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.

I have decided that my five keys to reducing project failure are in the wrong order. The first point has to be Focus on the right projects. In Organizational Project Management, this is accomplished through Project Portfolio Management. Today, there are limited dollars to spend on improving the business. How do we decide which project’s are the next best place to spend a dollar?

Within a business, there are many things that can be improved. In fact, most managers are interested in improving the processes within their area of responsibility. However, not every improvement, even when it will return a local benefit, is worth doing. For example, you can probably get better at the cleaning the office at your location. Maybe fancier vacuum cleaners or trash compactors at every desk would improve the quality and performance of this capability. However, in this case, we can clearly identify what is good enough and therefore don’t invest in improving this capability. Within a business we need to determine which projects to even consider – then we can do a portfolio analysis to pick the ones we are going to pursue.

 Strategic Opportunity.

Too often, projects are handed out based on some project ROI (which may only exist within the business) or based on political ability. It is important to understand how the business creates value for its customers, and where the constraints in the organization exist. If it doesn’t meet one of the following criteria, then it probably isn’t a project you need to pursue on a strategic basis.

·         Does it remove a constraint on a key value stream in the organizations ability to deliver value to the customer?

·         Does it add value to the customer that increases profit for the company in a way that is aligned with the company strategy?

·         Does it close a key performance gap in the organizations ability to achieve its standard operating objectives?

·         Does it reduce costs in the near term more than the cost of the project?

Once the project has met one of these criteria, it is important to identify exactly what capabilities in the business must be affected to complete the project. Then the project needs to be scoped distinctly to include specifically which capabilities will change, and in what way, and how they meet a strategic objective. Now, an order of magnitude estimate of cost and benefit can be determined and this project can be included in a portfolio analysis.

Business Risk Mitigation.

Some projects are necessary but don’t advance the organization’s strategy. Y2K projects and Sarbanes-Oxley are examples of these types of projects. These are typically about avoiding a risk.

·         Does it address a threat to the existence of the company?

·         Does it enable the business to respond to changes in the business environment?

·         Executive mandate.

For these projects, you again need to understand an order of magnitude impact and likelihood of occurrence of the risk being mitigated. You need to define exactly what capabilities in the business will change, and in what way. Now you can determine an order of magnitude value and cost and include this project a portfolio analysis.

Once all the projects are in the portfolio, they can be evaluated against some additional criteria such as ability to execute and business impact to identify those that should be pursued first. In future posts, I will go into more detail about how to answer each of the questions above.

The critical concepts are to select projects based on clearly articulated strategic opportunities or business risk mitigation. The strategic alignment piece is really important, because if strategic objectives change, we need to know which projects to consider stopping. The same is true for the business risk mitigation. If the likelihood of a risk increases, the business impact of the project changes. Improving something just because you can improve it is a bad investment. Have a cohesive approach to selecting projects to make sure resources are being invested in the best interest of the company.

I was reading about Oracles layoff of sales people and consultants and a recent blog entry in Innovating to Win came to mind. It discusses innovation strategies for the global recession. The first theme was

Redouble your focus on customer needs

When cutting out the waste, cost cutting has its place. But as Tom Peter’s taught us, you can’t shrink your way to greatness. Put as much effort into focusing on your customer’s needs. Here are three areas to think about how you can improve your ability to meet your customer’s needs.

Certainly this includes clearly aligning the features of your product or service with the problem you are solving for the customer. Many products and services have suffered from feature bloat. Bells and whistles have been added to compete against other offerings. I bet many customers would be willing to pay less for a product that simply met their needs. And less expensive doesn’t have to mean less profitable. Southwest Airlines may be an example of this approach.

Another place to focus on your customer’s needs is to look at the lifecycle of your customer’s interaction with your product. They may have to identify a need, select a solution, purchase the solution, implement the solution, maintain it, pay for it, upgrade it, and trade it in or dispose of it. Really focusing on the entire customer experience with your product (not just with you) can improve your ability to create value for your customer without an increase in your costs.

Finally, understanding how your customer uses your offering can lead to opportunities to add more value. There is the story of the CEO of a drill making company who stood in front of his board and proclaimed, “No one wants to buy our drills!” The board was stunned. The CEO continued, “The want to drill holes in stuff to build stuff. We need to figure out how to help them do that.” My customers typically aren’t actually interested in project management or software development or technology delivery. What they are interested in is more profitably creating value for their customers. My goal is to help them do what they are interested in through project management, software development, and technology delivery.

Everything your business does should be focused on profitably creating value for your customers. This starts with understanding your customer’s needs. Focus on the required features, the customer’s experience with the offering, and the context your costomer experience when working with your offering. Find ways to focus on improvements in these areas. Focus on cost cutting in anything that doesn’t profitably add value to your customers. 

Here is an SOA Definition from the SOA Working Group of the Open Group.

Service-Oriented Architecture (SOA) is an architectural style that supports service orientation.

Service orientation is a way of thinking in terms of services and service-based development and the outcomes of services.

A service:

·         Is a logical representation of a repeatable business activity that has a specified outcome (e.g., check customer credit; provide weather data, consolidate drilling reports)

·         Is self-contained

·         May be composed of other services

·         Is a “black box” to consumers of the service

An architectural style is the combination of distinctive features in which architecture is performed or expressed.

The SOA architectural style has the following distinctive features:

·         It is based on the design of the services – which mirror real-world business activities – comprising the enterprise (or inter-enterprise) business processes.

·         Service representation utilizes business descriptions to provide context (i.e., business process, goal, rule, policy, service interface, and service component) and implements services using service orchestration.

·         It places unique requirements on the infrastructure – it is recommended that implementations use open standards to realize interoperability and location transparency.

·         Implementations are environment-specific – they are constrained or enabled by context and must be described within that context.

·         It requires strong governance of service representation and implementation.

·         It requires a “Litmus Test”, which determines a “good service”.

There are some really important distinctions about the SOA definition.

SOA is not technology – it is a way of thinking about architecture. There are various standards around services that lead to interoperability, but these standards are technical standards – they are not SOA.

SOA discussions are about business outcomes – not about technology. One really important thing is to identify and deliver services that provide business value. We don’t need to be discussing SOA with the business – they just don’t care (hence its demise). We need to get architects thinking about the business, and what the business does to create value for the customer. Then that can be translated that into a technology solution.

I believe that a business capability-based assessment of the company is a great way to facilitate this discussion between technology and the business. A business capability is a something the business does which produces a specific result or outcome. A business model can be viewed as a network of business capabilities. When viewed this way, you can identify those capabilities that need to be changed or improved to accomplish the business strategy. From these capabilities, you can identify services that are valueable to the business. Now you are having a business discussion that aligns your business model to the technology.  And you can align your technology investments with the best interest of the business.

You can get a copy of “The Next Revolution in Productivity” to look at an approach for doing this. Either go to the Harvard Business Review website and buy one, or get one for free by registering at http://www.synaptus.com. (Official Disclosure: I was an author on the paper). I also have a tool set I will share with individuals who want to help improve this approach.

I will be writing more about business capability analysis as a way of identifying where to focus improvements in the business, and how to identify where SOA is a good approach. I would appreciate feedback on the article and the capability analysis approach.

Discussion regarding a recent article declaring the death of SOA has been making the blog rounds lately. SOA stands for Services Oriented Architecture. As a marketing term is might be dead. But as a way to develop and deploy technology that supports the enterprise it is certainly healthy. What makes it dead is that many businesses that invested in what was sold as SOA didn’t get the business benefit they expected. So we can’t call building enterprise systems around services SOA anymore.

The problem is that we spend our time talking about business technology as if the important part of the discussion was about technology. There is no sense in a business investing in technology at all. Just in case that doesn’t sound right to you, let me clarify. Unless a business creates value for its customers by developing new technologies, businesses should not invest in technology.

Businesses need to invest in improving their ability to profitably deliver value to their customers. One of the big reasons money has been wasted in technology is that no one needs ERP, CRM, SOA, or MDM. They don’t even generally need to improve resource planning, customer management, technology integration or have more consistent data. Businesses need to specifically identify the capabilities within their value creating work streams they need to perform differently in order to achieve their strategy. Then they need to leverage technology to improve those capabilities. ERP may help with that, but unless a specific definition of how ERP helps a business implement its strategy – the ERP solution is in danger from the start.

Responsible business technology discussions start with the business strategy and flow into short-term operating objectives and improvement projects. New technologies may create new opportunities for profitably delivering value to your customer’s. But the discussion is a business discussion around specifically which capabilities will be added or performed differently to achieve the strategy. 

Businesses today are under tremendous financial strain. They are also under pressure to respond to customer demands, competitive threats, and market conditions fast enough to survive. Projects are the method of creating change in the organization to deal with these challenges. Studies show that projects are late, over budget, and fail to deliver the expected benefit over half the time in most organizations. This results in a waste of money, management attention, and energy. We can’t afford this waste anymore – and we can’t afford to not respond to the challenges. So how can companies rapidly reduce the failure rates of projects?

Here are five strategies to implement that will result in reduced failure rates and a much higher return you business investments.

1. Treat projects like promise the business makes to itself. Projects aren’t done “to” a business – they are done within the business. A project is like making a New Year’s resolution to lose weight. Define a clear goal, realign the majority of your activities and decisions in support of this goal, and hold the entire organization accountable for achieving the goal. If the organization waits for the project do be done to them, it is very likely to fail.

2. Focus on the right projects. Not all improvement activities improve the organizations ability to achieve its strategy. Don’t expend dollars, management attention, and performer effort on everything that can be done better. Improve at key capabilities that improve performance for the business. Finishing a project that doesn’t result in business value is a waste. As Drucker said, “results only exist on the outside”.

3. Set the project delivery team up for success. Implementing any change is difficult – Implementing big change, in a changing market, while doing many other projects, is a recipe for failure. Reduce complexity by simplifying and laser focusing projects, reducing the number of active projects, and reducing time to business benefit for the projects. Smaller projects more focused projects with less competition for resources will finish faster. Remember, it’s not how quickly you start projects it is how quickly you finish them.

4. Responsibly govern projects. Too much project management is a bad thing, but not enough is irresponsible. At a minimum, project communications, effective forward planning, progress verification, process discipline (and adaptability) and active management of risks and opportunities should be in place. The trend towards agile methods does not mean undisciplined process or no formal planning. Good project management will help accelerate the completion of the project without being overly bureaucratic.

5. Understand Talent Management. Projects are done by people and often impact the way people will do their jobs. As simple as this concept is it is often overlooked. If you are doing new technology, make sure you have experienced talent involved in developing the technology. If you are changing the way someone does work, make sure they have the right talent for the new job and train them. Accounting on a Double Ledger paper system requires different skills than the one required to run a computerized financial system. Failure to get the right people in the right place will result in a failure to optimized value from the project.

For various reasons, most organizations are ineffective at each of these strategies. But if we want to get different results, we need to take a different approach. With a little effort, each of these strategies can be implemented rapidly. Implementing them will greatly enhance the likelihood of the success of your projects. I will go into detail on each of the strategies over the next week.

Times are tough for many businesses. Often, when the economy gets tough, management becomes very conservative. Everyone needs to buckle down and get in line. No one is going to rock the boat and point out flaws in an organization or management when there is a real risk of being laid-off. No one is going to strive for innovate behavior when management is so risk averse. People are afraid and feeling threatened – and will behave accordingly.

But that isn’t what is needed for businesses to thrive today. We need innovation and leadership in companies. We need to find innovative ways to drive down costs and meet the needs of customers. We need to focus investments into product, technology and process innovation that advanced the company’s strategy – not where it is politically expedient or at the squeaky wheel. When companies need to cut jobs, it takes leadership and vision to make the cuts that will best position the company for the future – not the cuts that easiest to sell or that don’t upset the order of things. Then we need inspirational leadership to overcome fear and to increase employee productivity.

There is no room for reckless management. This is not the time to operate from fear. The companies that figure out how to become stronger over the next year and position themselves for growth in the near future will be the winners. 2009 is about Leadership and Innovation. 

Glen Alleman is a really smart guy and I have learned a lot from his blog, Herding Cats, over the past few years. But I disagree with a recent declaration he made:

“Project Management is a practice NOT a profession. Even if PMI wants to call it a profession.  “

This sounds like a semantic debate. So lets see what dictionary.com has to say. According to dictionary.com a profession is “an occupation that requires considerable training and specialized study”.  I know a lot of people that make a living as project managers. There is also clearly a specialized language and a recognized set of principles you must apply to be a project manager. So by this definition I would say Project Management is clearly a profession.

My friend Hank Roark twitted me towards a blog by Chase Jarvis, a professional photographer, regarding the Secrets to Success in Photography. Chase says the secrets are to be undeniably good and to spend at least 10,000 hours mastering it. The PMP requires 5 years (about 10,000 hours) of unique non-overlapping project management experience. Or 6,000 hours and a Bachelor’s degree. You also have to pass a test on the Project Management Body of Knowledge. I would say the PMP shows a both a desire to be good at the profession and extensive effort. So by this definition, I would say project management is clearly a profession.

Not all Professional Project Managers are good at delivering projects. Few professional’s are as talented at our professions as Glen is at his. A joke I to use to demonstrate this point is…

What do you call the guy who graduates last in his class in Medical School?

Answer: Doctor.

Not all project managers are equally competent. Not all project managers have the ability to run programs, establish PMO’s, strategically align project portfolio’s, recover big projects, or manage risk effectively. Not every doctor is capable of heart surgery. But doctor’s get paid for being doctor’s, have demonstrated considerable training and understanding, have spent thousands of hours mastering their jobs. Doctor’s are professionals.

By any definition, Project Management is a profession.

This is my first entry from my Blackberry. I am using BBMetaBlog for this post. My blog sites use WordPress. I got the directions from http://www.christinawarren.com/2008/08/08/blackberry-wordpress-client/. My big challenge is that I post (or should post) to three blogs – this one, orgagility.com, and blog.synaptus.com. I will have to figure out how to have three versions setup.

I now have Facebook, Twitter, Google Reader, and Blogging set up on my Blackberry. Hopefully, I can use this to become a source of valuable information about business transformation, technology enablement, and organizational project management. I also will learn how social software can become a useful tool for improving the performance of projects.

I will post updates on what I learn.