Beyond the fiscal budget

managing projects outside of the yearly budget constraint

Don W. Chapman, PMP, Manager, Charles Schwab & Co., Inc.

The practice of project management continues to grow and permeate within the business community at a stellar rate. Though this growth has helped numerous businesses complete their planning initiatives with a new level of success, it has not come without its share of difficulties. One of the more frequent challenges that I have encountered as a project manager in the financial services industry is the concept that projects are typically budgeted to fall within a one-year time frame.

“Traditional” project-oriented industries such as aerospace, defense, and construction (Kerzner 1998) are well-versed in the fact that many initiatives require resources and funding for 12 months, 18 months, 24 months, and beyond. Funding for these projects may be secured and allocated based upon a fiscal budget, but the overall project schedule is developed via a multiyear budgetary plan. Thus, these long-range projects are managed with the expectations that resources, funding, and milestones are integrated over a period that falls outside of the January to December premise.

The financial services industry, which is relatively new to project management (Kerzner 1998), appears to administer their project efforts within a 12-month period, based upon a calendar or fiscal year. Even though many organizations prepare three-to-five-year business plans, they tend to identify initiatives that can be funded and developed within single-year increments. Many of these initiatives actually expand beyond a year's worth of effort, but unfortunately, business sponsors, and financial managers have a hard time committing to something that goes past their self-imposed 365-day threshold.

Ground Rules

Before proceeding, I would like to define the following assumptions for the purpose of this discussion:

• Project identification and budget requests are initiated during the 4th quarter of the previous year

• Project budgets are funded for the 12-month period of January through December

• Project definition and initial scope have indicated that an effort greater than 12 months will be required

• An effective project management methodology is in place and readily administered.

The focus of this paper is to discuss the practice of attempting to coerce the scheduling and funding of a project within a January to December time frame. The topics of project planning and scope definition will be addressed when appropriate, but I will leave the administration of such techniques up to the reader.

It may become obvious to many experienced project managers that an effective project management methodology (that is fully supported by senior management) could help alleviate some of the contentions that I have indicated. Please keep in mind that the premise of this analysis is based upon my own experiences, and more often than not, I have found that some projects just take longer than a year to complete no matter what! Also, all opinions stated in this paper are those of the author and in no way represent the management philosophy of any particular companies, either named or implied.

The All-Too-Familiar Scene

Place yourself in the following situation (Scenario #1):

It is late October and senior management has requested that all projects and related budget requests for the coming year be submitted for approval. You accept your assignment and diligently prepare an executive-level project charter that identifies the criteria required to satisfy the funding request. All indications point to a project that will take anywhere from 18-24 calendar months to complete. Several weeks later, the management team dispenses a report identifying all the projects that have been approved for funding. They also indicate how excited they are about the anticipated results for the coming year. As you review your approved budget you suddenly realize that funding and resources have been assigned to your project for a period of 12 months, January through December. What now?

Welcome to the world of imposed project constraints. Only in this environment, you do not necessarily have to reduce the scope of your project to fit the ensuing budget. This type of strategic planning often leads to one of the following three results:

1. Participants fail to see beyond the one-year horizon and therefore reduce the scope of the project, thus eliminating some of the original goals of the business request and increasing potential risk.

2. Effort is secured for one year but resources and funding are neglected for the total effort, which results in contention and shortages the following year.

3. The project is scheduled for the upcoming year with the remainder of the effort considered to be a carryover project for the following year, which also may result in resource contention.

I like to refer to the preceding form of project planning as “Annualized Project Management.”

Cause and Effect

So what drives many business managers to think that everything needs to be accomplished in such a short time frame? It has become painstakingly obvious during this age of information technology that even the slightest delay in production can have a devastating impact on the corporate bottom line. Combine those pressures with the fast-paced, volatile world of the financial services and brokerage industries and it becomes easy to see why many senior managers fear any long-range commitments.

Consider the following observations:

•   “People in the business world love heroes. We lavish praise and promotion on those who achieve visible results. But if something goes wrong, we feel intuitively that somebody must have screwed up” (Senge 1990, 40).

•  “The window of opportunity is narrowing and constantly moving. Organizations that can take advantage of these opportunities are organizations that have addressed the problem of reducing cycle time. Taking too long to roll out a new or revamped product may mean missing a business opportunity” (Wysocki 1995, 6–7).

•  “For most American business people the best rate of growth is fast, faster, fastest … (but) the optimal rate (of growth) is far less than the fastest possible growth. When growth becomes excessive … the system itself will seek to compensate by slowing down …” (Senge 1990, 62).

Pragmatic Differences?

Perhaps one of the more noticeable distinctions between traditional project-oriented industries and the new practitioners of project management is the product offering. Businesses that offer a service to the public tend to feel more pressure of getting to market as quickly as possible. The same can be said for financial products, especially during a fast-moving market period. This is not to discount the need for an automotive manufacturer to stay ahead of their competition. Sometimes it just boils down to a matter of logistics, it obviously takes a significantly longer period of time to develop a new car or truck than it does to package a new mutual fund. So even though the automobile manufacturer is working as diligently as possible in order to stay ahead, it still faces the necessity of having to envision project efforts beyond a single year.

A second item of distinction that I have noticed is the high level of quality control that is applied within the more project-oriented organizations. Perhaps it has been easier to implement Six Sigma type strategies due to the critical nature of ensuring quality within a product such as an automobile, airplane, or bridge. It is no secret that effective quality management has propelled the likes of GE, Motorola, AlliedSignal/Honeywell, Dupont, and Kodak into a cycle of sustained success within their respective industries (Pande 2000). But how do you convince a bank or a brokerage firm that Six Sigma is more than “a statistically derived performance target of operating with only 3.4 defects for every million activities …” (Pande 2000, x)?

As project managers, we all know that quality management within a project is critical for its success. Obviously other organizations are beginning to realize that Six Sigma is not just an engineering discipline but also a “flexible system for improved business leadership and performance” (Pande 2000, 3). Take for example Federal Express and GE Capital—service industry giants that have incorporated Six Sigma controls in order to improve their processes, which ultimately improved their service to customers.

It seems that both project management and quality management are facing the same obstacles as they migrate from their perceived technical nature to the modern business world. I imagine that it is very difficult for a strategic manager in a service-oriented industry to envision being constrained by project plans, Gantt charts, process controls, and the like. I experienced this perception firsthand when I was hired to manage technology initiatives for the brokerage division of a large financial services firm. Senior management was very excited to learn that I would be implementing project management procedures in order to achieve our technology related goals more efficiently. There was one caveat, however, when the CEO forewarned that I better not be introducing all of that “extra overhead” that is used in the information technology area like project charters and detailed plans. His fear was that the implementation of a project management methodology would slow down his strategic planning process because of the steps and checkpoints that would have to be followed.

The Strategic Planning Paradigm

“Planning, in general, can best be described as the function of selecting the enterprise objectives and establishing the policies, procedures, and programs necessary for achieving them. Planning in a project environment may be described as establishing a predetermined course of action within a forecasted environment” (Kerzner 1995, 567).

Strategic planning can take on many shapes and sizes in today's business environment. Some corporations practice traditional planning; i.e. senior management sets the directives and where feasible, a strategic planning office carries out the details. Other companies try to instill a strategic “mind-set” within the work force to allow for planning at all levels. And yet others have implemented a true bottom-up planning process, which focuses on the abilities of those that will implement the plan as opposed to those that are the big picture visionaries (Peters 1987).

So how does strategic planning affect our abilities to manage a project effectively? One of the basic rules of strategic thinking is to “look ahead and reason back” (Dixit 1991, 34). My tenure within the financial services industry has allowed me to cross paths with many excellent visionaries. I am not convinced, however, that they follow the rule of reasoning back. I found this to be particularly true when involved with projects that were of an internal support nature. Many strategic plans are set about in a way to identify how to gain market share, increase customer satisfaction, and/or introduce new products. The top-down effect of these plans often results in the formulation of projects that require modifications to existing systems and/or operational procedures. The visionary sets goals that will increase the bottom line. The line managers must implement plans to meet the new goals all the while sustaining status quo.

An example of this paradigm can be addressed in a scenario that I have witnessed at multiple financial services firms (Scenario #2):

A strategic plan is set forth for the coming year to provide clients with a “new and improved” statement of accounts (e.g., brokerage, banking, 401k, etc.). The sales and marketing departments aggressively run with the new plan and begin announcing to clients and management alike of the forthcoming changes. Meanwhile, the statement operations department and the supporting information technology groups participate in numerous work sessions to identify the steps required to meet the proposed goals. After careful planning it becomes obvious that the effort will require several projects of various lengths and degrees of difficulty. All told, the total effort required cannot be completed within the time frame set forth in the original strategic plan. Senior management is informed of the challenges at hand and subsequently passes down the command to “do whatever it takes” to complete the effort within the next year.

Once again we are faced with the challenge of trying to fit a project into a predefined time frame, which often leads to such tactics as scope reduction, poor quality control, elimination of documentation, and more.

Project Planning

The success of any good project is based upon a sound project plan. The various steps in the planning process (e.g., scope definition, identification of activities, duration, estimating) help to ensure that the objectives of the initiative will be met within the specified time and budget (Wysocki 1995). “The most critical phase of any project is the planning phase. Ideally, when the project is planned carefully, success is likely” (Kerzner 1998, 89).

But what happens when we are faced with having to plan without adequate time and/or resources? Let's return to the first scenario and assume that it is one of ten projects that have been given the green light for funding. It is now early January and we are faithfully following the PMBOK® Guide standards to develop an effective plan. Meanwhile, the clock is ticking and we are scrambling for resources because everyone is feeling the crunch of trying to implement last years’ projects that have carried over into the current year. Thus, we spend a little less time on the detailed analysis in order to get a jump on the development portion, so that we don't waste precious time while trying to meet our year-end directive. The final result is that we have become guilty of backward planning, i.e., trying to back into a date when we know full well that the proper analysis hasn't been completed and the estimated effort is nearly impossible to achieve.

I'm sure that poor planning incidences occur within all industries and their effects can range from slight delays to project devastation. I have found that my experience within financial services companies that adhere to a one-year project timeline often do not account for planning as part of that timeline. I believe that the project clock should not start ticking until the planning process has been completed. If total effort is limited to a one-year period, then the clock begins ticking on January 1st and time spent on planning is deducted from the time that is available for project completion. The final result gets caught up in the cyclical pressure of completing the project prior to year-end and having to face the same scenario for the following year's initiatives.

The Not-So-Friendly Bottom Line

Now that I have explored the causes of Annualized Project Management, what effect does this have on the bottom line? Ultimately, I believe that the health of the project is negatively affected and its overall success is targeted for failure. The prevalent misconception that a project needs to be completed within a year's time places a single constraint on the initiative that is limiting beyond the best project plan. Even in situations where the initiative is deemed to be a future carryover, it loses its affiliation with the original project timeline and funding. When the planning sessions roll around again for the following year, nobody wants to commit to a project that is viewed as “incomplete.” Therefore, resource and funding issues arise based upon newly developed initiatives that will be forced to fit into the same one-year window. As this cycle continues it becomes very obvious that large-scale efforts will either be ignored or reduced in scope because of the general notion that they cannot be completed. Throughout this paper I have presented various items that coincide with the issue of attempting to coerce the development of an entire project within a single calendar year. The following excerpt acknowledges some of the reasons why projects fail, several of which have already been identified as contributing factors to the scenarios I have addressed above: Typical reasons why plans fail (Kerzner 1995, 605):

• Corporate goals are not understood

• Plans encompass too much in too little time

• Financial estimates were poor

• Planning was performed by a planning group

• Plans were based on insufficient data

• Project estimates are best guesses

• Not enough time was given for proper estimating

• Proper resources are not available.

Consequently, if an approved project is not afforded the time, commitment, and resources to be planned out effectively, the chances for success are slim. This is not to say that a project cannot be completed within a year's time, but that all of the phases that go into proper planning will dictate the true duration of the project. If we are forced to define and develop an initiative within a set time frame, the overall constraint will normally cause subpar planning and eventually lack of project success.

Potential Solutions

Determining a solution to the adverse process of Annualized Project Management is not an easy task. Unfortunately, I do not have any definitive resolutions to the challenges that I have presented. One path to success that I do firmly believe in though, is that a coordinated effort must be launched to educate everyone on the benefits of a total project plan. A plan that has effectively identified proper levels of funding, resource assignments, and work effort will ultimately define the proper timeline for the complete initiative. The project as a whole must become the focus of the sponsors, managers, and team members—not the amount of effort that can be completed in a year's time. When this becomes a reality then initiatives will be better served by their true business purpose and projects will take on a sequential succession rate.

How important is it to provide adequate planning and obtain support from senior management? Consider the following viewpoints from various experts in the industry:

•  “During the traditional period of project management, the objectives of a project were defined in technical terms primarily, with little business interest incorporated. Today, project objectives are based 90% in business terms and only 10% in technical terms” (Kerzner 1998, 104).

•  “The successful implementation of project management usually requires cultural change. Excellence in project management is achieved when the culture of the company is able to change quickly to handle the demands of new and multiple projects. But change can be derailed when even one executive refuses to support the new culture” (Kerzner 1998, 133).

•  Schedules and budgets need to be defined based upon sufficient analysis. “Deadlines set without regard to how much time it actually takes to perform the work, given available resources and conditions, are targets, not schedules” (Pitagorsky 2000, 53).

What is project success? Typically, a successful project is defined as having met the business requirements, been delivered on time and within budget. It is very difficult to achieve this level of success when budgets are extended and requirements are reduced in order to meet the time objective.

My final goal would be to introduce an ongoing project identification and definition process. This process should take place at the strategic planning level and address the enterprise's project portfolio (or program). The need for effective portfolio management prior to assignment of funds and resources is just as important as the project planning itself. My desire is to see a dedicated team assigned to identify and define strategic opportunities continually throughout the year. I typically have witnessed sponsors, strategic planners, and line managers spend one to three months (usually in the November to January time frame) identifying and defining the project portfolio. Project requests and associated funding are approved, and then the process is turned over to the project teams (Scenario #1) for completion within the coming year. This process is cyclical in nature and the same steps are followed for each budgetary project year.

My proposal would proceed along the following steps:

1. Assemble a team of representatives from the Project Office, Senior Management, Strategic Planning, and related Product Development and/or Lines of Business.

2. Meet on a regular basis throughout the year.

3. Identify and define potential initiatives and prioritize them according to corporate needs.

4. Submit projects for approval and add them to the overall portfolio on a recurrent basis.

5. Follow PMBOK® Guide standards for efficient and effective planning.

6. Release the projects for development throughout the year as resources become available.

7. Provide project funding using the same annual budgetary approach, only use the portfolio list to identify projects that will be worked upon during that year.

I believe that this procedure will help to introduce a continual flow of projects throughout the calendar year, thereby eliminating the perception that projects begin in January, and end in December. By effectively defining the initiative before it is submitted for funding, the up-front planning time will be reduced. The greatest challenge with this approach will be the allocation of funds, especially with the introduction of new initiatives during the year. But once an annual cycle has been completed, allocations can be made based upon all of the projects identified as having effort within the budgetary year. As long as the planning process was completed properly, cost and time estimates will dictate the funds needed. As the process matures, then reserve funding can be set aside in anticipation of extraneous initiatives that are introduced within the allocated portfolio plan.

Final Thoughts

As stated earlier, the intent of this discussion was to identify the issues that result from limiting project planning to one-year increments, and subsequently attempt to determine potential solutions. Though project management as a science can be extremely disciplined and process oriented, in reality it is very much a flexible methodology at the hands of its advocates. My experiences within the financial services industry have led me to believe that project management is becoming a hybrid methodology, i.e., part traditional processes and part business strategy. The key to finding an acceptable resolution to the Annualized Project Management cycle is to strike a balance between innovative business practices and the structured environment of true project management. There is no standardized approach to achieve the perfect model, but rather it has to be applied on a case-by-case basis. And as project managers, it is up to us to help determine the correct blend of methods in order to provide successful project results.


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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.

Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville, Tenn., USA



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