and produces Project Portfolios as a natural side effect. The political selling process is replaced by a fact based, customer focused approach.

Since we always choose based on potential benefits first, only highly leveraged opportunities arise. Also by separating the opportunity (revenue) from the solution (cost) we can be rigorous in evaluating the benefit potential of the opportunities without being influenced by the solution.

The Valueflow Dashboard also achieves the propagation of strategy to the execution level through the use of cause-effect metrics and replaces the current budget and schedule success metric with metrics that are directly related to ROI and that are measurable. This allows us to continuously & measurably track our level of success.

The Valueflow Management approach will identify opportunities that require re-engineering as well those that require incremental improvement. It is an approach that is focused on customers, respects employees and delivers value to shareholders.

Valueflow Management will make value flow.

References

Breyfogle III, F. W. (2003) Implementing Six Sigma (2nd ed.). Hoboken, New Jersey:John Wiley & Sons.

Hartman, F. T. (2000) Don't Park Your Brain Outside. Newtown Square, PA: Project Management Institute.

Kaplan, R. S. & Norton D. P. (1996) The Balanced Scorecard. Boston: Harvard Business School Press.

Project Management Institute. (2004) A guide to the project management body of knowledge (PMBOK®) (3rd ed.). Newtown Square, PA: Project Management Institute.

Rother, M. & Harris, R. (2001) Creating Continuous Flow. Brookline, MA: Lean Enterprise Institute

Rother, M. & Shook, J. (1999) Learning to See. Brookline, MA: Lean Enterprise Institute.

Stamatis, D. H. (2004). Six Sigma Fundamentals. New York: Productivity Press.

Standish Group. Unfinished voyages. Retrieved from http://www.standishgroup.com/sample_research/unfinished_voyages_1.php,

Standish Group, (2001). Extreme Chaos. Retrieved from http://www.standishgroup.com, Standish Group.

Womack, J. P. & Jones, D. T. (1996) Lean Thinking. New York: Simon & Schuster.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2005, Angelo Baratta
Originally published as a part of 2005 PMI Global Congress Proceedings – Toronto, Canada

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