Do corporate politics affect ROI and project success?
The procedures for monitoring projects vary widely from company to company. Larger companies with a mature Project Management Office (PMO) routinely develop stringent procedures to monitor and prevent run away projects. These well intended procedures are based on checkpoints involving time and cost. Checkpoints however, based on time and cost can be manipulated and bypassed by individuals protecting their pet projects or political standing in the corporate community. A checkpoint should be implemented based on calendar days since it is a variable that can not be manipulated.
The Account Team representative builds the business case, calculates the ROI estimate, and gains approval for a new project. The IT sponsor delegates his day to day responsibilities to the same Account Team representative, a bright and rising star who built the original case, to follow through with the project. This rising star feels compelled to only relay good news upward to his manager by filtering all correspondence, including financials. When these actions occur and remain unchecked, the moral of the project team is damaged and the project suffers. The expectation for the project deteriorates; the stakeholders become frustrated and want the project to end. The project's timeframe expands, scope creep is rampant, and the initial positive ROI estimate turns into a negative ROI due to cost overruns.
What should you do in this situation? How do you keep your project on track when the sponsor delegates his authority to someone who is more concerned with the appearance of not making mistakes in the original business case than ensuring the project is successful?
Case study context
The corporation in this case study is a highly structured, multi-national Fortune 500 company with over 26,000 employees. This corporation built a well developed matrix organization over a multiyear timeframe. To insure highly visible projects run efficiently and without overruns, the corporation established a Project Management Office. Through a maturing process internal governance procedures were developed. The corporation also implemented a web based project portfolio application for senior management to access up-to-date status information for major projects within the corporation.
The typical measures of project success are time, cost, and technical performance (Webster, 2002, p287). Standard audits are in place within this organization to actively measure the progress of top projects to insure they stay on track and do not incur cost overruns. Typical variables are monitored however; the human factor of corporate politics is currently overlooked.
This internal project followed the standard initiation procedures. An Account Team representative took an idea from the business, had an internal review with the sponsors, and received a go forward decision from the executive committee to build a business case for funding approval. After a six month RFP (Request for Proposal) process involving several vendors, the Account Team representative analyzed the results. All returned RFPs included a mixture of internal resources, contractors, and third party vendors. The executive committee awarded the contract, based on price as the primary factor, and the Account Team representative built a well intended business case that was presented for funding approval. The executive committee approved funding, and the project officially started.
A Project Manager from the PMO was assigned in mid November to this high profile project. The Project Manager reviewed the assembled documentation and discovered that not only was a four month delivery date presented to the executive committee during funding approval, but the delivery date was provided by the vendor without knowledge of internal resource availability or required corporate standards. To complicate the initial research, the Project Manager was told by the Account Team representative not to contact the vendor until contract negotiations were completed, because it would compromise negotiations.
Contract negotiations completed in December and a kick-off meeting was immediately scheduled with requirement meetings following. By mid December, the business sponsor pushed to spend capital dollars on server and handheld hardware devices before requirements were completed. The sponsor used the reasoning that there were unused capital dollars for the current year and the hardware costs were budgeted in the business case. If the hardware devices were received by December 31st, they could be depreciated for the current year. The Account Team representative facilitated the quick ordering of 300+ handheld hardware devices with enough additional features to cover any requirements determined necessary during the discovery period.
The discover period continued during the month of January with numerous issues discovered. The business case was initially built with several assumptions specifically documented as being excluded by the internal server support team. Change controls were built and approved to account for these assumptions. The additional scope coupled with increased cost caused the Project Manger to voice concerns over multiple issues. The more in depth the project team researched the requirements, the more issues were found. One of the primary issues was the necessity for the vendor to develop a new software application to satisfy the business requirements.
The Project Manager followed multiple procedures established by the PMO. These steps included communicating the risks and issues through weekly status reports and bimonthly sponsor meetings. When concerns of the project's feasibility surfaced and the Project Manager suggested the project return to the executive committee for additional review, the Account Team representative exercised his delegated day to day authority and filtered all communication to the actual sponsors. This included both financial and non-financial information.
Business / Management Issues
Established governance procedures
The company has governance procedures in place serving as checkpoints to guard against time and cost overruns. Each of the following Gating steps is well defined with standard procedures:
- Gate 1 - Initial review
- Gate 2 - Business case built / Funding approval
- Gate 3 - Review of approved scope, baseline project plan, and final budget with an explanation of any differences from Gate 2
- Gate 4 - Training plan approved
- Gate 5 - Go / No Go decision for implementation
The objective of the Gating procedure is to analyze and verify any known differences in cost, time, or scope between the current gate and the previous gate. Since each gate has a Go / No Go decision, run away projects can be stopped at any gate. There is also an overriding policy stating any project over the approved budget by 25% or more must go back to Gate 2 for review and reapply for funding.
Established project management procedures
There are also established project management procedures in place to keep the project team, sponsors, and stakeholders informed of the current status. These procedures include the following A Guide to the Project Management Body of Knowledge (PMBOK® Guide) knowledge areas (PMI, 2000, p 37):
- Communication Management
- Weekly team status meeting with agendas
- Weekly status reports distributed to stakeholders
- Bimonthly sponsor meetings with the Project Manager
- Cost Management
- Resources estimated
- Budget developed
- Business case developed for funding approval
- Monthly reporting of actual costs in place
- Monthly forecasting in place
- Scope Management
- Scope statement developed and approved
- Defined change management procedures
- Risk Management
- Risk and Issue database used for tracking
- Mitigations provided with each risk and issue
- Time Management
- Microsoft Project used to manage deliverables
- Durations, dependencies, resources assigned and tracked
Description of events
The following events occurred during the project:
- The Account team representative distributes a Request for Proposals (RFP) to several vendors
- The Account team builds a faulty business case and presents the information to the executive committee for funding approval
- The leading vendor provides a project delivery date without knowledge of resource availability or corporate standards
- Funding approval is given and a request is made to the Project Management Office for a Project Manager
- The Project Management Office assigns a Project Manager
- The contract is awarded to the vendor
- The Project Manager works with the sponsors to setup the project
- The Project Manager assembles the project team (Exhibit 1)
- A business unit Director joins the project team as the business Subject Matter Expert (SME)
- The IT sponsor delegates his daily duties to the Account Team representative
- A requirement document is built through working sessions with the project team and vendor
- Security, data storage, and equipment issues are identified during the requirement sessions
- The Project Manager documents and communicates major issues with the original business case
- The business SME adds requirements missed during the original business case
- The vendor falls behind on delivering functionality for the software solution
- The Account team representative tries to use scope creep to cover gaps in the original business case
- The Account team representative begins filtering all communication to the sponsors
- The Account team representative directs internal resources to charge their time to production support instead of development to suppress project cost and stay within budget
- The Account team representative does not report unused budget dollars to the sponsors and redirects the funding to areas with cost overruns
- The moral of the project team is broken because of an unstable system that continually changes with additional scope creep
- The stakeholders reach the point of just wanting the project to end
- The project delivery goes from a 4 ½ month duration to a 1 ½+ year duration yet does not accurately reveal costs exceeding the budget by 25%, thus avoiding returning to Gate 2 for additional review
Exhibit 1 – Project Team
How the issues should be addressed
- Project Communication Management
Issue - The main issue in this area occurred with the Project Manager not having access to freely communicate with sponsors and stakeholders associated with the project. The Account Team representative used the delegated authority given by the IT sponsor to filter all project communication. The PMO management did not support a direct line of communication between the Project Manager and project stakeholders.
Solution - This issue should have obviously been resolved by granting the Project Manager free access to communicate the project status, risks, and issues to the project sponsors and stakeholders. One of the duties of a project sponsor is always willing to listen and get involved as needed, to serve as a sounding board and provide advice and guidance (Whitten, 2005, p 94).
- Project Cost Management
Issue - The main issue in this area was failing to implement actual cost control. A conflict of interest occurred when the Account Team representative who built the original business case used day to day sponsor authority to conceal large gaps in the original business case he helped formulate. The Account Team representative used his budget ownership and his ability to control budget reporting to manipulate the Cost Management function. He transferred committed dollars from one area to another without change controls and without communicating expanding project costs. The original project was estimated to take 90 business days. Eighteen months later, the project was not complete and the Account team representative continued to report the project as less than 25% over budget.
Solution - Cost management involves preventing incorrect, inappropriate, or unauthorized changes from being included. (PMI, 2000, p 91). This should have been handled by allowing the Project Manager to issue change controls for both positive and negative changes to the budget as well as reporting the project costs accurately.
- Project Scope Management
Issue - The main issue in this area was the missing change control process for scope changes. The Account team representative initially insisted on change controls for all scope changes that required work from the vendor. However, this same methodology was discouraged for internal activities caused by omissions in the original business case. The Account team representative also wanted to combine unrelated change controls into a single document to present the appearance of fewer project issues.
Solution - We can't reasonably hope to control the priority shifts that occur. We need to maintain focus and manage the stakeholder's expectations. (Hartman, 2000, p 25). This issue should have been handled by issuing individual change controls for all internal and external (vendor) resolutions with an accurate representation of the resulting benefits and affects to the project's scope, time, and cost.
- Project Risk Management
Issue - The main issue in this area was the sponsor's perception of risk monitoring and control. The Project Manager monitored the project's risks and reported these risks. This information was not communicated to the sponsors due to filtering of information by the Account team representative. As a result, accurate and timely risk mitigation procedures were not implemented.
Solution - Projects are uncertain. They all have inherent risks and, therefore, are somewhat unpredictable. We should not deny this but should work with the realities of risk and uncertainty. (Hartman, 2000, p160). This issue should have been handled by providing the sponsors with the information provided by the Project Manager without filtering. A quick and accurate mitigation plan could have been implemented in a timely manner.
- Project Time Management
Issue - The main issue in this area was schedule control. The schedule was extended due to requirements missed during the original business case. The Account Team representative side stepped resolving issues with the project sponsors instead of addressing issues quickly. In addition, the Account Team representative took extraordinary amounts of time to research solutions prior to submitting them for approvals from the sponsors. This often resulted in spending more money on the justification research than the cost of the solution itself.
Solution - Disciplined time management is one of the keys to effective project management. (Kerzner, 2003, p 273). This issue should have been handled by quickly and accurately providing change controls to the project sponsors, documenting the issues and costs associated with the solutions, including the costs of research.
Costs can be manipulated to give the illusion of project cost remaining within 25% of the original budget in order to avoid initiating an audit. Even with standard procedures in place and the illusion of being followed, this case study demonstrates the fallibility of standard procedures when individuals are allowed to direct a project for self promotion instead of corporate goals. To improve quality standards, it is imperative for the corporation to implement an internal, independent audit based on project duration. This audit should be initiated when a project exceeds its original calendar duration by 10 to 25% dependent upon the length of the project. A follow up assessment should occur every two months until the project is completed or cancelled. Most project variables can be manipulated, but calendar time can not. An internal audit conducted by an unbiased department, would have saved this corporation a significant amount of money by either reassessing and correcting defects with the original business case or cancelling the project.
The following standard items should be followed:
- The PMO should manage projects in an independent unbiased manner
- Established procedures must be followed to realize the intended benefits
- Communication should not be controlled between the Project Manager and sponsors
- Project Managers must be allowed to manage projects for the benefit of the company instead of the benefit of individual careers
In addition, the following should be added to the existing policies:
- Organizations should question the motives of internal resources just as they question the motives of external vendors
- Independent internal audit should occur for any project that exceeds 10 to 25% of the original calendar time. Calendar time can not be manipulated
Hartman, F. (2000). Don't Park Your Brain Outside. Newtown Square, PA: Project Management Institute.
Kerzner, H. (2003). Project Management: A Systems Approach to Planning, Scheduling, and Controlling (8th ed.). Hoboken, New Jersey: John Wiley & Sons, Inc.
Project Management Institute. (2000). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). (2000 ed.), Newtown Square, PA: Project Management Institute.
Webster Jr., F. (2002). PM 102 According to the Olde Curmudgeon. Newtown Square, PA: Project Management Institute.
Whitten, N. (2005). No-Nonsense Advice for Successful Projects, Vienna, Virginia: Management Concepts.
© 2006, Laurence Casey
Originally published as a part of 2006 PMI Global Congress Proceedings – Santiago, Chile