Project Management Institute

Telecommunications project justification and the role of the project manager

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PMs

Concerns of Project Managers

Special Topics—Telecommunications

What can a single point of contact (the project manager) do to add value to a telecommunications carrier company's investments?

W. Stephen Sawle, Consultants to Management, Inc., Chicago, Illinois

Once assigned to a project, the project manager is often caught up in implementation tasks-developing a plan, gathering resources, starting work. At best, the original documentation that justified the project is buried in the project files. At worst, it is retained by the chief financial officer's office—never to be seen again. Unless, of course, things start to go very wrong on the project, or the state's Public Utility Commission decides to conduct an audit of the investment decision. This is an all too likely outcome in this time of rapidly advancing technology and cutthroat competition.

What, then, are the key roles a project manager can fill before, during and after a project is executed to ensure maximum benefits and conformance to the project's main missions? How can a project manager's involvement in the justification process improve the project's performance and likelihood of Commission validation?

A CASE IN POINT

The Fundamental Planning Department of many major telecommunications carrier companies performs the long-range planning function. One such department in an explosively growing region had a program of installing fiberoptic cable feeders whenever the existing copper feeders were exhausted. This would position the company to offer future broad-band communications services as well as provide improved quality of voice transmission. The old norms of sizing the new cable for four to six years of expected growth had not worked in the past because growth always seemed to exceed expectations. In several cases, growth jobs had to be added to the exhausted fiber cable after two years. This was an expensive mistake. Labor costs were high for digging into the existing fiber trench and adding new cable. Crews also risked damaging the old cable. The process just did not make sense.

The Fundamental Planning Department conducted a study of the region and embarked on a bold new strategy of installing fiber cable sized for 20 years or more of growth. The feeling was that the underutilization of capacity in the near term would be more than offset by the reduced costs and risks of not adding additional direct-buried fiber to a trench. This strategy was supported by the local Public Utility Commission.

Unfortunately, an engineering and construction project manager was not assigned to this program during the justification process—a costly mistake as we shall see later.

As it happens with many telecommunications carrier companies, the fundamental plan for this program provided the basis for funds authorization for many individual projects. Implementation responsibilities for the current year's projects are typically assigned to the Current Planning Department. In this example, the Current Planning Department also recognized the costs and risks of adding fiber cable to an existing trench. They had previously implemented a number of fiber growth jobs that involved opening direct buried fiber trenches to add new cable only a few short years after installing the original cable. The Current Planning Department felt the heat when cable was damaged and customers were left without service.

So, the Current Planning Department undertook their own study on how to reduce the costs of repeated growth jobs with fiber feeders. They determined that it would be more cost effective to always bury the required fiber in concrete-encased conduit. Then, when a new growth job was ordered by the Fundamental Planning Department, it would be a simple and relatively inexpensive matter of pulling new cable through spare conduit space. This was a perfectly sensible justification for the added initial cost of the concrete and conduit.

Except it completely negated the fundamental planning justification for installing cable with 20 years growth capacity!

Since growth jobs were now actually inexpensive to’ install, the underutilized capacity was subject to rate base disallowance-the cable was not effectively in service and could not be justified. If a project manager had been assigned early in the justification process, and if the PM had remained involved during implementation, it is unlikely that two solutions would have been developed and implemented for the same problem.

There are numerous benefits to be derived from the project manager taking a proactive role in the entire telecommunications project justification and implementation process. This process begins with the initial concept for a capital investment and ends in a post-project critique of the new investment's resulting performance. A project manager's skills provide valuable input in developing project functionality, life cycle costs, anticipated benefits, implementation plans and the methodology for assessing project success.

THE PROJECT JUSTIFICATION AND A PM’S ROLE

Most telecommunications projects fall within four broad categories: Growth, Replacement, Mandated and Modernization. Without getting into overly technical definitions, the categories are summarized as:

  • Growth – Adding capacity using the same technology as the existing capital plant.
  • Replacement – Substituting old or worn capital plant with the same technology and capacity plant.
  • Mandated – Adding capital plant in order to implement. a regulatory or statutory requirement.
  • Modernization – Providing new or replacement capacity using new and different technology plant in order to achieve operating efficiencies or improved quality.

The justification required for each type of project is different. Projects that fall into the purely Growth, Replacement or Mandated categories typically require the least rigorous justifications. Modernization project justifications can require the most rigorous. There are traps to avoid in all four types.

Growth Projects

Growth projects usually only require evidence of a reasonable forecast of additional service requirements. This, of course, can be more difficult than it sounds—just ask our comrades at the electric” utilities that forecasted modest 7 percent growth requirements through the ’70s and ’80s, thereby justifying significant generation capacity increases. These stations ended up not being utilized when the growth did not materialize.

This raises the question, “Just how much growth capacity should be provided (i.e., our case in point)?' If a project manager had been assigned during the justification stage of our fiber growth project, it is unlikely that the company would have made the inconsistent decisions it did. A project manager who is familiar with the growth trends in a given area could provide added input to forecasts and justification. The project manager would also be in a good position to react quickly if forecasted growth appears to be inaccurate during construction.

Replacement Projects

Replacement projects typically do not require rigorous justifications. A capital plant that experiences a certain level of trouble reports is normally targeted for replacement. However, economic analysis is still required in order to determine how much trouble is enough to warrant replacement. When a replacement decision is appropriate, it must then be determined how large an area should be targeted.

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Project managers are in a good position to estimate crew efficiencies and the numerous trade-offs involved in construction. For example, is it more cost effective to mobilize for a large wire center-wide replacement project or should the company only target the specific neighborhoods experiencing isolated trouble? This practical input to the program justification is valuable.

Mandated Projects

When a regulatory agency requires a public utility to implement an order, little or no justification is required. However, the methodology by which the utility implements the order is often at the discretion of the company. Various alternatives should be studied and economically justified. Once again, the project manager's input can help to improve the quality of the analysis.

Modernization Projects

Modernization projects require the most complete form of project justification. Since modernization projects are usually discretionary in nature (meaning the company does not have to implement the project in order to continue its mission) the company must be able to prove that the project is the economically sensible thing to do. The company must develop a documented “business case” supporting the project.

A comprehensive business case: (1) ensures the best possible management decision; (2) provides appropriate documentation; and (3) presents the recommended decision to management in an effective manner.

In addition, the justification should establish “trigger points” that signal the need to re-evaluate the project's economics at any stage during implementation. Such trigger points might include a certain percentage of cost overruns or a certain amount of schedule delay. If anticipated project benefits begin to appear to be invalid at any point of the implementation process, the project should be re-evaluated. Because of the project manager's day-today involvement in the project, the project manager's input to developing the criteria makes the process more effective.

The sidebar shows a suggested organization and content for a comprehensive business case supporting a modernization project.

The project manager's input to the development of the business case can benefit the company in several ways:

  • The PM’s understanding of construction methods should lead to a more accurate and possibly lower estimated cost of implementation.
  • The PM’s technical perspective may help to develop alternative uses and additional benefits of the project that could help to justify the investment.
  • The PM’s early involvement in the project could help to speed project implementation, thereby allowing the anticipated benefits to accrue to the company sooner.

PROJECT JUSTIFICATION AND THE PM DURING IMPLEMENTATION

During design and construction of a project, the project manager should remain aware of the key elements of the project justification-estimated costs, in-service date, scope of work and project functionality. Project managers typically face pressure from numerous sources to deviate from the original mandate. Costs can increase. Schedules can slip. Even the project’s design and functionality can end up varying widely from the original concept. All of these maybe permissible and even appropriate. However, some changes may affect the underlying assumptions of the project justification. Some changes may even make the project uneconomical when the new parameters are plugged into the original economic analysis.

In December 1992, one state’s Public Utility Commission issued a scathing management audit of one telecommunication carrier company’s outside plant replacement program. The report found no specific fault with the replaced plant. However, the program had evolved over a period of years to a point where it bore little resemblance to the program planned and formally justified. The justification had not been re-evaluated to determine if the underlying economic assumptions were still valid— thus bringing into question the validity of the entire program. The company now faces long hours of verifying project economics. A worst case scenario indicates adverse rate implications (penalties) or rate base disallowances.

During project implementation, the project manager should periodically revisit the project justification. The original justification and any revisions should be kept in the project files. The project manager should resist changes that tend to take the project off course. If such a deviation appears to be necessary, the change should be brought to the attention of the organization sponsoring the project and the group that performed the justification. The justification should then be formally modified to incorporate the new direction.

The project manager should always be aware of any specific trigger points signaling the need for economic re-evaluation. If growth (forecast) trigger points were part of a closely monitored project justification for our nation’s nuclear generating stations, many would have been cancelled much sooner than they were, thereby saving many millions of dollars.

THE PM’S POST-IMPLEMENTATION ROLE IN PROJECT JUSTIFICATION

Finally, the project manager has a role in evaluating the post-implementation effectiveness of the investment. Even though the PM maybe assigned to anew project before the current one is complete, the PM’s input can be used to help measure the investment’s performance.

Post-project assessment of cost and schedule performance can provide planners with better historical information so that future project justifications will be more accurate. The project manager is in the best position to determine if any cost overruns or schedule delays were the result of a unique event and should be discounted in future studies. On the other hand, the overruns may have resulted from underestimation of the scope or difficulty in executing the project. These are factors that should be considered when project justifications for similar projects are developed in the future.

Suggested Business Case Organization

I. Opportunity Statement

Identifies business process that can be improved through capital spending on new technology. Service improvement? Cost reduction?

II. Approach Statement

Identifies what is to be done in the proposed project.

III. Cost Breakdown

Provides a summary of project costs for the recommended approach. Uses cost categories accepted by the company’s capital planning group.

IV. Environmental Considerations

Summarizes the social, political, organizational, etc. implications of accepting and/or rejecting the proposal.

V. Alternatives Statement

Describes the alternatives considered and provides a description of the economic advantage of the selected alternative.

VI. Closing Statement

Summarizes and formally requests approval.

VII. Supporting Documentation

Lists complete documentation supporting the decision and provides location of files.

CONCLUSIONS

The benefits of an active project manager role in project justification are many. A few are summarized below:

  • Reduced costs – Prevents implementation activities from deviating from the intention of planners. More accurate and possibly lower cost estimates.
  • Improved capital planning – More accurate justification analyses lead to the approval of projects that are the most beneficial to the company. The project manager may be able to develop more alternative uses for the project. The PM may also develop better feedback mechanisms on actual project performance.
  • Stronger performance incentives – The PM becomes more interested in achieving project success through heavy, early involvement in the project. The project’s implementation becomes more efficient.
  • Improved audit performance – Improved performance during prudence audits through better record-keeping and conformance to plan.
  • Improved personnel development – Better informed and knowledgeable project managers.

So, your company hasn't yet recognized the role a project manager can fill in the project justification process? If the benefits discussed above don't convince the appropriate level of management, try taking action yourself by following the steps listed below:

  1. Find out what group at your company is responsible for project justifications. Take an active interest in the justification developed for a your current project. Ask to see a copy and keep it in the project files.
  2. Understand how projects are justified at your company. What economic analysis tools are used? What are the criteria for accepting projects for implementation?
  3. Learn how to use economic analysis tools and develop an understanding of their underlying principles.
  4. When your project is nearing completion and you are wondering what your new assignment will be, start asking questions. Find out what ideas might be in the justification pipeline. Offer your help—after hours if necessary—on a potential project that sounds particularly interesting. Maybe through your involvement you will become the obvious choice to manage the project!

Finally, all project managers should make sure their projects stay in line with the justifications. They should re-evaluate the economics if major conditions change. They should alert management if any of the initial selling points of the project have vanished. While in the short-run they may risk the chance of the project being cancelled, they will certainly be noticed by management for having the best interest of the company in mind. (Just in case though, the prudent project manager should be following up on Suggestion 4 above before making this move.)

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W. Stephen Sawle is the president of Consultants to Management, Inc., a Chicago-based consulting firm. He has 18 years of business management experience in capital investment decision making and engineering and conservation project management.

Mr. Sawle holds B.S. and M.S. degrees from Cornell University and a M.B.A. from the University of Pittsburgh. He is a member of PMI and a Project Management Professional. He is also a Professional Engineer and a Certified Management Consultant.

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.

AUGUST 1993

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