Project Management in a Down Economy
How much project management investment should be made in a down economy? In many organizations there is cost cutting taking place that is neccessary for the survival of the organization. Should you cut project management investment or should you increase project management investment? Is it reasonable to perform an across the board cut of project management capabilities?
I have been reviewing several books on the business value of Project Management, including Quanitifying the Value of Project Management by Ibbs and Reginato and Researching the Value of Project Management by Thomas, PhD and Mullaly, PMP. The goal has been to create a framework for businesses to use to see how much they should be spending on project management. I have a simple framework a company could use to build a business case for investing in project management and am ready for some feedback.
Each company has projects or programs where they need to invest to achieve the organizations business strategy. At a high level both the cost of the projects and the expected benefit (increased revenue, reduced costs, improved customer retention, reduction of risk, etc.) can be quantified into an expected return for the organization. The net of these numbers is the expected return on the project portfolio investment.
Risks arise from poor or missing Project Management practices in organizations. These are risks to the project schedule, risks to project scope and quality, and risks to project cost and risks to the success the project itself. For example, a delay in the project can result in greater than anticipated costs and missed business opportunity (lower business benefit). Lower quality or missing scope can result in lower business benefit realization. A project failure results in cost equal to the expense of the entire project and all the lost business benefit. Based on the amount of Project Management that will be applied to each project these risks can be quantified at a high level by estimating the likelihood of an occurance and the impact (cost) of its occurance.
Improved Project Management can deliver additional benefits – improved financial results, better governance, better predictability, and improved organizational coordination. These benefits can be quantified by estimating the likelihood of their occurance if you have improved project management practices and assigning a financial benefit. Identify the specific capability improvements that need to exist to achieve specific benefits and then quantify the benefit.
You can determine the benefit of project management by combining the amount by which risk is reduced plus the additional benefit of improved project management. This is the gross benefit of project management. This benefit will be different for every business and for every project.
Project Management comes with a cost. These costs include the cost to perform project management and the cost of improving your project management capabilities. Identify the specific capabilities that need to exist or be improved and estimate a cost of delivering those capabilities. How much is the project manager going to cost? How much is it going to cost to improve specific processes to achieve the benefits and reduce the costs? This number shows the cost of project management.
Deduct this cost from the gross benefit of project management and you have a net benefit of project management.
Every project is different and every company is different. It makes sense to invest in project management in the capabilities and amount where project benefit realization is improved more than the cost of the project management. If project management isn’t increasing the value of your projects, it should be reduced. Almost no-one needs every project management capability to be robustly deployed. But almost all projects benefit from some level of project management. The following graph shows this relationship between investment into PM and the benefit ot PM.
Remember, each project is undertaken to deliver some benefit to the organization. Project Management can help reduce the risk of failing to achieve this benefit and actually improve the potential benefit. But project management always comes at a cost. When the Project value + (benefit of project management – cost of providing project management) is greater than the Project value – the cost of poor project management, you should invest in PM. This business case approach to determing how much PM should exist should be undertaken as part of your budgeting process for each project. The goal of project management is to improve the organizations ability to deliver value to its stakeholders. To the point that Project Management is doing that, it is a good investment.
I would like you thoughts on this approach and how practical it would be to calculate this equation at your organization or on your projects.
Investment in Project Management and Project Managers is now on the rise (even in a downturn economy). Every project needs to be managed, even projects that have to do with firing people/laying them off, are now handled by Project Managers.
[...] have written about this focused approach to improving project management performance here and here. Invest when it improves the organizations ability to drive value. The goal is not to [...]
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I am a firm believer in Just Enough Project Management driving the level of management overhead on any project.
The UK’s PRINCE2 defines a project as “A management environment that is created for the purpose of delivering one or more business products according to a specified Business Case.”
This changes the focus to consider how much of a management environment do you need in order to be successful. In my experience it comes down to several factors that are used when scaling and tuning a PM method such as PRINCE2. Size, risk, importance to the organization, etc… Whatever the answer we should always review the level of PM overheard a project needs during the start up of the project (pre initiation)
The data on diminishing ROI in PM improvements says to me we’re doing the wrong kinds of improvements. Initial returns often leverage low-hanging fruit, but break-through performance is the function of a methodical and sustained improvement program. Consider my client Harris Corporation, which makes battlefield communications technology (and needs to bring those technologies to market fastest – to save lives). An initial OPM3 assessment showed how to reduce process complexity 2:1, with obvious ramifications for cost-savings due to streamlining and standardizing. However, it wasn’t until a Time-to-Market (TTM) metrics program was designed that break-through performance began to occur. They reported up to 30% acceleration on new product development projects within 3 months! See, these improvements had everything to do with focusing on the company’s strategic intent doing the “right” improvements – not just any bunch of good ideas. This is why companies hire guys like you and like me.