Managing technological innovation projects
the quest for a universal language
Bob Mills, Department of Materials and Process Engineering, School of Science and Technology, The University of Waikato, Hamilton, New Zealand
Alan Langdon, Department of Materials and Process Engineering, School of Science and Technology, The University of Waikato, Hamilton, New Zealand
Chris Kirk, Research Policy and Strategy, Massey University, Palmerston North, New Zealand
Janis Swan, Department of Materials and Process Engineering, School of Science and Technology, The University of Waikato, Hamilton, New Zealand
Technological innovation can provide organizations with sustainable competitive advantage. It may be done through innovation projects, which could involve “blue-skies” research, developing new products and new processes, and/or improvements to current products and processes. Innovation is not to be confused with invention! Invention only offers “the public” the possibility of new choice whereas innovation offers “customers” actual new choice. Innovation is achieved by creating benefit from an idea, a concept, an invention or the application of a new technology (cf. the definition of a project, PMBOK® Guide, 1996, 5.2.3).
Innovation projects are different to other projects. Most innovation projects will be stopped or fail, whereas practically all other projects are expected to be completed (Economist, 1999). Success does not follow from compliance with predetermined objectives of cost, schedule and quality of individual innovation projects (since they are uncertain, and may even be indefinable at the outset of the project) but from achieving profitable business outcomes. Further, the current value, health and welfare of innovation projects cannot sensibly be judged against project prescriptions; they can only be assessed in relation to remaining cost and effort and their updated predicted benefit. Innovation projects can expect continued support only if they maintain the promise of adequate return. Business purposes, therefore, overwhelm innovation project processes (Bartlett, 1994). Traditional project management tools, which make comparisons with plans and schedules, consequently appear to be largely irrelevant for monitoring and control.
The logic and simplicity of Gantt (bar) and PERT (network) charts have made them enduring project management tools. Their use has been reinforced by the general application of computerized charting from as early as the mid-1960s. In the 1970s and 1980s, “stage-gate” methods became popular for monitoring and controlling new product development (NPD) (Cooper, 1993). Project stages are completed and reviewed at gates to confer approval to proceed and for comparative ranking, which is useful for project portfolio analysis (Cooper, 1998). A project portfolio appraisal system provides a mechanism for regular and appropriate strategic decision making by executive management. The software industry introduced “Rapid Application Development” methodologies in the 1990s, which uses “time-boxes” to subjugate functionality (specification creep or quality) by applying rigid time constraints to try to complete software projects within budget (Mimno, 1991). Traditional hierarchical innovation project management tools have therefore been perceived as ponderous in the context of today’s organic business structures and are being superseded.
Other features of innovation projects also make the use of traditional tools impractical. For example, new technology and new market information may validly contribute to innovation project activities right up to launch date dramatically changing the shape of the project making it difficult for documentation to keep pace. As well, individuals involved in the innovation process are often delegated high levels of responsibility and freedom. They might best be “self-managed” and monitored at regular intervals rather than “directed” on the basis of a schedule of activities and may also better optimize resources than specialist planners.
Exhibit 1. Organizational Profiles
Technological innovation often changes “ownership” and focus within organizations and across them. For example, an innovation project can move from fundamental science and development in one company to production, sales and marketing in another. While change of ownership may change scope and prospects, the essential idea may remain, as might the finite goal.
Relationships between customers and R&D, customers and production, as well as customers and marketing need balancing and are essential for technological innovation projects (Kaplan, 1992; McKenna, 1991). The traditional role of marketing, at the crossroad between the operational arm of organizational structure and the forces of disruption (R&D) and standardization (QS) is being diffused (Mintzberg, 1979, 1989). Therefore, innovation project members find themselves directly involved in ensuring their outputs profitably satisfy real and current customer need. Innovation program and project management must therefore be a transparent process to those responsible for setting the purpose of the organization, as well as for all the people involved in making it happen.
A widely understood process, more relevant to modern organizations is needed to meet the shortfalls of traditional project management “knowledgeware.” However, Bernaxo (1999) and Englund (1999) warn of the many problems in implementing organizational change in the innovation project process. Intellectual support does not ensure change. A first requirement is for a universal language, integrative within and across organizations, and useful within and across functions. A second requirement is a means for successful implementation.
Background to this Research
An initial study (Mills, 1996) was carried out using seven representative purchasers and providers of technological R&D services (n=13) to assess the satisfaction of senior program and project managers with current practices by using in-depth, partially structured interviews. A second study (Mills, 1999) used six successful companies (two each from the electronics/manufacturing, food-processing and forestry industries) (n=12) by the same method as the initial study. The open-ended guideline questionnaire used with companies is in Appendix A. Annual turnover; R&D expenditure and number of respondents for each organization are shown in Exhibit 1.
All organizations used Gantt charts and all companies and research providers used Microsoft’s “Project” software, but only for planning as the costs and effort to maintain frequently changing schedules were too high. Three of the six companies had instituted stage-gate processes to some degree, which helped tie projects into the organization. However, none of the stage-gate processes was fully functional. Formal monitoring and control was inconsistently applied to suit individual project and business reporting requirements, making project comparison within organizations for portfolio reviews difficult. A key finding in the two investigations was that only one of the 25 managers was satisfied with current practices; all desired improvement and were altering their organizational systems to better accommodate change introduced as a result of new information or knowledge.
Exhibit 2.The TIPS Concept as a Gantt Chart
where a=optimistic and b=pessimistic durations; and Te=expected duration
Therefore a new approach called “TIPS” (Time-block Innovation Project System) was conceived and developed to accommodate the need to align individual projects with programs and business purposes and to respond to increased individual accountability in the context of uncertainty in a rapidly changing environment. In concept, TIPS can be considered as a Gantt chart where all project activities are allocated to sequential, equal-sized blocks of time (weeks, months or quarters). Each time-block is allocated a description related to the focus of activity or a milestone required to be achieved (see Exhibit 2). The nominal cost of each time-block is identified and the uncertainty of milestone achievement by the end of the time-block described using two durations (optimistic and pessimistic).
By definition all time-blocks are on the critical path and the uncertainty of completion can therefore be readily calculated (we use a beta probability distribution after MacLeod 1996). The latest estimated NPV of the project benefit is declared and all key attributes for project and portfolio analysis and project ranking identified. Project rank disclosure enables individuals (in conjunction with their supervisors) to judge the best use of their time. Unlike a Gantt chart there is no need or benefit from actually plotting activities against time. At the end of each time-block the project is reviewed and may be completely revised since all costs are sunk and new knowledge has been gained.
The TIPS approach we have developed uses Microsoft’s Excel spreadsheet software to encapsulate key project dimensions for reporting and decision-making; is summarized in Appendix B and shown by example in Exhibits 3 and 4. This paper presents the response of the same interviewees used in the earlier investigations to this new and alternative approach. It identifies changes required to the TIPS model initially developed and recommendations for its implementation.
The interviewees were sent a summary of the TIPS approach and asked (on a fax-ready reply form) to respond to two leading questions:
1. In what ways could TIPS potentially better meet the innovation project management needs of your organization?
2. What changes or modifications to TIPS are necessary before your organization could consider implementation?
The form of the questions was chosen to invoke comparison between TIPS and existing innovation project management arrangements (already acknowledged as unsatisfactory by the interviewees) and to provoke a considered response.
In all cases follow-up was needed to encourage responses or to provide additional information or explanation. Reasons for slow response included overseas business trips, the need to dedicate several hours for a detailed consideration, and the overriding priority to perform income-generating work. A nil response was declared for the four interviewees who, after two months and at least three attempts at follow up by phone, fax, mail or e-mail, had failed to produce results.
Exhibit 3. Sample TIPS Project Worksheet (Quarterly)
Sixteen responses were supplied from the 20 of the original 25 interviewees still with their organizations (see Exhibit 1). This represented three of the four R&D purchasers (three interviewees solicited), all three R&D providers (five interviewees solicited) and representation from all six companies (10 interviewees from 12 solicited).
Findings and Discussion
Executive managers for three R&D purchasers responded. The manager from P1 dealt with “public good” strategy policy issues and considered TIPS unhelpful for selecting strategy but “looked useful for implementing it.” The manager of P3 (from an accounting background) had a “hands-off,” “sunk-cost” approach. The manager considered that judicious selection of the project credentials of the researcher and receiving a completion report provided as much control as could be hoped for. Therefore, she considered TIPS irrelevant.
The manager of P4 operated at the business unit level. He considered that TIPS would provide “a simpler platform.” Computer spreadsheets are more commonly used across organizational functions and levels than project Gantt charts. Thus TIPS appeared to be a simpler system to operate and update. This endorsement was qualified by a need to “view or sample TIPS in order to further consider implementation.”
R&D purchasers, providers and companies need to determine the content and size of their strategic “buckets” (funding categories). TIPS is not useful if strategic policy or purpose is set independently of (or without direct regard to) opportunities generated from development of existing products, processes or core competencies. However, few organizations can afford the luxury of disconnection between purpose and process and hope that serendipitous discovery or judicious selection alone will provide sustainable returns.
Exhibit 4. Sample TIPS Portfolio Worksheet
Two project managers and one executive manager responded. The project manager from R1 advised, “NPV (given success) still needs to be supplied.” However, “It looks as if [TIPS] will deal better with [project] unpredictability…which has been an issue for us.” Again a “demonstration” of TIPS was desired.
This first response raises the troublesome issue of innovation project finish dates. Preliminary conclusions from the earlier research (Mills, 1999) suggested the finish date could usefully be “a nominated time after net positive income.” This secures continued support for the early stages of commercialization but may be difficult to identify precisely. For TIPS, the project finish was therefore modified and prescribed as “six time-blocks after date of income commencement.” The respondents, however, found this date also difficult to determine especially where long distribution chains exist. Thus a more pragmatic approach is needed to more specifically define “income commencement.” We have therefore selected “the date first income is actually received.” This is the date beyond which NPV is accrued (see Exhibit 5).
Exhibit 5.TIPS Scope
Uncertainty and risk is quantified for each time-block during the project but the discounted cash flow and NPV calculation details were not included on the spreadsheet version of TIPS given to the interviewees, which created concern. TIPS provides information transparency during the project, which should be continued during the balance of the benefit capture process. Put another way, if R&D, engineering and production are required to provide best estimates, so should marketing. Indeed, if TIPS is to be regarded as an organiza-tionwide tool, calculating NPV should be done on the TIPS spreadsheet for each project.
The executive manager from R2 agreed that their organization needed a “structured approach like TIPS”. Its staff was computer literate and would find TIPS “easy to pick up.” He required that TIPS be made compatible for Intranet use. He also confirmed that project managers presently handle resource management but considered that this function might need to be overseen at a higher level for strategic optimization. His organization was emphasizing project management systems and training, but was still concerned that intellectual property was handled ad hoc and research results were not disseminated in a managed way. To facilitate this, TIPS could be used to extend the scope of management beyond delivering project results.
The project manager from R3, a very hierarchical organization, described the conceptual advantages of TIPS this way: “TIPS appears to allow [technological innovation] projects to ‘morph’ as they progress in order to best achieve a successful outcome without being constrained to original ‘guess-timates’ as to cost, value etc.” However, he added, “A large part of our innovation and project management revolves around multiple projects, with the associated problems of dynamic resource allocation and tracking. Therefore, even if TIPS does not handle these issues, there needs to be a relatively easy way of integrating it with packages or tools that do.” These last two respondents both raised human resource management issues. These project and executive managers determined their responsibility as managing or directing the human resource, rather than supplying project-relative priorities to staff and empowering them to be responsible for their contribution. With such empowerment, managers should have more time to attend to smoothing the path of progress and thereby accelerating its rate.
The R3 project manager then goes on “I am also unsure how TIPS manages research projects that may result in the development of knowledge or capability that, while not directly contributing to income, does provide the foundation to generate further income through increased capability, technology, etc.”
This project manager, therefore, would like to allow for the prospect of not providing an estimated benefit or value of the project. This is a useful insight because assessing benefits that are difficult to quantify are brought into the debate. The conceptual solution in TIPS is to always extend R&D project planning into the realm where a tangible return is created. Curiosity-driven research may sometimes be seen as a philanthropic pursuit not directly related to the innovation process, but adventitious results and unexpected discoveries must be able to be recognized and valued by any innovation project management system.
Each of the respondents for the electronics companies originated from an engineering background where detailed planning is common and manufacturing processes likely to be used were frequently well known. They generally had a strong desire for schedule prescription and compliance.
A program manager from E1 considered that TIPS has the advantage of summarizing a project for portfolio management and assigning priority in a scarce resource environment. However, he considered TIPS provided nothing new or better for planning, tracking or controlling projects. He contended that the main issues in project management were “keeping staff wound up and pointed in the right direction, accurately reporting progress, correctly identifying and resolving big issues early to aid the prediction of the time/cost to completion.” He consequently perceived time-blocks as an aid “for project reporting rather than as a planning and control method.”
A project manager in E1 envisaged TIPS as providing opportunity for project staff to develop leadership skills in the role of Block Manager and extend those skills by taking charge of blocks near the limits of their specialization and thus providing the motivation and challenge desired by good staff. He also acknowledged that his company did not “really do a great deal” to account for risk and it had no formal method to “calculate or communicate the level of confidence in the project plan.” It currently establishes “reasonable expectations” for duration then updates and communicates progress through regular (normally weekly) meetings.
The project manager in E1 also considered the TIPS portfolio summary sheet with listed priority rankings to be useful. He commented that they try to avoid multitasking and said “the best way to ensure project completion is to allow the design team to focus on one project and leave them to it.” This suggests caution would be required when using TIPS. Project priorities should not be frequently or radically changed, nor should too many staff be expected to float across high-priority projects.
The program and project managers of E2 sent in a combined survey response. They considered that TIPS would be a useful method for assessing and comparing “new technology/blue sky” projects, which in their company did not have a formal method for evaluation. They suggested that an NPD or Innovation Manager could have development and maintenance responsibilities for TIPS. This response contrasts with their position at the initial joint interview, where they wanted to avoid appointing specialist managers.
For E2 “shorter term projects are often committed to on the basis of manufacturing and development costs versus estimated sales at an assumed selling price. Once commitment is made, then time and cost estimates prior to and following income commencement can be maintained using [existing] project management tools.” This suggests that their existing systems are adequate for well-defined, short-term projects where support is unlikely to be withdrawn or where technical and market changes are unlikely to occur before completion. However, if existing tools were used for these types of projects and TIPS for others it would be difficult to assess relative priority for resource allocation on a common basis.
This company (E2) considered the concept of allocating costs to time-blocks rather than activities difficult. It was also concerned about how to isolate critical tasks within time-blocks. Again, the desire to fully plan the schedule and tightly control resource allocation was evident, even though these features of existing systems were not used in any of the organizations.
The response from E2 is useful because it characterizes the comprehensive nature of planning when using an “engineering approach.” However, initial planning for TIPS could be done in the same way as assembling a Gantt chart; expected activities would be listed, their duration assessed and a sequence for execution proposed. Resource issues and activity sequence optimization for Gantt or TIPS are normally dealt with in a second planning iteration and using TIPS these are delegated to individuals or their immediate supervisors. Activities on the critical path can be identified and bottlenecks eliminated by rearranging resources using traditional or more recent approaches (e.g., Goldratt, 1997). TIPS time-blocks could then, if required, be overlaid on the Gantt chart to identify the activities expected within each time-block.
Time-blocks in TIPS form a sequential, singular series and contain all activities carried out within a nominated period (including those on the traditional critical path). Put another way, in traditional project management, nominated activities (of various duration) are scheduled whereas in TIPS, nominated units of equal duration are sequentially scheduled and allocated various activities. An important issue is dealing with any mismatch between the duration of important critical path activities and the nominal time-block duration and it is here that the art of innovation project management is exercised. The activities initially within and just beyond any one time-block should be considered so that a challenging, realizable and tangible goal that can act as the focus of achievement for that time-block can be found. A suitable activity endpoint may fortuitously coincide with completion of the time-block. Alternatively a low risk activity, scheduled for completion beyond the time-block end-date, could be compressed. Another strategy is to slightly extend a highly uncertain activity to match the time-block duration; the optimistic and pessimistic duration estimates for the time-block could be selected to accommodate this adjustment. While time-block descriptions may be perceived as “loose,” activity descriptions too are merely convenient constructs, often used more for prestige than for precision.
The program manager of F1 considered that TIPS had the advantage of providing alignment with existing time-based requirements, and specifically cited “accounting and reporting processes.” A further advantage was alignment of the current portfolio. A “problem” with TIPS for this manager was the need to determine NPV, which he considered, would consequently encourage the tendency for executive management to support projects with a “short-term” focus where this calculation is perceived as more reliable. This trait is evident in some of the divisions in F1 using current management tools. Finally this program manager advised multitasking on various projects was common and daily scheduling of personnel to specific projects was impractical, thereby validating the TIPS approach of delegating individuals to optimize the use of their own time.
A positive side effect for a project manager in F1 was that marketers, who were perceived by production site staff as physically and intellectually uninvolved with the innovation process, would be compelled to make discernible contributions to TIPS.
A program manager from F2 concluded that TIPS combined several well-proven methodologies and should therefore be robust. He described it as “simple enough” which he regards as important because “many systems lose the plot as they become too complex (academic).” He suggested that meaningful feedback could only be achieved by trialling the system and was looking for projects to do this. Given that he was also the only interviewee originally satisfied with his current process, such a set of trials should give an excellent basis for comparing TIPS with current techniques.
A project manager for F2 considered that using TIPS had the advantage of formalizing the innovation process. “At the moment there is no set path or method to follow through this type of project other than PERT/Gantt.” He said that innovation projects in F2 often took place over several sites so good communication was vital. Another advantage of TIPS was “the ranking [of] innovation projects which helped project staff to work out [their personal] priorities.” He also confirmed that the company would only proceed with a project if there were strong projected sales returns. This infers the fundamental requirement for cooperation across functions and disciplines, and the desirability of having a “neutral” innovation project management system.
A project manager in T1 found it difficult to understand the TIPS process without observing an example first. He thought that intuitively “it looks like it frees up more time [to do] the project compared to managing the process.” He reflected that “businesses are probably more interested in return on shareholder funds (ROI) these days than change in value (NPV).” This suggests that NPV measures, used for selecting and prioritizing projects, are less important to company executives when reporting to shareholders than the expenditure and income measures for the aggregate portfolio. Therefore, the TIPS approach, which does not track expenditure on individual projects, could be suitable.
A project manager at T2 considered TIPS would best contribute to the innovation process by quantifying the probability of project completion alongside the remaining Net Present Cost for completion. He considered that this feature alone would help provide a decision-base to abandon some projects “currently lingering.” “At present several specialist applications [software packages] are in use. Having TIPS in Excel makes it available for use to a far wider audience.” TIPS “conceptually looks fine” but he wanted to know, “How simple is it to learn and use and how much will it cost?”
Survey Response Summary
Project and program managers from different organizations involved in technological innovation see TIPS as having the potential to provide a sound and robust method to manage innovation projects individually and together in portfolios. TIPS does not provide a direct means for developing innovation strategy policy or for selecting “strategic buckets” to define portfolios alone. It does, however, help provide the basis to rank projects within portfolios. TIPS does not provide detailed resource management but, by insisting projects are ranked, empowers staff throughout the organization to identify high priority projects and optimize their individual contribution. TIPS also assists managers to effectively and efficiently monitor and control effort strategically. However, the real test for TIPS will come only with the next phase of the research: real trials on real projects.
The amount of information reported here comes from a very small subset of organizations and represents a “snapshot” of opinion only. Nevertheless nearly all the survey respondents (15/16) thought TIPS had several advantages over current systems. The remaining survey respondent did not feel qualified to comment since her organization had a “hands-off” approach to funding. The most frequently voiced advantages of TIPS can be distilled to “providing a simple, tangible, consistent and transparent means to regularly compare innovation projects for inter-project ranking and compliance with organizational strategy.” Transparency is aided because most managers use Excel spreadsheets, the proposed platform for TIPS. This platform interfaces well with the Internet (email and web site access), which is useful for multisite projects.
Two respondents needed specific additional guidance to clarify their understanding. Six of the 16 respondents specifically requested demonstrations of TIPS on a “real” project before they would consider implementing TIPS in their organization.
Summary and Conclusions
R&D purchasers, providers and companies are all potentially important contributors to the innovation process in New Zealand and share common problems and concerns in managing the innovation process. A new management model called TIPS was conceptualized. TIPS could potentially integrate technological innovation project management into the operational fabric of these organizations. TIPS is intended to encourage regular review of projects and programs, help priorities projects within portfolios and operate from a widely-used platform (Microsoft Excel). A survey of project and program managers (interviewees from earlier research) produced an 80% response rate. The respondents had generally positive reactions to the novel simplification for managing a typically complex and uncertain process. Respondents intellectually supported TIPS and offered useful insights on how the process might be perceived and implemented.
Survey responses identified a requirement for two simple changes to TIPS before implementation trials begin. Firstly, project completion should be more accurately triggered, by using the “date of receipt of first income.” Secondly, calculations of the NPV (risk/uncertainty-adjusted benefits or sales) should be shown on the project spreadsheet.
Appendix A. Guideline Questionnaire for In-Depth Interviews in Companies
1. How does your company decide how much it will spend on technological innovation projects? How much does it spend?
2. How are innovation projects and project teams selected? How many innovation projects are being funded within your part of the company? How many innovation project organizations do you currently draw from?
3. What tangible and intangible returns/benefits does your company expect from your investment in technological innovation?
4. How do you measure or assess the returns/benefits from your investment at the project level? How satisfied are you with the measures you use?
5. What organizational structures and management systems do you have in place for the management of technological innovation projects?
6. What forms of agreement do you have for delivery of technological innovation projects?
7. What formal accountability do you require from project teams for reporting achievement (aims, time schedules, expenditure and quality of output)? How satisfied are you with the accountability given for each of these?
8. How do you monitor progress (aims, time schedules, expenditure and quality of output) on each project? How satisfied are you with the techniques used?
9. How do you control progress (aims, time schedules, expenditure and quality of output) from the monitoring information you receive? How satisfied are you with the techniques used?
10. How do you use the project management information you receive? How could you make better use of the information?
11. Does your company desire more accountability from technological innovation project teams? If so, in which areas?
12. In what ways do you think appropriate project management could give you better returns on your investment?
The requirements for producing a working TIPS model have been outlined and further refined by this investigation. The next step is that an operationally robust implementation of TIPS be trialled and reported. It is proposed that TIPS is offered in the first instance to the organizations already involved with this research and one selected for pilot trials starting in late 2000. Full trials are expected to start in 2001.
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Appendix B. Managing Innovation Projects and Portfolios Using TIPS
1. Select the appropriate time-block size according to project duration:
Up to six months—choose weekly (e.g., evolutionary, enhancement, support)
Six months to two years—choose monthly (e.g., revolutionary, new products)
Two years or more—choose quarterly (e.g., R&D, blue skies, curiosity)
All projects start with Project Sponsor approval and allocation of priority number
• Week-block projects finish, say, six weeks after income commencement
• Month-block projects finish, say, six months after income commencement
• Quarter-block projects finish, say six quarters after Sponsor approval of a tangible business plan [and nominally six months after income commencement].
2. Create and complete the TIPS project Excel worksheet: Project Description fields are:
Priority (a unique organizationwide current priority number set quarterly)
Project Name (concise and imaginative)
Project Outcome (e.g., new model, new process, new technology)
Strategic Category (for portfolio analysis: e.g., by market, product type)
Time-block size (week, month, quarter)
Project Sponsor (senior/corporate management/owner)
Project Manager (business management/facilitator)
Unique Resource (a nominated individual considered key to success)
Net Present Value (given success) ($NPV)
Interest Rate (used for $NPC and $NPV calculations)
Worksheet Details (for each sequential time-block):
Block End-date (next rescheduling review date)
Block Managers (responsible for all activities in each time-block)
Block Descriptions (incorporating tangible and challenging milestones)
Optimistic duration (days, only say, 1% of the time would you finish earlier)
Pessimistic duration (days, only say, 1% of the time would you finish later)
Net Cost ($ cost of all resources and commitments in the block, less sales)
Date to Income Commencement (notional for quarter-block projects)
Probability of reaching the completion date on time (aggregates technical and commercial uncertainty and risk on a block by block basis for the project)
Probability of completion after one further time-block (sensitivity)
Net Present Cost to complete ($NPC)
3. Get Sponsor approval and initial unique priority number.
4. Run selected projects (project staff consider priorities to negotiate conflicts).
5. Report/Review as follows:
Daily—individual work allocation, monitoring and control
Weekly—exception, issue and action list reporting to Block Manager
Monthly— resource reporting (financial, human and physical) to Project Manager
Quarterly—general, priority and strategic fit review to Project Sponsor
Annually—fit with company vision and purpose to Governance Board
6. At the end of each time-block, recreate the worksheet for each project.
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