become the successful project manager of the future: be business-savvy!
Let's face it—project management is not a field that is renown for its continual revolutionary development. It's true that the use of software tools has changed things. So has the growing awareness of the importance of the interpersonal and behavioral aspects of project management, and the associated changes in the study of leadership styles. However, with the exception of these and a few other notable changes, projects are pretty much managed the same way they were in years past. There are now indications that things are about to change dramatically. Project management is on the threshold of a revolution. A revolution that will steer project management—and project managers—directly toward the world of business. Though this transition may be revolutionary, it will actually happen slowly—but steadily— over the next few years.
Projects will begin to be viewed more as an investment than a technical undertaking. And as a project manager, you will begin to be expected to Know much more about business. Your leadership style and approach will begin to orient more toward the management of a small business than a technology development group, scientific lab, or construction company. In short, for you to become a successful project manager in the future, you will need to be business-savvy.
This paper is not intended to teach the skills necessary to become business-savvy. It will, however, provide a basic understanding of how the world of projects relates to the world of business and why business knowledge will be important to the project manager of the future. It's ultimate purpose though, is to enlighten project managers on specifically what they will need to know to stay ahead of the performance curve and compete in the future of project management.
The Context of “Business“ in this Paper
For the purposes of this paper, the term business will take on a fairly broad interpretation. Perhaps the best way to think of or describe the term business relative to the skills of the project manager is to use your imagination. Imagine that you're in charge of a particular project. But instead of leading a technical, deliverable-focused project (which is the way most of us think today), imagine that you are proposing, then starting up, and then eventually operating a small, money-making business enterprise. Consider what you would need to be concerned with in that situation. If you stretch your imagination, you will realize that your concerns extend far beyond what they are today. The list below suggests some of your potential areas of concern:
• Finance and Accounting
• Marketing, Sales, and Promotion
• Organizational Strategy/Organizational Alignment
• Contracting and Procurement
• Organizational Behavior
• Business Ethics
• Business Risk Management.
Within each of these broad areas exist a number of specific issues. The reality is that you would need to fully understand these issues to be capable of successfully operating the money-making business enterprise we imagined earlier. This offers us our first glimpse of what your organizational management might expect from you in the future relative to business knowledge. And what management will expect from you actually begins with the changing view of what management is going to begin to expect from projects of the future. Specifically, these expectations are likely to include the following (some organizations are already beginning to think and act this way):
• Increased emphasis and attention will be placed on projects regarding their ability to “turn a profit.”
• Technical success will become more of a “given.”
• The business component of project proposals will be more comprehensive, thorough, and verified.
• Post-project life cycle issues will play a more prominent role in project selection and justification.
• The business or financial impact of projects will be evaluated at project completion and beyond.
Naturally, these expectations of projects in the future translate into expectations of project managers in the future, and include:
• Project managers will possess more business knowledge (i.e., a broader and deeper awareness of business principles)
• Project managers will have greater business acumen (i.e., a greater appreciation of the connection between business and projects, coupled with insight of how they interact strategically)
• Project managers will have more business skill and competency (i.e., the ability to take knowledge, principles, and strategies and apply them at a tactical level).
This set of performance expectations will likely lead to the following behavioral expectations:
• Concerns about business results, profitability, and strategic alignment—rather than technical concerns—will drive the project manager's decision-making process and leadership style.
• Project managers will display more of an entrepreneurial spirit.
• Project managers will run projects more like a business enterprise.
• Project managers will assume a greater level of responsibility (either voluntarily or involuntarily) for the achievement of business results.
The Relationship Between Business and Projects
There are a number of ways to describe how the world of projects and the world of business relate to one another. We will examine this relationship in two ways. One is philosophical; the second offers more of a technical view. Let's look at the philosophical one first.
Philosophically, the ultimate function of the modern company is to maximize the stockholders' wealth. Generally speaking, this is equivalent to maximizing the price of the firm's common stock (Argenti 1997). If you're a project manager, right now you're probably asking yourself, “So what does that have to do with me?” Asking that question reveals the problem that exists in many organizations today. If today's project managers were provided with the right information and instilled with the appropriate orientation toward their mission, they would understand that there is a reasonably strong relationship between their projects and the business of the company. The problem is that due to the nature of way companies are structured and operated—particularly the large ones—that relationship is obscured by organizational distractions as the message is communicated downward though the organization.
It all begins with the stockholders of the company. Philosophically (and technically) speaking, stockholders own the firm. They elect the board of directors, who are supposed to make decisions that are in the best interest of the stockholders. The board of directors then appoints the members of upper management. Upper management is supposed to make decisions that are in the best interest of the stockholders. Unfortunately, they also have other concerns that affect their judgement, such as employee satisfaction, public/community perception, and regulatory issues. Upper management then appoints mid-managers, who are also supposed to make decisions that are in the best interest of the stockholders. The picture begins to get cloudier, as mid-managers are distracted by internal operations, competition for resources, divisional or departmental profitability, and policy formation. Mid-managers appoint supervisors. Remember that (philosophically, at least), supervisors are still charged with making decisions that are in the best interest of the stockholders. At this point, however, that concept begins to feel quite distant to supervisors who must concern themselves with employee retention, grievances, personal advancement, and the maintenance of a technically competent workforce. Finally, supervisors recruit and manage project managers. Remember that project managers are still supposed to be making decisions and behaving in a way that is in the best interest of the stockholders. Unfortunately, in the real world today, two fundamental problems exist that make this very difficult for most project managers. First, the thought process described above is rarely explained to the typical project manager (i.e., so most never truly understand their true mission). Second, the environment within which most project managers must function creates far too many inhibitors to the pursuit of their philosophical mission—to make decisions that are in the best interest of the stockholders. These inhibitors will be discussed later in this paper (see “Forces Impeding Implementation of Good Business Practices”).
All of this leads to the identification of the fundamental purpose of a project, which is to serve as an investment of funds aimed at maximizing the return of wealth to the stockholders. This is how the world of business and the world of projects relate to one another. This is also closely related to the more technical way of explaining the connection, which looks at the issue from a finance and accounting perspective. For the sake of brevity, the following is a condensed version of this explanation (Argenti 1997).
Shareholder wealth is maximized when the difference between the market value of a company and the total cash that investors have put into the company since its founding (including retained earnings) is maximized. This difference is referred to as the Market Value Added (MVA). The MVA is, of course, driven up by the market value of the company. Market value rises when the perception exists that the company manages its capital wisely and effectively. One common metric of managerial effectiveness is Economic Value Added (EVA). EVA is an annualized calculation of a company's true economic profit. It represents the income remaining after the opportunity cost of all capital has been deducted. This promotes the wise and prudent use of capital. Wise and prudent use of capital occurs when the company continually pursues projects that maximize the return of wealth. This return of wealth on a project-by-project basis is estimated by calculated each project's Net Present Value (NPV). Putting the entire picture together, the continued pursuit of sound investment opportunities (highly positive NPV projects) contributes to the ongoing expectation of high EVAs, which investors recognized by bidding up the price of the firm's stock. This drives up the MVA, which ultimately maximizes the return of wealth to the stockholders. Of course, there are many other factors that contribute to MVA, but this connection is a critical piece of insight that many project managers today do not fully appreciate. But as stated before, this will begin to change as the role of project managers evolves.
Although the insights described above represent a useful context of understanding for practicing project managers, detailed knowledge of these specific issues is not vital. What will be vital to the project manager of the future will be the development of knowledge skills that can be applied at a working level.
Developing the Necessary Business Knowledge and Skills
As stated earlier, this paper was not prepared to teach you business knowledge and skills. What it does intend to do is to enlighten you by suggesting what an appropriate knowledge and skill set might look like for the business savvy project manager of the future. Further, I will propose a structure by which this information can be captured, categorized, and ultimately tracked. This structure can be used as a kind of “roadmap” for self-development. In fact, it is customizable to your company, organization, or situation. The name of the structure is The Business-Savvy Project Manager's Knowledge and Skills Map.
The map is constructed using a simple two-axis chart. The first step in constructing the map is accomplished by labeling one axis in terms of three basic levels of knowledge and expertise:
• General Concepts and Principles of Business
• Organizational-Level Knowledge and Skills
• Project-Level Knowledge and Skills.
This axis provides focus and context. Further, it suggests that there are different levels of detail and different types of applications for business knowledge and skills. The other axis is largely one of functional focus. It includes the following categories of knowledge and skills:
• General Business
• Organizational Strategy
• Organizational Behavior/Organizational Politics
• Investment Identification, Selection, and Approval
• Portfolio Management
• Finance and Accounting
• Marketing, Sales, and Distribution
• Project Financials
• Project Risk Management and Business
• Contracting and Procurement
It should be noted that these are only suggested categories. You may wish to add, subtract, or restructure this list. That's OK. The main point is that you capture the entirety of business considerations with whatever list you use.
Combining the axes defined above yields a learning map that looks like this:
The map must then be populated with specific items of knowledge and skill. To gain an understanding of what these items could be, let's look at a few examples. First, the intersection of General Concepts and Principles of Business and Marketing, Sales, and Distribution might look like Exhibit 2.
The intersection of Organizational-Level Knowledge and Skills and Finance and Accounting might have these among your entries, as shown in Exhibit 3.
Finally, the intersection of Project-Level Knowledge and Skills and Project Financials might look Exhibit 4.
Again, the option to expand and customize this map certainly exists. I have created a map that is populated with more than 70 specific entries. The entire map is far too detailed to put into this paper. If you would like a copy of this map, you may email me email@example.com
Forces Impeding the Implementation of Good Business Practices
Applying the knowledge and skills identified in the learning map will not be as straightforward as you might think. It's more complex than simply developing business skills and then using them. There is a very notable irony associated with this revolution toward business. The irony results from recognizing that the very same organization that wants you to begin applying sound business practices and judgment will be hampering your ability to do so—at least for the short term.
The reason is that many organizations embrace practices, which are counterproductive to the application of sound business practices and judgement. Below are some of the forces that may impede your ability to apply the knowledge and skills identified in The Business-Savvy Project Manager's Knowledge and Skills Map:
• The pursuit of “pet projects” by some members of management
• Too many project pursued solely in the name of strategic need (i.e., financial analysis is bypassed)
• Project managers are not assigned early enough to contribute to the value proposition
• Relentless pressure on schedule estimated; basing business cases on unrealistic dates
• Insufficient time allowed to do a thorough business case
• Lack of support for systematic use of ranged estimates and sensitivity analysis
• Decision-making aimed at making project numbers look good at the expense of sound life-cycle decisions
• Use of departmentally based accounting systems instead of activity-based costing
• Lack of systems to accurately and efficiently track project expenditures
• Lack of thorough post-project data collection and analysis
• Lack of a sound portfolio management approach to the coordination of multiple projects.
These are issues that must be addressed slowly, and over a long period of time. Education and patience will be key to extinguishing the behaviors identified above. Unfortunately, the change may carry an emotional price tag for those project managers who find themselves in the lead of this business revolution. On the positive side, some short-term tactics exist that will serve to support the transition. These tactics can be found in current project management best practices.
Classic Project Management Best Practices That Make Good Business Sense
When considering what you can do to immediately begin your movement toward better business management, the answer is simple—just continue to apply some of the project management best practices you've already learned. This is true largely because there are many project management best practices that also make good business sense. Among them are the following:
• Express estimates in terms of ranges of possible outcomes; avoid “point” estimates
• Resist being pressured into accepting imposed project targets that you know are unachievable
• Don't accept estimates or assumptions derived by others without understanding and verifying them
• Promote deep knowledge and understanding of client and/or user by your team members
• Be thorough in the identification of all cash flow; use total life-cycle costs
• Always perform a financial justification and prepare a business case
• Do a sensitivity analysis; analyze the business viability at the extremes of estimates
• Analyze and confirm feasibility
• Promote active participation by downstream parties (client, user, installer, etc.)
• Conduct lessons learned; include business-oriented issues and results.
We are on the threshold of a revolution in the world of project management, as it heads directly toward the creation of a strong alliance with world of business. The journey will be difficult, perhaps even treacherous at times. The transition will be worthwhile, however. The learning and application of sound business practices is likely to make the life of the project manager easier in the future. Ironically, one of the critical success factors will be allowing project managers to practice them appropriately. Old habits—in this case those counterproductive to good business— will be hard to break for some organizations. The final result for those that can make the transition will be stronger portfolios, leading to higher profitability, and a healthier company. Only time will tell which organizations will survive the revolution.
Argenti, Paul A. 1997. The Fast Forward MBA Pocket Reference. New York: John Wiley & Sons.
Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville, Tenn., USA