VALUE-BASED PROJECT MANAGEMENT METRICS 1
5.4 RECOGNIZING THE NEED FOR VALUE METRICS
The importance of the value component in the definition of success cannot be overstated. Consider the following eight postulates:
◾ Postulate #1: Completing a project on time and within budget does not guarantee success if you were working on the wrong project.
◾ Postulate #2: Completing a project on time and within budget is not necessarily success.
Figure 5-3 Categories of Success Metrics
Financial Success Future Success
Internal Success Customer Related Success
• Quantitative
• Practical
• Directional
• Actionable
• Milestone
• Quantitative
• Directional
• Financial
• Quantitative
• Financial
• Directional
• End Result
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5.4 RECOGNIZING THE NEED FOR VALUE METRICS
◾ Postulate #3: Completing a project within the triple constraints does not guarantee that the necessary business value will be there at project completion.
◾ Postulate #4: Having the greatest enterprise project management meth- odology in the world cannot guarantee that value will be there at the end of the project.
◾ Postulate #5: Price is what you pay. Value is what you get. (Warren Buffett)
◾ Postulate #6: Business value is what your customer perceives as worth paying for.
◾ Postulate #7: Success is when business value is achieved.
◾ Postulate #8: Following a project plan to conclusion is not always suc- cess if business-related changes were necessary but never implemented.
These eight postulates lead us to believe that perhaps value may become the dominating factor in the selection of a project portfolio. Project requestors must now clearly articulate the value component in the project’s business case or run the risk that the project will not be considered. If the project is approved, then value metrics must be established and tracked.
In Postulate #1, we can see what happens when management makes poor decisions during project selection, establishment of a project port- folio, 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 but:
◾ There’s no market for the product.
◾ The product cannot be manufactured as engineered.
◾ The assumptions may have changed.
◾ The marketplace 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 flawed and needs to be improved.
◾ Organizational morale has diminished.
Postulate #2 is the corollary to Postulate #1. Completing a project on time and on budget:
◾ Does not guarantee a satisfied 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
SITUATION: During the initiation of the project, the project manager and the stakeholders defined project success and established metrics for each of the competing constraints. When it became obvious that all of the con- straints could not be met, the project manager concluded that the best alternative was a tradeoff on value. The stakeholders became irate upon hearing the news and decided to prioritize the competing constraints themselves. This took time and delayed the project.
Postulate #3 focuses on value. Simply because the deliverable is pro- vided according to a set of constraints is no guarantee that the client will perceive value in the deliverable. The ultimate objective of all projects should be to produce a deliverable that meets expectations and achieves the desired value. While we always seem to emphasize the importance of the competing constraints when defining the project, we spend very little time in defining the value characteristics and resulting metrics that we expect in the final deliverable. The value component or definition must be a joint agreement between the customer and the contractor (buyer/seller) during the initiation stage of the project.
Most companies today have some type of project management methodology in place.
Unfortunately all too often there is a mistaken belief that the methodology will guarantee proj- ect success. 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 human behavior
Methodologies can improve the chances for success but cannot guar- antee success. Methodologies are tools and, as such, do not manage proj- ects. Projects are managed by people and, likewise, tools are managed by people. Methodologies do not replace the people component in project man- agement. They are designed to enhance the performance of people.
In Postulate #5, we have a quote from Warren Buffet that emphasizes the difference between price and perceived value. Most people believe that customers pay for deliverables. This is not necessarily true. Customers pay for the value they expect to receive from the deliverable. If the deliver- able has not achieved value or has limited value, the result is a dissatisfied customer.
TIP The definition of value must be aligned with the strategic objectives of both the customer and the contractor.
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