Project Management Institute

Can I afford MPM?

Project Management in Action

THE EXECUTIVE'S NOTEBOOK

Joan Knutson, Feature Editor

Claim Schwartz and Francis M. Webster Jr.

Last month we discussed the questions, “Should I Implement MPM (Modern Project Management)? Why?” Now let's take the next step of developing the specific justification for this move. Let's consider the costs of not having effective MPM.

To be simplistic about it, let's realize that project management has been around ever since a group of prehistoric cave-dwellers sat down to plan and organize a woolly mammoth hunt. What makes MPM different is the projects we do and how we do them. Projects today involve more people, more locations, and more sophisticated technologies. The most important thing in the prehistoric woolly mammoth hunt was having good hunters. But for the hunt to be effective, those hunters had to be in the right place, at the right time, bagging the mammoth with the right specifications, and getting it before other hunters did. In those days, there were fewer to feed and if the hunt failed today they could try again tomorrow. Today, with more people depending on the hunt and increased competition, there may be no tomorrow. It is essential to survival that the hunt be effective today. MPM increases the probability of a successful hunt.

What is required to achieve this sort of coordination and performance to specifications? More than technical know-how. It requires administrative, managerial, and leadership skills. What happens when these are missing? In prehistoric times, a failure of the hunt could mean many hungry days. It could mean no hides to keep the body warm. It could mean many other consequences, including the demise of the group.

What happens when a modern-day project fails? It can mean many hungry days. It can mean a crisis downsizing. It can mean many other things, including the demise of the organization. What exactly are the costs of poor project performance?

COSTS OF POOR PROJECT PERFORMANCE

There are many costs of poor project performance. Therefore, it is important to classify them to avoid getting into too much detail. Consider the following six classifications of projects:

1. The project is utopia itself, completed ahead of schedule, under budget, and the performance exceeds everyone's expectation.

2. The project is totally successful. It is completed on time, within budget, and the product performs in accordance with specifications.

3. The project is successful but required substantial rework to achieve the required specifications. The resulting profit contribution is less than expected.

4. The project is less than totally successful and the product does not perform to specifications. The product is delivered late and customer is not really satisfied with its performance.

5. The project is a partial failure. The product gets to market very late, the budget is substantially exceeded, and the product fails after sale.

6. The project is a complete failure. The product does not get to market, revenue drops, and the very survival of the organization is threatened.

How many of each of these has your organization experienced in the last few years?

If all of your projects have been in category one, stop here and write an article on how you did it. If all of your projects have been in the first two categories, stop reading here. We do not want to be responsible for your first failure. However, if you have had any significant number of projects end up in the last four categories, you probably should analyze the results in more detail. Following are some of the data you should collect on your past projects.

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Claire Schwartz is a senior consultant with Project Management Mentors, a project management training and consulting company. As a project manager and consultant she has over 15 years of experience in planning and managing projects, designing and implementing project management systems and methodologies, and developing and deliveringraining programs in project management and systems design.

DATA TO COLLECT

Let's consider that your project was successful but required substantial rework, these were probably the costs you incurred:

MPM is not a panacea, but it has led to successful performance in so many instances that it is difficult to imagine that it could not improve performance on your projects, too.

  • You still met your scheduled completion date and achieved specified performance but you spent a lot of overtime getting the rework done. Thus, the total cost for the project was greater and the resulting return on investment was less.
  • The overtime and stress got to some of your key employees and they either left or you had to raise their pay to keep them. Morale became low throughout the organization, productivity dropped, and recruiting and training costs increased.
  • There were rumors that the project was in trouble and some potential customers went with your competitor. These same rumors hurt your credibility in the financial community and your cost of borrowing went up a half point.

If the project was just less than totally successful, these costs were probably involved:

  • Because you were late getting to the market, three other competitors got there before you and captured the lion's share. You are no longer among the top three in your target market and thus are at a distinct disadvantage competitively.
  • Or perhaps you announced your product prematurely and now your customers have ordered from another supplier or delayed ordering and now you have excess inventory and a cash flow shortage.
  • Customer dissatisfaction resulted in lost return sales but think about this: There is some rule of marketing that a person who likes the product may tell five people while a person who is dissatisfied with a product tells 20 people. As a result your sales drop off below that expected. Your costs of marketing went up and your profit margin went down.
  • Because sales drop off, you initiate a stronger sales effort and more advertising. The sales contests cost you more as well as the revised advertising campaign.

Suppose the project was a partial failure. What kinds of costs were involved:

  • Being late implies using more resources to complete the project and therefore more cost. How much? What might those resources have been doing and what are the opportunity costs of business that might have been realized?
  • Product failure after sale results in warranty costs, rework costs, and in loss of future business from the same customer(s) plus the opportunity costs of what those resources could have been doing had the project been completed on time.

If you had a complete failure, there may have been some of the following costs:

  • Bankruptcy and all the costs associated with filing and resolving the issues to exit from this onerous state. In addition, consider the business that was lost during the hiatus and the opportunities to develop new business, both in terms of customers and new products and services. If this has not happened to you, count your blessings. It has happened to others.
  • Claims costs are inevitable on this sort of project. The final award, although often measured in millions of dollars, is only the tip of the iceberg. How much were the legal fees? How much management time was required to prepare the case? All of these consumed resources that could have been put to much more productive use. How many gray hairs and ulcers did you get?

You probably recognize that these costs are not exclusive to the four categories of not-so-successful projects. Some of them can occur on successful projects. For example, you may have done everything right except that you could have entered the market a month earlier and thus become number one in your target market instead of that competitor who started learning about MPM two years ago. Even if your project was utopian, is it possible that it could have been completed earlier, at less cost with MPM?

MPM is not a panacea, but it has led to successful performance in so many instances that it is difficult to imagine that it could not improve performance on your projects, too. Take a look at the data. It should bean interesting story. img

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.

PMNETwork • August 1994

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