How to create a world-class project management organization

Introduction

A Company that consistently selects the right projects and executes them with excellence can improve Return on Capital Employed (ROCE) and ultimately Total Shareholder Return (TSR). In today's competitive business environment this can mean a difference between a profitable company versus the one that becomes a takeover target.

This practical paper focuses on how to create a World-Class Project Management Organization. Four key elements to success are a structured Project Management Process, Management's active involvement, application of Value Improving / Best Practices and Training / Certification.

The formula for creating a World-Class Project Management Organization is simple, however, implementation of these concepts is a big challenge.

Business Case for Improvement

Effective project management improves ROCE by increasing revenues, decreasing expenses and reducing capital employed. ROCE is a common metric in the industry to measure capital efficiency.

Projects are the vehicle by which we turn business opportunities into valued business assets. Successful projects are defined as the ones that are delivered on time, within budget and meet established business objectives. If a company selects and builds good projects, it can increase its revenues, decrease life cycle costs (operating and maintenance costs) and use less capital to achieve its business goals.

Project Management Process

In order for any project management system to be successful, it needs to follow a structured project management process. A project management process is a process that facilitates the optimal use of resources (people, money, and technology) over the life of a project to maximize value. The desired outcomes of this process are to select the right projects by improving decision-making and to improve project outcomes through excellence in execution.

Exhibit 1 summarizes the deliverables of a structured five-phase Project Management Process. The five phases of the project management process are:

Phase 1—Identify and Assess Business Opportunity

Phase 2—Select from Alternatives

Phase 3—Develop Preferred Alternative for Full Funding

Phase 4—Execute (Detail Design, Procurement and Construction)

Phase 5—Operate and Evaluate

The first three phases of the Project Management Process prior to full funding step are referred to as Front End Loading (FEL) and are crucial in determining project success.

The five-phase gated process provides a mechanism for effective communication between decision-makers, multifunctional project team members (Business, Technical, Operations, Maintenance, etc.) and stakeholders to achieve business success.

Management's Role

Management has a critical role to play in improving capital efficiency. Management's role can be summarized as follows:

•   Accountability—Business evaluation should be conducted two years after project completion and Project Sponsor should be held accountable for the financial outcome.

•   Accessibility—Management should actively participate in gate keeping meetings at the end of each phase of the Project Management Process and communicate frequently with project team.

•   Leadership—Management should establish clear expectations and objectives for the project team.

•   Resources—Provide resources of right people at the right time and funding to support the project team.

•   Behaviors—Demonstrate visible support and provide positive consequences for following Project Management Process, Best Practices and sharing Lessons Learned.

Value Improving/Best Practices

Value Improving/Best Practices in conjunction with a systematic Project Management Process can help achieve World Class Performance. Implementation of these practices can optimize cost, schedule, performance and safety aspects of any project.

Exhibit 2 shows the timing of these Value Improving/Best Practices on a Project Management Process road map.

Decision and Risk Analysis (D&RA)

D&RA is a process to compare and decide among various alternatives by quantifying risks and uncertainties inherent in financial outcomes of the alternatives (i.e., NPV, ROR, Payout, etc.). Tools such as Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis, Decision Hierarchy, Strategy Table, Influence Diagram, Decision Tree and Tornado Diagram are used to communicate most likely, optimistic and pessimistic outcomes of any decision.

Exhibit 1. The Project Management Process

The Project Management Process

Project Execution Planning (PEP)

PEP is a tool for strategic planning whose purpose is to maximize the probability of project success. Once a good quality decision is made using the D&RA process, the multifunctional project team should kick off the project with a PEP workshop. The topics covered in PEP workshops are (Westney, 2000):

Part A: Defining the Vision of Success

•   Business Goals

•   Project Objectives and Drivers

•   Scope of Work

Part B: Defining the Strategy for Success

•   Management Level Plan

•   Risk Management Plan

•   Organization Plan

•   Contract Plan

•   Best Practices Implementation Plan

•   Team Performance Management Plan

Part C: Defining the Tools for Success

•   Time Management Plan

•   Cost Management Plan

•   Quality Management Plan

•   Safety and Environmental Management Plan

•   Materials Management Plan

•   Communications Management Plan

PEP is a living document that is kept current throughout the life of the project. It serves as an excellent source for communication between the project team, decision-makers and stakeholders.

Lessons Learned

Project teams starting a new project should actively search for applicable lessons from past projects and then proactively apply those lessons. At the end of the project, they should capture lessons learned from their project including things that went well and opportunities to improve, and then share those lessons with other projects.

Value Improving Practices (VIPs)

Independent Project Analysis (IPA) Inc. has statistically shown the benefits of implementing VIPs based on their vast database of past completed projects in the industry. The optimum time for implementing these VIPs is during FEL (first three phases of Project Management Process) prior to full funding of the project.

The VIPs that add value are Classes of Plant Quality, Constructability Reviews, Customized Standards Specifications, Design-to-Capacity, Energy Optimization, Predictive Maintenance, Process Reliability Modeling, Process Simplification, Technology Selection, Traditional Value Engineering, Waste Minimization and 3-D CAD.

Peer Review

The goal of a peer review is to constructively challenge the project team's assumptions, alternatives considered, decision logic and path forward. Peer Reviews are also an excellent mechanism to share lessons learned across the corporation.

Pre-Funding Assessment

An assessment of project progress and quality performed at the end of Phase 3 of the Project Management Process. It rates the project against database of similar projects and recommends cost contingency and schedule.

Post Project Assessment

This assessment compares end of project data to the AFE data that was approved at full funding at the end of Phase 3 of the Project Management Process. This information is used to update the database, which in turn will help improve cost estimates and schedules for future projects.

Exhibit 2. Value Improving/Best Practices

Value Improving/Best Practices

Business Evaluation

Business evaluation is conducted one to two years after project completion to validate volumes, prices, margins, operating costs and economic indicators. The Project Sponsor is responsible for this review. This practice brings accountability into the overall Project Management Process.

Training and Certification

In today's fast paced world, learning is an ongoing process. In order to achieve World Class Project Performance, the decision-makers and project professionals need training and certification in Decision and Risk Analysis and Leadership Roles and Behaviors. Additionally, the Project Professionals need training and certification in all the PMBOK® knowledge areas.

Summary

With the implementation of a structured Project Management Process, upper management's oversight/commitment, application of Value Improving/Best Practices and Training/Certification, a company can achieve world-class performance—faster, cheaper, better and safer projects than the competition.

Acronyms

AFE = Appropriation For Expenditures

D&RA = Decision and Risk Analysis

FEL = Front End Loading

IPA = Independent Project Analysis, Inc.

NPV = Net Present Value

PEP = Project Execution Planning

PMP = Project Management Process

ROCE = Return On Capital Employed

ROR = Rate of Return

SWOT = Strengths, Weaknesses, Opportunities and Threats

TSR = Total Shareholder Return

VIP = Value Improving Practices

References

Westney, Richard E. 2000. The Strategic Project Planner. Marcel Dekker, Inc.

Independent Project Analysis (IPA) Inc., Reston, Virginia.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
October 3–10, 2002 · San Antonio, Texas, USA

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