VALUE-BASED PROJECT MANAGEMENT METRICS 1
5.3 COMBINING SUCCESS AND VALUE
5.3 COMBINING SUCCESS AND VALUE
Based upon some of the value models discussed previously, such as the Balanced Scorecard Model, we can identify a classification system for proj- ects. The types of projects, combined with a heavy focus on business align- ment and value, can be classified as:
◾ Enhancement or internal projects: These are projects designed to update processes, improve efficiency and effectiveness, and possibly improve morale.
◾ Financial projects: Companies require some form of cash flow for survival. These are projects for clients external to the firm and have an assigned profit margin.
◾ Future related projects: These are long-term projects to produce a future stream of products or services capable of generating a future cash flow.
These projects may be an enormous cash drain for years with no guaran- tee of success.
◾ Customer related projects: Some projects may be performed, even at a financial loss, to maintain or build a customer relationship. However, performing too many of these projects can lead to financial disaster.
Today, these projects focus more on value than on the competing con- straints. With the value-driven constraints, we emphasize stakeholder sat- isfaction and decisions, and the value that is expected on the project. In others words, success is when the value is obtained, hopefully within the triple or competing constraints. As a result, we can define the four corner- stones of success using Figure 5-2.
Figure 5-2 The Four Cornerstones of Success
Future Success Financial
Success
Internal Success
Customer- Related Success
Very few projects are completed without some tradeoffs. Metrics pro- vide some of the necessary information needed for decisions on tradeoffs.
This holds true for both the traditional projects and those that are based upon value components and metrics. Traditional tradeoffs result in an elon- gation of the schedule and an increase in the budget. The same holds true for the value-driven projects, but the major difference is with performance.
With traditional tradeoffs, we tend to reduce performance to satisfy others requirements. With value-driven projects, we tend to increase performance in hopes of providing added value, and this tends to cause much larger cost overruns and schedule slippages than with traditional tradeoffs. The amount of additional time and funding that the stakeholders will allow is dependent on the tracking of the metrics.
Projects managers generally do not have the sole authority for scope or performance increases or decreases. For traditional tradeoffs, the project manager and the project sponsor, working together, may have the authority to make tradeoff decisions.
However, for value-driven projects, all or most of the stakeholders may need to be involved. This can create additional issues such as:
◾ It may not be possible to get all of the stakeholders to agree on a value target during project initiation.
◾ It may not be possible to get all of the stakeholders to agree on the metrics or key performance indicators.
◾ Getting agreement on scope changes, extra costs, and schedule elon- gations is significantly more difficult the further along you are in the project.
◾ Stakeholders must be informed of this at project initiation and continu- ously briefed as the project progresses; that is, no surprises!
Conflicts among the stakeholders may occur. As an example:
◾ During project initiation, conflicts among stakeholder are usually resolved in favor of the largest financial contributors.
◾ During execution, conflicts over future value are more complex, espe- cially if major contributors threaten to pull out of the project.
For projects that have a large number of stakeholders, project sponsorship may not be effective with a single sponsor. Therefore, committee sponsorship may be necessary. Membership in the committee may include:
◾ Perhaps a representative from all stakeholder groups
◾ Influential executives
◾ Critical strategic partners and contractors
◾ Others based upon the type of value
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5.3 COMBINING SUCCESS AND VALUE
Responsibilities for the sponsorship committee may include:
◾ Taking a lead role in the definition of the targeted value
◾ Taking a lead role in the acceptance of the actual value
◾ Ability to provide additional funding
◾ Ability to assess changes in the enterprise environment factors
◾ Ability to validate and revalidate the assumptions
Sponsorship committees may have significantly more expertise than the project manager in defining and evaluating the value in a project.
Each of the quadrants in Figure 5-2 can have its own unique set of criti- cal success factors and likewise their own unique metrics and key perfor- mance indicators. Following are typical CSFs for each quadrant:
Internal Success:
◾ 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)
◾ 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 Financial Success:
◾ Integrating program and project success into one definition
◾ Maintaining ethical conduct
◾ Adherence to regulatory agency requirements
◾ Adherence to health, safety, and environmental laws
◾ Maintaining or increasing market share
◾ Maintaining or improving ROI, NPV, IRR, payback period, etc.
◾ Maintaining or improving net operating margins Future Success:
◾ Improving the processes needed for commercialization
◾ Emphasizing follow-on opportunities
◾ Maintaining technical superiority
◾ Protecting the company image and reputation
◾ Maintaining a knowledge repository
◾ Retaining pre-sale and post-sale knowledge
◾ Aligning projects with long-term strategic objectives
◾ Informing the teams about the strategic plans
◾ Team members willing to work with this project manager again
Customer-Related Success:
◾ 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
◾ 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
In Chapter 3, we identified the different type of metrics. We can now identify which type of metric is most suitable for each success quadrant.
This is shown below in Figure 5-3.