Revolutionary project management model of the future
a new risk management model
Over the last twenty years, management positions have consistently grown as managers have made decisions, directed, controlled, and regulated the operations for which they were responsible (Canback, 1998). With the advent of the efficiency movement, clients and owners of businesses realized that the inefficient of their operations was directly correlated to the amount of management needed (Womack & Jones., 2003). Management thus became a sign of inefficiency. The resultant paradigm then considered management as a cost, and in response, clients and owners began to minimize management (Welch, 2001). Managers reacted by making management a profession, a career, and a technically oriented occupation. Technical training, certification, and continuous education followed (U.S. Department of Labor, 2003). However, in order to be sustainable, management must meet the following requirements:
- It increases efficiency (more work done with less effort).
- It adds value (increases profits, minimizes costs and increases the performance of non-commodity items).
- It minimizes risk (surprises, unexpected outcomes, not meeting expectations).
Several factors driving the growth of management in the delivery of information technology (IT) systems are the complexity, quick change in the development of the technology, and the use of information systems. The number of different industry certifications has also proliferated. There are hardware, software, and networking certifications for almost every operating system and type of computer hardware on the market. The complexity and constant change in technology, the constantly changing requirements of the clients/users, and the lack of knowledge of the capability of the technology, has made it difficult to identify the value of competing systems. The existing project management model of the project manager being the expert in the services/systems being delivered, the project manager being required to make decisions, direct, and control, and the project manager being responsible for the success of the project may no longer be effective in this more dynamic environment. A new project management model is needed to deliver the constant changing, complex systems being required in today’s competitive environment.
Information Measurement Theory (IMT)
IMT was created in 1994 (Kashiwagi, 2004). IMT is the use of deductive models to explain why things happen and to predict future outcomes. The first model in IMT is the “event” model (Exhibit 1.) The event is any occurrence that takes time. It has initial conditions (IC), and final conditions (FC.) The condition of the event changes throughout the Event. The following are rules of the “event” model:
- The more information (laws of physics that predict the future outcome and unique conditions, i.e., time, location, participants, constraints, environment, etc.) is perceived about the IC, the more accurate the prediction of the FC.
- If all the information is perceived about the IC, the FC can be predicted, and the event can have only one outcome if the IC are fixed.
- The more information that is perceived, the more accurate is the prediction of the outcome.
- Those with less perception will be more apt to believe that there are multiple possible outcomes.
- Those with more perception will be more apt to believe in only one outcome.
- The more information that is perceived, the simpler the event and outcome is perceived.
- The less information is perceived, the more an individual will make decisions, attempt to control and change the event, and believe in chance.
- Once the initial conditions are fixed, the final conditions are also fixed.
- Every event will have only one outcome. If the information is not perceived, the outcome will still happen, it just can’t be predicted.
Exhibit 1: Event (Kashiwagi 2004)
Deductive logic identifies that the most effective time to minimize risk is in the initial conditions before the event. The event logic explains that attempts to manage, direct, and control the event to change the outcome, once the initial conditions are set, will be inefficient and ineffective. The new project management model should emphasize the effort of the project manager in the initial conditions, before the event starts, and minimize the effort to direct, control, and change the event/final outcome, once the initial conditions have been set. Other deductive conclusions from the event model include:
- Preplanning is critical.
- Expert vendors who have gone through the event before realize there are two kinds of risk, the risk that they control, and the risk that they do not control. It is because experts know their technical expertise that they will try to minimize the risk that they don’t control.
- Measurement is the way to differentiate participants in the initial conditions.
- It is more important that the vendor know what they are going to do, than the client buyer/project manager.
Another model that impacts the performance of projects is the industry structure model (Exhibit 2) clients/buyers are emphasizing competition and best price. The two environments are the best value (consider performance and price) and the price-based environment. The price-based environment has the following characteristics:
- The client/buyer uses minimums to specify the requirement.
- The vendors/suppliers change the minimum to a maximum.
- Quality and performance (on time, on budget, meet client’s expectations) move lower due to adversarial objectives identified above.
- Project managers are forced to manage, control, direct, and inspect to get the highest value product even though suppliers/vendors are motivated to deliver the lowest acceptable quality.
In the best value environment, the vendors must compete based on performance and price. The best value is selected. The best value vendor thinks in the best interest of the client, as they not only minimize the technical risk, but the risk that they do not control. By minimizing “all” of the risk (even though they are only responsible for risk that they control), risk and control are transferred to the vendor. The best value selection method will result in the selection of the best value vendor who is most likely to think in the best interest of the client/buyer. The sole objective of the client’s project manager is to protect the interest of the client and therefore deliver the best value that they think will be in the best interest of the client. Clearly, the more efficient, effective model is the best value model. The current project management model is based on the price-based environment, where the adversarial nature of the process, forces the project manager to manage, direct, and control the vendor. To move into the best value arena, a new project management model must be developed.
Exhibit 2: Industry Structure (Kashiwagi 2004)
A New Project Management Model (Best Value/PIPS)
The new project management model must have the following objectives:
- To increase efficiency, and effectiveness.
- To increase value and performance of the acquisition.
- To concentrate on optimizing the IC of the delivery.
- To force the best value vendor/supplier to preplan, create a quality control plan to minimize the risk that they do not control, and to manage by risk minimization.
- To change the project management model from a management model to a leadership model.
- To force the integration of the client’s and vendor’s objectives.
The new project management model will have three phases: a selection of the best value vendor phase, a phase for the best value to preplan, create a quality control plan that minimizes the risk that the vendor does not control, and the execution phase where the vendor performs quality control by risk minimization.
The new project management model will follow the Best Value/Performance Information Procurement System (PIPS) shown in Exhibit 3. The selection phase will have the following components:
- The measurement of potential performance of all vendor critical components.
- The “30,000 foot elevation perspective” of the potential risk and value added capability of the vendor in a 2-page proposal and accompanying schedule.
- The interview of the key vendor personnel that identifies the level of risk minimizing skill.
- The prioritization/selection of the successful vendor based on performance, perception, risk minimizing skill, and price.
The second phase would be the best value vendor’s attempt to preplan and schedule the risk out of the project. This would include:
- Their risk minimization and value added plan submitted in the selection process.
- Risk minimization actions proposed in the interview.
- Minimizing any concerns of the client’s technical experts and users.
- Creation of a quality control (QC) /quality assurance (QA) plan that addresses all identified risks and concerns.
- Schedule, which includes any potential risk activity.
The QC plan/QA checklist is the mechanism that transfers the control and the risk to the vendor and becomes a major element of the contract. The contract is then awarded, and the vendor is then required to manage the project with their QC plan, schedule, and a risk management system that requires a weekly risk management report. The risk management report quantifies the following:
- Project descriptors (project budget, time, project management, etc…)
- Risks that could not be minimized despite following the risk minimization steps of the QC plan.
- Unforeseen risks.
- Complete description of the risk, why it could not be minimized, the source of the risk, the date of risk minimization, and time/cost impact of the risk.
- The weekly risk report and the QC plan become the complete project documentation.
Exhibit 3: Performance Information Procurement System (PIPS) Filters (Kashiwagi 2004)
Case Study Results
The new project management model has been under development and testing in the construction industry for the past 13 years. Results include:
- 503 tests, $521 million in delivery of construction, and $420 million in food services.
- 98% success rate of on time, no contractor generated change orders, and high quality and client satisfaction.
- Performed with up to 90% less management, direction and control.
- The transformation of the project manager from a management role to a leadership/information worker role.
- Allowing the project manager to strategically plan, and change from a reactive role to a planning role.
- Minimizes relationships and inefficient and nonproductive influence of client/buyer.
- $6.2 million of research in this area.
- Higher performance than any project management models in construction (by 25%).
- Risk is transferred to the vendor, and it is their responsibility to minimize the risk and create a “win-win” environment.
The new project management model was recently implemented on a software purchase at Arizona State University (ASU). The results of this test included:
- The identification of the cultural change from a management model to a leadership model.
- The identification that the current project management model does not transfer control and risk to the vendor, nor does it hold the vendor accountable for performance (schedule and cost.)
- The project manager must depend on relationships and impact on the vendor’s future business to control the outcome.
- The client has no real control or leverage over the vendor in the current project management model.
- The client’s project manager must learn the new project management model, and must not revert to the existing model.
- IT vendors feel much more comfortable with the marketing, price-based approach that keeps the control and risk with the client’s project manager, and minimizes the accountability of the vendor.
Based on the results of the IT purchase, the ASU contracting office decided to use the new project management model to purchase the largest food services contract at a U.S. university ($42M/year, seven year duration, potential 10 year maximum contract.) The major results of the test include:
- $32 million increase (30% increase) in university revenue to $84 million.
- Complete risk management plan and preplanning by the best value vendor.
- Transfer of risk and control of the contract to the vendor.
The ASU project management group compared the status quo project management model to the new best value project management model by rating their perception of the difference in characteristics (1 – 10, disagree to total agreement):
Exhibit 4: Client Perception of Project Management Models
A new project management model is being developed to move the project management from a price based, adversarial environment to a best value, leadership based environment. The new project management model changes the approach and culture of the project management:
- From a management based model to a leadership based model.
- From a technical based expert in services being delivered to a leadership based information worker approach.
- From reactive during the delivery of the service to proactive, preplanning, strategic approach.
- From a management, direct, and control approach to a measure and align approach.
The new project management model has been undergoing testing, and is a futuristic concept. The current culture and perception of project management is very much management based. One of the authors is developing an implementation plan for the project manager to change over to the new process. Preliminary results, theoretical analysis, and deductive logic, identify that the new project management model fits with the direction of industries to be more effective, efficient, and providing better value.
Canback, S. (1998) The Logic of Management Consulting, Henley Management College, Retrieved September 2005 from http://canback.com/mclogic1.pdf.
Kashiwagi, D. (2004). Best Value Procurement. Tempe, AZ: Performance Based Studies Research Group, Arizona State University.
US Department of Labor (2003) Occupational Outlook Handbook, 2002-03 Edition: Construction Managers, Retrieved September 2005 from http://www.bls.gov/oco/print/ocos005.htm.
Welch, J. & Byrne, J. (2001) Straight from the gut. New York: Warner Books Inc.
Womack, J., Jones, D., & Roos, D. (1991) The Machine that Changed the World: The story of Lean Production. New York: Harper Perennial.
Womack, J. & Jones, D. (2003) Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated. New York: Free Press.
© 2007, Dean Kashiwagi, Ph.D.
Originally published as a part of 2007 PMI Global Congress Proceedings – Atlanta, Georgia