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Harold Kerzner, PH.D. Frank P. Saladis, PMP
KER
ZN
ER • S
ALAD
IS
Value-Driven PROJECT
MANAGEMENTValue-D
riven PROJECT M
ANAG
EMEN
T
THE IIL / WILE Y SERIES IN PROJEC T MANAGEMENT
BUSINESS & ECONOMICS/PROJECT MANAGEMENT
DISCOVER HOW YOU CAN APPLY THE KERZNER APPROACH®
TO SUCCESSFUL PROJECT MANAGEMENT
Too many companies are working on the wrong projects. Project portfolios are fi lled with projects that do not provide real value at completion even though the triple constraints of time, cost, and performance have been carefully managed and met.
Based on principles set forth in the bestselling Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Tenth Edition, this easy-to-follow guide will revolutionize the way you view and practice project management. It introduces the acclaimed Kerzner Approach®, demonstrating how it empowers you with the skills needed to ensure that projects are completed successfully. Most importantly, it shows you how to design and implement projects that deliver true value.
The International Institute for Learning/Wiley Series in Project Management features
the most innovative, tested-and-proven approaches to project management,
all explained in clear, straightforward language. The series offers new perspectives on
solving tough project management problems as well as practical tools for
getting the job done. Each book in the series is drawn from the related IIL course and is
written by noted project management experts.
In the traditional view of project management, if a project manager completed a project and had adhered to the triple constraints of time, cost, and performance, the project was considered a success. Today, in the eyes of the customer and the parent or sponsoring company, if a completed project did not deliver its anticipated value, it would be seen as a failure.
Today’s changing economic climate, marked by an increasingly competitive global environment, is driving project managers to become more business oriented. Projects must now be viewed from a strategic perspective within the context of a business or enterprise that needs to provide value to both the customer and the organization itself. As a result, project managers are now required to possess the skills to complete a project within certain specifi cations, and also know how to create and deliver value.
Responding to the needs of today’s project managers, Value-Driven Project Management begins by changing the paradigm of project management. Rather than judge the success of a project from the perspectives of time, budget, and quality, the authors demonstrate why success is only achieved when planned business values are met, including:
• Internal value• Financial value• Future value• Customer-related value
The authors also offer best practices that allow you and your organization to create additional value in effi ciency, customer satisfaction, and enhanced products and services. Finally, the book helps you incorporate value into clearly defi ned business objectives and “sell” the value-driven process to executives.
Throughout the book, helpful illustrations clarify complex concepts and processes.
Assigning valuable resources to projects that don’t provide some tangible form of value to the organization and to the client is poor management and poor decision-making. On the other hand, selecting and implementing projects that will deliver value and an acceptable return on investment is effective management
THE IIL / WILE Y SERIES IN PROJEC T MANAGEMENT
and decision-making, but is very challenging, especially when a project may not provide its target value for years to come. With Value-Driven Project Management in hand, you’ll discover the tools you need to ensure that projects deliver true value upon their completion.
HAROLD D. KERZNER, PH.D., is Senior Executive Director at the International Institute for Learning, Inc., a global learning solutions company that conducts training for leading corporations throughout the world. He is a globally recognized expert on project, program, and portfolio management, total quality man-agement, and strategic planning. Dr. Kerzner is the author of bestselling books and texts, including the acclaimed Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Tenth Edition.
FRANK P. SALADIS, is a Senior Consul-tant and Trainer for the International Institute for Learning, Inc. and editor of the allPM.com newsletter, a global project management pub-lication. Mr. Saladis was awarded the 2006 Linn Stuckenbruck Person of the Year Award by the Project Management Institute. The award rec-ognizes people who have made signifi cant con-tributions to the Institute as leaders in project management. Mr. Saladis is the originator of International Project Management Day, held each year to celebrate and recognize project managers from around the world.
INTERNATIONAL INSTITUTE FOR LEARNING, INC. (IIL) is a global leader in professional training and comprehensive consulting services in the areas of project, program, and portfolio management, PRINCE2®, business analysis, Microsoft® Offi ce Project and Project Server, and Lean Six Sigma. IIL is an IIBA- endorsed education provider, a PMI® charter global registered education provider, and a member of PMI’s Silver Alliance Circle, and Corporate Council.
Jacket Design: Michael Rutkowski
Jacket Illustration: iStockphoto
—continued on back fl ap—
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Harold Kerzner, Ph.D.
Frank P. Saladis, PMP
Value-DrivenPROJECTMANAGEMENT
John Wiley & Sons, Inc.
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This book is printed on acid-free paper.
Copyright © 2009 by International Institute for Learning, Inc., New York, New York. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information about our other products and services, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.
“PMI”, the PMI logo, “OPM3”, “PMP”, “PMBOK” are registered marks of Project Management Institute, Inc. For a comprehensive list of PMI marks, contact the PMI Legal Department.
Library of Congress Cataloging-in-Publication Data:Kerzner, Harold. Value-driven project management / Harold Kerzner, Frank P. Saladis. p. cm.—( The IIL /Wiley series in project management) Includes index. ISBN 978-0-470-50080-4 (cloth) 1. Project management. 2. Value analysis (Cost control) I. Saladis, Frank P. II. Title. HD69.P75K496 2009 658.4'04—dc22 2009018445
Printed in the United States of America
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iii
CONTENTS
Preface viiAcknowledgments xiInternational Institute for Learning, Inc. (IIL) xii
Chapter 1: HOW PROJECT MANAGEMENT HAS CHANGED 1Why Traditional Project Management May Not Work 2
Today’s View of Project Management 8
Changing Views of Project Management 16
Recognizing the Need for Change 46
Chapter 2:CHANGING OUR DEFINITION OFPROJECT SUCCESS 49Changing Times 50
Not Meeting the Triple Constraint 52
Defi ning Project and Program Success 54
Redefi ning the Triple Constraint Success Criteria 56
Defi nition of Success 58
Chapter 3: THE IMPORTANCE OF VALUE 61Success 62
Types of Value 64
Return on Investment (ROI) 66
Types of Business Values 68
Changing Values 70
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iv C O N T E N T S
Chapter 4:THE STAKEHOLDERS’ VIEW OF VALUE 103Stakeholder Perception 104
Classifi cation of Stakeholders 106
The Sydney, Australia, Opera House 108
Apple’s Lisa Computer 112
Denver International Airport 116
Balancing Stakeholders’ Needs 120
Traditional Confl icts over Values 122
Project Management Value Confl icts 124
Value Perceptions within a Project 126
Chapter 5:THE COMPONENTS OF SUCCESS 129Four Cornerstones of Success 130
Categories of Success 132
Categories of Values 134
Deciding on the Quadrant 138
Internal Values 140
Financial Values 142
Future Values 144
Customer-Related Values 146
Reasons for Internal Value Failure 148
Reasons for Financial Value Failure 150
Reasons for Future Value Failure 152
Reasons for Customer-Related Value Failure 154
Antares Solutions 156
General Electric (Plastics Group) 158
Asea Brown Boveri (ABB) 160
Westfi eld Group 162
Computer Associates Technology Services 164
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C O N T E N T S v
Convergent Computing 166
Motorola 168
Automotive Suppliers Sector 170
Banking Sector 172
Commodity Products (Manufacturing) Sector 174
Large Companies 176
Small Companies 178
Chapter 6:SUCCESS AND BEST PRACTICES 181From Values to Best Practices 182
Two Components of Success 184
Redefi ning Value Metrics (CSFs and KPIs) 186
The Need for Changing Metrics 188
Project Management Offi ce Involvement 190
Discovery of Best Practices 192
The Debriefi ng Pyramid 194
Disclosure of Best Practices 196
Levels of Success in Obtaining Values 198
Project Management Knowledge 200
Project Management Benchmarking 202
Sharing Values during Benchmarking 204
Intellectual Property Cost versus Value 206
Implementation Failures 208
Chapter 7:THE VALUE CONTINUUM 211The Timing of Values 212
The Value Continuum 214
Barriers along the Continuum 216
Activities to Speed Up the Value Continuum 218
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vi C O N T E N T S
The Value Continuum and the ProjectManagement Maturity Model 220
Value Management Life-Cycle Phases 222
Value Identifi cation Phase: Business Case 224
Business Drivers Phase: Business Drivers 226
Measurement Phase: Key Performance Indicators 228
Value Realization Phase: Value (Benefi ts) 230
Customer Satisfaction Management Phase:Continuous Improvement 232
Chapter 8:ASSIGNING VALUE THROUGH OBJECTIVES 235Types of Performance Reports 236
Benefi ts and Value at Completion 238
Determining Benefi ts (Value) at Completion 240
Establishing the Business Objectives 242
Estimating Approaches 246
Project Plans 248
Business Plans 250
Canceling Projects 252
Marrying Project and Program Management 254
Chapter 9:VALUE LEADERSHIP AND SENIOR MANAGEMENT 257The Evolution of Leadership 258
Measurements and Triggers 260
What Executives Want to Hear 262
Critical Issues for the Selling Process 264
Threats that Executives Face 266
Project Management Success versus Maturity 268
Conclusions 270
Index 273
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PREFACE
For more than 40 years, the traditional view of project manage-ment was based on a belief that if you completed the project by
adhering to the well - known triple constraint of time, cost, and per-formance, the project was considered to be successful. Perhaps in the eyes of the project manager and possibly the sponsor, the project appeared to be a success. But in the eyes of the customer or even the parent or sponsoring company ’ s senior management, the project might be regarded as a failure.
The changing economic climate and the increasingly competitive global environment are driving project managers to become more business oriented. Projects are now being viewed from a strategic perspective and as part of a business or enterprise for the purpose of providing value to both the ultimate customer and the parent corporation. Project managers are expected to understand business operations much more so today than in the past. Some companies have begun developing and delivering internal training programs for their project managers specifi cally focused on business processes. As project managers become more business oriented, the defi nition of project success now includes a business component . The busi-ness component is directly related to value.
Projects must provide some appreciable degree of value when completed in addition to meeting the objectives associated with the triple constraint. Perhaps many project managers believe that achiev-ing the parameters of the triple constraint means providing value, but that ’ s not always the case. Why should a company select and assign resources to work on projects that provide no measurable and doc-umentable near - term or long - term value? Too many companies are either working on the wrong projects or simply have an inadequate project selection process. Project portfolios are fi lled with projects
vii
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viii P R E FAC E
that do not provide real value at completion even though the triple constraints have been managed carefully and met.
Assigning valuable resources to projects that provide no appre-ciable value internally to the organization or externally to a client is an example of truly inept management and poor decision making. Yet selecting projects that will guarantee value or an acceptable return on investment (ROI) is very challenging because some of today ’ s projects do not provide the targeted value until perhaps years into the future. This is particularly true for research and development (R & D) and new product development, where as many as 50 or more ideas must be explored to generate one commercially successful product. In the pharmaceutical industry, the cost of developing a new drug could run about $ 850 million, take 3,000 days to go from exploration to commercialization, and provide no meaningful return on investment. In the pharmaceutical industry, less than 3 percent of the R & D proj-ects are ever viewed as a commercial success and generate more that $ 400 million per year in revenue.
There are, of course, multiple views of the defi nition of value. For the most part, value is viewed very similarly to how we view beauty — it is in the eyes of the beholder. In other words, value may be viewed as a per-ception at project selection and initiation based on data available at the time. But at project completion, the actual value becomes a reality that may not meet the expectations that had initially been perceived.
Another problem is that the achieved value of a project may not satisfy all of the key stakeholders since each stakeholder may have a different perception of value as it relates to their particular business function. The defi nition of value can be industry specifi c, company specifi c, or even dependent on the size, nature, culture, and business base of the fi rm. Some stakeholders may view value as job security or profi tability. Others might view value as image, brand recogni-tion, reputation, or the creation of intellectual property. Satisfying all stakeholders is a formidable task that is often diffi cult to achieve and, in some cases, may simply be impossible.
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P R E FAC E ix
When the true value of a project is obtained, the company must decide how to capitalize on what has been gained. The projects and associated procedures that resulted in the value can either lead to or become examples of best practices that are formally documented and advertised in organizational literature. Other forms of value may be seen as company proprietary information and intellectual prop-erty that differentiates the company from competitors, the details of which are not released publicly. In any event, the ultimate goal is to defi ne and achieve value.
Harold Kerzner, Ph.D.
Frank P. Saladis, PMP
International Institute for Learning, Inc., 2009
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ACKNOWLEDGMENTS
Some of the material in this book has been either extracted or adapted from Harold Kerzner ’ s Project Management: A Systems
Approach to Planning, Scheduling, and Controlling, 10th edition; Advanced Project Management: Best Practices on Implementation , 2nd edition; Strategic Planning for Project Management Using a Proj-ect Management Maturity Model ; Project Management Best Practices: Achieving Global Excellence , 1st edition (all published by John Wiley & Sons, Inc.).
Reproduced by permission of Harold Kerzner and John Wiley & Sons, Inc.
We would like to sincerely thank the dedicated people assigned to this project, especially the International Institute for Learning, Inc. (IIL) staff and John Wiley & Sons, Inc. staff for their patience, pro-fessionalism, and guidance during the development of this book.
We would also like to thank E. LaVerne Johnson, Founder, Presi-dent & CEO, IIL, for her vision and continued support of the project management profession, Judith W. Umlas, Senior Vice President, Learning Innovations, IIL, and John Kenneth White, MA, PMP, Senior Consultant, IIL for their diligence and valuable insight.
In addition, we would like to acknowledge the many project man-agers whose ideas, thoughts, and observations inspired us to initiate this project.
—Harold Kerzner, Ph.D., and Frank Saladis, PMP
xi
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INTERNATIONAL INSTITUTE FOR LEARNING, INC. (IIL)
International Institute for Learning, Inc. (IIL) specializes in profes-sional training and comprehensive consulting services that improve
the effectiveness and productivity of individuals and organizations. As a recognized global leader, IIL offers comprehensive learning
solutions in hard and soft skills for individuals, as well as training in enterprise - wide Project, Program, and Portfolio Management; PRINCE2 ® * ; Lean Six Sigma; Microsoft ® Offi ce Project and Project Server ** , and Business Analysis.
After you have completed Value - Driven Project Management, IIL invites you to explore our supplementary course offerings. Through an interactive, instructor - led environment, these virtual courses will provide you with even more tools and skills for delivering the value that your customers and stakeholders have come to expect.
For more information, visit www.iil.com or call 1-212-758-0177 .
*PRINCE2® is a registered trademark of the Offi ce of Government Commerce in the United Kingdom and other countries. **Microsoft Offi ce Project and Microsoft Offi ce Project Server are registered trade-marks of the Microsoft Corporation.
xii
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HOWPROJECT MANAGEMENT HAS CHANGED
C h a p t e r
1
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2 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
WHY TRADITIONAL PROJECT MANAGEMENTMAY NOT WORK
New projects have become:
� Highly complex and with greater acceptance of risks that may not be fully understood during project approval
� More uncertain in the outcomes of the projects with no guarantee of value at the end
� Pressed for speed - to - market irrespective of the risks
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W H Y T R A D I T I O N A L P RO J E C T M A N A G E M E N T M AY N OT WO R K 3
Traditional project management works well when the direction of the project is clearly understood, the scope is well defi ned, all key
stakeholders agree on the objectives and expectations, the risks have been assessed and well understood, and the probability of success is considered to be very high. In comparison, for companies that wish to be innovative and become market leaders rather than market fol-lowers, the type of projects approved may be based on “ fuzzy ” objec-tives, optimism, and a willingness to take risks and basically do not follow a specifi c set of selection criteria.
More and more projects are highly complex and may require a technical breakthrough to achieve success. In addition, the risks asso-ciated with achieving the breakthrough can be signifi cant, there is no guarantee that the project will be successful, and that the expected value at the completion of the project will be achieved. If a market leadership position is desired, project planning and execution are fur-ther complicated by competition and the requirement to compress the schedule for an early introduction into the marketplace.
Today ’ s projects are not necessarily as well defi ned and understood as projects in the past. The global economy, rising costs, and com-petition are driving many companies to take greater risks to achieve their business objectives. As a result, the traditional theories of proj-ect management may not work well when applied to these new types of projects. We may need to change the way we manage and make decisions about projects. Business decisions and requirements may very well override technical decisions and project requirements.
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4 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
The statement of work (SOW) is:
� Not always well defi ned, especially on long - term projects
� Based on possibly fl awed, irrational, or unrealistic assumptions
� Inconsiderate of unknown and rapidly changing economic and environmental conditions
� Based on a stationary, rather than moving target for fi nal value
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W H Y T R A D I T I O N A L P RO J E C T M A N A G E M E N T M AY N OT WO R K 5
As projects become more complex, the statements of work (SOWs), in many cases, become less well defi ned and possibly ill
defi ned. Typically, with all SOWs, assumptions are developed. When dealing with long - term projects, assumptions about environmental conditions and the economy are subject to considerable change and almost impossible to truly defi ne with any sense of confi dence. In such cases, the value achieved from the deliverable can be expected to become more important. Also, the achieved value may not have been fully understood initially and may have changed over the life of the project. Therefore, the fi nal value of the project may be a moving target rather than a stationary target, and the intended customer and associated stakeholders may have to accept a deliverable with a fi nal value that is quite different from initial expectations. The greater the project duration, the greater the chance that the fi nal result will be signifi cantly different from the initial objectives.
Given our premise that project managers are now more actively involved in the business, we must track the assumptions the same way that we track budgets and schedules. If the assumptions are incor-rect or no longer valid, then we may be required to change the plan, change the SOW, or consider canceling the project. We should also track the project ’ s expected value as decisions are made because these decisions may result in unacceptable changes to the fi nal value of the project and could create a reason for project cancellation. These con-cerns will be discussed in later portions of the book.
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6 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
The management cost and control systems (EPM Methodologies) focus on:
� An ideal situation (as in the Project Management Body of Knowledge [ PMBOK ® ] Guide )
� Theories rather than the understanding of the work fl ow
� Infl exible processes
� Periodically reporting time at completion and cost at completion but not value (or benefi ts) at completion
� Project continuation rather than canceling projects with limited or no value
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W H Y T R A D I T I O N A L P RO J E C T M A N A G E M E N T M AY N OT WO R K 7
Most companies either have or are in the process of develop-ing an enterprise project management (EPM) methodology.
EPM systems are usually rigid processes designed around policies and procedures, and work effi ciently when the statement of work is well defi ned. But with the new type of projects expected over the next decade, these rigid and infl exible processes may be more of a hindrance.
EPM systems must become more fl exible in order to satisfy busi-ness needs. The criteria for good systems will lean toward forms, guidelines, templates, and checklists rather than policies and proce-dures. Project managers will be given more fl exibility in order to make decisions necessary to satisfy the business needs of the project.
In the future, the assumption that the original plan is correct will become an increasingly poor assumption. As the providing or receiving organization ’ s business needs change, the need to change the project plan will become evident. Also, decision making based entirely on the triple constraint, with little regard for the fi nal value of the project, may result in extreme stakeholder dissatisfaction or signifi cant opportunity cost.
Simply stated, today ’ s view of project management is quite differ-ent than the views of the past, and this is partially the result of recog-nizing the many benefi ts realized through project management over the past two decades. The following illustrations show the changing views.
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8 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
TODAY ’ S VIEW OF PROJECT MANAGEMENT
Today, we are managing our business by projects.
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TO DAY ’ S V I E W O F P RO J E C T M A N A G E M E N T 9
After more than 40 years of analysis, lessons learned, and the dis-tribution of volumes of best practice documents; companies have
come to the realization that a defi ned and effi ciently implemented project management methodology does work and is very benefi cial to an organization ’ s growth and stability. The fundamental principles of project management can be applied to all parts of a business. Simply stated, companies are managing their business through projects, and every major activity within a company can be viewed as a project.
Project management, as a discipline, affects all parts of a business and is present at all levels of management. Each functional unit gen-erally manages projects that support higher - level business objectives, and line managers or functional managers are being trained in proj-ect management techniques to manage projects that are exclusively within their functional area. Although project management has been viewed as a profession, it is only within the last decade or so that companies have been creating specifi cally designed career paths and positions for project managers.
Of signifi cant importance is the focus on training executives to function as project sponsors. In this role, the project sponsor pro-vides the project manager with funding and critical project infor-mation (business - related information affecting the project), which eliminates roadblocks facing the project manager. The sponsor also acts as the referee or facilitator in resolving major confl icts and problems between the project manager and other business units or functional entities.
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10 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Project management has evolved into a business process rather than a project management process.
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TO DAY ’ S V I E W O F P RO J E C T M A N A G E M E N T 11
Because project management affects all parts of a business, it is now viewed as a business process rather than merely a method-
ology to meet a specifi c objective. This aligns itself with the current trends toward EPM.
Historically, during competitive bidding activities, contractors would emphasize only their project management processes and how they would be used to produce the deliverables to meet the cus-tomer ’ s needs. Today, companies are integrating project management processes with their business management processes to become more effi cient, promote interest, and attract new clients. Some companies have even been fortunate enough to receive single - source contracts because of the faith that the customer has in the contractor ’ s ability to repeatedly meet deliverables.
It is important to understand that meeting the customers ’ require-ments is sometimes accomplished through the expense of disrupt-ing the corporate culture and ongoing business operations. Today ’ s project manager must be knowledgeable about both the business processes and the project management processes to make the most appropriate and effective decisions in the best interest of the com-pany and the project.
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12 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
The EPM methodology contains business processes as well as project management processes.
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TO DAY ’ S V I E W O F P RO J E C T M A N A G E M E N T 13
We discussed the importance of project management being inte-grated into business processes. The reverse is also true in that
business processes are being integrated into formal project manage-ment methodologies. Historically, project management methodolo-gies contained the following:
� Step - by - step processes for planning and managing projects
� Concurrent engineering (improved speed to market)
� Total Quality Management (TQM) and Six Sigma
� Risk management
� Change and confi guration management
Many companies have adopted an EPM methodology, which is basically one methodology selected for use by all business units to manage all projects. With an EPM methodology in place and prac-ticed, it is fairly easy to integrate many business processes into the methodology such as:
� Supply chain management
� Feasibility studies
� Cost - benefi t analyses
� Capital budgeting
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14 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Capturing best practices is a necessity in today ’ s business world. This includes best practices in business as well as best practices in project management.
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TO DAY ’ S V I E W O F P RO J E C T M A N A G E M E N T 15
Capturing best practices has become a business necessity. Best practices libraries are viewed as competitive weapons and can
create signifi cant advantages during the bidding process. Consider a company that issues a request for proposal (RFP) and receives iden-tical lowest bids from two bidders. The fi rst company has a well - maintained and utilized best practices library and is willing to share the library with the client upon contract award. The second low bidder does not maintain a best practices library. With all other things being equal, the fi rst company would generally be awarded the contract.
Historically, project managers have been expected to capture best practices, but related to project management only. Today, because project managers are now being viewed as business managers as well as project managers, they must also capture business - related best practices. Not all of the best practices are shared with the custom-ers, however. The business - related best practices may be viewed as proprietary knowledge and not shared externally with customers or contractors. Some companies even maintain two best practices libraries — one for the customer ’ s benefi t and one for internal use only. But, in any event, the capturing of best practices is a business necessity.
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16 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
CHANGING VIEWS OF PROJECT MANAGEMENT
Project manager’srole and
responsibility
Monitor andcontrol during
execution
Planning forproject
execution
Strategy developmentand project selection
input
When broughton board
After contractaward or at
end of initiation
Duringproposal
preparation
During conceptdevelopment and input
in the bid/no-bid decision
Knowledgerequirements
Technicalknowledge
(command oftechnology)
Mostlytechnical but
some businessknowledge
Mostly business butsome technical
knowledge(understanding of
technology)
Customerexpectations
Deliverables Deliverables Business solutions
Definition ofsuccess
Meeting thetriple
constraint
Meeting thetriple
constraint
Multiple successcriteria (both projectand business success)
1990Historical
ViewToday
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 17
Historically, project managers were viewed as organizational resources that were task oriented and did not necessarily possess a
strong knowledge of business and strategic issues, but were exceptional at developing and executing plans. It was a common business practice to engage a planning or estimating group to develop project plans and then assign a project manager to execute the plan. Typically, project managers were not brought on board during project initiation and were assigned to the project after the major part of planning had been com-pleted. Occasionally, a project manager who demonstrated signifi cant skills in project planning would be assigned this function exclusively. After the project was planned, a second project manager would be assigned to the project to manage and plan execution. In some cases, a third project manager would be assigned to manage project closure.
Gradually, and through experience, project managers improved and fi ne - tuned their planning skills. Today, as project managers become more actively involved in business decisions, project manager input is requested for:
� Establishing project objectives at the technical and business component level
� Strategy development that connects project objectives with business objectives
� Project selection as part of portfolio management
� Project prioritization as part of portfolio management
� The bid or no - bid decision
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18 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Project manager’srole and
responsibility
Monitor andcontrol during
execution
Planning forproject
execution
Strategy developmentand project selection
input
When broughton board
After contractaward or at
end of initiation
Duringproposal
preparation
During conceptdevelopment and input
in the bid/no-bid decision
Knowledgerequirements
Technicalknowledge
(command oftechnology)
Mostlytechnical but
some businessknowledge
Mostly business butsome technical
knowledge(understanding of
technology)
Customerexpectations
Deliverables Deliverables Business solutions
Definition ofsuccess
Meeting thetriple
constraint
Meeting thetriple
constraint
Multiple successcriteria (both projectand business success)
1990Historical
ViewToday
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 19
As mentioned in the previous illustration, it was a common belief among executive management that project managers possessed
little to no actual business knowledge; and, as a result of that belief, they were brought on board either after contract award or at the end of the initiation phase of the project. Project managers were per-ceived as “ execution ” specialists.
As project managers developed their business skills, their input was invited and welcomed during proposal preparation activities. This was particularly true of project managers who demonstrated strong writing skills. Many companies that relied on a competitive bidding process utilized proposal managers. Project managers who were between assignments would often be assigned to proposal man-agers during competitive bidding activities to prepare various sec-tions of the proposal under the direction of the proposal manager. This provided an opportunity for the project manager to gain addi-tional knowledge about the proposal process and the interrelation-ships between business entities, and to develop a broader knowledge about the business in general.
As project managers became more knowledgeable about the busi-ness, they began to participate in feasibility studies, cost - benefi t analyses, and in the bid or no - bid decision processes. Gradually, many companies began to assign project managers the responsibility for developing project business cases and preparation of the entire proposal. Writing skills became an important prerequisite for assign-ment as a project manager, which was then followed by customer interface, presentation skills, and negotiation skills.
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20 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Project manager’srole and
responsibility
Monitor andcontrol during
execution
Planning forproject
execution
Strategy developmentand project selection
input
When broughton board
After contractaward or at
end of initiation
Duringproposal
preparation
During conceptdevelopment and input
in the bid/no-bid decision
Knowledgerequirements
Technicalknowledge
(command oftechnology)
Mostlytechnical but
some businessknowledge
Mostly business butsome technical
knowledge(understanding of
technology)
Customerexpectations
Deliverables Deliverables Business solutions
Definition ofsuccess
Meeting thetriple
constraint
Meeting thetriple
constraint
Multiple successcriteria (both projectand business success)
1990Historical
ViewToday
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 21
For many years, engineers were assigned as project managers due to their technical knowledge and many had advanced degrees
in the engineering profession. This concept was customer driven. Customers required project managers to possess detailed knowledge of the product and a command of technology rather than an under-standing of how teams functioned or how to integrate and coordinate deliverables.
But as projects grew in both size and complexity, it became obvi-ous that project managers would be challenged to possess a command of technology in all aspects of the project while managing the day - to - day activities of the project. Also, as project managers spent more time performing project management functions, such as monitoring and assessing project performance, they had less time available to remain technically profi cient in their own functional discipline.
As expected, in today ’ s project environment, many project man-agers have more of an understanding of technology rather than a command of technology. At the same time, the project manager ’ s knowledge of business operations has been growing considerably to the point where project managers are trusted to make major business decisions. Project managers are now viewed as business managers rather than as pure project managers or task managers.
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22 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Project manager’srole and
responsibility
Monitor andcontrol during
execution
Planning forproject
execution
Strategy developmentand project selection
input
When broughton board
After contractaward or at
end of initiation
Duringproposal
preparation
During conceptdevelopment and input
in the bid/no-bid decision
Knowledgerequirements
Technicalknowledge
(command oftechnology)
Mostlytechnical but
some businessknowledge
Mostly business butsome technical
knowledge(understanding of
technology)
Customerexpectations
Deliverables Deliverables Business solutions
Definition ofsuccess
Meeting thetriple
constraint
Meeting thetriple
constraint
Multiple successcriteria (both projectand business success)
1990Historical
ViewToday
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 23
Historically, customers paid contractors for their ability to pro-duce a deliverable. If a second deliverable was required, there
was no guarantee that the fi rst contractor would receive the follow - on work. The customers were interested in the end result and not themeans to achieve the end result. Some partnerships existed, but the customer, for example, the Department of Defense, wanted to keep as many suppliers as possible involved, thus stimulating com-petition. While the government ’ s intentions seemed correct at that time, it was at the expense of long - term partnership agreements.
This approach worked well as long as there appeared to be an infi -nite number of customers and a large contingent of qualifi ed suppli-ers. For many industries today, the customer base and supplier base have diminished. As such, business owners are seeking out suppliers that can provide their company with long - term business solutions, where the methodology for providing the business solution is included in the project management systems. Contractors, however, are willing to hone their project management skills and provide solutions to the customer ’ s business needs, but in exchange they want to be treated as long - term partners. Project management has therefore matured into a vehicle to obtain long - term strategic business partnerships.
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24 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Project manager’srole and
responsibility
Monitor andcontrol during
execution
Planning forproject
execution
Strategy developmentand project selection
input
When broughton board
After contractaward or at
end of initiation
Duringproposal
preparation
During conceptdevelopment and input
in the bid/no-bid decision
Knowledgerequirements
Technicalknowledge
(command oftechnology)
Mostlytechnical but
some businessknowledge
Mostly business butsome technical
knowledge(understanding of
technology)
Customerexpectations
Deliverables Deliverables Business solutions
Definition ofsuccess
Meeting thetriple
constraint
Meeting thetriple
constraint
Multiple successcriteria (both projectand business success)
1990Historical
ViewToday
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 25
Because project managers historically had limited knowledge of the business, the standard defi nition of success was defi ned by
what is known as the triple constraints: on time, within planned cost, and within quality requirements (or scope/performance). But as the project manager became more knowledgeable about the overall busi-ness, the defi nition of success was modifi ed to contain a business component such as return on investment (ROI) or market share.
While some projects are needed to support cash fl ow simply to keep the people employed, far too many projects lacked a viable business purpose. Valuable corporate resources were tied up dealing with cus-tomer busy work rather than value - added corporate opportunities.
To solve this problem, companies began modifying the defi nition of project success to include a business component. The existence ofthe business component made life a little easier during project selection, prioritization, and the portfolio management of projects. This topic will be discussed in more detail in several of the illustra-tions that follow. Examples will be provided on business components for project success.
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26 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Program vs. Project
success
Projectsuccess is
critical
Programsuccess is
critical
Project and program success must be
integrated
Projectmanagement
limitations
Companyproject
management
Nationalproject
management
Global projectmanagement is
essential for the future
Portfoliomanagement
Handled in secret entirely
at the executivelevels
Mostly atexecutivelevel but
some middlemanagement
Heavy involvement byproject managers and
the project managementoffice
1990Historical
ViewToday
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 27
As mentioned in the previous illustration, project success was traditionally measured by performing the work within the triple
constraint. This may be regarded as a reasonable defi nition for suc-cess if the project were designed simply to develop a product. What if the product is part of a larger effort such as a program where the product must be marketed and sold as part of a strategic effort? If the project was completed within the parameters of the triple con-straint and the company discovers that there is little demand for the product, was the original project a success or a failure?
Historically, companies differentiated between project success and program (or business) success. It was possible to have a success-ful project but the program could be regarded as a failure. Today, the defi nition of success has a business component such as ROI, the abil-ity to sell the product, and the ability to satisfy a marketplace need. Slowly but surely, we are including in the defi nition of success a busi-ness component that will align each project with corporate strategic objectives. This will encourage companies to develop a common defi -nition of success that will be equally acceptable at the project and program levels. In the future, project and program success can be expected to be connected and interdependent.
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28 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
.
Program vs. Project
success
Projectsuccess is
critical
Programsuccess is
critical
Project and program success must be
integrated
Projectmanagement
limitations
Companyproject
management
Nationalproject
management
Global projectmanagement is
essential for the future
Portfoliomanagement
Handled in secret entirely
at the executivelevels
Mostly atexecutivelevel but
some middlemanagement
Heavy involvement byproject managers and
the project managementoffice
1990Historical
ViewToday
c01.indd 28c01.indd 28 6/10/09 11:27:11 AM6/10/09 11:27:11 AM
C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 29
Historically, project management had some signifi cant limita-tions regarding its use. Within many companies it was common
for project management to be restricted for use in departments that were project driven or project based, such as information technology. All other departments were basically free to use their own approaches or methods to meet their objectives. There was no consistency across the enterprise. Only those departments that were considered project based were using a formal project management methodology.
Each division of a company could decide independently if they wanted to use a project management methodology. The challenge, sim-ply stated, is that it was almost impossible for an entire organization to agree about how to implement project management, let alone accept a common EPM methodology for use by all business components.
Today, project management has become a factor in all levels and divisions within many companies, and this includes the global business environment. Some companies consider this globalization of project management methodology as essential for the survival of the fi rm. Multinational fi rms are now managing all projects with a single EPM methodology. The methodology is used to plan and exe-cute projects for all customers, all products, and for the entire prod-uct or project life cycle.
c01.indd 29c01.indd 29 6/10/09 11:27:12 AM6/10/09 11:27:12 AM
30 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Program vs. Project
success
Projectsuccess is
critical
Programsuccess is
critical
Project and program success must be
integrated
Projectmanagement
limitations
Companyproject
management
Nationalproject
management
Global projectmanagement is
essential for the future
Portfoliomanagement
Handled in secret entirely
at the executivelevels
Mostly atexecutivelevel but
some middlemanagement
Heavy involvement byproject managers and
the project managementoffice
1990Historical
ViewToday
c01.indd 30c01.indd 30 6/10/09 11:27:12 AM6/10/09 11:27:12 AM
C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 31
As previously stated, it was believed, historically, that project man-agers had limited knowledge of business practices and, as such,
did not participate in the selection of projects or the management of project portfolios. Portfolio management was viewed as an executive - level function, often done behind closed doors and with little infor-mation communicated about the process and the decisions made. Sometimes middle management would be brought on board because they possessed the technical knowledge to assess the risks in each project.
Today, companies are using project management offi ces, staffed with experienced project managers, to support portfolio manage-ment, continuous improvement efforts, and capacity planning activi-ties. Companies are fi nally recognizing the benefi ts of having project managers who possess business knowledge.
Some of the more advanced project management offi ces, primarily in medium - sized to large fi rms, are establishing internal certifi cation programs for their project managers that are associated with their business processes. Once again, the intent is to expand the capa-bilities of the project manager to develop a combination of business manager and project manager.
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32 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate#1
It doesn ’ t matter whether you execute a project extremely well or extremely poorly if you are working on the wrong project.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 33
The seven postulates show the necessity for the project manager to understand the business and to have a business component as
part of the defi nition of success. In Postulate #1, we can see what happens when management
makes poor decisions during project selection, establishment of a project portfolio, and when managing project portfolios. We end up working on the wrong project or projects. What is unfortunate about this scenario is that we can produce the deliverable that was requested and planned but:
� There is no market for the product.
� The product cannot be manufactured as engineered.
� The assumptions were not validated or may have changed.
� The marketplace and demand may have changed.
� Valuable resources were wasted on the wrong project.
� Stakeholders may be displeased with management ’ s performance.
� The project selection and portfolio management process is fl awed.
� Organizational morale has diminished.
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34 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate #2
Being on time and on budget is not necessarily success.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 35
Postulate #2 is the corollary to Postulate #1. Completing a project on time and on budget:
� Does not guarantee a satisfi ed client/customer
� Does not guarantee that the customer will accept the product/service
� Does not guarantee that performance expectations will be met
� Does not guarantee that value exists in the deliverable
� Does not guarantee marketplace acceptance
� Does not guarantee follow - on work
� Does not guarantee success
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36 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate #3
Completing a project within the triple constraint does not guarantee that the necessary business value will be there at project completion.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 37
Postulate #3 focuses on value. Simply because the deliverable is provided according to a set of constraints is no guarantee that the
client will perceive value in the deliverable. The value of a product or service within the context of project management means the rela-tionship between the customer ’ s expectations of product quality and product usefulness, short and long term, to the actual amount paid for it. It is often expressed as the equation:
Value = Benefi ts / Price
or
Value = Quality received / Expectations
There are also parallels between cultural expectations and cus-tomer expectations when considering value.
The ultimate objective of all projects should be to produce a deliv-erable that meets expectations and achieves the desired value. While we always seem to emphasize the importance of the triple constraint when defi ning the project, we spend very little time in defi ning the value characteristics that we expect in the fi nal deliverable.
The value component or defi nition must be a joint agreement between the customer and the contractor (buyer/seller) during the initiation stage of the project. Also, in the ideal situation, the defi ni-tion of value is aligned with the strategic objectives of both the customer and the contractor.
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38 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate #4
Having mature project management practices, including an EPM methodology, does not guarantee that business value will be there at project completion.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 39
Postulate #4 focuses on success and how it cannot be guaranteed. Most companies today have some type of project management
methodology in place. Unfortunately, all too often, there is a mis-taken belief that the methodology will guarantee project success. It should be understood that methodologies:
� Cannot guarantee success.
� Cannot guarantee value in the deliverable.
� Cannot guarantee that the time constraint will be adhered to.
� Cannot guarantee that the quality constraint will be met.
� Cannot guarantee any level of performance.
� Are not a substitute for effective planning.
� Are not the ultimate panacea to cure all project ills.
� Are not a replacement for effective management.
� Will not guarantee effective human behavior.
Methodologies can improve the chances for success but the use of a methodology cannot guarantee the successful delivery of a desired product or service. Methodologies are tools and, as such, do not man-age projects. Projects are managed by people and, likewise, tools are managed by people. Methodologies do not replace the people com-ponent in project management. They are designed to enhance the performance of people.
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40 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate #5
Price is what you pay. Value is what you get.
— Warren Buffett – American investor, businessman, and philanthropist.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 41
Postulate #5 focuses on the quote “ Price is what you pay. Value is what you get. ” This quote from Warren Buffet emphasizes the
difference between price and perceived value. Most people believe that customers pay for deliverables. This is not necessarily true. Cus-tomers pay for the value they expect to receive from the deliverable. If the deliverable has not achieved value or has limited value, the result is a dissatisfi ed customer.
Some people believe that a customer ’ s greatest interest is quality. In other words, “ Quality comes fi rst! ” While that may seem to be true on the surface, the customer generally does not expect to pay an extraordinary amount of money just for high quality. Quality is just one component in the value equation. Value is signifi cantly more than just quality.
For a fi rm to deliver value to its customers, it must consider what is known as the “ total product offering. ” This includes the reputation of the organization, staff representation and support, product ben-efi ts, technological characteristics, ease of use, reliability, and brand recognition as compared to competitors ’ market offerings and prices. Value could also be defi ned as the relationship of company ’ s market offerings to those of its competitors.
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42 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate #6
Business value is what your customer perceives as worth paying for.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 43
Postulate #6 focuses on business value and that business value is what your customer perceives as worth paying for. When custom-
ers agree to a contract with a contractor/supplier for a deliverable, the customer is actually looking for the value in the deliverable. The customer ’ s defi nition of success is “ value achieved. ”
Unfortunately, unpleasant things can happen when the project manager ’ s defi nition of success is the achievement of the deliverable (and possibly the triple constraint) and the customer ’ s defi nition of success is value. This is particularly true when customers want value, and you, as the contractor, focus on the profi t margins of your proj-ects. This approach can lead to severe confl ict between buyer and seller and possibly litigation.
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44 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
Postulate #7
Success is when business value is achieved.
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C H A N G I N G V I E W S O F P RO J E C T M A N A G E M E N T 45
Postulate #7 is a summation of Postulates #1 through #6. Perhaps the standard defi nition of success using the triple constraint
should be modifi ed to include a business component such as value, or even be replaced by a more specifi c defi nition of value. Examples of value include:
� Availability — the product will perform when called upon to do so
� Operability — the degree to which a product can be operated safely
� Reliability — the product will perform without failure for a set period of time
� Maintainability — the product can be retained in or restored to an acceptable level of performance
� Social acceptability — the degree of confl ict between the prod-uct and the values of society is minimized (safety, environmen-tal issues)
� Cultural acceptance — the degree to which a product chal-lenges or confl icts with customs and beliefs of the intended market population
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46 H OW P RO J E C T M A N A G E M E N T H A S C H A N G E D
RECOGNIZING THE NEED FOR CHANGE
Following a project plan to conclusion is not always success if business - related changes were necessary but never implemented.
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R E C O G N I Z I N G T H E N E E D F O R C H A N G E 47
Sometimes the value of a project can change over time and the project manager may not recognize that these changes have
occurred. Failure to establish value expectations or lack of value in a deliverable can result from:
� Market unpredictability
� Market demand changed
� Changing constraints and assumptions
� Technology advances or inability to achieve functionality
� Critical resources were either not available or resources lacked the necessary skills
The value component may indicate that some projects should be canceled. The earlier the project is canceled, the sooner the resources can be assigned to projects that have a higher perceived value and probability of success. Unfortunately, early warning signs are not always present to indicate that the value will not be achieved.
Earned value measurement techniques focus on tracking the tri-ple constraint. Earned value measurement techniques should also track the validity of the project assumptions and forecast the value or benefi ts at completion, if possible.
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c01.indd 48c01.indd 48 6/10/09 11:27:17 AM6/10/09 11:27:17 AM
CHANGING OUR DEFINITION OF PROJECT SUCCESS
C h a p t e r
2
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50 C H A N G I N G O U R D E F I N I T I O N O F P RO J E C T S U C C E S S
CHANGING TIMES
As project management evolved, so did our defi nition of success.
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C H A N G I N G T I M E S 51
The defi nition of success continues to evolve as project manage-ment matures. Over a four - year period, one telecom company
changed its defi nition of success as follows:
� Year 1: Completing a project
� Year 2: Completing a project on time
� Year 3: Completing a project on time and with quality
� Year 4: Meeting products expectations according to a cus-tomer - agreed - upon solution
Today, both customers and contractors must agree upon the defi nition of success early in the planning process. This is usually accomplished in the engagement meeting between the customer and the contractor. In this meeting the expectations of the customer are defi ned through discussions about reliability, safety, warranties, fi t-ness for use, and the timeliness of communication.
As the defi nition of success changes, so must the defi nition of value.
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52 C H A N G I N G O U R D E F I N I T I O N O F P RO J E C T S U C C E S S
NOT MEETING THE TRIPLE CONSTRAINT
� Early on, the triple constraint was the only success criterion.
� If the triple constraint criteria were not met, then the result would be:
� Blame the project manager.
� Replace the project manager (to placate the customer).
� Blame the project management methodology (or lack of it).
� Blame the customer for providing unclear requirements.
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N OT M E E T I N G T H E T R I P L E C O N S T R A I N T 53
Historically, the triple constraint was considered to be the only truly measurable success criterion for a project. If each element
of the triple constraint could not be met, blame was usually placed on the project team and the project manager when, in fact, the real culprit may have been poor business decision making. Project managers were either fi red or removed from the project. To appease the customer, the contractor might use the following explanation and strategy:
One of our best project managers is now available, and he/she will be assuming responsibility for the project. We ’ ll be back on track before you know it!
The bad news is that you never really get back on track. Typical scenarios such as the following may develop:
� The project is shut down until replanning takes place.
� The new project manager wants to introduce a new or fresh plan that can be considered his or her own, and disregards everything accomplished thus far.
� Critical resources look for opportunities to desert a sinking ship.
� When the project fi nally resumes, it has slipped much further behind than before.
� The expected value is not achieved.
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54 C H A N G I N G O U R D E F I N I T I O N O F P RO J E C T S U C C E S S
DEFINING PROJECT AND PROGRAM SUCCESS
ProjectSuccess
ProgramSuccess
Past View
Uncoupled Coupled
Project and ProgramSuccess Are Integrated
Present View
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Historically, the defi nitions of project success and program suc-cess were uncoupled. A successfully completed project was
no guarantee that program success would be achieved. It was com-mon practice to have two different defi nitions, with project success defi ned more so in technical terms and program success defi ned in business terms. Sometimes, program success would be defi ned only after the projects supporting it had been completed.
Today, companies are integrating project and program success into one defi nition: meeting the business results and business expectations (i.e., value) as well as the triple constraint and other success criteria. The business component can be defi ned in fi nancial terms as:
� Return on investment (ROI)
� Payback period
� Net present value
� Internal rate of return (IRR)
� Market share
� Gross sales
� Customer base
D E F I N I N G P RO J E C T A N D P RO G R A M S U C C E S S 55
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56 C H A N G I N G O U R D E F I N I T I O N O F P RO J E C T S U C C E S S
REDEFINING THE TRIPLE CONSTRAINT SUCCESS CRITERIA
.
Quality
(or scope)
Time
Cos
t
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R E D E F I N I N G T H E T R I P L E C O N S T R A I N T S U C C E S S C R I T E R I A 57
The triple constraint of time, cost, and performance is the circle in the middle of the cube. But, in reality, the cube is the actual
defi nition of success. As an example:
� Completing a project $ 10,000 over budget could still be viewed as success based on the size of the original budget and the value that was achieved.
� Completing a project two weeks late could still be viewed as success based on the duration of the project and the willing-ness of the customer to allow for a slippage if they perceive that the fi nal product or deliverable will meet their needs.
� Providing a deliverable that meets only 92 percent of the spec-ifi cation requirements could still be viewed as a success in the eyes of the customer if the functionality addresses their most critical requirements.
Actually, the defi nition of success is completing the project within the cube rather than the triple constraint. Unfortunately, most execu-tives do not defi ne or provide the project manager with the boundar-ies of the cube.
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58 C H A N G I N G O U R D E F I N I T I O N O F P RO J E C T S U C C E S S
DEFINITION OF SUCCESS
� Some defi nitions of success are simple, while others are complex.
� Each company has its own defi nition of success.
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D E F I N I T I O N O F S U C C E S S 59
Each company or organization has its own defi nition of success. The defi nition depends on the culture of the organization and its
“ mission critical issues. ” Below are two defi nitions of success * :
Orange Switzerland:
� The delivery of the “ product ” within time, cost, and quality characteristics
� The successful management of changes during the project life cycle
� The management of the project team
� The success of the product against defi ned criteria and targets established during the project initiation phase (adoption rates, ROI, etc.)
Nortel Networks:
� Nortel defi nes project success based on schedule, cost, and qual-ity measurements, as mutually agreed to with the customer, the project team, and key stakeholders. Real project success, how-ever, is ultimately measured by customer satisfaction.
The key to adding value is that the defi nition of success must be agreed upon between the customer and the contractor.
*Source: Harold Kerzner , Project Management Best Practices: Achieving Global Excel-lence, 1st ed. Hoboken , NJ: John Wiley & Sons, © 2006. pp. 23 – 26.
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c02.indd 60c02.indd 60 6/10/09 11:27:44 AM6/10/09 11:27:44 AM
THE IMPORTANCE OF VALUE
C h a p t e r
3
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62 T H E I M P O RTA N C E O F VA L U E
SUCCESS
Success is not necessarily achieved by completing the project within the triple constraint. Success is when the planned business value is achieved within the imposed constraints and assumptions.
Triple Constraint
Value
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S U C C E S S 63
As shown, value must be somehow included in the defi nition of success. Unfortunately, this is easier said than done because
value is a set of beliefs related to what is important to the customer and the stakeholders associated with the project. Value may actu-ally be a perception in many cases. To achieve perceived value and ultimately project success, the contractor must be able to “ see ” value through the eyes of the customer.
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64 T H E I M P O RTA N C E O F VA L U E
TYPES OF VALUE
EconomicValues
PoliticalValues
Values
ReligiousValues
AestheticValues
TheoreticalValues
SocialValues
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T Y P E S O F VA L U E 65
As seen in the illustration on the previous page, there are many types of value. Because professional responsibility is now an
integral part of project management, we could argue that all of these types of value apply to project management, including:
� Adhering to ethical standards
� Receiving or providing gifts
� Adhering to security and confi dentiality requirements
� Truthfully reporting information
� Willingness to identify violations
� Recognizing and accepting diversity
� Managing customer/contractor intellectual property
� Maintaining professional integrity
� Understanding global religious, cultural, and ethical beliefs
For this module, project management value entails the attributes of your enterprise project management (EPM) system, appearing in the form of goods or services, for which your customers are willing to pay. The project, using the EPM system, must produce distinct products as services with features and characteristics that are valued by the customers.
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66 T H E I M P O RTA N C E O F VA L U E
RETURN ON INVESTMENT ( ROI )
ROI is not the only measurement of business - related value.
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R E T U R N O N I N V E S T M E N T ( RO I ) 67
R OI may be the main defi nition of value for an enterprise or for a project manager, but it is certainly not the only defi nition of
value. The customer may have a completely different defi nition or set of defi nitions of value. The customer ’ s defi nition of value may be associated with quality, compliance with regulations, ease of use, fl exibility, adaptability, and other such items. Project managers must seek to defi ne and understand the customer ’ s defi nition of value. This topic will be discussed in more depth later in the text.
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68 T H E I M P O RTA N C E O F VA L U E
TYPES OF BUSINESS VALUES
� Foundation values are those values that must be achieved in the short term for the continuous operation of the fi rm on a day - to - day basis.
� Strategic or innovation values are those values that must be achieved for the long - term survivability of the fi rm.
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T Y P E S O F B U S I N E S S VA L U E S 69
Obviously, there are several ways by which business or economic value can be classifi ed. We will use two classifi cations, founda-
tion values and strategic or innovation values. Foundation values affect the culture of the company in the way that
people work together. This is dependent on terms such as teamwork, communications, cooperation, and trust. A good EPM methodology can make it easier for the foundation values to exist. By streamlining forms, guidelines, templates, and checklists, people are more willing to accept the EPM methodology. Customers can have a direct infl u-ence on foundation values.
Strategic or innovation values usually come after the foundation values are achieved. Strategic values are most often internal values to the fi rm and can include:
� Establishing and maintaining a degree of market share
� Brand recognition
� Satisfying government regulations such as the Occupational Safety and Health Administration (OSHA) and the Environ-mental Protection Agency (EPA)
� Maintaining regulatory agency relations
� Maintaining ethical conduct
� Maintaining the corporate reputation and image
� Development of intellectual property
� Maintaining a leadership position in the fi eld
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70 T H E I M P O RTA N C E O F VA L U E
CHANGING VALUES
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 71
The next several illustrations show examples of the way values are changing. Most of these changes appear to be in the founda-
tion values. Trust is the reliance on the integrity, strength, knowl-edge, ability, and decisions of others. Project management generally requires that employees from various functional groups meet, form teams, work together as a group toward a common objective, and then return to their functional group. It is possible that these employ-ees will never interface with these same team members again.
Trust between individuals usually takes a great deal of time to develop. But in project management, time is a constraint rather than a luxury. People assigned to project teams must trust their colleagues to do the right thing and make the right decisions. Mistrust will elongate projects by forcing many decisions to be questioned or reevaluated.
Project managers who mistrust the team members usually try to revalidate all of the numbers and equations that may have gone into the fi nal decision. Not only does this have the potential to increase the duration of the project; it also has a severe negative impact on morale and creates a feeling of inferiority or lack of confi dence and a reduc-tion in productivity. When project team members are treated in this manner, morale suffers and team members may avoid working for the project manager on future assignments.
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72 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values. Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 73
Writing a job description for a project manager is easy. Just describe the specifi c duties and responsibilities associated
with planning, organizing, and integrating deliverables of the proj-ect. Writing job descriptions that differentiate between pay grades of project managers is much more diffi cult. This is why companies are using alternate methods for developing job descriptions when posi-tioning project management as a career path in the company.
Twenty years ago, companies prepared job descriptions for project managers by explaining only the roles and responsibilities. Unfor-tunately, job descriptions were usually abbreviated and provided little guidance about what was required for advancement and sal-ary increases. The success of the project was the underlying factor. Ten years ago, companies were emphasizing the importance of job descriptions, but they were supported by training, coursework, and education, which was often mandatory.
Today, job descriptions are being replaced with project man-agement core competency models, which emphasize the skills needed to be an effective project manager. Training programs are being developed and implemented to support core competency models.
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74 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 75
Traditionally, project managers negotiated and sometimes fought for the maximum amount of authority (and power) they could
attain. Executives, however, felt threatened by the potential power and infl uence of the project manager and feared that the decentral-ization of authority and decision making would bring chaos to the organization and result in havoc and confl ict within projects. There was a belief that a loss of control would be experienced at the execu-tive levels.
Today, project managers have come to the realization that very little authority and power is needed to be effective as a proj-ect manager. Today, the value attribute of a project manager appears to be teamwork. Historically, whatever authority the project manager had came from either job descriptions or project charters. Providing the project manager with a certain level of authority was deemed necessary because of the relationship and potential for confl ict or mistrust between the project manager and the team members.
When trust exists, the focus is on teamwork and collaboration. Leadership in project management is centered around team perfor-mance rather than just the efforts of the project manager.
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76 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 77
Historically, the project manager ’ s defi nition of success was focused internally within the company and was usually defi ned
in terms of profi tability, the triple constraint, and individual ability. Today, the focus appears to have shifted to the stakeholders, espe-cially the customer, rather than on profi t and achievement of company objectives. The belief that satisfi ed customers result in achievement of organizational goals is now becoming the prevalent management perspective.
Marketing and sales people today are emphasizing “ engagement project management ” and total business solutions. The continuous change in the global business environment and the greater competi-tive nature of business has resulted in the fact that we no longer have an infi nite supply of customers. Therefore, a successful initial engagement with the client is essential. Contractors and suppliers must sell the customer on project management methodology, their ability to capture best practices and share them with the client, and the ability to provide the customers with a long - term solution to their business needs.
In exchange for this, we want the client to treat us as a long - term strategic partner rather than just another contractor. In other words, we view our project management systems and processes as the vehi-cles to maintain long - term stakeholder partnerships.
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78 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 79
Historically, project managers walked the straight - and - narrow path and avoided taking undue risks on projects. This approach
was infl uenced greatly by the risk - taking culture of the organization. While this appeared as a reasonable and acceptable approach, it lim-ited many growth opportunities. Today, project managers emphasize risk management and value their abilities to assess and determine which risks are acceptable. Executives expect project managers to be profi cient in risk management and understand the risks associ-ated with the particular industry, overall business risks, and how proj-ect risks may impact the operations of the company.
Planning focuses on history and lessons learned. Risk manage-ment forces the project manager to look ahead and “ anticipate ” both favorable and unfavorable events that can impact the success of the project. Risk management allows us to make maximum usage of the opportunities to improve the value of the deliverable. Effective risk management cannot be accomplished without a thorough knowl-edge of the business, the industry, and the environmental factors that affect an organization.
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80 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 81
Previously, we discussed security which is often achieved through conformity. Project management methodologies are based on
conformity, consistency, and standardization to minimize the possi-bility of repeating mistakes. Lessons learned are captured during theproject life cycle and shared with the organization to improvethe effectiveness of the processes and ensure conformity.
Innovation thrives on the taking of risks. Without taking risks, a company will miss many opportunities and become a follower rather than a leader in their particular industry. Effective and well - developed project management methodologies allow for some degree of innovation.
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82 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 83
Conformity breeds predictability, but this is not always desirable. For innovation to exist, project managers must develop some
degree of fl exibility and the ability to see opportunity in what others might view as failure. Gene Kranz, fl ight director for Apollo 13, saw many opportunities to save the astronauts, while others where con-vinced that the outcome would be NASA ’ s greatest disaster. Many new innovations come from the exploration of unusual results of a research and development (R & D) test.
One of the advantages of having and using an EPM methodol-ogy is that it promotes standardization, consistency, and conformity. This can be done with policies and procedures. Unfortunately, poli-cies and procedures do not generally allow for fl exibility, and fl ex-ibility is needed for risk taking and innovation. This is why most EPM systems are designed around forms, guidelines, templates, and checklists.
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84 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Mistrust Trust
Job descriptions Competency models
Power and authority Teamwork
Internal focus Stakeholder focus
Security Taking risks
Conformity Innovation
Predictability Flexibility
Internal competition Internal collaboration
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C H A N G I N G VA L U E S 85
For decades, project managers would compete with other project managers within the same fi rm for the resources they needed.
Internal competition existed to the point where one project manager would refuse to help another project manager unless directed to do so by the project sponsors. This type of internal competition actually diminished the value - adding capabilities of the organization.
Today, the focus has intensifi ed around internal collaboration, with competition being viewed as those factors that are external to the company that may prevent the achievement of business objec-tives. With internal competition, project managers make decisions in the best interest of their project and with little regard for the ongo-ing business of the fi rm. By focusing on internal collaboration, project managers tend to make more effective business deci-sions. This requires the project manager to have a greater knowledge of the organization ’ s business goals and initiatives.
Internal collaboration allows the project managers to negotiate for the needed resources rather than the best resources. It may not be desirable for the best resources to be assigned to a low - priority project. Also, with internal collaboration, project managers are more willing to sacrifi ce their project by releasing resources or even recom-mending cancellation of the project so that the resources can be used on those projects that offer a greater opportunity to provide value to the organization or to the customer.
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86 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 87
As stated previously, in the early years of what is now known as formal project management, most project managers were engi-
neers with advanced degrees and signifi cant technical knowledge and experience. These engineers generally believed that whatever plan they laid out, because of their expertise and knowledge of the technology, would work as predicted, and there was very little need for contingency plans. Hence, reactive project management became the norm. Project managers waited for a crisis to occur before con-sidering alternatives.
Today, because risk management has taken on critical importance in the business and government communities, project managers rec-ognize proactive management as adding value . Project manag-ers now prepare contingency plans to ensure that if a crisis occurs, specifi c actions and steps are already in place and may be executed to remedy the situation. Without proactive management, valuable time may be lost and critical resources may be reassigned to other projects.
Proactive management grew in importance as the importance of risk management grew. Risk management forced project managers to look ahead and anticipate risk events. The concept of identifying risk triggers (symptoms of risks) also supported proactive planning.
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88 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values. Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 89
Formalized project management thrives on policies and procedures accompanied by mountains of paperwork. Formality usually
occurs because of mistrust, inconsistency, and management ’ s desire to have a rigid mechanism in place for projects for control purposes. While there is some merit to formality — namely, conformity, stan-dardization, and control — it does limit fl exibility and the opportunity for innovation.
Today, the focus is more toward informality. Informality does have some degree of formality in it, but emphasis is on creating more effi -cient processes and a “ paperless ” project management system. Infor-mality gives the project manager tremendous fl exibility in how the EPM system will be adapted to a particular customer ’ s needs. Infor-mality also stresses the need for forms, guidelines, templates, and checklists rather than policies and procedures. Informality does not eliminate paperwork entirely, but it does reduce it signifi cantly.
Informality allows the project manager to custom design the proj-ect management methodology for a particular customer with the objective of building a long - term business relationship. This is in line with our previous discussion of engagement project management and engagement selling.
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90 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 91
Bureaucracy is a derivative of extremely formalized project man-agement. In a bureaucratic organization, all project decisions
must follow a very specifi c chain of command. Project managers basically assume the role of project monitors rather than perform-ing as coordinator and integrator, and have limited authority to make decisions. Any decisions that are required must be reviewed, verifi ed, and approved through the organization ’ s chain of command.
Project management is a methodology designed to allow work to fl ow in a multidirectional manner through a company. Project manag-ers should be given the authority and support to communicate directly with the managers or representatives of each business unit or depart-ment in the organization to obtain the necessary project information. Forcing all of the information through the highly bureaucratic chain of command slows down project progress and can considerably delay the decision - making process. This could result in lost opportunities, customer dissatisfaction, and additional planning delays.
Bureaucracy is also an expensive way to run an organization. Unnecessary layers of management are superimposed upon both the horizontal and vertical work fl ows. Team members are not empow-ered to make decisions for their specifi c line of business or functional unit. Line management attendance is mandatory at all decision - making team meetings.
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92 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 93
Companies that wish to maximize the organization ’ s ROI in project management do so through formalized education. But simply offer-
ing an employee one course on the fundamentals of project manage-ment does not achieve a very high return on the investment. Lifelong education is the key to long - term growth in project management. Traditionally, project management was viewed as planning, scheduling, and cost control. Today, project management has aligned itself with other management concepts, all requiring education, such as:
� Six Sigma
� International Organization for Standardization (ISO 9000)
� Capability Maturity Model (CMM)
� Organizational Project Management Maturity Model (OPM3)
� Concurrent engineering
� Life - cycle costing
� Confi guration management
� Risk management
� Portfolio management
� Capacity planning
� Project offi ces and centers of excellence
� Global team management
� Virtual teams
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94 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values. Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 95
Previously, we discussed the changing management approach from bureaucracy to boundaryless project management and the pursuit
of value. Within bureaucracy, all leadership is hierarchical and fol-lows a rigid chain of command. Each employee takes direction from one and only one assigned manager, and employees often work in isolated silos with little knowledge of the overall business operation.
Successful project management is a form of multidirectional lead-ership where information and work fl ows horizontally and vertically in a simultaneous manner. The good news is that this allows the organi-zation to accomplish more work in less time and with fewer resources without any signifi cant sacrifi ce in quality. The bad news, or where problems may arise, is that employees must now take direction from their line or functional group manager and the many project man-agers on whose teams they may be assigned. This could result in some confl ict about the availability of resources and the priority of the project.
Multidirectional leadership is very effective if project managers and line managers can work together, collaborate, and coordinate their direction with respect to the employees or project performers and the critical issues of the company. Without this coordination, sev-eral projects will experience slippages, customer satisfaction issues, and other severe confl icts that may result in direct involvement by the project sponsor or executive steering committee. In this case, multidirectional leadership may be viewed as a failure.
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96 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 97
As discussed in several illustrations, project managers in the past typically had little business knowledge and were brought into
the project after initiation was complete. Project managers were con-sidered to be tacticians rather than strategic thinkers. Today, project managers possess signifi cant knowledge about business processes and a broader view of the enterprise and are expected to make strate-gic as well as tactical decisions. Project managers in today ’ s environ-ment must think well beyond the end date of the project.
It was a common practice to assign project managers to projects after the business case was developed. They were given the responsi-bility and were held accountable to execute the project successfully but had no input in the decision processes and factors associated with project selection and anticipated value. Today, because project managers have some degree of business knowledge, they now par-ticipate in those activities that require strategic thinking, namely, business case development, portfolio management and selection of projects, project prioritization techniques, and capacity planning.
Strategic project management is also important during mergers and acquisitions. If two companies are to join forces, synergy will not be achieved unless the project management systems of both compa-nies can be effectively combined.
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98 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values . Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 99
Compliance is the act or tendency to yield to others either freely or by force. Commitment is the act of willingly agreeing to
something such as a set of objectives, a budget, or schedule or plan. Commitment usually comes with agreement, whereas com-pliance does not.
It is very diffi cult to force people to comply with a date or a bud-get, especially if they had no input to the decision process. “ Lip ser-vice ” (providing information or feedback that is insincere or basically useless) is a form of compliance and may not be indicative of the actual support needed by the project manager. Compliance can be attained at the expense of teamwork.
During employee staffi ng activities, line managers sometimes ask the employees whether they would like to be assigned to a given proj-ect. If the employee accepts the assignment, it is usually accompanied by a commitment. If the line manager simply forces the employee to work on a given project with no explanation or opportunity for discus-sion, the result can be compliance but without commitment. In these cases, the quality of the project deliverables may be severely affected.
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100 T H E I M P O RTA N C E O F VA L U E
(Adapted from Ken Hultman and Bill Gellerman, Balancing Individual and Organizational Values. Jossey - Bass/Pfeiffer, a Wiley Company, © 2002, pp.105 – 106.)
Moving Away From:(Ineffective Values)
Moving Toward:(Effective Values)
Reactive management Proactive management
Formality Informality
Bureaucracy Boundaryless
Traditional education Lifelong education
Hierarchical leadership Multidirectional leadership
Tactical thinking Strategic thinking
Compliance Commitment
Meeting standards Continuous improvements
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C H A N G I N G VA L U E S 101
Today, capturing, documenting, and utilizing best practices in proj-ect management can be viewed as a competitive weapon for an
enterprise, especially during negotiations and competitive bidding. When a project is completed, project managers should be expected to collaborate with the project management offi ce to debrief the proj-ect team and review the major lessons learned and best practices discovered during project implementation. The documentation of best practices should be considered part of a company ’ s continuous improvement efforts. Without a focus on continuous improvements, the company can falter, fall behind in the market, and eventually fail.
Another problem generally associated with standards is that peo-ple have the tendency to stop improving once a standard is achieved. People should be encouraged to continuously improve rather than just meet the standards. If standards are used, the bar should be raised whenever the standard is achieved.
Continuous improvement is also competitive weapon. It is an essential component of engagement project management and engage-ment selling. One of the main functions of a project management offi ce (PMO) or project center of excellence is to support continu-ous improvement by monitoring organizational project performance and identifying innovative techniques that improve the probability of success in achieving value. These techniques are documented and shared as part of the organization ’ s continuous improvement efforts.
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THE STAKEHOLDERS ’ VIEW OF VALUE
C h a p t e r
4
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104 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
STAKEHOLDER PERCEPTION
Each stakeholder can have a different perception of value, and the perception is not necessarily a business - based perception of value.
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S TA K E H O L D E R P E R C E P T I O N 105
Project managers must deal with a multitude of stakeholders, and each stakeholder will probably have a different perception of
value. As an example, when the Tylenol tragedies occurred in the 1980s, Johnson & Johnson had to make decisions based on compet-ing stakeholder demands. The stakeholders included:
� Consumers
� Stockholders
� Lending institutions
� Government agencies
� Corporate management
� Employees
Each stakeholder wanted the Tylenol tragedies problem to be resolved in a manner that protected their perception of value. Some stakeholders viewed value in fi nancial terms such as dividends, while others iden-tifi ed value as providing job security. Others viewed value as provid-ing consumers with safe products and compassion.
Balancing stakeholders needs becomes quite complex when the projects span international borders. Culture, ethics, religion, and government bureaucracy become important considerations.
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106 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
Organizational
Product/Market
Capital Markets BanksShare-holders
Competitors Government
Local Committees
Customers
Public
Suppliers
Executive Officers
LineManagers
Employees Unions
Stakeholders
Creditors
CLASSIFICATION OF STAKEHOLDERS
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C L A S S I F I C AT I O N O F S TA K E H O L D E R S 107
This illustration shows typical classifi cation systems for stakehold-ers. For simplicity ’ s sake, the stakeholders can be classifi ed as:
� Organizational stakeholders
� Product/market stakeholders
� Capital market stakeholders
There are other classifi cation systems, and each system may be dependent on the size and nature of the company ’ s business. How-ever, for the remainder of this section, the above classifi cation system will be used.
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108 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
THE SYDNEY, AUSTRALIA, OPERA HOUSE
� Original cost: $ 7 million (Australian $ ).
� Final cost: $ 100 million (Australian $ ).
� The project manager was fi red.
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T H E S Y D N E Y, AU S T R A L I A , O P E R A H O U S E 109
The perceived value of a project can change over time. What was viewed initially as marginal value could end up a great value. The
reverse is certainly true as well. For example, the Opera House in Sydney, Australia, was a whop-
ping 3,000 percent over budget, and the project manager was fi red. Obviously, with such a large cost overrun, there were some stake-holders who argued that the originally perceived value of the project was lost, and that the project should have been canceled. Now, let ’ s look at the next illustration and see how the perception of value had changed.
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110 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
Failure
Success
Failure
Success
Success
Success
Organizational
Product/Market
Capital markets
ProjectStakeholders
OpeningDay
Five YearsLater
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T H E S Y D N E Y, AU S T R A L I A , O P E R A H O U S E 111
In this illustration, we can see that today the project is considered to be extremely successful to the point where some people actually
consider the Opera House the “ Eighth Wonder of the World. ” The value is certainly there.
Cost overruns and scope changes could be considered accept-able, depending on the reasons and if there is a perception and a high probability that a greater future value may be achieved. Projects should be canceled when the key decision makers are convinced that the anticipated value, present and future, will not be attained. But sometimes, the true value may not become evident until well into the future, and early cancellation of a project could be a mistake. These types of decisions are diffi cult, but the key point here is to make sure that current and future value, as perceived by the customer and the supplier organization, are considered before making the decision. Some element of risk is involved, along with some forward - thinking management and leadership.
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112 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
APPLE ’ S LISA COMPUTER
� 1984 original reaction by public: poorly accepted.
� Lessons were learned for the Macintosh computer.
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A P P L E ’ S L I S A C O M P U T E R 113
In 1984, Apple launched the Lisa computer. Initially, the computer was poorly received. But was Lisa a success or a failure? The launch
of the Lisa computer added credibility to Apple and enhanced their image as a computer manufacturer.
Value can also be found in a project that failed if lessons learned and best practices are discovered such that future projects will ben-efi t. This was the case with the Lisa computer. Apple developed sig-nifi cant intellectual property in computer design and manufacturing, which enabled them to create a strong position in the marketplace. The value here was realized in terms of continuous improvement, fl exibility, and innovation.
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114 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
Success
Failure
Failure
Success
Success
Success
Organizational
Product/Market
Capital markets
ProjectStakeholders
OpeningDay
Five YearsLater
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A P P L E ’ S L I S A C O M P U T E R 115
As shown in this illustration, the launch of the Lisa computer was viewed initially by some as a failure. But fi ve years later, Lisa
was viewed as a success because the valuable lessons learned were applied to the launch of the Macintosh computer. It is possible that the Macintosh computer could have evolved by itself, but the Lisa computer certainly accelerated the learning process.
Some people argue that the only true project failures are those from which no knowledge is gained. Failures are not really fail-ures if intellectual property is gained that will benefi t all future projects. Therefore, a key component in the quest for value is the practice of reviewing, documenting, sharing, and acting on les-sons learned and continuous enhancement of best practices.
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116 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
DENVER INTERNATIONAL AIRPORT
� Original planned cost: $ 1 billion.
� Final cost: Over $ 5 billion.
� The project manager was not fi red.
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D E N V E R I N T E R N AT I O N A L A I R P O RT 117
Denver International Airport (DIA) was a project that, initially, the majority of stakeholders felt was not necessary. Only a few
stakeholders believed that a new airport in was needed in Denver to handle the expected increase in passenger traffi c. But that increase in traffi c, even if it did occur, would probably happen gradually over 20 or more years.
DIA was eventually opened, almost two years late and 400 per-cent over budget. The problems all revolved around the complex bag-gage handling system that was designed for Concourse B (the United Airlines concourse) and then extended to encompass the entire air-port. Some people argued that the airport was not worth the cost and that airport bankruptcy was possible if the airport could not service its debt load of about $ 1 million per day in interest payments alone. Others argued that the airport should have been opened as planned, but with a manual baggage handling system in place, so that revenue would be generated earlier to begin servicing the debt. The two - year delay increased the debt by more than $ 2 billion.
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118 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
Success
Failure
Failure
Success
Success
Success
Organizational
Product/Market
Capital markets
ProjectStakeholders
OpeningDay
Five YearsLater
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D E N V E R I N T E R N AT I O N A L A I R P O RT 119
The decision made by the City of Denver and the contractors was to keep the airport closed until the computerized baggage han-
dling system was fully operational. This generated a large portion of the cost overrun but maximized the value of the airport well into the future. Today, travelers through the airport marvel at its success, and not many people still remember the cost overruns or the problems with the baggage handling system.
DIA provides us with an important lesson to consider: Sometimes it is better to accept a cost overrun in order to maximize the value in a project ’ s deliverables than to maintain the budget and add incremental value piecemeal over a decade or lon-ger. This is the same decision made by companies who must decide when to stop inventing, launch a product, and save the additional value for the next - generation product.
These three examples have shown that managing projects for value can lead to better results and signifi cantly higher levels of stakeholder satisfaction than managing to the limitations of the triple constraint.
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120 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
BALANCING STAKEHOLDERS ’ NEEDS
How does a project manager balance the different perceptions of value while managing a project?
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B A L A N C I N G S TA K E H O L D E R S ’ N E E D S 121
Project managers must deal with a multitude of stakeholders, all with varying perceptions of value and at different levels of man-
agement internally. Balancing stakeholders ’ needs can be extremely diffi cult. Making a decision to maximize the value of one stakeholder could severely alienate other stakeholders. As an example, a proj-ect manager believes that he can exceed the customer ’ s specifi cation requirements and add signifi cant value to the deliverable. This would also enhance the project manager ’ s image in the company.
But to do this, the project manager would need to replace the “ average ” employees assigned to his project with the superior “ sub-ject matter experts, ” all of whom are currently assigned to other, higher - priority projects. This would benefi t his project and him per-sonally, but possibly at the expense of other projects. There is also no guarantee that the ultimate customer (i.e., one of the stakehold-ers) would agree with the additional costs incurred by using higher - salaried employees.
“ I don ’ t know the key to success,but the key to failure is trying to please everybody. ”
Bill Cosby - American comedian, actor, author,
television producer, and activist
As suggested by this quote, the project manager will occasionally be required to make decisions that benefi t some stakeholders more than others, and there is a risk that some decisions will result in confl ict. The project manager and team should ensure that all stake-holders are identifi ed and that the infl uence of each stakeholder as it relates to the project is fully understood.
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122 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
TRADITIONAL CONFLICTS OVER VALUES
IndividualValues
OrganizationalValues
Conflicts
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T R A D I T I O N A L C O N F L I C T S OV E R VA L U E S 123
Sooner or later, everyone is placed in a position where he or she must decide what is more important — what they perceive as
value gained personally or what the organization will gain in terms of value. This situation forces people to make very diffi cult decisions. A quote from the movie Star Trek II: The Wrath of Khan comes to mind here:
“ The needs of the many outweigh theneeds of the few. ”
Mr. Spock - Fictional character in the Star Trek
television and movie series
This particular quote relates well to the situations often faced by project managers who must occasionally make decisions that will impact some stakeholders very negatively.
These types of confl icts can permeate all levels of management. Executives may make decisions in the best interest of their pension rather than the best interest of their fi rm. One executive wanted to be remembered in history books as the pioneer of high - speed rapid transit. He came close to bankrupting his company in the process of achieving his personal perception of value at the expense of the corporation.
Another example is the project manager who was quite disheart-ened when management canceled his research and development (R & D) project because they could not recognize the long - term value in what he was doing. The project manager believed that the value ofthis project would be in the best interest of the company if com-pleted. He kept working on this project using charge numbers from other projects. When management discovered this, the project man-ager was fi red even though he believed he was making decisions in the best interest of the company.
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124 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
PROJECT MANAGEMENT VALUE CONFLICTS
IndividualValues
OrganizationalValues
StakeholderValues
TeamValues
Conflicts
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P RO J E C T M A N A G E M E N T VA L U E C O N F L I C T S 125
In the previous illustration, we discussed the confl ict between indi-vidual and organizational values. In a project environment, this
confl ict is more complex, as seen in the following illustration. There are now competing confl icts between:
� Individual values
� Organizational values
� Team values
� Stakeholder values
The project manager must work with all of these groups and balance, if possible, each group ’ s perception of value. The next illus-tration shows how different perceptions can occur.
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126 T H E S TA K E H O L D E R S ’ V I E W O F VA L U E
VALUE PERCEPTIONS WITHIN A PROJECT
ProjectManager
Team Organization Stakeholders
Organizational:Job Security
ContinuousImprovements
Learning
Quality
Strategic Focus
Morality andEthics
Profitability
Recognition andImage
Achievement
Advancement
Ambition
Credentials
Recognition
Accomplishmentof Objectives
Creativity
Innovation
Product/Market:Quality andPerformance
Financial:Financial Growth
ProductUsefulness
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VA L U E P E R C E P T I O N S W I T H I N A P RO J E C T 127
This illustration shows the value perceptions within a project. What is interesting about this illustration is that project manag-
ers and team members focus heavily on internal or personal values. When project managers and team member are assigned to a new proj-ect, they often ask: “ What ’ s in it for me if I accept this assignment? ” Basically, they are trying to identify what value they will receive per-sonally from this assignment. This is a typical situation encountered by project managers. The issue here is to show that personal value can be attained by actually accepting and committing to the proj-ect objectives and the higher - level strategic organizational objectives and goals.
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c04.indd 128c04.indd 128 6/10/09 11:29:13 AM6/10/09 11:29:13 AM
THE COMPONENTS OF SUCCESS
C h a p t e r
5
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130 T H E C O M P O N E N T S O F S U C C E S S
FOUR CORNERSTONES OF SUCCESS
FutureSuccess
FinancialSuccess
InternalSuccess
Customer-RelatedSuccess
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F O U R C O R N E R S TO N E S O F S U C C E S S 131
Defi ning project success has never been an easy task. The focus has, for most projects of the past, always been the triple constraint —
balancing cost, scope, and schedule and meeting the set objectives. Today, we believe that there are four cornerstones for success:
� Internal success: The ability to have a continuous stream of successfully managed projects using an enterprise project management methodology and that continuous improvement occurs on a regular basis
� Financial success: The ability to create a long - term revenue stream that satisfi ed the fi nancial needs of the key stakeholders
� Future success: The ability to produce a stream of deliver-ables that will support the future existence of the fi rm
� Customer - related success: The ability to satisfy the needs of the customers over and over again to the point where you receive repeat business and the customers treat you as though you are a partner rather than a contractor or supplier
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132 T H E C O M P O N E N T S O F S U C C E S S
CATEGORIES OF SUCCESS
Traditional View ofProject Management
(Emphasis on Execution)
Changing View ofProject Management
(Emphasis on Business)
FinancialSuccess
FutureSuccess
InternalSuccess
Customer-RelatedSuccess
InternalSuccess
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C AT E G O R I E S O F S U C C E S S 133
Historically, the triple constraint focused on only internal suc-cess. But, as we showed, meeting the imposed conditions of the
triple constraint alone does not guarantee success. Some projects can support more than one quadrant, as shown in
the illustration on the previous page. For example, developing a prod-uct using a company ’ s proprietary technology and having the product well accepted in the marketplace can lead to fi nancial, future, and customer - related success. Another example would be the creation of an enterprise project management (EPM) methodology. Although the value of this can be regarded as internal success, the methodology can lead to a long - term relationship with customers and eventually fi nan-cial success. Therefore, the success and ultimate value achieved can impact more than one quadrant.
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134 T H E C O M P O N E N T S O F S U C C E S S
CATEGORIES OF VALUES
FinancialValues
FutureValues
InternalValues
Customer-RelatedValues
Discovery Cost HighLowShort-Term
Long-Term
Whe
n Be
nefi
ts A
re A
chie
ved
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C AT E G O R I E S O F VA L U E S 135
Since the two primary components of success are the triple con-straint and the value produced, we can argue that success can
be better defi ned as value achieved. Considering that the triple con-straint can be applicable to all of the quadrants for the remainder of this module, we will focus on values achieved.
The illustration on the previous page also shows the relationship between the benefi ts achieved from the value as opposed to the investment or discovery cost to achieve the values. As an example, in the short term, there is a low discovery cost to improve the company ’ s processes (i.e., internal values), but a potentially high cost to main-tain customer satisfaction. Long - term values support fi nancial suc-cess and future success.
Achieving value can always be accomplished but perhaps at an unusually high cost. Executives must carefully compare the cost of obtaining the desired value with the value that is actually realized (at project completion and future potential value). Spending $ 2 million to achieve a deliverable that provides $ 1 million in value is not a good business decision. Of course, placing a dollar fi gure to value can be somewhat diffi cult, if not impossible, to do — at least with reasonable accuracy.
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136 T H E C O M P O N E N T S O F S U C C E S S
FinancialValues
FutureValues
InternalSuccess
Customer-RelatedValues
Discovery Cost HighLowShort-Term
Long-Term
FoundationValues
StrategicValues
Whe
n Be
nefi
ts A
re A
chie
ved
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C AT E G O R I E S O F VA L U E S 137
Previously, we identifi ed two major categories of values; foundation values and strategic values. The foundation values can be divided
into two parts — internal values and fi nancial values — whereas the strategic values are more aligned with future values and customer - related values.
� Foundation values are those values that must be achieved in the short term for the continuous operation of the fi rm on a day - to - day basis. This includes methodologies and processes to support ongoing activities. Cash fl ow is also needed to con-tinue operations, so some activities that provide fi nancial value are needed.
� Strategic or innovation values are those values that must be achieved for the long - term survivability of the fi rm. This includes maintaining a strong list of clients, especially those that treat you as a potential partner, and having a pipeline of new projects that support the future products and services of the fi rm.
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138 T H E C O M P O N E N T S O F S U C C E S S
DECIDING ON THE QUADRANT
� Based on the interpretation, some values can appear in more than one quadrant.
� This may be more of a subjective rather than objective placement.
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D E C I D I N G O N T H E Q UA D R A N T 139
As can be seen from the preceding illustration, deciding in which quadrant to place a given project is very subjective. Some proj-
ects can encompass more than one quadrant and possibly even all four quadrants.
Because of this subjectivity, we will place certain projects or activi-ties in the quadrant where maximum value will be or can be achieved. For example, consider a company that successfully improves its pro-cess for commercialization of a product. We could argue that it is an internal value because of process improvement; a fi nancial value because it should allow us to increase our margins; a customer - related value because we can get the needed products to the customers more quickly; or a future value because it is designed to improve poten-tially all products or services in the future. In our minds, this would fall under internal value.
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140 T H E C O M P O N E N T S O F S U C C E S S
INTERNAL VALUES
– Adherence to schedule, budget, and quality/scope (triple constraint)– Mutually agreed upon scope change control process– Without disturbing the main flow of work– Clear understanding of the objectives (end-user involvement)
FinancialValues
FutureValues
InternalValues
Customer-RelatedValues
Maintaining the timing of sign-offs
Execution without disturbing the corporate culture
Building lasting internal working relationships
Consistently respecting each other’s opinions
Searching for value-added opportunities
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I N T E R N A L VA L U E S 141
Internal values focus heavily on the development of an enterprise project management (EPM) methodology and using it effectively
without disturbing the organization ’ s ongoing work. The methodol-ogy undergoes continuous improvement in order to improve the effi -ciency and effectiveness of the organization.
Although the triple constraint can be argued as belonging to all four quadrants, it is subjectively included here under internal values. Internal values include corporate culture support such as teamwork, communication, cooperation, and trust.
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142 T H E C O M P O N E N T S O F S U C C E S S
FINANCIAL VALUES
– Integrating program and project success into one definition– Maintaining ethical conduct– Adherence to regulatory agency requirements– Adherence to health, safety, and environmental laws
FinancialValues
FutureValues
InternalValues
Customer-RelatedValues
Maintaining or increasing market share
Maintaining or improving ROI, NPV, IRR, payback period, etc.
Maintaining or improving net operating margins
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F I N A N C I A L VA L U E S 143
Financial values focus on the long - term fi nancial health of the company. Adhering to government regulations concerning health,
safety, environmental issues, and ethical behavior also effects long - term fi nancial health by avoiding penalties, lawsuits, tarnishing the corporate image, and losing customers.
One or two successful projects do not guarantee long - term fi nan-cial health but may be needed in the short term to support cash fl ow requirements. Financial health can be defi ned as a stream of success-ful projects that meets the company ’ s fi nancial targets. The proper selection of projects is essential to achieve and maintain fi nancial health thus implying successful implementation of a project manage-ment offi ce (PMO) and a project portfolio management process.
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144 T H E C O M P O N E N T S O F S U C C E S S
FUTURE VALUES
– Improving the processes needed for commercialization– Emphasizing follow-on opportunities– Maintaining technical superiority– Protecting the company image and reputation
FinancialValues
FutureValues
InternalValues
Customer-RelatedValues
Maintaining a knowledge repository
Retaining presale and postsale knowledge
Aligning projects with long-term strategic objectives
Informing the teams about the strategic plans
Team members willing to work with this PM again
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F U T U R E VA L U E S 145
Future values are also heavily aligned with project selection and the portfolio management of projects. While some project selec-
tion processes focus only on near - term success, some projects must be selected for their alignment with long - term strategic goals and where profi tability and value may not be recognized until some time in the future. Financial models such as decision trees, sensitivity analysis, and internal rate of return (IRR) could be used to assess future values. It is important to consider the impact of the global economic situation and the emergence of companies in third world countries as potential competitors.
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146 T H E C O M P O N E N T S O F S U C C E S S
CUSTOMER - RELATED VALUES
– Keeping promises made to the customers over and over again– Maintaining customer contact and interfacing continuously– Focusing upon customer satisfaction from start to finish– Improving customer satisfaction ratings on a continuous basis
FinancialValues
FutureValues
InternalValues
Customer-RelatedValues
Using every customer’s name as a reference
Measuring variances against customer-promised best practices
Maintaining or improving on customer delivery requirements
Building long-term relationships between organizations
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C U S TO M E R - R E L AT E D VA L U E S 147
Because of the subjectivity involved, many of the above customer - related values could have been placed in other quadrants. However,
for simplicity ’ s sake, customer - related values allow the company to:
� Provide additional products/service to existing customers
� Develop new products based on customer input
� Develop long - term partner relationships with existing clients and create new partnerships with other clients
� Maintain a well - respected corporate image and brand recogni-tion that attracts new customers
� Focus on creating and maintaining a leadership position
� Maintain high levels of customer satisfaction
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148 T H E C O M P O N E N T S O F S U C C E S S
REASONS FOR INTERNAL VALUE FAILURE
– No EPM or system– Plan covers too much in too little time– Poor estimating– Insufficient data at onset– Poor team morale– Poor human relations– Poor labor productivity– Poor management commitment
FinancialValues
FutureValues
Customer-RelatedValues
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R E A S O N S F O R I N T E R N A L VA L U E FA I L U R E 149
The failure to achieve internal value may be attributed to a project management methodology that isn ’ t working correctly. For years,
blame was placed on quantitative factors such as poor planning, estimating, scheduling, and cost control. There were also valid argu-ments about failure relating to situations where there was no EPM methodology in place.
Today, more than ever, we are recognizing that failure can also result from behavioral issues, as seen in the preceding illustration. Organizations in which project management thrives on teamwork, effective communications, cooperation, and trust can overcome most of the quantitative failure issues. It is important to note that without positively infl uenced human behavior during project planning andexecution, the effectiveness of the resources will be diminished and even the best plans can fail.
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150 T H E C O M P O N E N T S O F S U C C E S S
REASONS FOR FINANCIAL VALUE FAILURE
– No strategic forecasting of financial success or value during project execution– Poor market acceptance of the product– Poor understanding of competitive factors during project initiation and execution– Overestimating of the market
InternalValues
FutureValues
Customer-RelatedValues
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R E A S O N S F O R F I N A N C I A L VA L U E FA I L U R E 151
Long - term fi nancial failure can be devastating to the health of a company. Other than the most common reasons, which appear in
the illustration on the previous page, we can also include:
� Poor strategic planning
� Poor portfolio management techniques
� Poor identifi cation and tracking of assumptions and con-straints
� Poor understanding on the market
� Overly infl ated fi nancial expectations
Even though a company may possess an outstanding enterprise project management methodology, these failure factors can still exist. Previously, we stated that if the wrong project is selected, it is irrel-evant as to how well or how poorly the projects are managed.
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152 T H E C O M P O N E N T S O F S U C C E S S
REASONS FOR FUTURE VALUE FAILURE
– Being a follower rather than a leader– Having limited products (projects) in the “pipeline”– Having the wrong products (projects) in the “pipeline”– Poor underestimating of the future (forecasting)– Doing very little to enhance image and reputationInternal
Values
FinancialValues
Customer-RelatedValues
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R E A S O N S F O R F U T U R E VA L U E FA I L U R E 153
Future value failure can be caused by the same items shown and discussed in the illustration on the previous page. But there are
additional issues, the fi ve most common being:
� The selection of projects that fail to enhance the fi rm ’ s image, reputation, or credibility
� The desire to be a marketplace follower or copycat rather than a market leader
� Failing to invest in the proper research and development (R & D) activities
� Failing to maintain a policy of continuous improvement
� Failing to listen to the “ voice of the customer ” when develop-ing new products and services
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154 T H E C O M P O N E N T S O F S U C C E S S
REASONS FOR CUSTOMER - RELATED VALUE FAILURE
– Project team not knowing customer’s goals and objectives or expected value– Not knowing customer’s definition of success– Customer and contractor have differing definition of success and value– Poor ratings by the customer during execution – No follow-on work
InternalValues
FinancialValues
FutureValues
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R E A S O N S F O R C U S TO M E R - R E L AT E D VA L U E FA I L U R E 155
Customer - related value failures can emanate from poor customer communications. Examples can include:
� Not understanding the customer ’ s requirements
� Not providing the customer with meaningful status reporting during project execution
� Not conducting phase - end reviews and continued scope verifi cation
� Not obtaining feedback from the customer during execution and after project closure
� Not making the customer feel important (including the customer in planning and decision making)
� Not establishing and maintaining an agreed - upon change control process
Other issues appear in the preceding illustration.
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156 T H E C O M P O N E N T S O F S U C C E S S
ANTARES SOLUTIONS
Future ValuesFinancial Values
Using the EPM systemthroughout theenterprise, not just inthe InformationTechnology Group
Enterprise-wide PMtraining
Periodic project auditsto validate the EPM andseek improvementsClosure presentations
Using a formalizedchange control processthat includes theexecutive steeringcommittee
Consistent structure foreach project (EPM) Using online tools forcommunicating plansMaintaining an officialproject issues list
Customer ValuesInternal Values
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A N TA R E S S O L U T I O N S 157
The following several illustrations show examples of perceived value for a specifi c company or industry. * Antares Management
Solutions ** is representative of information technology (IT) organi-zations. Management decided to embark upon signifi cant changes in the way they manage projects. A document was prepared and fully supported by senior management, illustrating the expected values and copies were provided to all employees. The values are shown in the preceding illustration.
What is interesting about the entries in each quadrant is that the defi nitions of success, values, and best practices need not be com-plex. The entries in the quadrants refl ect more on the things the company must do well to achieve these values.
*The examples provided on the next several pages are based upon the authors ’ inter-pretation of the limited information provided in previously published texts discussing best practices in project management. Actual positioning of information in each of the quadrants can change based upon economic conditions. **Source: Harold Kerzner, Advanced Project Management: Best Practices on Implementa-tion , 2nd ed. Hoboken, NJ: John Wiley & Sons, © 2004, pp. 136 – 138.
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158 T H E C O M P O N E N T S O F S U C C E S S
GENERAL ELECTRIC (PLASTICS GROUP)
Future ValuesFinancial Values
Adhering toenvironmentalregulations
Improvements intechnology
Delivering productivityfor manufacturingoperations
Customer satisfactionTime
Cost
Quality
Customer ValuesInternal Values
Adhering tosafety regulations
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G E N E R A L E L E C T R I C ( P L A S T I C S G RO U P ) 159
General Electrics Plastic Group * focuses heavily on capital improvement projects, but some projects were for external cli-
ents. General Electric has eight components as part of their success criteria, as shown in the preceding illustration.
*Source: Harold Kerzner, Advanced Project Management: Best Practices on Implementa-tion , 2nd ed. Hoboken, NJ: John Wiley & Sons, © 2004, p. 32.
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160 T H E C O M P O N E N T S O F S U C C E S S
ASEA BROWN BOVERI ( ABB )
Future ValuesFinancial Values
Using the EPM system,achieving booked orbetter profit margins
The PMO conductsperiodic audits of eachproject to validate theEPM and seekimprovements
Complete customersatisfaction
Predictable projectmanagement (EPM)Delivery, delivery,delivery—on timedelivery within budget—every time
Customer ValuesInternal Values
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A S E A B ROW N B OV E R I ( A B B ) 161
Asea Brown Boveri (ABB) * is a multinational corporation in a vari-ety of businesses, including heavy construction. The preceding
illustration shows the drivers for their values.
*Source: Harold Kerzner, Advanced Project Management: Best Practices on Implementa-tion , 2nd ed. Hoboken, NJ: John Wiley & Sons, © 2004, pp. 33, 44 – 45.
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162 T H E C O M P O N E N T S O F S U C C E S S
WESTFIELD GROUP
Future ValuesFinancial Values
Need to providecomplete businesssolutions rather thanjust products
Recognizing that theneeds of the customershad changed
Consistent structure foreach project (EPM)
Using the onlineintranet EPM system
Customer ValuesInternal Values
Recognizing changingcustomer relationships
Customer partnering
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W E S T F I E L D G RO U P 163
Westfi eld Insurance * , a Division of Westfi eld Group, recognized that project management growth was essential for corporate
success. According to a spokesperson,
“ Westfi eld Insurance recognized that the needs of our customers had changed with regard to information technology and information systems projects. Also, the relationship with our customers had changed. Our customers were now expecting complete solutions to their business needs rather than just products. We needed an organization that was designed to partner with our business customers and specialized in providing high - quality business solutions. ”
Since the majority of the customers were internal to the company, profi t margins were not assigned to the IT projects, which is why the fi nancial value box is empty.
*Source: Harold Kerzner, Advanced Project Management: Best Practices on Implementa-tion , 2nd ed. Hoboken, NJ: John Wiley & Sons, © 2004, pp. 138 – 142.
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164 T H E C O M P O N E N T S O F S U C C E S S
COMPUTER ASSOCIATES TECHNOLOGY SERVICES
Future ValuesFinancial Values
Customer ValuesInternal Values
Management ofcustomer expectations
Capturing best practices
Maintaining netoperating margins
Assigning qualifiedresources
Proper scoping of thecustomer’s requirements
Handling exceptions
Customer satisfactionratings
Maintaining customercommunications andinvolvement
Sharing risk managementinformation
Measuring variancesagainst best practices
Weekly measurementof progress versus thebaseline
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C O M P U T E R A S S O C I AT E S T E C H N O L O G Y S E RV I C E S 165
Computer Associates (CA) * is a multinational IT organization. They maintain a reasonably large project management offi ce and
are strong believers in capturing best practices in project manage-ment. Prior to 2005, their best practices library consisted of 177 best practices, which were both process - and product - related best prac-tices. After 2005, the number of best practices was scaled back to 151. The reason for this was either:
� The best practice is no longer a best practice and has been retired.
� The best practice has been combined with other best practices.
* Source: Harold Kerzner, Advanced Project Management: Best Practices on Implementa-tion , 2nd ed. Hoboken, NJ: John Wiley & Sons, © 2004, pp. 68 – 72, 535 – 549.
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166 T H E C O M P O N E N T S O F S U C C E S S
CONVERGENT COMPUTING
Future ValuesFinancial Values
Customer ValuesInternal Values
Having well-definedpolicies and processesthat leverage bestpractices
Having formalized EPMprocesses
Having experienced and well-rounded technical resources
Proper scoping of the customer’s requirements
Having carefully crafted teams with well-defined roles and responsibilities
Leveraging ourexperience andknowledge to achievethe deliverables
Enhanced colloborationand communication
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C O N V E R G E N T C O M P U T I N G 167
Convergent Computing (CCO) * is a medium - sized, privately held company that partners with its clients to provide professional and
knowledgeable IT consulting services. The road to success was dif-fi cult but fi nally achieved. According to a spokesperson from CCO,
“ Many of the consultants and engineers didn ’ t understand why they should have to learn and or deal with the project management and this made it diffi cult to get them ‘ on board. ’ Many of them did not want to take the additional time to learn project management methodologies and felt they had enough on their hands just staying knowledgeable with the ever - changing technology. When project managers were assigned to projects and began scheduling kick - off meetings or asking for a regular status update, consultants felt they were burdened with additional tasks or asks to attend meetings they didn ’ t see as necessary. ”
*Source: Harold Kerzner, Project Management Best Practices: Achieving Global Excel-lence , 1st ed. Hoboken, NJ: John Wiley & Sons, © 2006, pp. 43 – 44.
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168 T H E C O M P O N E N T S O F S U C C E S S
MOTOROLA
Future ValuesFinancial Values
Customer ValuesInternal Values
Maintaining high-quality standards
Control to prevent costly scope creep
Having the right skills available when needed
Unequaled technical execution
Well-defined processeswith formalized gatereviews
Commitment toschedules
Early customer involvement
Effective customer communications
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M OTO RO L A 169
Motorola * is a company that consistently strives to improve its process. According to a spokesperson,
“ What worked well last year or this year, may not meet our needs in the future. We have goals to improve the effectiveness of project performance and product development. We believe that the implementation of the project management process is a key to achieving our goal [and value]. We intend to be the best in class in project management and are investing resources to this end. ”
*Source: Harold Kerzner, Advanced Project Management: Best Practices on Implementa-tion , 2nd ed. Hoboken, NJ: John Wiley & Sons. © 2004, pp. 571 – 573.
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170 T H E C O M P O N E N T S O F S U C C E S S
AUTOMOTIVE SUPPLIERS SECTOR
Future ValuesFinancial Values
Customer ValuesInternal Values
Full business review processes to ensure lean disciplines Lean supply chain management Use an opportunity tracker system
Maintaining net operating margins Development of a project management cost model for each discipline based on industry benchmarks
Global common EPM applications including QS9000 and Six Sigma EPM alignment to business objectives World-class life-cycle management (EPM)
Prevent quality spills to the customer
A structured change management process
On-site customer liaisons
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AU TO M OT I V E S U P P L I E R S S E C TO R 171
The preceding illustration represents the automotive suppliers sector. With limited customers for the automotive suppliers and
a large number of suppliers, profi t margins are squeezed, and the primary customers (i.e., Ford, Chrysler, and General Motors) want higher quality at a lower price.
The industry as a whole is pressured by:
� Customers wanting lower prices
� Customers wanting higher levels of quality
� Customers demanding the development of a world - class project management methodology
� Customers mandating that the suppliers adhere to rigid quality standards
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172 T H E C O M P O N E N T S O F S U C C E S S
BANKING SECTOR
Future ValuesFinancial Values
Customer ValuesInternal Values
Gathering and sharing lessons learned Correct targeting of acquisitions and growth investments
Focusing on core businesses
Managing credit risk
A standard EPM system to provide the best ROI and cancel if necessary
Consolidates the technologies and processes that overlap
Consistent EPM system across all lines of business
Include customers in the stage-gate process
Providing accessible customer-centric banking options
Cross-sell products
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B A N K I N G S E C TO R 173
The preceding illustration is an example of the banking sector. The sector is made up of many banks, many customers, and numer-
ous mergers and acquisitions. Note that each set of values is actually part of a value system that addresses the enterprise needs.
The banking sector is sensitive to risk, and the values associated with fi nancial institutions are related to the desire to create a safe environment for their clients. However, recent economic events have changed the core businesses of many of the banks, and these changes can signifi cantly alter the elements in each quadrant.
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174 T H E C O M P O N E N T S O F S U C C E S S
COMMODITY PRODUCTS(MANUFACTURING) SECTOR
Future ValuesFinancial Values
Customer ValuesInternal Values
Technical innovationcapability
Using projectmanagement to obtaina sustained competitiveadvantage
Compliance withSarbanes-Oxley laws
Compliance with local,state, and federal laws
Having a commonfinancial platform
Designing new facilitiesfor health, safety, andthe environment
An employeerecognition system
New business awards
Supplier awards
Customer satisfaction
Having a customer-focused qualityassurance process
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C O M M O D I T Y P RO D U C T S ( M A N U FAC T U R I N G ) S E C TO R 175
The preceding illustration represents a typical commodity manu-facturing fi rm. In most cases, compliance to federal and state
laws takes precedence in providing value. The sector is also in favor of improving brand name and corporate image by receiving awards. Some companies advertise and focus on the marketability of their awards, such as quality awards, performance awards, and customer satisfaction awards. This is why companies often spend millions of dollars to become ISO 9000 certifi ed, achieve Six Sigma levels of performance, or to win the Malcolm Baldrige or other prestigious awards.
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176 T H E C O M P O N E N T S O F S U C C E S S
LARGE COMPANIES
Future ValuesFinancial Values
Customer ValuesInternal Values
Successful innovation
Being a market leader
Product development (innovation, patents, and trade secrets)
Image/reputation
Multiple product lines
Paying out dividends
Project that become “cash cows” and “stars”
Product development process
A structured project review process
Identifying “exit” champions
Customer satisfaction ratings
Maintaining customer relations
Customer partnerships
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L A R G E C O M PA N I E S 177
Large companies, especially those that are cash rich, can invest heavily in R & D, product enhancements, and process improve-
ments. These companies can accept a fi nancial loss and project fail-ures in hopes of developing better customer relations in the future.
Many large companies believe that the key to the future lies in the company ’ s intellectual property, which can enhance the company ’ s image. Cash - rich companies may be in a position to accept a 50 percent success rate for their new products, whereas cash - poor companies may accept nothing less than 80 percent or more, and are more selec-tive in the projects they accept.
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178 T H E C O M P O N E N T S O F S U C C E S S
SMALL COMPANIES
Future ValuesFinancial Values
Customer ValuesInternal Values
Maintaining independence
Having a single goal that supports a niche strategy
Selective bidding
Maintain market share growth for survival
Short-term profit-driven strategy
Affordable cost of quality and R&D
An EPM system that focuses more on enhancements rather than new product development Well-structured risk management process
Customer satisfaction ratings
Customer retention
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S M A L L C O M PA N I E S 179
Smaller companies perceive value differently than large compa-nies. To understand why, consider the following criteria that small
companies often use as part of strategic planning:
� Cash limitations force the company to be more selective in the projects they work on
� Project selection focuses on a niche strategy
� The risks of failure are given more attention than in a large company.
� Most customers are located regionally
� Customers retention is a high priority
� Growth comes from cash fl ow rather than borrowing
� The company may not be able to be the market leader and may be content in a position as a follower or copycat product company
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c05.indd 180c05.indd 180 6/10/09 11:30:07 AM6/10/09 11:30:07 AM
SUCCESS AND BEST PRACTICES
C h a p t e r
6
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182 S U C C E S S A N D B E S T P R AC T I C E S
FROM VALUES TO BEST PRACTICES
Selectingthe Right
CSFs & KPIs
Best Practices
Obtaining Values
FutureValues
Customer-RelatedValues
InternalValues
FinancialValues
Discovering BestPractices
FutureBP
CustomerBP
InternalBP
FinancialBP
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F RO M VA L U E S TO B E S T P R AC T I C E S 183
The ultimate goal of value - based project management is obviously to obtain the greatest value of the deliverable from the customer
and the producing organization ’ s perspective. In the process of doing so, best practices (BPs) can be discovered that allow the organization to create additional value in terms of effi ciency, customer satisfac-tion, and enhanced products and services, especially when imple-menting future projects.
To do this, it is important to select the right critical successful fac-tors (CSFs) and key performance indicators (KPIs). The defi nitions of these terms appear on the next two pages.
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184 S U C C E S S A N D B E S T P R AC T I C E S
TWO COMPONENTS OF SUCCESS
� Critical success factors (CSFs) focus on the value in deliverables or end results.
� Key performance indicators (KPIs) focus on the value in the processes used to achieve the end results.
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T WO C O M P O N E N T S O F S U C C E S S 185
CSFs and KPIs can be viewed as best practices if the right CSF and KPI are selected and applied. CSFs focus on the end result and its
perceived value. KPIs focus on the processes to achieve the CSF. CSFs are diffi cult to track. Usually, the CSF is identifi ed at the
end of the project. KPIs are tracked throughout the project. KPIs are the measurement instruments that provide some indicator that the CSF will be obtained.
A KPI is a fi nancial or nonfi nancial measure used to help an organization measure progress toward a stated organizational goal or objective.
A CSF would be something that needs to be in place to achieve that objective, for example, the launch of a new product or service.
KPI � Number of new customers
CSF � Installation of a call center for managing the customers
� CSFs are elements that are vital for a given strategy to be successful
� KPIs are measures that quantify objectives and enable the measurement of strategic performance
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186 S U C C E S S A N D B E S T P R AC T I C E S
REDEFINING VALUE METRICS ( CSF s AND KPI s)
Metrics are fixed forthe duration of the
project
Past View
Metrics can changeover the duration of
the project
Present View
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Generally, CSF and KPI metrics are established by the company and applied to all projects. This is particularly true when the
defi nition of success is exclusively associated with the triple con-straint. An example of a traditional CSF is adherence to schedules, budgets, quality, timing of sign - offs, and adherence to the change control process. Typical KPIs are use of the methodology and com-paring progress against the baseline. These metrics may change, but the change will be slow.
When the defi nition of success also includes value, then value (CSF and KPI) metrics must also be defi ned. The value metrics can change over the duration of the project, especially if the perceived value changes.
R E D E F I N I N G VA L U E M E T R I C ( C S F s A N D K P I s ) 187
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188 S U C C E S S A N D B E S T P R AC T I C E S
THE NEED FOR CHANGING METRICS
Metrics can change, from project to project, and over time, because of:
� The way the company defi nes value internally.
� The way the customer and contractor jointly defi ne success and value at project initiation.
� The way the customer and contractor come to an agree-ment at project initiation as to what metrics should be used on a given project.
� New or updated versions of tracking software.
� Improvements to the enterprise project management methodology and accompanying project management information system (PMIS).
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T H E N E E D F O R C H A N G I N G M E T R I C S 189
The preceding illustration shows the need to monitor and change metrics as the business environment changes. With traditional
project management, the enterprise project management (EPM) sys-tem usually contains a standard set of CSFs and KPIs that are used on each and every project. It has been a common practice to estab-lish the CSFs and KPIs around the triple constraint.
When value becomes part of the success criteria, and when there are multiple forms of value, the CSF and KPI can change from proj-ect to project. Changes can also occur as a result of changes to the EPM and project management information system (PMIS). Meth-odologies today must continue to adapt to changing values and their impact on CSF and KPI.
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190 S U C C E S S A N D B E S T P R AC T I C E S
PROJECT MANAGEMENT OFFICE INVOLVEMENT
FutureSuccess
Customer-RelatedSuccess
FinancialSuccess
InternalSuccess
PMO
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P RO J E C T M A N A G E M E N T O F F I C E I N VO LV E M E N T 191
The selection of which set of metrics to use is not left to chance nor established by solely by the project manager. Most compa-
nies use the project management offi ce to establish the metrics that will be used to asses project performance. The value metrics may be established through a team effort including the project management offi ce, the project manager, and the customer.
Without an established project management offi ce (PMO), life in the project management environment may become diffi cult. Met-rics may not be established, lessons learned may not be identifi ed, and BPs will not be captured. If mistakes were made, they may be repeated on future projects.
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192 S U C C E S S A N D B E S T P R AC T I C E S
DISCOVERY OF BEST PRACTICES
Simplistic
FunctionalSpecialization
CorporateSpecialization With a PMO
Valu
e-A
dded
Bes
t Pr
acti
ces
Without a PMO
Progression to Maturity
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D I S C OV E RY O F B E S T P R AC T I C E S 193
The importance of a PMO cannot be overlooked or ignored. This is shown in the preceding illustration. Without a PMO, the iden-
tifi cation of BPs becomes a functional responsibility and there is a risk that BPs may not be captured, documented, or communicated effectively through an organization. The majority of discovered BPs are intended to benefi t the entire organization and this may be dif-fi cult for a single - line organization to manage effectively.
With a PMO in place and staffed, it is easier to discover the value BPs. Also, with a PMO, additional BPs that could accelerate the proj-ect management maturity process may be discovered through project reviews, customer satisfaction reports, and informal discussions.
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194 S U C C E S S A N D B E S T P R AC T I C E S
THE DEBRIEFING PYRAMID
Performance Analysis
Time Cost Quality Scope
FunctionalSupport
CustomerSatisfaction
MethodologyExecutiveSupport
BusinessOpportunity
Mission
Customer Success andFinancial Success
InternalSuccess
InternalSuccess
Goals and Objectives
Metrics
Future Success
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T H E D E B R I E F I N G P Y R A M I D 195
The preceding illustration identifi es the debriefi ng pyramid. The PMO, the project team, and the functional groups work together
to determine internal success factors. The PMO will work with mar-keting, sales, and senior management to determine customer, future, and fi nancial success. This information is documented and utilized to improve existing processes and support continuous improvement.
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196 S U C C E S S A N D B E S T P R AC T I C E S
DISCLOSURE OF BEST PRACTICES
PMO/COE
DistributionDecision
Best Practicesin Projects
Best Practicesin Business
Value Added:Best Practice Library
Value Added:Knowledge Repository
ProprietaryDisclosure
of Information
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D I S C L O S U R E O F B E S T P R AC T I C E S 197
Previously, we stated that today ’ s project managers are expected to capture BPs in business as well as BPs in the management of
projects. This can lead to complications if the company maintains a BP library that contains proprietary information. In this case, it is important to differentiate BPs in the library that may be shared with customers and those that are intended for use by organizational employees.
To resolve this problem, companies have begun classifying doc-umented BPs as propriety knowledge or nonpropriety knowledge. Value - added BPs that will be shared with the clients are placed in a “ common ” or BP library. The proprietary BPs are placed into a knowl-edge repository, which is intended for internal use only.
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198 S U C C E S S A N D B E S T P R AC T I C E S
LEVELS OF SUCCESS IN OBTAINING VALUES
Level 3
Level 2
Level 1
Level 0
Customer Success:Customer Satisfactionand Follow-on Work
Future Success:Image and Reputation
Level 4
Internal Success:Repetitive Delivery ofSolutions using EPM
Implementing ProjectManagement with an EPM
Financial Success:Meeting Profit Marginsor Market Share
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L E V E L S O F S U C C E S S I N O B TA I N I N G VA L U E S 199
We showed earlier that there were benefi ts or value that could be obtained in the short term when a project is completed,
whereas other values may take years before they are realized. The preceding illustration shows the typical order or level for the values. Level is the implementation of project management using an enter-prise project management methodology. Levels 1 and 2 are near - term levels, whereas Levels 3 and 4 are long term.
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200 S U C C E S S A N D B E S T P R AC T I C E S
PROJECT MANAGEMENT KNOWLEDGE
Internal ContinuousImprovements
Internal ContinuousImprovements
BenchmarkingKnowledge
Time
Internal Knowledge External Knowledge Internal Knowledge
Resultsof
Studies
Note: Slope Indicates Rate of Improvements
Perf
orm
ance
Impr
ovem
ents
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P RO J E C T M A N A G E M E N T K N OW L E D G E 201
The purpose behind capturing and sharing practices is to improve organizational performance. Continuous improvement is essen-
tial in the business and project environment and should become part of the organization ’ s culture (Toyota, as an example, has a defi nite culture of continuous improvement that is evident in every level of management and business unit). Sometimes bench marking can pro-vide an organization with suffi cient knowledge to develop additional best practices that will enable continuous improvement efforts to occur more quickly than using only internally captured BPs.
Companies that always promote from within the company create an inbreeding culture to the point where new ideas may not be forth-coming. Benchmarking, literature studies, and industry analyses can generate excellent ideas. However, it should be understood that a BP in one company may not be an applicable BP in other companies. Not all BPs are transferable.
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202 S U C C E S S A N D B E S T P R AC T I C E S
PROJECT MANAGEMENT BENCHMARKING
Types ofBenchmarking
Process Benchmarking
Industry Benchmarking
World-Class Benchmarking
FinancialValues
FutureValues
Customer-RelatedValues
InternalValues
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P RO J E C T M A N A G E M E N T B E N C H M A R K I N G 203
If value - oriented benchmarking is to be performed, it can be done according to these three types shown in the illustration on the previ-
ous page. In general, each type of benchmarking may produce different results, such as:
� Process benchmarking: Discovery of internal values
� Industry benchmarking: Discovery of internal and customer - related values
� World - class benchmarking: Discovery of internal, customer - related, future, and fi nancial values
The cost of performing world - class benchmarking is signifi cantly greater than performing process or industry benchmarking. For signif-icant results to be obtained, the company must be willing to commit time, effort, and fi nancial resources to the process.
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204 S U C C E S S A N D B E S T P R AC T I C E S
SHARING VALUES DURING BENCHMARKING
Shared Shared
Not SharedNot SharedFinancialSuccess
FutureSuccess
Customer-RelatedSuccess
InternalSuccess
Not all categories of success, value, and accompanying BPs are shared during benchmarking activities.
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S H A R I N G VA L U E S D U R I N G B E N C H M A R K I N G 205
As seen in the preceding illustration, not all categories of success or value are shared during benchmarking. There are several rea-
sons for this:
� The information is regarded as proprietary knowledge.
� You must provide the sharing organization with the same qual-ity information that they provide you. Equal sharing is essential.
� The organization performing the benchmarking views you as a competitor.
� There is uncertainty and concern about what you will do with the information.
� The organization has had a bad experience previously with benchmarking and does not want to repeat mistakes.
Companies may be willing to share information about internal suc-cess and customer - related success because it is less threatening than releasing information about fi nancial success and future success. Releasing information about future success could result in disclosure of the company ’ s strategic plans.
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206 S U C C E S S A N D B E S T P R AC T I C E S
INTELLECTUAL PROPERTY COST VERSUS VALUE
Paradise
Cemetery
Cost of Obtaining the Knowledge
Low HighLow
High
Sustained Competitive Advantage
Sust
aine
d C
ompe
titi
ve A
dvan
tage
Valu
e of
the
Kno
wle
dge
Region ofCompetitiveness
Danger Zone
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I N T E L L E C T UA L P RO P E RT Y C O S T V E R S U S VA L U E 207
Developing or obtaining intellectual property, either internally or through benchmarking, and whether it is considered to be a BP
or value metric, requires management commitment and funding. If the value of the information is considered to be high and the cost of obtaining the information is low, this is a very desirable situation and the return on investment (ROI) can be signifi cant. One BP can save a company millions of dollars in the long term.
As the cost of obtaining the information increases and the value of the information decreases, we enter a “ Danger Zone. ” In the “ Cem-etery ” box, failure may be imminent because we would be spending a signifi cant amount of money to capture information that is of little value or no value at all. Doing this for a prolonged time could be disastrous.
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208 S U C C E S S A N D B E S T P R AC T I C E S
IMPLEMENTATION FAILURES
Lack of Rigor
No Real Value
Lack of Understanding
Improper Use
Based onJudgement
Erroneous
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I M P L E M E N TAT I O N FA I L U R E S 209
Sometimes, what appears to be very positive on paper cannot be implemented as described or made to work within your company.
Some BPs are based on the corporate culture and how the employees use the BPs. Your company may have a completely different culture, which will affect how BPs are accepted and used. A few examples might be:
� The other company ’ s BPs were based on erroneous judgment or a one - time situation, and you didn ’ t recognize it until imple-mentation.
� The BP lacks vigor and is too simplistic.
� The implementation of the BP does not provide any real value to your company.
� Your understanding of the BP was faulty or incomplete.
� You see no value in the BP because implementation was com-pleted improperly.
� The internal operating values of the company established by management confl ict with the BP.
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c06.indd 210c06.indd 210 6/10/09 11:30:41 AM6/10/09 11:30:41 AM
THE VALUE CONTINUUM
C h a p t e r
7
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212 T H E VA L U E C O N T I N U U M
THE TIMING OF VALUES
FinancialValues
FutureValues
InternalValues
Customer-RelatedValuesWhe
n Be
nefi
ts A
re A
chie
ved
Discovery CostLow HighShort Term
Long Term
FoundationValues
StrategicValues
FLO
W
THE TIMING OF VALUES
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T H E T I M I N G O F VA L U E S 213
A question that is frequently asked about values is, “ How does a company determine the timing associated with the defi ned val-
ues? ” The order for a typical company is shown in the illustration on the previous page. Internal values come fi rst because the company must have some type of repetitive internal success just to stay in business. Once internal values are achieved, customer - related values follow. A company may be willing to incur fi nancial losses for a short period of time to develop a meaningful customer base.
In third place are future values. The future value may be based on the need to satisfy customers in the long term, and, once again, the company may be willing to absorb near - term losses to achieve greater value later. Finally, we come to fi nancial values. A company cannot absorb losses indefi nitely and remain in business. The com-pany must eventually become successful fi nancially in order to remain solvent in the long term.
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214 T H E VA L U E C O N T I N U U M
THE VALUE CONTINUUM
Time
Increasing Costs
InternalValues
Short Term Long Term
Customer-RelatedValues
FutureValues
FinancialValues
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T H E VA L U E C O N T I N U U M 215
The preceding illustration is a slightly different representation of the timing of the values. As expected, the cost can increase sig-
nifi cantly as we move across the continuum. And, as stated in the previous illustration, the company must eventually obtain a revenue stream to cover the costs.
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216 T H E VA L U E C O N T I N U U M
BARRIERS ALONG THE CONTINUUM
� Faulty initial expectations.
� Unrealistic expectations.
� Unattainable expectations.
� Poor alignment with business objectives.
� Recessions.
� Changing customer requirements.
� Crisis.
� Competitors using the same approach.
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B A R R I E R S A L O N G T H E C O N T I N U U M 217
The road to success is not always straight and narrow. There are barriers along the continuum, and these barriers can elongate the
time needed to achieve the value associated with the cost. Some bar-riers can be compensated for as the company matures, but trying to overcome several barriers occurring at the same time may be impos-sible. Understanding and preparing for these potential barriers will minimize their impact and, in some cases, accelerate the realization of value.
“ Chance favors the prepared mind. ” Louis Pasteur - French chemist and microbiologist
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218 T H E VA L U E C O N T I N U U M
ACTIVITIES TO SPEED UP THE VALUE CONTINUUM
Creation ofan EPM
Creation ofa PMIS
PortfolioManagement
PMOBenchmarking
Education onBusiness Processes
: Order of the Activities Will Change for Each Company
Short Term Long Term
Note
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AC T I V I T I E S TO S P E E D U P T H E VA L U E C O N T I N U U M 219
There are some activities that can be undertaken to speed up the value continuum. The order of the added activities will change
from company to company, as well as the timing of implementation. For example, the early establishment of a project management offi ce (PMO) during the project management maturity process can accel-erate the realization of value. The creation of an enterprise project management (EPM) methodology can help in obtaining all four forms of value, and therefore should be accomplished as quickly as possible.
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220 T H E VA L U E C O N T I N U U M
THE VALUE CONTINUUM AND THE PROJECT MANAGEMENT MATURITY MODEL
BasicKnowledge
Level 1
CommonLanguage
ProcessDefinition
Level 2
CommonProcess
ProcessControl
Level 3
SingularMethodology
ProcessImprovement
Level 4
Benchmarking
Level 5
ContinuousImprovement
Internal Values
Short Term Long Term
Customer-RelatedValues
Future Values Financial Values
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T H E VA L U E C O N T I N U U M A N D T H E P M M M 221
The value continuum can also be used in conjunction with maturity models for project management. The preceding illustration maps
the continuum against the Project Management Maturity Model (PMMM). * The PMMM is one of several project management matu-rity models in the marketplace. The PMMM has fi ve levels:
� Level 1: Providing training programs on project management so that people become familiar with project management terminology, and possibly have some people become Project Management Professionals (PMPs).
� Level 2: The people you have trained begin the development of processes for project management.
� Level 3: The processes developed in Level 2 can be put together into an EPM system.
� Level 4: Perform benchmarking on project management.
� Level 5: Decide what information, if any, from the bench-marking studies should be implemented into the EPM system as part of continuous improvement.
*For additional information of PMMM, see Harold Kerzner, Strategic Planning for Proj-ect Management Using a Project Management Maturity Model , 2nd ed. Hoboken, NJ: John Wiley & Sons, © 2006.
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222 T H E VA L U E C O N T I N U U M
VALUE MANAGEMENT LIFE - CYCLE PHASES
ValueIdentification
Phase
BusinessDriversPhase
OngoingMeasurement
Phase
BenefitRealization
Phase
StakeholderSatisfaction
ManagementPhase
BusinessCase
BusinessDrivers
KPIs BusinessValue
ContinuousImprovement
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VA L U E M A N A G E M E N T L I F E - C Y C L E P H A S E S 223
It is possible that the traditional EPM systems with traditional life - cycle phases may need to be changed if achieving value
becomes the ultimate goal rather than simply meeting the specifi ca-tions of the triple constraint. The preceding fi ve life - cycle phases may become the overall structure for projects, and the traditional life - cycle phases and accompanying methodology may be included within each of these phases. In other words, we may end up with a methodology within a methodology.
Traditional EPM systems focus on a well - defi ned set of objec-tives, which most likely will not change over the life of the project, and where the target is to complete the project within the specifi ed project triple constraint. But when value becomes the target, we may need to allow the project objectives to change as the project pro-gresses through each phase of the project life cycle because of thenecessity to remain fl exible to the needs of the customer and to the changes in the business environment. True value will ultimately be achieved through controlled adaptation. The life - cycle phases shown will be discussed in the next several illustrations.
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224 T H E VA L U E C O N T I N U U M
VALUE IDENTIFICATION PHASE: BUSINESS CASE
INPUTS:
TOOLS & TECHNIQUES:
OUTPUTS:
Enterprise Environmental FactorsAssumptionsConstraints
• Project selection methods• Portfolio management tools•
•••
Prioritization techniques
• Business case• Target value baseline• Success criteria (CSFs)
BusinessCase
BusinessDrivers
KPIs BusinessValue
ContinuousImprovement
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VA L U E I D E N T I F I C AT I O N P H A S E : B U S I N E S S C A S E 225
The fi rst life - cycle phase includes the identifi cation of the factors that would be used in the development of the business case that
will focus on obtaining the value. The appropriate selection methods would be considered along with other criteria that would provide a confi dence level that value will be achieved. The output would be the business case and the target value baseline against which progress will be measured. In this phase, the development of the target value baseline and the business case could be considered a project in itself using the traditional EPM methodology.
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226 T H E VA L U E C O N T I N U U M
BUSINESS DRIVERS PHASE: BUSINESS DRIVERS
INPUTS:• Business Case• Success Criteria (CSFs)• Targeted Value• Organizational Process Assets
TOOLS & TECHNIQUES:• EPM System• PMIS• Policies and Procedures• Forms, Guidelines, Templates
OUTPUTS:• Business Value Drivers• Business Case Update• Update of Assumptions
BusinessCase
BusinessDrivers
KPIs BusinessValue
ContinuousImprovement
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B U S I N E S S D R I V E R S P H A S E : B U S I N E S S D R I V E R S 227
The second life - cycle phase is the identifi cation of the business value drivers. The value drivers, also called performance drivers,
identify how you will deliver the business case. The value drivers can include the EPM system, project management information system (PMIS), and other organizational process assets that will be used.
The business value drivers are the tools, techniques, and processes that will be employed to help create the ultimate targeted value. Business value drivers could also be identifi ed in terms of resources. As an example, an employee with critical skills must be assigned to the project because that resource or required skill is a business value driver. Business value drivers can change from project to project.
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228 T H E VA L U E C O N T I N U U M
MEASUREMENT PHASE: KEY PERFORMANCE INDICATORS
INPUTS:• Business Value Drivers
TOOLS & TECHNIQUES:• EPM System• PMIS• Policies and Procedures• Forms, Guidelines, Templates
OUTPUTS:• KPIs
BusinessCase
BusinessDrivers
KPIs BusinessValue
ContinuousImprovement
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M E A S U R E M E N T P H A S E : K E Y P E R F O R M A N C E I N D I C ATO R S 229
The third life - cycle phase is the measurement phase. In this phase, we identify the key performance indicators (KPIs) that should be
measured in connection with the business value drivers. The KPIs can differ from project to project. The KPIs could be the quality of the resources assigned, the interim deliverables, customer satisfac-tion rating reports, variances against baselines, usage of specifi c tools, and usage of project - related best practices (BPs).
A KPI can have a target, which is an exact value that the KPI should achieve. It can also have ranges against which to track the KPI. Ranges can be either a percentage of the target value or an actual value.
The diffi culty is to determine:
� How many KPIs should be considered?
� Which ones are most important?
� How to measure and evaluate the KPIs?
� How frequently to perform the measurement?
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230 T H E VA L U E C O N T I N U U M
VALUE REALIZATION PHASE: VALUE (BENEFITS)
INPUTS:• KPIs• CSFs• Other Success Identifiers
TOOLS & TECHNIQUES:• Earned Value Measurement• Quantitative Assessment Tools• Qualitative Assessment Tools• Success Templates
OUTPUTS:• Business Value Deliverable• Stakeholder Sign-off
BusinessCase
BusinessDrivers
KPIs BusinessValue
ContinuousImprovement
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VA L U E R E A L I Z AT I O N P H A S E : VA L U E ( B E N E F I T S ) 231
The fourth life - cycle phase is the obtaining of the business value and the eventual sign - off by the stakeholders. This is the accom-
plishment of the deliverables. This life - cycle phase can be quite long, depending on the type of project and the deliverables.
If the value cannot be verifi ed at the end of the phase, then an investigation must be made as to whether or not the assumptions had changed or if there were any other signifi cant changes that may have affected the project. If the value is verifi ed as achieved, then the appro-priate stakeholder(s) should sign off and accept the deliverables.
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232 T H E VA L U E C O N T I N U U M
CUSTOMER SATISFACTION MANAGEMENT PHASE: CONTINUOUS IMPROVEMENT
INPUTS:• Business Value• KPIs• CSFs
TOOLS & TECHNIQUES:• Facilitation Tools• Best Practices Templates• Lessons Learned Templates• Customer/Stakeholder Surveys• Benchmarking Studies
OUTPUTS:• Lessons Learned• Best Practices• Updates to EPM/PMIS• Updates to Best Practices Library
BusinessCase
BusinessDrivers
KPIs BusinessValue
ContinuousImprovement
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C U S TO M E R S AT I S FAC T I O N M A N A G E M E N T P H A S E 233
The last life - cycle phase is customer satisfaction management. This is the phase where BPs and lessons learned are captured.
The participants in this phase could include the project manager, sales and marketing personnel, both internal and external customers, facilitation personnel with expertise in extracting BPs, and project offi ce personnel.
If the project is a long - term effort, then the capturing of BPs and lessons learned may be accomplished intermittently throughout the project rather than just at the project ’ s completion. There may be a template as part of the EPM system to extract BPs. Also, since BPs and lessons learned can be found in both successes and failures, this phase may be performed for projects that are terminated even though no value has been developed.
Some projects must be terminated prior to the completion of the full life cycle. There are performance reports that can provide us with some indication that a project should be terminated. This is shown in the next chapter.
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c07.indd 234c07.indd 234 6/10/09 11:31:25 AM6/10/09 11:31:25 AM
ASSIGNING VALUE THROUGH OBJECTIVES
C h a p t e r
8
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236 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
TYPES OF PERFORMANCE REPORTS
ProgressReports
StatusReports
ForecastReports
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T Y P E S O F P E R F O R M A N C E R E P O RT S 237
Performance reporting is essential for effective decision making to take place. In general, there are three types of performance
reports:
� Progress reports: These reports describe the work accom-plished to date. This includes:
� The planned amount of work up to the timeline of the report
� The actual amount of work accomplished up to the timeline
� The actual cost accumulated up to the timeline
� Status reports: These reports indicate the status by compar-ing the progress to the baselines and determining the variances. This includes:
� The schedule variance up to the timeline of the report
� The cost variance up to the timeline
� Forecast reports: The progress reports and status reports are snapshots of where we are today. The forecast reports indicate where we will end up. This includes:
� The expected cost at the completion of the project
� The expected time duration or date at completion of the project
There are other items that can be included in these reports. How-ever, our main concern, as seen in the next illustration, is with the forecast reports.
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238 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
BENEFITS AND VALUE AT COMPLETION
ForecastReports
Traditional Reporting
Time at CompletionCost at Completion
Future Reporting
Time at CompletionCost at CompletionBenefits at CompletionValue at Completion
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B E N E F I T S A N D VA L U E AT C O M P L E T I O N 239
Traditional forecast reports provide information about the time and cost expected at the completion of the project. This data can
be calculated from extrapolation of trends or formulas. Unfortunately, this data may not be suffi cient to provide management with the nec-essary information to make effective business decisions and to decide whether to continue on with the project or consider termination.
Two additional pieces of information are necessary: the expected benefi ts at completion and the expected value at completion. Most earned value measurements systems in use today do not report these two additional pieces of information, probably because there are no standard formulas for them.
The benefi ts and value at completion must be calculated peri-odically. However, based on which life - cycle phase you are in, there may be insuffi cient data to perform the calculation quantitatively. In such cases, a qualitative assessment of benefi ts and value at comple-tion may be necessary, assuming, of course, that information exists to support the assessment. Expected benefi ts and value are more appro-priate for business decision making and usually provide a strong basis for continuation or cancellation of the project.
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240 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
DETERMINING BENEFITS (VALUE) AT COMPLETION
Periodic reevaluations of benefi ts and value are diffi cult because:
� There may be no reexamination process.
� Management is not committed and believes that the reexamination process is unreal.
� Management is overoptimistic and complacent with existing performance.
� Management is blinded by unusually high profi ts on other projects (misinterpretation).
� Management believes that the past is an indication of the future.
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D E T E R M I N I N G B E N E F I T S ( VA L U E ) AT C O M P L E T I O N 241
Some form of reevaluation or reexamination process must exist to determine if an organization is working on the right projects
and if the benefi ts are still achievable. But, as can be seen from the preceding illustration, there may be roadblocks that discourage a reexamination process. As an example, an executive may have funded a “ pet ” project and may be afraid of the realities that would be discov-ered during the reexamination process.
Reexamination processes need not be accomplished at the same time as the end - of - phase review meetings that are part of an enterprise project management (EPM) methodology. They may be accomplished monthly, based on availability of information, at the discretion of the exit champion, assuming an exit champion exists, or when a signifi cant change occurs in the business or the economic environment.
Reevaluation processes can be accomplished based on qualita-tive rather than quantitative information. Sometimes, quantitative fi nancial numbers are not available and decisions must be made on qualitative factors.
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242 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
ESTABLISHING THE BUSINESS OBJECTIVES
� For internal projects, the internal sponsor provides both the technical and business objectives.
� For external projects, such as through competitive bid-ding, the customer provides the technical objectives and the internal sponsor provides the business objectives as they relate to your company.
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E S TA B L I S H I N G T H E B U S I N E S S O B J E C T I V E S 243
In the life - cycle model shown previously, it was explained that the fi rst life - cycle phase required an identifi cation of the business case.
This meant that both the technical and business objectives had to be defi ned.
Project managers are generally more accustomed to working with technical objectives rather than business objectives. If business objectives have been established, then the information most likely was provided by the internal sponsor. For projects that are internal to the organization, the business objectives are readily understood. For projects external to your organization, the supplier organization ’ s business objective and the customer ’ s business objective could be misaligned or can be in disagreement. As an example, the customer ’ s reason for awarding an organization a project may be to develop a product or service that they could market and sell to generate reve-nue. Your company ’ s business objective might be simply to keep your people employed or to take advantage of underutilized capacity in your company.
If project managers are expected to make business decisions in addition to project decisions, then the project managers must be fully aware of and understand the business objectives. Unfortunately, what many organizations refer to as business objectives look more like business goals than business objectives and may not be defi ned quantitatively.
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244 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
How do we use the SMART rule for business objectives such as:
� Increase market share.
� Become a market leader.
� Lower our costs.
� Develop a reputation for superior service.
� Have wider profi t margins.
� Become recognized as a blue - chip company.
� Develop better credit ratings.
� Have faster earnings/revenue growth.
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E S TA B L I S H I N G T H E B U S I N E S S O B J E C T I V E S 245
Business objectives can be at a higher level and considerably vaguer than standard project objectives. We generally apply the SMART
rule to project objectives, namely:
� S pecifi c
� M easurable
� A ttainable
� R ealistic or R elevant
� T ime - bound
The application of the SMART rule works reasonably well when the objectives are well defi ned and well understood. Reexamination of the value and benefi ts of the project is made by a comparison against the objectives. But business objectives can be signifi cantly vague, and the SMART rule may be more diffi cult to apply. It may be necessary to develop another rule similar to the SMART rule for the project ’ s business objectives — possibly SOUND:
� S trategic
� O ptimistic
� U seful
� N ecessary
� D eliverable
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246 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
ESTIMATING APPROACHES
Estimate Type
Type of Project
ADuplication
BEnhancement
of ExistingProduct
CMajor Scope
Change
DNew, SmallUnique orUnusual
ENew Large
Venture GuidanceAppraisal Estimate
Parametric orStatistical Estimate
Budgetary or AnalogyEstimate
Detailed Estimate
Increasing Complexity
Increasing Data Baseand Accuracy
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E S T I M AT I N G A P P ROAC H E S 247
The achievement of the objectives, and the ultimate value, is heav-ily dependent on the quality and reliability of the estimates being
used. Unfortunately, organizations are now working on projects that have a greater degree of uncertainty and risk and, as expected, our ability to estimate these projects is challenged, and in many cases effective estimating techniques are not utilized.
The preceding illustration illustrates various estimating approaches. Many of the projects currently in progress across most industries are categorized as Type D and E projects. These projects are most often estimated using the venture guidance appraisal approach, which has the lowest degree of accuracy. This is one of the primary reasons that we are unsure as to what the fi nal value will be.
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248 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
PROJECT PLANS
Core competencies in
key areas
Proprietary technology
Capacity planning
Financial strength
Financial resources
Resources availability
Management talent
ProjectPlans
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P RO J E C T P L A N S 249
Project managers are expected to develop a project plan through the input and expertise of the project team, and the plan is gen-
erally targeted for the completion of the project ’ s objectives. But this assumes that we have the traditional types of project objectives defi ned.
The preceding illustration shows several of the items that we look at for the development of a project plan. All of these items generally look at the availability and quality of corporate resources that will be used. Project plans are reasonably easy to develop and update should economic conditions change. Business plans, however, can be dif-fi cult to update.
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250 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
BUSINESS PLANS
Potential market size
Potential market share
Competitive advantages
Capital requirements
Procurement lead times
Reputation
Patent protection
Price-quality-value
relationships
Logistics and distribution
BusinessPlans
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B U S I N E S S P L A N S 251
When business value is to be included as part of the success cri-teria for a project, the project manager may fi nd it necessary
to develop a business plan for the project as well as a project plan. Business plans are based on the items in the preceding illustration and may not be as easy to develop as the traditional project plan. There are several reasons why the development of business plans may be diffi cult:
� Project plans are more concrete, whereas business plans deal with the abstract
� Project plans deal with a much shorter time frame than business plans
� The baselines in project plans are easier to develop and measure than the baselines in business plans
� Baselines in a project plan will undergo less frequent changes than baselines in a business plan
There are other differences, but we can see the necessity for possibly developing both a traditional project plan and a business plan. Rolling wave planning may be the best way to deal with business plans.
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252 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
CANCELING PROJECTS
Canceling projects has been traditionally based on the inability to meet the requirements of project plan. But canceling a project based on an inability to meet the business plan is more diffi cult.
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C A N C E L I N G P RO J E C T S 253
If they haven ’ t done so already, companies can be expected in the future to establish some sort of criteria for the cancellation of proj-
ects. This may be accomplished with an executive steering commit-tee or by creating the position of “ exit champion. ” Historically, very few projects were canceled and many projects were ultimately com-pleted as planned but provided no real value to the company. The reason for this was that the business plan had changed and there was no alignment with the project plan. The project plan was left intact and executed without regard to the changes in the business plan.
The cancellation criteria should be based on both the business plan and the project plan. Because business plans and business objectives are focused on a longer time frame and are based on higher - level, less reliable estimates, there is a tendency to postpone making a decision to cancel a project based solely upon changes to the business plan. This can be a costly mistake.
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254 A S S I G N I N G VA L U E T H RO U G H O B J E C T I V E S
MARRYING PROJECT AND PROGRAM MANAGEMENT
BusinessPlans
ProjectPlans
ProjectPlans
ProgramSuccess
BusinessPlans
ProjectPlans
Project and ProgramSuccess Combines
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M A R RY I N G P RO J E C T A N D P RO G R A M M A N A G E M E N T 255
In the very near future, if not already in place in some organizations, we can expect the defi nition of true success to include project suc-
cess criteria and business success criteria, and possibly be combined into one defi nition of success. But this does not mean that project and program management will be combined into a single discipline. It simply means that companies will add a business component into the defi nition of project success.
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c08.indd 256c08.indd 256 6/10/09 11:31:59 AM6/10/09 11:31:59 AM
VALUE LEADERSHIP AND SENIOR MANAGEMENT
C h a p t e r
9
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258 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
THE EVOLUTION OF LEADERSHIP
Focus on Returnon Investment
Focus on theTriple Constraint
FunctionalLeadership
Value-DrivenLeadership
ProjectLeadership
: Value-driven leadership includes functional andproject leadership, but the emphasis is on “value.”
Focus on theAlignment ofValues and
Employee JobSatisfaction
Note
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T H E E VO L U T I O N O F L E A D E R S H I P 259
The preceding illustration shows the evolution of value - driven leadership. The focus is more on the alignment of values than
the triple constraint. Value - driven leadership will change changed our defi nition of success.
The expected outcome of value - driven leadership includes:
� An alignment of values with both business and project objectives
� Greater profi tability for the performing organization and greater benefi t realization for the receiving organization
� Outperforming the competitors
� It will be easier to implement organizational changes
� Lower employee turnover, especially workers with critical skills
� Reduction in operating costs
� Higher quality of each project deliverable and at every level and business unit in an enterprise
� Willingness to cancel nonperforming of non - value - added projects
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260 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
MEASUREMENTS AND TRIGGERS
What are the measurements or triggers indicating that value - driven leadership, including project management, is working as expected?
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M E A S U R E M E N T S A N D T R I G G E R S 261
Fortunately, there are measurements that show that value - driven leadership is working. There are hard or quantitative measure-
ment and soft or qualitative measurements. The hard measurements include:
� Return on investment (ROI) results
� Net present value results
� Internal rate of return (IRR) results
� Reduction in costs
� Higher levels of measurable quality
The softer measurements include:
� Improved teamwork
� Fewer confl icts requiring executive attention
� Better decision making
� More accurate information
� Higher morale
� Higher levels of customer satisfaction
� Better brand recognition and image
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262 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
WHAT EXECUTIVES WANT TO HEAR
� Rates of success in other companies and industries.
� Applicability to their company and industry.
� Ways to increase success and reduce failure.
� Ways to align work with business objectives.
� The “ strategic value ” of both project management and value - based leadership.
� Expected time scale for seeing the benefi ts.
� Educational needs and costs.
� Customer - mandated project management capability.
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W H AT E X E C U T I V E S WA N T TO H E A R 263
Selling value - driven leadership to executives has many of the same characteristics as selling project management to executives. Value -
driven leadership includes both functional (or traditional) leadership and project management leadership. There are both project manage-ment components and business components.
We must remember that it has taken us years to get executives to believe that project managers should be empowered to make project - related decisions. Now we are asking executives to believe that project
managers can make business - related decisions and that project manag-
ers understand the business and the consequences of their decisions. Some executives may view project management as a severe threat
to their authority and decision - making responsibility with regard to profi t and loss. Giving a project manager business - related decision making may be seen as a threat to the size of the executive ’ s year - end bonus, especially if the bonus must be shared with the project manager.
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264 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
CRITICAL ISSUES FOR THE SELLING PROCESS
� Must we implement all of the Project Management Body of Knowledge ( PMBOK ® ) Guide ?
� Must we implement all of a maturity model such as PMI ’ s Organization Project Management Maturity Model (OPM3 ® )?
� Must we develop an enterprise project management (EPM) methodology and use it on all projects (i.e., for both internal and external customers)?
� Will we have better alignment between projects and business objectives?
� What is a realistic timetable, including expectations, to reach some level of maturity?
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C R I T I C A L I S S U E S F O R T H E S E L L I N G P RO C E S S 265
The preceding example shows some of the critical issues that need to be considered. Executives are often fearful of having to implement
processes that may not be needed, especially if the PMBOK ® Guide isused as the basis for a project methodology. The PMBOK ® Guide is, just as the name implies, a guide, not a set of policies and proce-dures that must be followed exactly.
Good project management methodologies allow for the inclu-sion of earned value measurement tools to support the budgeting and tracking of project costs. This is often referred to as horizontal accounting. Some executives do not want to see horizontal account-ing implemented and may not want to hear that their original esti-mates were wrong or way off the mark.
Executives are also concerned with the time needed to reach maturity. Executives are fearful of committing vast resources to a maturity process that may have no end date in sight. The focus here should be on continuous gradual improvement with value as the key driving factor.
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266 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
THREATS THAT EXECUTIVES FACE
� Must I create a career path for project managers?
� Must I delegate reasonable levels of authority and responsibility to the project managers?
� Must the delegation come from the executive levels of management?
� Will there be a loss of executive control?
� Will the roles and responsibilities of senior management change (i.e., by acting as project sponsor, project cham-pion, or exit champion)?
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T H R E AT S T H AT E X E C U T I V E S FAC E 267
There are also organizational threats that executives face. Defi ning project management a career path position may seem to be the
appropriate thing to do, but there are a few items to consider:
� There may be a business risk if project managers will be given the responsibility for profi t and loss
� The project managers may become more infl uential than some of the executives
Another fear is loss of control. Mature project management advo-cates the decentralization of authority and decision making. For some executives, this will most certainly be viewed as a threat. This problem can be effectively resolved by clearly defi ning the role of the executive or project sponsor and the roles of the project manager along a set of clearly defi ned expectations.
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268 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
PROJECT MANAGEMENT SUCCESS VERSUS MATURITY
SustainedCompetitiveAdvantage
Is thepathway to
StrategicCompetency
Is thefoundation for
ProjectManagementCompetencies
Is thesource of
ProjectManagement
Skills
Leads to
ProjectManagement
Training
Immaturity Maturity Excellence
InternalSuccess
CustomerSuccess
FutureSuccess
FinancialSuccess
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P RO J E C T M A N A G E M E N T S U C C E S S V E R S U S M AT U R I T Y 269
Capturing value and having some successes is no guarantee that the organization has achieved excellence in project management.
Maturity can be defi ned as a business culture in which repeatable processes are in place and the appropriate support systems have been developed that generate a continuous stream of deliverables. Excel-lence is achieved when these deliverables provide suffi cient value from the stakeholder perspective that the future of the company is assured.
When companies recognize the need for excellence in project management, they position project management as a career path and view it as a strategic competency. The company then capitalizes on its strategic competencies through effective advertising and promo-tion of project management capabilities to provide the company with a sustained competitive advantage.
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270 VA L U E L E A D E R S H I P A N D S E N I O R M A N A G E M E N T
CONCLUSIONS
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P RO J E C T M A N A G E M E N T S U C C E S S V E R S U S M AT U R I T Y 271
The following list summarizes the conclusions provided in this book:
� Project managers will become more involved with making business decisions related to projects.
� Project success will be defi ned in terms of internal factors such as process improvement, fi nancial factors such as ROI or cost reduction, success, customer - driven success such as customer satisfaction and the achievement of expected value, and future success such as add - on business and greater market share.
� Each of the four components of success related to a project will contain a business component defi ned in terms of value.
� The concept of managing for the value expected in the project rather than the triple constraint will become the major focus of an enterprise.
� Because we are working on projects that have much greater risk in terms of threats and opportunities than ever before, the fi nal achieved value of the project may be signifi cantly differ-ent than what was expected by the stakeholders.
� Project managers will be transformed into business managers with an equal emphasis on project success and business success.
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c09.indd 272c09.indd 272 6/10/09 11:32:22 AM6/10/09 11:32:22 AM
273
INDEX
AAntares Solutions, 156–157Asea Brown Boveri (ABB), 160–161Automotive suppliers sector,
representation, 170–171
BBanking sector, representation, 172–173Benchmarking, 203
values, sharing, 204–205Best practices (BPs), 182–183
acceptance, 209capture, 14disclosure/discovery, 192–193, 196–197usage, 229
Budget, control (postulate), 34Bureaucracy, project management
derivative, 91Business
decision making, quality (absence), 53drivers phase, 226–228plans, 250–251results/expectations, 55
Business objectivesestablishment, 242–243SMART rule, usage, 244–245usage, 243
Business-related changes, implementation (absence), 46
Business valueachievement, postulate, 44customer perception, postulate, 42–43obtaining, 231types, 68–69
CCancellation criteria, 253Capability Maturity Model (CMM), 93Capital improvements project, example,
158–159Capital market stakeholders, 107Commitment, action, 99Commodity products (manufacturing)
sector, representation, 174–175Companies, representation, 176–179Competitive bidding activities, contractor
emphasis, 11Completion benefi ts/value, 238–239
determination, 240–241Compliance, action/tendency, 99Computer Associates (CA) Technology
Services, 164–165Conformity, predictability
(relationship), 83Continuous improvement, 101, 221,
232–233Convergent Computing (CCO),
166–167Cost overrun, acceptance, 119Critical success factors (CSFs), 183–189
metrics, establishment, 187Customer-related success, 131Customer-related values, 146–147, 213
failure, reasons, 154–155Customers
appeasement, 53requirements, achievement, 11satisfaction management phase,
232–233
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274 I N D E X
DDebriefi ng pyramid, 194–195Decision trees, 145Deliverable
production, request/planning, 33value, absence, 47
Denver International Airport (DIA)cost, problems, 116–119stakeholders, 118
EEarned value measurement techniques,
focus, 47Education, importance, 93End-of-phase review meetings, 241Engagement project management,
emphasis, 77Engineers, project manager
designation, 21Enterprise project management (EPM)
methodologiesadoption, 13business processes, 12creation, 133, 219development, 7, 141, 245focus, 6inclusion, 38understanding, 39usage, advantages, 83
Estimates, usage, 247Executives
concerns, 262–263, 265organizational threats, 267project sponsor training, 9threats, 266–267
External projects, 242
FFinancial success, 131Financial values, 137, 142
failure, reasons, 150–151focus, 143
Forecast reports, 237–239Foundation values, 68–69, 137Functional (traditional) leadership, 263Future success, 131Future values, 144–145, 213
failure, reasons, 152–153
GGeneral Electric (Plastics Group), 158–159
HHard measurements, 261
IImplementation failures, 208–209Information technology, example, 157, 165Innovation values, 68–69, 137Intellectual property
cost, value (contrast), 206–207impact, 115
Internal collaboration, focus, 85Internal projects, 242Internal rate of return (IRR), 55, 145
results, 261Internal success, 131Internal values, 137, 140, 213
failure, reasons, 148–149International Organization for
Standardization (ISO 9000), 93certifi cation, 175
JJob descriptions, company description, 73
KKey performance indicators (KPIs),
183–189, 228–229identifi cation, 229metrics, establishment, 187
LLeadership, evolution, 258–259Life-cycle phase, 222–233
business case, identifi cation (requirement), 243
Lisa Computer (Apple), 112project stakeholders, 114value, 113, 115
Long-term fi nancial failure, impact, 151Long-term fi nancial health, 143Long-term partnership agreements,
expense, 23
MManagement, confl icts, 123Measurement phase, 228–229Metrics, change (requirement), 188–189
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I N D E X 275
Middle management, technical knowledge (possession), 31
Mission critical issues, 59Motorola, 167–168Multidirectional leadership, effectiveness, 95
OOrganizational Project Management
Maturity Model (OPM3), 93, 245Organizational stakeholders, 107
PPerformance
reports, types, 236–237Six Sigma levels, 175
Planning, focus, 79Price, postulate, 40–41Proactive management, impact, 87Process improvement, 169, 177Product enhancements, 177Product/market stakeholders, 107Program management, project management
(combination), 254–255Program success, defi nition, 54–55Progress reports, 237Project center of excellence, function, 101Project management
benchmarking, 202–203business process, 10discipline, 9evolution, 50failure, 2formality/informality, 89growth, importance, 163importance, 29knowledge, 200–201leadership, 263methodologies, 91
components, 13perspective, 8practices, maturity, 38program management, combination,
254–255success, maturity (contrast), 268–269usage, limitations, 29value
confl icts, 124–125types, application, 65
viewpoints, change, 16–30
Project Management Body of Knowledge (PMBOK), 264–265
Project management information system (PMIS), 188–189, 227
Project Management Maturity Model (PMMM), 221
value continuum, relationship, 220–221Project management offi ce (PMO), 143
establishment, 219function, 101importance, 193involvement, 190–191usage, 31
Project Management Professionals (PMPs), 221
Project managersauthority/power, requirement, 75business knowledge, limitation, 25, 97business managers, transformation, 271core competency models, 73execution specialists, 19input, request, 17involvement, 5, 271mistrust, 71negotiation, 75organizational resources, 17
Project-related best practices, usage, 229Projects
cancellation, 252–253completion, 35
constraint, 36triple constraint, impact, 62
defi nition/understanding, problems, 2–3execution, postulate, 32plans, 46, 248–249, 251risk, 271
project management avoidance, 79success, defi ning, 131value perceptions, 126–127
Project successdefi nition, 54–55, 271
modifi cation, 25program/business success,
differentiation, 27
QQuadrant, decision making, 138–139Quality, importance, 41
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276 I N D E X
RReevaluation processes, 241Reexamination processes, 241Request for proposal (RFP), issuance, 15Return on investment (ROI), 25, 55,
66–67, 93results, 261signifi cance, 207
SSecurity, achievement, 81Sensitivity analysis, 145Soft measurements, 261Specifi c Measurable Attainable Realistic/
Relevant Time-bound (SMART) rule, application, 244–245
Stakeholdersclassifi cation, 106–107needs, balancing, 120–121perceptions, 104–105
Statement of work (SOW), 4–5Status reports, 237Strategic objectives, value alignment, 37Strategic Optimistic Useful Necessary
Deliverable (SOUND) rule, usage, 245
Strategic project management, importance, 97
Strategic values, 68–69, 137Success
achievement, 44, 62categories, 132components, 130, 135, 184, 271criterion, triple constraint, 52
redefi ning, 56defi nition, 58–59, 187, 259
change, 50–51value, inclusion, 63
focus, 39project manager defi nition, 77
Sydney Opera House (Australia)cost overruns/scope changes, 111project stakeholders, 110value, perception, 108–109
TTarget value baseline, development, 225Technical objectives, usage, 243Time/cost/performance, triple constraint, 57
Timeliness, importance (postulate), 34Total business solutions, emphasis, 77Total product offering, 41Triple constraint, 52–57, 135
focus, 133success criteria, redefi ning, 56
Trust, 71, 75
VValue
achievement, 43, 135addition, proactive management
(impact), 87categories, 134–135change, 70–72confl icts, 122–123continuum, 214–215
acceleration, activities, 218–219barriers, 216–217project management maturity model,
relationship, 220–221defi nition, 45
ROI, impact, 67drivers, example, 160–161expectations, establishment
(failure), 47focus, 37identifi cation phase, 224–225management, 271
life-cycle phases, 222–223metrics, redefi ning, 186–187obtaining, success levels, 198–199perception, 125project management, 119realization phase, 230–231receipt, postulate, 40–41timing, 212–213types, 64–65
Value-based project management, goal, 183
Value-driven leadershipexpected outcome, 259measurements/triggers, 260–261selling process, 263
critical issues, 264–265Value-oriented benchmarking, 203
WWestfi eld Group, 162–163
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Harold Kerzner, PH.D. Frank P. Saladis, PMP
KER
ZN
ER • S
ALAD
IS
Value-Driven PROJECT
MANAGEMENT
Value-Driven PRO
JECT MAN
AGEM
ENT
THE IIL / WILE Y SERIES IN PROJEC T MANAGEMENT
BUSINESS & ECONOMICS/PROJECT MANAGEMENT
DISCOVER HOW YOU CAN APPLY THE KERZNER APPROACH®
TO SUCCESSFUL PROJECT MANAGEMENT
Too many companies are working on the wrong projects. Project portfolios are fi lled with projects that do not provide real value at completion even though the triple constraints of time, cost, and performance have been carefully managed and met.
Based on principles set forth in the bestselling Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Tenth Edition, this easy-to-follow guide will revolutionize the way you view and practice project management. It introduces the acclaimed Kerzner Approach®, demonstrating how it empowers you with the skills needed to ensure that projects are completed successfully. Most importantly, it shows you how to design and implement projects that deliver true value.
The International Institute for Learning/Wiley Series in Project Management features
the most innovative, tested-and-proven approaches to project management,
all explained in clear, straightforward language. The series offers new perspectives on
solving tough project management problems as well as practical tools for
getting the job done. Each book in the series is drawn from the related IIL course and is
written by noted project management experts.
In the traditional view of project management, if a project manager completed a project and had adhered to the triple constraints of time, cost, and performance, the project was considered a success. Today, in the eyes of the customer and the parent or sponsoring company, if a completed project did not deliver its anticipated value, it would be seen as a failure.
Today’s changing economic climate, marked by an increasingly competitive global environment, is driving project managers to become more business oriented. Projects must now be viewed from a strategic perspective within the context of a business or enterprise that needs to provide value to both the customer and the organization itself. As a result, project managers are now required to possess the skills to complete a project within certain specifi cations, and also know how to create and deliver value.
Responding to the needs of today’s project managers, Value-Driven Project Management begins by changing the paradigm of project management. Rather than judge the success of a project from the perspectives of time, budget, and quality, the authors demonstrate why success is only achieved when planned business values are met, including:
• Internal value• Financial value• Future value• Customer-related value
The authors also offer best practices that allow you and your organization to create additional value in effi ciency, customer satisfaction, and enhanced products and services. Finally, the book helps you incorporate value into clearly defi ned business objectives and “sell” the value-driven process to executives.
Throughout the book, helpful illustrations clarify complex concepts and processes.
Assigning valuable resources to projects that don’t provide some tangible form of value to the organization and to the client is poor management and poor decision-making. On the other hand, selecting and implementing projects that will deliver value and an acceptable return on investment is effective management
THE IIL / WILE Y SERIES IN PROJEC T MANAGEMENT
and decision-making, but is very challenging, especially when a project may not provide its target value for years to come. With Value-Driven Project Management in hand, you’ll discover the tools you need to ensure that projects deliver true value upon their completion.
HAROLD D. KERZNER, PH.D., is Senior Executive Director at the International Institute for Learning, Inc., a global learning solutions company that conducts training for leading corporations throughout the world. He is a globally recognized expert on project, program, and portfolio management, total quality man-agement, and strategic planning. Dr. Kerzner is the author of bestselling books and texts, including the acclaimed Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Tenth Edition.
FRANK P. SALADIS, is a Senior Consul-tant and Trainer for the International Institute for Learning, Inc. and editor of the allPM.com newsletter, a global project management pub-lication. Mr. Saladis was awarded the 2006 Linn Stuckenbruck Person of the Year Award by the Project Management Institute. The award rec-ognizes people who have made signifi cant con-tributions to the Institute as leaders in project management. Mr. Saladis is the originator of International Project Management Day, held each year to celebrate and recognize project managers from around the world.
INTERNATIONAL INSTITUTE FOR LEARNING, INC. (IIL) is a global leader in professional training and comprehensive consulting services in the areas of project, program, and portfolio management, PRINCE2®, business analysis, Microsoft® Offi ce Project and Project Server, and Lean Six Sigma. IIL is an IIBA- endorsed education provider, a PMI® charter global registered education provider, and a member of PMI’s Silver Alliance Circle, and Corporate Council.
Jacket Design: Michael Rutkowski
Jacket Illustration: iStockphoto
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