Project Management Institute

Economic sense

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BY KELEY HUNSBERGER :: PHOTOS BY SIMON FREDERICK

José Ângelo da Costa Pinto, PMP, Ambithus, Lisbon, Portugal

The health of the global economy affects the health of your projects.

A grasp on economic trends can help project professionals stand out by proving they can help navigate the chaos and improve the bottom line.

The current financial climate “is a huge opportunity for us to state our importance and to make companies and public organizations more aware of the substance of good project management,” says José Ângelo da Costa Pinto, PMP, a board member for the project management consultancy Ambithus in Lisbon, Portugal.

These three trends are making waves in the business arena—and forcing project leaders to take action.

1 Corporate Takeovers Are Back in Vogue

The economic woes of the past few years slowed much of the world’s merger and acquisition (M&A) activity—but no longer.

In 2010, M&As began their comeback, as witnessed by mega-deals such as Kraft Food’s US$19 billion takeover of U.K.-based chocolatier Cadbury. And in the first quarter of this year, corporate takeovers topped US$256 billion—activity levels that haven’t been seen since 2008.

imgPublic projects are being suspended all over Portugal for reassessment, and more than 20 public-private partnerships are being reanalyzed.

—José Ângelo da Costa Pinto, PMP

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In the technology industry, global M&A deals valued US$27 billion in the first quarter, up 124 percent from the same period last year. And e-commerce takeovers alone topped US$6 billion by June, far outpacing the US$180 million worth of activity during the same timeframe in 2010.

With so much cash ready to be deployed, the trend is expected to continue. “More than US$1 trillion in cash balances currently sits on corporate America’s balance sheet, with more than US$350 billion of that held by the 20 companies with the highest cash balances,” writes Matthew Layton, London, England-based partner at the global law firm Clifford Chance, in Legal Strategy Review.

M&A activity isn’t just booming in the United States, however. The Asia Pacific region accounted for almost 50 percent of all hostile takeovers in 2010, thanks to strong showings amongst its nation’s GDPs and currencies. And while the energy and natural resources sector proves attractive to bidders in all major markets, according to Legal Strategy Review, activity levels are bouncing back in the IT, media and telecom industries, as well as life sciences.

What it means for project managers:

The first reaction to news of an M&A is usually panic—especially if you’re working for the organization being acquired. Leading a project that no longer aligns with organizational goals is a valid concern.

“The problem with mergers and acquisitions is that new management tends to revalidate the strategic impact of the projects, and often they find that they are not as strategic as was considered,” says Mr. da Costa Pinto, also president of the PMI Portugal Chapter. “On the other side, sometimes there are competitive projects in the companies that are merging, making one of those dispensable.”

The disruption that occurs during the merger process raises many unknowns. First, there is the question of which project management methodology the new organization will use for both current and new initiatives.

Project managers working in a newly merged organization may have to deal with new methodologies, forms, templates and project portfolio management tools.

“There are likely new processes for project selection, onboarding, kickoffs, change control, project reviews, etc.,” says Pete Nathan, PMP, senior leader of the IT project management office (PMO) at Gulfstream Aerospace Corp., a producer of jet aircraft in Savannah, Georgia, USA.

Then there’s the possibility of reorganization. A project manager who once reported to a PMO, for example, might instead now report to an entirely different division of the organization.

Mergers can also provide new job opportunities. “There are many integration or transformation projects which project managers can lead and add new value to the combined organization,” Mr. Nathan says.

Just don’t expect project teams to continue working at full capacity during a merger, says Rogério de Mello Pires, PMP, strategy PMO, portfolio and program manager at Itaú Unibanco bank in São Paulo, Brazil. “Be realistic in your workflow planning,” he says. “Plan for people to be less productive than normal as they deal with these changes. Expect to lose some good people who are not comfortable with the new organization. Give yourself and your department time to work through the changes and get back up to full speed.”

2 Outsourcing Continues Apace, and New Hot Spots Emerge

Organizations are outsourcing with renewed fervor, even as the economy continues to recover in many parts of the world.

“There is a tremendous amount of outsourcing going on as a cost-reducer,” Mr. Nathan says. “Outsourcing project work and staff augmentation on projects is a large part of IT work—often 20 to 40 percent.”

CIOs are spending more of their IT budget on outsourcing than ever before, according to Harvey Nash’s CIO Survey 2011, released in May.

Forty-five percent of the more than 2,500 CIOs and IT leaders from around the globe said they expect to increase their outsourcing over the next 12 months.

Instead of turning to the same companies for their outsourcing needs, CIOs are breaking up their work and handing it over to niche organizations as a way to drive innovation, the survey reports. A new crop of hot spots is emerging, while traditional markets become passé.

Bangalore, India, for example, has been the IT capital of the country for years. But the title may be in jeopardy, with the label soon belonging to the Noida and Gurgaon districts, according to a survey by Assocham (The Associated Chambers of Commerce and Industry of India). Many organizations are looking to the region for IT services, as well as business and knowledge process outsourcing, due to Bangalore’s crumbling infrastructure, which includes inadequate and unreliable water supply, roads and sanitation facilities.

While developed markets have deep talent pools, they often can’t compete with the cost savings offered by emerging players. Brazil, China and Russia increased their share of the outsourcing market, whereas the United Kingdom, the United States, Ireland and Canada all lost ground this year, the survey reports.

What it means for project managers: Globalization and outsourcing have an increasingly profound effect on the way project professionals work, says Stephan H. Bals, program manager and senior project manager at Balanse Consultancy, an Assen, Netherlands-based firm that specializes in program and project management. “Project and program managers are finding themselves working in an ever more global environment, and therefore with ever more complicated business cases that must be successfully accomplished.”

That brings along with it the need to be sensitive to cultural differences from one country and one company to the next—as well as within your organization.

Mr. Bals says that project practitioners must understand (and preferably have experience in):

  • Global team leadership
  • Selection of international resources (human and otherwise)
  • Global stakeholder management
  • Cross-cultural collaboration
  • Virtual conflict resolution techniques
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Project and program managers are finding themselves working in an ever more global environment, and therefore with ever more complicated business cases that must be successfully accomplished.

—Stephan H. Bals, Balanse Consultancy, Assen, Netherlands

There are negative effects of outsourcing that must be considered as well, according to Mr. Nathan. “Projects, by definition, are temporary endeavors,” he says. “Therefore they are seen as being easily outsourced. This affects project managers because they are being hired on a temporary and not a full-time basis by organizations.”

Many organizations are outsourcing initiatives to project managers who only meet the minimum requirements of the job description, making them a less expensive resource. “There’s a skills gap there—and an increased risk of project failure,” Mr. Nathan says.

3 The Global Economy Becomes Increasingly Unpredictable

The only thing certain about the current global economy is that nothing is certain. Just as one country seems headed in the right direction, the bottom falls out for another.

Qatar, for example, could see 25 percent economic growth in 2011. Earnings from oil and natural gas might top US$100 billion for the country, the highest in its history, according to The Wall Street Journal. This positive outlook has the country looking to invest in projects in nearby locales such as Egypt.

“Oil prices are currently dropping at a high-level rate, generating outstanding financial securities and overflow,” says Firas A. Zaki, PhD, PMI-RMP, PMP, Doha, Qatar-based project controls department manager at Al Jaber Group, a construction, heavy lifting and logistics, industrial and trading consultancy. “Foreign investments will continue to take advantage of this.”

As organizations initiate projects and place a priority on business plans, project professionals should find themselves in demand—especially with the country being chosen to host the 2022 World Cup, which will initiate a major boost of infrastructure and building projects.

Qatar’s success is the exception, though, not the rule; economies that seemed to be picking up are once again slipping. In May, Denmark unexpectedly entered a recession after the economy contracted for the second quarter in a row. Cuts in spending by consumers and the government were blamed for the downturn, according to Bloomberg.

And after experiencing a 3.1 percent rise in its fourth-quarter GDP last year, the United States appears to be headed back into economic uncertainty. U.S. manufacturing output expanded in May at the slowest pace in 20 months, and private employers added a net total of just 38,000 jobs that month, the lowest figure since September and a sharp drop from April’s 177,000.

Then there’s Portugal. The country became the third—after Ireland and Greece—to turn to the European Union for bailout funds. Portuguese Finance Minister Fernando Teixeira dos Santos forecasted in May that the country’s GDP would fall 2 percent in 2011 and 2012—a substantial increase from the 0.9 percent and 0.3 percent predicted in March. To counteract its major budget deficit, government leaders are hoping to receive an international aid package worth €78 billion from the European Union and the International Monetary Fund.

“This establishes some hard measures for the Portuguese people,” Mr. da Costa Pinto says. These include a freeze on public-sector pay and pensions above €1,500 per month, a reduction in unemployment benefits (a maximum of €1,048 per month, and a reduction from a 36- to 18-month span), property tax increases, and lower limits for tax deductions.

What it means for project managers: In many countries, economic volatility is wreaking havoc on projects.

“Public projects are being suspended all over Portugal for reassessment, and more than 20 public-private partnerships are being reanalyzed,” says Mr. da Costa Pinto. “Banking and public-sector projects are being rescheduled and reorganized. This makes it necessary for the construction sector to reevaluate their investments, because they are the partners in most of the public-private partnerships.”

No matter where their projects are located, executives and senior project leaders should take advantage of global economic change as a part of their organizational strategy. “Projects that may produce profits or reduce operational costs are well-regarded by executives nowadays,” Mr. da Costa Pinto says. “Some executives have a broader vision and are now investing in difficult and even risky projects because it is easier to find good resources and specialized people.”

Organizations that adopt advanced portfolio and program management standards will struggle less and come out winners in this new competitive, demanding business world, he adds.

Project management practitioners working amid this economic uncertainty can empower their careers by improving their skills and competencies, and by becoming subject matter experts.

It also helps to diversify.

“Network and get connected with other project managers from different sectors,” Mr. da Costa Pinto says. “Try to gain knowledge of how to manage projects in other sectors, whether geographic or industry.” PM

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.

PM NETWORK SEPTEMBER 2011 WW.PMI.ORG

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