Every day more industries and governments are taking the tollgate approach to perform projects with excellence, and one of the reasons is that it was developed specifically to help organizations to choose the right projects, and to perform them right.
The tollgate methodology ensures the organizations the proper translation of business opportunities into successful projects; that is, aligning project objectives with the business needs, and then executing the projects in the most efficient way.
The gates methodology is a process of progressive definition of the project. This process is based on a planned and standardized series of reviews (gates) at the end of each phase. This breakdown in phases or stages, and the normalized control points at each end, is an improvement of the classic approach, where the organizations may have points of control but they are not as standardized as the ones that this technique offers.
Gates methodology is perfectly aligned with the Project Management Institute (PMI®) standards, and this paper covers a description, the benefits, Front-End Loading (FEL), and telecommunication examples, and a brief guide about how to go through it.
The driving force of the growing evolution in project management activities seems to be that the return of investment more directly affects the value of organizations every day. Greater internal rate of return can be achieved in several ways, and one of them is improving efficiency in cost and time in projects. And here is when the methodology starts to be valuable.
There is a vast amount of evidence that it is in the initial stages when the future of the project is determined. More specifically, “As much as 80% of costs are committed during the Conceptual phase,” “Poor management of the design phase affects every stage of the project lifecycle,” and “80% of design changes are caused by a lack of data or the wrong data” (Jones, 2004)
Therefore, here we have a good opportunity to influence the chances of the projects to be successful. Gates methodology helps with this task, adding new milestones and dividing the project into well established phases, assuring the proper planning and the needed quality and depth in both technical and management information.
Opening the Success Gates to the Projects
What is Gates Methodology?
The gates methodology is a process of project progressive definition based on a planned and standardized evaluation at the end of each phase. A gate or tollgate is a standardized control point where the projects phase is reviewed and/or audited and approved (or not) to continue with the next phase. The gates allow to verify if the project reaches the expected performance; in other words, the information necessary to proceed with the project is reviewed and checked as to whether it is complete and updated. From the project management point of view, the gate control allows the organization (and extensively the project managers) to validate whether the planning is good enough to face the next phase.
The technique is based on a structured review of project scope and plans, consequently limiting the uncertainty at the moment of decision-making. As funds and resources are increased step by step, it permits the organization to limit the business's and project's risk.
The systemic approach means that no project will be approved to move on without the minimum information and the minimum confidence required, making the management of future phases easier. This approach helps avoid breaks in transitions, smoothes the closure, and forces the documentation to be made that will allow the use of lessons learned.
Similar to a road map, the methodology shows the path that must be taken and the deliverables that must be developed during each stage of the project. It also provides templates and a structure that helps to guide and standardize the process.
When a stage begins, the project team starts to develop and consolidate the deliverables needed for passing to the next gate. To do so, the initiation, planning, execution, and finalization cycle is performed in each phase. Once everything is completed, a review can be done to ensure there are no missing points, and minor problems can be solved before the formal audit. Afterward an audit can be conducted to determine if the project can step forward to the next phase, giving a recommendation to the decision maker.
Assuming that we passed all this successfully, the project is elevated to the sponsor for approval. The sponsor can either ask for a more detailed work before making a decision, approve funds to begin the next stage, delay the investment, or cancel the project. The phase nature of the method forces the explicit endorsement or cancellation of the project. This final decision depends on the project's attractiveness for the business and is based on information that fulfil the company standards.
The gates approach is fully compatible with and complements PMI® standards, such as when setting the level of development of the deliverables of each stage. It acts from the beginning, when a great influence can be achieved with a minimum effort, linking the project with the business goals, and ensuring that what will be created will be aligned with the sponsor's expectations.
Tollgate methodology helps to make the team and the organization aware of the importance of investing time and resources in good and completed planning. It helps involve the project team and the main stakeholders in the project planning processes from the beginning. It stimulates the team to discuss and document all the knowledge areas of the PMBOK® Guide (PMI, 2008). It also helps project managers to make the project plans visible and reposition them as valuable as the technical documents are. This methodology brings the project management role to a central and influential point, such as in projects where technical issues usually monopolize the discussions.
Reviews, Audits, and Request for Approval
We have been talking about audits and reviews, and there are some differences to consider.
A review is an evaluation of the project that assesses the deliverables performed, and is done by peers or co-workers. Reviews pursue the improvement of the work presented, the early error detection, and the solution of inconsistencies, more than a judgment or acceptance of the work. This is also called peer review, which must be done by people external to the project, either inside or outside the organization.
On the other hand, an audit is an evaluation of the project, performed in order to establish the validity and reliability of the deliverables, and is conducted by people external to the project and/or external to the organization. Audits are more structured than reviews and can be used as proof of aptitude.
Depending on the size and importance of the project and the organization processes, there can be one or both evaluations prior to requesting senior management approval.
The decision process that follows the review/audit can have several steps too. Some projects need a succession of approvals until they reach the level in the organization able to give the final green light. Some others need only one-person signoff to move to the next step.
The entire review-approval processes can take several weeks, or even several months in highly political organizations. This is sometimes seen as a waste of time and can discourage the team. This is one of the methodology's downfalls.
Gates Methodology Adds Value to the Organization
The benefits of gates methodology will vary according to the kind and size of the projects, the nature and culture of the organization, and maturity level the organization has achieved in the discipline. Some common points are exposed here.
One of the most important advantages of the gates methodology is to give the decision makers a set of information that has a known degree of uncertainty. Furthermore, the changes in macro-economic variables, as well as in company plans, are part of each stage analysis, reviewing and updating the alignment of the project.
Another important benefit of the gates methodology is to reduce the final investment risk. The progressive nature of the development and its validation at the end of each stage ensures that the final deliverable will be aligned with the company's needs as well as with the present market conditions.
The gates methodology also allows the organizations to reach the final investment decision in stages, ensuring that nobody will proceed to use funds and resources on projects that are no longer in the organization's interests. Furthermore, it keeps investment low in early phases, when risk and uncertainty are still high, and only allows more resources when the needed information is verified and the investment decision is confirmed.
The gates methodology reduces time and cost overruns during execution, mostly by reducing change requests and making risk visible (and thus, risk management essential) by requiring proper accuracy in planning, especially for scope and cost.
The gates methodology improves the “time to market,” decreasing the investment risk. Plans, including the schedule, are based on robust and audited information, thus increasing the project's predictability.
The gates methodology allows the capitalization of valuable knowledge and experience. It is simple: there is no “gate” if there is no proper documentation. And with the documentation completed there is only one step to make it accessible and useful to the organization. Gates are a source of valuable documentation for other projects, and capitalizing on lessons learned reduces risks and cost in future projects.
Indirect but yet mentionable benefits are increases in suppliers’ confidence, and the subsequent reduction of overruns, as well as the free “marketing” associated with an organization that runs projects healthily.
Finally, some statistical studies of thousands of projects show that there is a strong correlation between projects that used gates and passed them in good standing, and those that were the most successful (Jones, 2004; Hollmann & Merrow, 2001)
Gates Methodology Helps Project Managers
First and obviously, gates act as a methodological guide, especially useful for non-mature project organizations, drawing a proved successful path to follow, and making explicit the commitment of the organization at each step, helping to keep the commitment visible.
The method acts as a trigger, involving the whole organization, as well as bringing key resources into early phases and avoiding breaks in phase transitions. Interdisciplinary teams and management stability are conditions considered good practice and keys for success.
Gates discourage the tendency to slip into the next phase of a project in order to keep the team “moving forward,” hoping that missed deliverables will be completed somehow during next phase.
The methodology speeds up project delivery, facilitating the transfer of the project from sales or engineering to the project execution team, and from the team to operation and support.
Finally, the methodology enhances project management awareness in the whole organization, especially in the highest levels, something that today is a very important matter for the profession, “making project management indispensable for business results.”
Example 1: Front-End Loading Methodology in Process Industry (analyzed from the buyer perspective)
The Front-End Loading (FEL) methodology is a kind of gate methodology applied to capital projects with budgets commonly over 15 million US$, and typically with more than 2 years of total execution. It is widely used by industries such as construction, chemical, and utilities.
According to Morris (2005), “Benchmarking data in the oil and gas industry, for example, shows conclusively that effort spent (up to a point) on front-end definition (so-called ‘Front-end Loading’ – FEL) correlates positively with project outcome performance.”
FEL requests a detailed understanding of a project as a whole in order to minimize changes during later phases of project execution, ensuring the investment return ratio. Key components of Front-End Loading for this example are site factors, engineer definition, and project execution plans. They are equally important, but only the last will be covered by the following description.
Project execution plans (PEPs) should include the nine knowledge areas of the PMBOK® Guide, as well as such areas as safety, health and environment, change management, interfaces, implementation of industry standards, commissioning, start-up, and so forth.
FEL compresses all the phases prior to the engineering, procurement and construction (EPC), and has 3 stages.
FEL 1, Opportunity Identification
In the opportunity identification stage, new opportunities are visualized and a first selection is made. This is definitely business territory, and at this stage, generally no project manager is assigned to the opportunity yet. However, FEL discipline must be closely followed, because the impact of an error at this phase can be catastrophic in the following ones. The project definition is advanced only 2% and the cost is estimated using stochastic estimating methods, such as cost/capacity curves and factors, judgment, and analogy. The goal of this gate is to validate the business case and point out some alternatives.
FEL 2, Selection of the Most Appropriate Technological Option and Development of the Conceptual Engineering
The outcome of this stage is the conceptual engineering of the selected technological alternative. A project manager is assigned and the technical areas start to become relevant. The project definition is typically 25% advanced and the budget estimation is based on deterministic methods for the main items, and on stochastic methods for the less influential items. A detailed planning of FEL 3 is done, as well as a high-level planning of the EPC (Detail Engineering, Procurement, and Construction). The objective of this gate is to select the best technological option and to begin with the engineering.
FEL 3, Execution Planning and Basic Engineering
At the end of this stage the project definition is over 75%, with the basic engineering completed; a detailed unit cost based on deterministic estimating methods is done, and a detailed planning of the construction phase has been performed. The objective here is to have the basic engineering concluded and the project execution plans done.
Outside the FEL methodology is the execution of the EPC (Detail Engineering, Procurement, and Construction), plus the commissioning and start-up of the plant.
The authors propose a point of improvement in FEL methodology in this paper. It consists in adding one extra gate in the middle of the FEL2 stage for the validation of the technological selection chosen. We can call this gate “FEL pre 2”. This selection, that is analysed and defined in the first part of the FEL 2 stage, is in most cases a very transcendental definition. It will determine the project strategy, the offsite facilities, the possible suppliers, the project cost, the operational and maintenance costs, and so forth, and has no verification until all the conceptual work is done. The goal of the FEL pre 2 gate is to avoid changes in future stages, as rework must be performed from here to the end of FEL 2 if the chosen alternative is wrong. The “old” second gate will remain exactly as it is now, but skipping the part audited in the new gate.
Example 2: Gates Methodology in Technological Projects (analysed from the perspective of the supplier)
In contrast with the case shown in the first example, here project cycle and project phases coincide. Although initiating, planning, execution, and closure activities are done just once, under the methodological rigor, the project will not proceed to the next phase until a gate review and/or audit is performed and the green light is given.
Phase 1: Commercial Phase (Pre-Sale)
This is typically business territory, where the opportunities are detected and where most of the projects are born. As an early phase, its influence in the success of the project is great while the investment is still low. Focus is on the robustness of the business case that will generate the commercial proposal, and the areas assessed include the span and detail of scope proposed, the practicability of the planned schedule, and the accuracy of the cost estimation. The objective of this gate is to determine if the commercial proposal is consistent, and if it can be translated eventually into a successful project.
The pre-sales team and the project area review and agree with all the non-commercial terms of the offer before presenting it to the senior management.
Phase 2: Planning Phase
Once the purchase order arrives, or just before, a detailed planning must be done and subsequently approved. The planning deliverables are all stated in the PMBOK® Guide, and their extension and detail will be according to the project needs. As part of this phase, if it is needed, a more detailed scope statement must be done, agreed upon, and signed by the client.
The process involves the project manager, who presents the project goals, the preliminary plans, and the relevant lessons learned to the team. The project team members are asked to analyze and help to develop the final plans. The goal of this gate is to approve the project plans. If phase 1 was properly made and no major changes were added between the gate and the signing of the contract, the planning here should be not far from the original plan, and can be approved easily. But if that is not the case, someone superior to the project manager should decide how to proceed.
Phase 3: Project Execution
Besides the usual process and documents at the end of this phase, this gate takes care of passing information, training, and problem identification from project team to who will perform the support during the warranty period and beyond. As it was done from sales to project, now the project team has the obligation of giving proper, accurate, and timely information to the support team. Support will review and approve the deliverables.
A Brief Guide About How to Establish the Methodology
Step 1: Determine Criteria and Goals
The crucial questions at this point are what is wanted by the implantation of gates in projects and what is considered necessary to fulfil it.
The methodology has benefits but also costs, that is why it is seen first as an investment and subsequently as an asset. Therefore, the investment should be adequate to the importance of the project, keeping a healthy balance between them.
Additionally, to have the support of an experienced project manager in the subject is always advisable, if not a must.
Step 2: Getting the “Buy-in” of Senior Management to Implement the Methodology
This is a vital step for all projects that involve more than one business area and a change in the organization's culture and customs. Furthermore, senior management support will be needed to have the power to pause the project at each gate to evaluate it, and if needed, to postpone approval until the project passes the previous audit/review in good standing. This is never an easy choice, especially if you have pressure in the organization to start the next phase as soon as possible.
Step 3: Determine How Many Phases There Will Be
How long are your projects? How many labor hours do they take? How many critical decisions have to be made? All these questions will lead to determine the number of gates your projects need. Again, there is a trade-off between the number of gates and economic convenience. If your organization runs different sizes of projects, it is good practice to determine the number of gates for each one with a selection matrix.
Step 4: Determine What Information Is Needed For Decision-Making at Each Gate
A possible way to define what is needed is to ask about the cost and time accuracy expected at each stage, and then determine what it is needed to accomplish it.
Cost accuracy is closely related to scope development, and scope development means work; consequently, it is a compromise between precision and the effort required in each stage. This set of information is called decision support package, or decision support document.
Some industries already have common indicators based on experience and statistical work performed over the years, so the questions about how much definition is enough can be solved more easily. The “Project Definition Rating Index” used in the construction industry is an example.
Step 5: Set Criteria for Approval of the Gates and Planned Audits
Clear and measurable objectives must be set to pass through the gate successfully, and the organization must know these objectives from the beginning.
How the audit/reviews will be performed, and who will conduct them are questions to solve too. It is not an easy task, because you need experts in the matter, and they must be from outside of the project and/or outside the organization. These two conditions have powerful reasons. One is to have a fresh technical approach and a view from another angle of the project, so as to be able to uncover errors and omissions. Another is to avoid a biased process, keeping the people who can have a financial interest out of the technical review.
Next Steps: plan, do, check, act. It is not recommended to try to implant a flawless process from the very beginning. It is wiser to keep it simple, useful, and practical.
Myths and Facts
Myth: It will take more time, add more paperwork and raise the cost.
Fact: it will take more planning time but the total duration will be shorter. On one hand, the engineering or analysis needed must be performed anyway, and it will take whatever it has to; no extra time is added here. On the other hand, project plans will take time and effort, it is true, but they allow the project to save time and money in the execution phase, such as avoiding rework and delays. Regarding the extra cost, a simple calculation of your project execution daily burn rate is most of the time solid proof that the time spent in planning and tollgate reviews is a very good investment.
Myth: the methodology can only be applied to capital projects—that is, mega-investments.
Fact: the effort invested in the methodology has to be proportional to the size and relevance of the project, and probably only mega-projects will have several gates and sophisticated processes for approval. For example, FEL is clearly valuable in projects over 15 million US$. The main idea of the gates can be applied to almost all medium and big projects. Some organizations have a different set of tools and processes according to the size and complexity of the work to be performed.
Myth: the methodology will create a perfect implementation, nearly run by itself, permitting it to be independent from the project team.
Fact: no process or method is totally independent from the skills and motivation of the project team, and there is never a full warranty of a zero problem execution. Good processes and sensible methodology help, but proper human resources are still needed. There is no replacement yet for a senior project manager, particularly in the first steps of the methodology implementation or in critical investments.