Picking projects for profitability
BY ROSS FOTI
Most people define a successful project as one that is on time and on budget—but that's not entirely true. “A successful project is one that meets its business goals,” says Richard E. Westney, author of The Strategic Project Planner: A Profit-Driven Project Management Process for Planning Projects to Meet Business Goals [Marcel Dekker, 2000] and CEO of Westney Project Services Inc., Houston, Texas, USA. “The team has to be quite clear on what the business goals are and how their project helps meet those goals.”
Unfortunately, many senior executives approve projects at a point when most of the opportunities to influence success have already been missed, according to Westney. “You must have a business process that stresses strategic planning and scope definition before a project is executed.”
Robert L. Kimmons, PMP, PMI® Fellow, and managing partner of Kimmons-Asaro Group Ltd., Houston, Texas, USA, agrees: “Potential projects are identified based on that corporate strategy and then evaluated to determine whether they are sufficiently important to be selected. Next they are prioritized in accordance with their importance to the corporate strategy for profitability.”
Identifying which projects may offer the greatest rewards and minimal risks can be quite a challenge, but a general knowledge of project management methodology can help point the way.
Although there is no formal project management educational requirement for senior management, executives should be well aware of benefits to the organization, says Håkon Brydøy, manager in business advisory services at PricewaterhouseCoopers and faculty member at the Norwegian School of Management, Stavanger, Norway. “Construction projects involve different tools and techniques than research and reorganizing projects, but they all require a schedule, a budget and a risk assessment. The project manager controls strategic tasks that, in sum, can involve more capital than the organization's revenue for a year.”
With so much riding on companywide projects, Brydøy recommends that executives use a project objective breakdown (POB), which examines the product, the processes and the effects:
Define the product in terms of the end result or physical deliverable—a report, a technical solution or a platform. “This product will be completed according to a defined and agreed schedule using a fixed level of resources or an agreed price,” he says.
Describe the processes related to how the organization and stakeholders will work to achieve these targets. “This is the link between strategic and tactical plans—essentially defining how ambitious the organization must be in order to achieve the expectations of the internal sponsor or external client,” Brydøy says. Project managers should make a list of the stakeholders and define their impact on project objectives. “Be aware that the stakeholders sometimes change roles—from observer to actor. Using supplier alignment sessions, a project team can ensure that hidden agendas don't jeopardize projects objectives and targets.”
Explain the effect, relating to the use of the deliverable. This often relates to production capacity and reliability.
All for One
While individual project managers focus on specific tasks at hand, senior executives must maintain a broad view of all projects and how they help meet strategic business goals. Portfolio management—a view of all company processes, both internal and external—helps prioritize efforts and lead the organization, according to Westney. “There's never a shortage of places to spend money as an executive—some things are high-risk and high-reward, while others are mandated and part of strategic plans. The portfolio management methodology allows the team to compare where projects are across the organization and monitor the gates on the strategic priorities.”
“Companies must institute a project portfolio monitoring system that guarantees projects with goals that will jeopardize overall strategy will not be launched—at least not deliberately,” Brydøy says. “An enterprise communication structure will assure that the prioritized events will be understood and supported.”
“Projects are essential to the growth and survival of enterprises and organizations because they help deal with changes in the business environment, competition and market needs,” says David I. Cleland, a member of PMI's Research Advisory Group and professor emeritus of the University of Pittsburgh's Department of Industrial Engineering, Pittsburgh, Pa., USA. “Executives are responsible for managing change, and the best way to manage change is to have an organizational portfolio of projects. To achieve growth, senior executives should seek advice and counsel from key people in the organization—certainly gaining input from the project manager and his or her team.”
Eyes Wide Open
All projects have risks, and project management methods help avoid pitfalls on the way to profitability. “Any risk that would jeopardize the survival of the corporation is unacceptable,” says Kimmons. “All other risks should be balanced against their potential benefit to the corporation. If the chance for great benefit is implicit, then a larger risk can be tolerated. The common rule is ‘don't ever risk a lot for a little.’”
All projects are investments, according to Westney. “Projects convert business opportunities into assets. The project manager owns the process, the means of supplying the information for these projects. This elevates the importance of project management as a discipline.”
To help manage risks and inform decision-makers, PricewaterhouseCoopers has developed a project risk management “loop of control” that includes identification, assessment, response and monitoring. The identification phase clarifies the potential risks; assessment identifies the factors in terms of probability and impact; response ensures a common reaction when the risk occurs; and monitoring determines what changes occur and which decisions must be made.
A staged gate process—one that examines a project at key intervals at which the outcome may be influenced—provides five stages to review profitability: initiation, feasibility, definition, evaluation and execution. “By progressively defining a project, a team can report on progress and suggest changes at intermediate gates rather than forcing a single go or no-go decision,” Westney says. “Executives should focus on making good decisions at each gate and making sure that the project management process is working and supported by the appropriate methodologies.”
Projects in Swing
Choosing to initiate a project is not the be-all, end-all in the endeavor. An executive should know the conceptual framework of project management processes and how projects relate to the organization's strategic plan. This information helps determine whether or not a project will meet profitable objectives. “While they don't have to know all the tools and techniques, senior executives must know enough about project management to ask the right questions and know if they're getting the right answers,” Cleland says.
“Changing, adapting and expanding are all associated with projects, and if executives are going to move a company forward, projects are the way,” says Westney. “Executives must understand that project management is just as important as other business processes—the impact can be quite profound.”
While the project team may review work on a weekly basis, management must look at progress at critical junctures, such as anticipated milestones, when critical funding decisions are needed or when circumstances occur that may affect a successful completion. Executives should ask if a project still makes sense, should be modified or should be cut. “A critical project that is behind schedule raises questions as to whether it will still contribute to the goal of the organization,” Cleland says.
At the first indication that there have been changes in project scope, project objectives, economic or market conditions, or anything else that would impair the ability of the project to achieve the current corporate strategy, the project should be considered for termination, Kimmons says. “More projects fail because of faulty or nonexistent change management than for any other reason.”
By the same token, project managers must make sure that each person working on a project knows exactly what is expected, has the information, knowledge and tools necessary to accomplish the work at hand, and why the work is being done, according to Kimmons. “The main challenge for a project manager is to ensure that everyone understands upfront what is required and why it is required. Each person working at any level on the project is called upon to make decisions that affect performance.”
There are a number of ways to gauge project performance. How well did a project meet business goals? How well did it meet its own specific objectives, which are a reflection of project goals? How well did the project management process work on the company level?
In order to measure progress, executives must establish targets before execution. “Project performance is measured relative to achieving the prioritized project objectives,” Kimmons says. “If these have been properly selected, they will contribute toward achieving the corporate strategy.”
Learning lessons are important at every stage of project implementation, from planning through closing, and knowledge management allows executives to concentrate on successful strategies. Kimmons advocates use of a permanent organizational entity, possibly a project office, to gather and analyze lessons learned from each project. When applicable to all or to a broad range of the projects, the lessons learned—either positive or negative—should be incorporated into best practices, he says.
“Any firm that is not interested in improving performance will not be profit-minded for long,” Kimmons says. “The ‘continuous improvement’ programs have acquired a very negative image in some areas because of misuse and faulty application. The principles are sound and it makes sense that performance improvement is key to continued profitability.” PM
A WINNING COMBINATION
Robert L. Kimmons, PMP, a Houston, Texas, USA-based consultant, says the most important components of a successful project are:
An adequate definition of the scope of what is to be done during the project
Prioritized reasons for doing the project
An understanding of the potential risks that may jeopardize the achievement of the objectives
Baselines set to periodically measure performance for each of the objectives during project implementation
A well-thought-out strategy for managing those risks
A written project execution plan following the project strategy
Prompt initiation of a recovery plan for any adverse performance on a baseline
Timely incorporation of any approved changes to the scope of work using a change management program
A method of periodic status reporting to each of the stakeholders in accordance with their particular interest in the project.
PM NETWORK | DECEMBER 2001 | www.pmi.org