Abstract
Recent surveys have demonstrated that project alignment to strategy is one of the key concerns of C-level managers. It has also been demonstrated that strategic managers and function managers do not share the same concerns with cost control and technical issues. Finally, they have also demonstrated that project backlog is one of the main barriers to good portfolio management.
In this paper we address each of these issues by demonstrating how to
- Use a project/program selection process based on its alignment to the strategy;
- Choose the right decision-making process and tools in regards to the level of decision; and
- Assess the achievability of projects and programs on a range of factors to prevent backlog.
We will show why in today's environment decision makers should consider a wide range of benefits relating to strategic objectives instead of only focusing on financial benefits in the selection of portfolio actions. We will explain how the right level of data and the right decision approach can help make better decisions in an environment that is becoming more and more turbulent and complex. We will show the importance of considering the achievability of each project or program beyond purely financial considerations and the impact they have on the overall achievability of the portfolio. In order to achieve this, we will use our extensive experience in the field as well as latest research findings from the value management and decision-making fields. We will show with examples how this process can be beneficial.
Introduction
State of Project Management
For many years now, project management has been made aware of studies that demonstrate the low rate of project success. This situation has mostly been linked to poor understanding of customer needs and expectations and lack of commitment from management to achieve them. But it seems there is now a silver lining.
For the third year in a row, a CIO magazine survey (CIO, 2008) identified project alignment with the strategy as CIO's number one management priority, whatever their position, and integrating systems and processes as their number one or two technology priority. In 2008, controlling costs came in fifth place overall; third place for those whose role was function heads, fifth for transformational leaders, and only seventh for business strategists. Although the study focused on CIOs, it is safe to extrapolate these results to top management in general as IT has become such an integral part of managing organizations. Also, CEOs, for the first time, have rated “meeting other strategic objectives (e.g., reputation of your business, entering a new market, securing access to natural resources)” more important than “maximizing financial or shareholder return” or “meeting or exceeding a specific financial return (e.g., return on invested capital)” (PWC, 2009, p. 25 ).
CEOs see customers and clients as the “key influence on their decisions about the success of their business in the future” but, “information about their customers’ and clients’ preferences and needs” is perceived as their greatest information gap (PWC, 2009, p. 27). CIOs, as a whole, identified enabling business innovation as their number one future impact, improving customer satisfaction came second, and reducing cost third. “For Function Heads, the No. 1 impact IT had in 2007 was business cost reduction. For Transformational Leaders, the No. 1 impact was enabling business innovation. For Business Strategists, No. 1 was creating competitive advantage” (CIO, 2008, p.12). These results confirm the external, market-oriented, interest of business strategist CIOs and of the top level of the organization. The survey also confirms that business strategists are twice as likely to be the main leader of innovation than function heads.
In the 2006 and 2007 surveys, CIOs identified their top four barriers to success as:
▪ Shortage of time for strategic thinking and planning,
▪ Overwhelming backlog of requests and projects,
▪ Inadequate budgets, and
▪ Unknown/unrealistic expectations from the business.
Despite the fact that these surveys show that organizations should focus more on wide-ranging business benefits, like competitive advantage, and achievability factors, like time to think and plan and to select the right projects, most organizations still select their projects almost solely on financial criteria, and portfolio and project managers still focus on cost control and cost reduction.
Selecting Programs and Projects
In many organizations, projects are selected by business heads; the projects are included in the annual budget requirements and submitted for approval as part of the annual budget allocation process. Often these initial proposals are cut back and proposed budgets are reduced. Many times business heads have already committed to certain projects and will not cut them back, for other projects, as we have seen previously; their priorities do not align with those of top management. Because the current focus is on short-term results, the projects that are cut are mostly those that would produce long-term results over those that can produce short-term results.
The recent economic downturn has brought into light the failure of the short-term financial profit approach and the need to look for longer-term sustainable value rather than short-term financial gain. Recently, John Donahoe, President and CEO of eBay Inc., stated:
Culturally, I'm trying to move us to a longer term orientation […]. We used to have quarterly objectives and quarterly bonus payments and that created a quarterly mindset that did foster a strong execution culture. But it also caused us to under invest in [initiatives that did not] pay back in a quarter. So instead we changed the incentives so that this year bonuses are paid semi-annually for the organization as a whole and annually for the most senior people […] which are now tied to two-year goals. (PWC, 2009, p. 37)
Top management focuses on customer satisfaction and alignment with strategy. Their strategies are meant to increase competitive advantage and the ability to adapt to change. Business and function heads, on the other hand, focus on cost control and cost reduction; they typically spend their time managing crises and improving operational performance. It is obvious that the objectives of the two groups are at cross-purposes when it comes to investing resources in the “right” projects.
Issues and Solutions
The three main issues we intend to address in this paper are:
1. Alignment of projects with strategy,
2. Different decision-making issues for different decision levels, and
3. How to address project backlog.
We will use our extensive practice and latest research findings to demonstrate a decision-support method that will effectively assist the selection process from the initial business case to the project initiation decision:
1. Use a project/program selection process based on their alignment to the strategy,
2. Choose the right decision-making process and tools in regards of the level of decision, and
3. Assess the achievability of projects and programs on a range of factors to prevent backlog.
Understanding customers’ and clients’ preferences and needs are at the core of top management's concerns. We will show how a wide range of stakeholders’ needs and expectations and objectives other than financial can be integrated in the strategy and translated into measurable critical success factors to produce a “contribution to benefits” score for each project or program option.
Different levels of management have different concerns from competitive advantage to cost control. We will demonstrate that traditional decision-making methods are not always appropriate. Furthermore, we will demonstrate new methods of making decisions and explain when to use which method. We will then show how each decision approach is appropriate at different stages of the selection process and propose a tiered business case development process.
We will also address the concern of top management for a wider range of measures of achievability, beyond short-term financial factors and their concern for project backlog. We will demonstrate how to measure program and project achievability based on weighted risk factors that include financial factors but are not limited to them.
The combined benefits/achievability score structures and validates the decision makers’ choices throughout the development of the business case and the project/program selection process. Benefits contribution score allows alignment of projects with strategy and support business continuity. Achievability score resolves backlog, inadequate budget, and unrealistic expectations issues.
Alignment with Strategy
We will first look at how to align projects with strategy but, initially, we have to understand what a strategy is. Strategies have evolved from a set, deliberate, planned, statement of how the organization was to achieve its objectives to a much more flexible approach that reflects today's turbulent environment. Recently, strategy has been defined as: “[…] an integrated, mutually reinforcing set of choices […] that form a coherent whole” (Hambrick & Fredrickson, 2006, p. 52). The other important point to mention is that “a strategy […] can evolve and be adjusted on an ongoing basis” (p. 61).
Once we accept that view of the strategy, we need to develop a strategy management system that allows the necessary flexibility to adjust the strategy as it evolves. Mintzberg (1978) was the first to talk about strategy “formation” in which strategy formulation is intimately connected with its implementation in an ongoing, integrated, mutually reinforcing process. Additionally, the number of stakeholders involved in today's projects requires a process that will enforce stakeholder management as a key element of the strategy formation process.
The steps of the process are quite simple and require common sense, but not often implemented in organizations:
1. Identify stakeholders: List of main stakeholders developed by management team
2. Classify stakeholders: Power/interest grid developed by management team
3. Define their needs and expectations: Interviews and meetings with key stakeholders
4. Agree expected benefits: Key stakeholder workshops
5. Identify and weigh critical success factors: Management team workshop
6. Define key performance and indicators: Measurable quantitative data, including means of measurement
7. Assess every project and program against these CSFs: List of acceptable projects/programs
Expected Benefits and Strategic Alignment (Steps 1-4)
Because of the recent stance of organizations to consider all stakeholders and the very strong focus of project management on stakeholder management (Project Management Institute [PMI], 2008a; PMI, 2008b), it is obvious that at least the key stakeholders have to be considered when defining the benefits a project or program should deliver to the organization. As many stakeholders as possible should be identified; they should then be classified using a power/interest grid (described in section 10.1.2 of A Guide to the Project Management Body of Knowledge (PMBOK® Guide) - Fourth Edition (PMI, 2008b). Typically, the stakeholders that have high power and high interest will be interviewed or gathered in a workshop to identify clearly their expectations. Those with high power and less interest will be consulted to understand how the program or project may affect them. Finally, those with low power and high interest, typically the users, will be consulted and their needs will be addressed in the product development, within the parameters set by the decision makers.
Once all these needs have been expressed, it becomes essential to categorize them to avoid total confusion because, obviously, many stakeholders will have diverging needs and some will need to be addressed together. One useful method that we use comes from value management practice, and we call it a benefits breakdown structure (BBS). It is based on a how-why logic as demonstrated in Exhibit 1 and enables the classification of stakeholders’ expected benefits from the more strategic to the more operational.
In this example, management has tasked the head of project and program management to set up a project management organization (PMO) with the following objective: “To create synergy between programs, projects, and operations to deliver consistent, repeatable results and increase the organization's competitiveness.” The example below is a partial example of the whole BBS, but enables you to understand the thinking behind it. When done well, because it is based on the strategic objectives and takes into account stakeholders expectations, it can be a powerful management tool to make sure projects stay aligned with the strategy and deliver tangible results linked to benefits. In the following case, Levels 1 and 2 are the program and Levels 3 and 4 are the projects.
The expected benefits listed come from different stakeholders in different parts of the business and have been structured into the BBS. The current situation and expected future capability are described in detail and the deliverables correspond to this desired state. All the deliverables are linked to the strategic objectives.
Exhibit 1: Example of benefits breakdown structure (BBS)
Selection Process (Steps 5-7)
Once the BBS is completed and agreed upon, the management team and key stakeholders will agree on a weighting of the CSFs, which are the Level 1 benefits. For this, we typically use a pair wise comparison. Once the weighting of the CSFs has been agreed upon, programs and projects are assessed against the weighted CSFs to see how well they align with the strategy. This enables the management team to choose between multiple mutually exclusive options, or to create a priority list of programs and projects that they will undertake, according to availability of resources.
Exhibit 2 is the case of an organization that was experiencing high client dissatisfaction with its project delivery. The matrix represents different programs and projects that were put forward to support the recovery strategy. The weighted matrix can be used to prioritize resources across the portfolio, based on the weighted CSFs that represent the strategy. This grid provides decision makers with a score corresponding to how much the program or project is aligned with the strategy, based on its expected contribution to strategic objectives, or CSFs.
Exhibit 2: Example of weighted criteria selection matrix
Decision Making
In this section, we will address two points: (a) the fact that different levels of management have different concerns and use different decision tools and techniques and, (b) the fact that different decision tools and techniques should be used at different stages of the decision process as data availability and quality changes.
Different Decision Levels
As demonstrated earlier, different levels of management have different concerns. Whereas the BBS can help clarify the different level objectives, the actual decision process and approach will be different too. The important thing is to have a consistent process throughout. This is often one of the issues with projects that do not fulfill stakeholders’ expectations; as Hambrick and Fredrickson (2006) put it: “Without a [consistent] strategy, time and resources are easily wasted on piecemeal, disparate activities; mid-level managers will fill the void with their own, often parochial, interpretations of what the business should be doing; and the result will be a potpourri of disjointed, feeble initiatives” (p. 52).
One of the main issues with the ability of programs and projects to create value is the decision process. Too many managers rely on analytical decision making tools. “Tools measure and display value creation. They are not the source of value creation. The source of value creation is management thinking” (Kilroy & McKinley, 1997) Also, when using very specific tools, managers limit their ability to think creatively: “[…] the use of specific strategic tools tends to draw the strategist toward narrow, piecemeal conceptions of strategy that match the narrow scope of the tools themselves” (Hambrick & Fredrickson, 2006, p. 51). This is especially true in light of the fact that top managers, function managers, and project managers all have different priorities.
Whereas in projects, most of the decisions can be made in the beginning and most data is available by the end of the planning phase, in programs or in the development of a strategy this is not true. As illustrated in Exhibit 3, a strategy or program consists of a series of non-linear decisions that allow the management team to continually adjust the implementation of the strategy to changing circumstances (Deguire, 2008). Effective strategic decision making requires an “ambiguity reduction” process, based on a learning paradigm, to take place before any attempt is made at uncertainty reduction (Thiry, 2004). This decision process relies heavily on intuition as precise data is not available upfront. It can even be that additional data will further confuse the issue, resulting in additional ambiguity. This process can effectively be supported by value management (VM), which is a group decision process. In the CIO survey, 66% of CIOs in Australia recognized that innovation projects, which have a high degree of ambiguity, must be done as a team with the rest of the business (CIO, 2008). This is because innovation is not subjected to the statistical rules that drive linear decisions.
In summary, at the strategic and program level, one should rely more on intuition and use group learning decision processes, at the project and operational level one can use more traditional decision tools (Deguire, 2009). At strategic and program level, decisions are made on a continuum as ambiguity rises and falls, whereas in projects most decisions are made at the beginning and are more linear.
Exhibit 3: Example of project vs. program or strategic decisions
Choose the Right Decision-Making Process and Tools
Most analytical decision tools are based on the fact that data can be found within a finite range of values, which is true of projects, operations, and typical ongoing business. Even when uncertainty is high, the data can eventually be “found”; this is what some authors have called the “known-unknowns.” In strategy and programs, this is not true as they are subjected not only to uncertainty, but also to ambiguity, in this case, the data has no known range of results, and analytical decision tools cannot be used anymore. This is the domain of the “unknown-unknowns” where intuition and the ability to react to unpredictable situations are the right talent to possess.
Over the years, we have noticed that the best solution comes from the innovation and new product development domain. In this area, many ideas are hatched, but only a few make it to the operational phase. The decision system is quite simple. Rough ideas are evaluated at the highest level because little tangible data is available, but the resource commitment to bring them to the next stage is small. As the idea is developed into concept and then a serious option, more data becomes available and more resources are invested, until it reaches execution stage. At any point in time, the project can still be stopped or realigned through a series of go/no-go points that project management has now adopted and named stage gates. Exhibit 4 illustrates this process.
Exhibit 4: The tiered decision process (PFM Course)
Project Backlog
Project backlog is the scourge of the 21st century. Too many projects, too little resources! Everybody is complaining about it. Following the downsizing madness of the end of the 20th century, resources have become scarce and usually the best people have moved on. Those that are left are overworked and attrition rate is very high in many organizations. Recent surveys show that scarcity of competent resources is one of the key concerns of executives (PWC, 2009). During a recent CIO conference in Australia, a panel of CIOs identified project selection as the only way forward to resolve project backlog. But how do we make sure we select the right projects?
In the first section, we explained how to select projects and programs based on their alignment to the strategy and to stakeholders’ expectations. We then explained how the selection process should be a tiered decision process that takes into account the available data and its quality. We will now examine the achievability aspect of the project portfolio.
Reasons for Backlog
Backlog is due to many reasons: overload on resources (financial and human), lack of available competencies, spread of resources, or inability to understand objectives and scope, just to name a few. The key issue is the deficit between required resources and available resources. The greater the deficit: the greater the backlog!
Backlog is usually created by the inability of organizations to assess “future” work or the “pipeline” as it is usually termed. Using the tiered decision process demonstrated in the previous section, we have worked with many organizations to develop a system that enables the prediction the overall use of resources, both financial and human. This requires a monitoring of projects and programs that are in the business case phase so that their impact on the overall resources can be evaluated when making selection decisions. In Exhibit 5, the estimated work represents the estimated resources required by projects and programs that have passed the concept phase of the business case or are in waiting of a final approval. Obviously, since a certain percentage may still be rejected at that point, the total forecast could be higher than the supply in the longer-term predictions, as projects and programs are launched, the aim should be to bring this overall demand under the total availability point. If the demand is greater than the supply, the deficit will increase as well as the backlog and projects and programs will be late, over budget and, because corners will be cut short to compensate or attrition will increase, quality and fulfillment of expectations will decrease.
Exhibit 4: Supply versus demand in project pipeline
How to Assess Achievability
There are many aspects to the demand/supply deficit, which we have called “achievability.” Achievability is closely associated to risk; it is the ability or inability to carry out the plan. As in risk management, it requires an identification of the key threats and opportunities that will help or prevent achieving a program or project. Based on research (Thiry, 2003) and practice, these “achievability factors” can be divided into four categories: financial factors, parameters and constraints, human resources and people factors, and complexity factors. Each of these categories will be divided in sub-categories, according to the organization's culture, structure, and capabilities.
Factors will be weighed against each other to assess for each organization's strengths and weaknesses. For example, a well-established company in a stable market will give a higher weight to complexity factors than to financial factors, whereas for a young startup in an emerging market, it will be the opposite as they are probably able to deal with complexity quite well, but may have problems finding cash.
Exhibit 6 represents a generic preliminary business level case of achievability assessment that we use in organizations to evaluate projects and programs at an early stage. Factors are not weighted and scores are simplified. At the full business case level, we use a more elaborate grid with 20 factors and a five point scoring scale.
Exhibit 6: Achievability Assessment Matrix
As for the weighted matrix, we now have a score that evaluated the achievability of the project or program on the basis of a wide range of factors and that is much more meaningful than a simple evaluation of the return on investment (ROI) or other similar financial factors.
Conclusions
In the first section, we explained how to select projects and programs based on their alignment to the strategy and to stakeholders’ expectations. We then explained how the selection process should be a tiered decision process that takes into account the available data and its quality. Finally, we examined how to deal with backlog and the achievability aspect of the project portfolio. Besides a consistent decision management process, this approach has provided us with a score for alignment with strategy and achievability that we now can combine to score and prioritise that program or project. Typically, a program or project that is contributing highly to benefits and is highly achievable will be accepted, if they contribute highly to benefits and have medium achievability that will also be accepted; if they have high achievability, but are only contributing at a medium level to benefits, they have to be reexamined and re-evaluated. Finally, low scores on either or both scales would generally mean that they have to be reviewed or possibly rejected.
This selection process is not only good when initiating a strategic initiative, but can be used on an ongoing basis during the implementation of the strategy or program as new projects are brought forward. It will also identify clearly how project or program proposals can be improved by identifying their shortcoming, thus enabling the management team to improve them to an acceptable level. We have used this system successfully in many organizations, and it has enabled the management team to clearly understand what benefits are to be expected from programs and projects and how to measure success.
