Value-Driven Project Management

Harold Kerzner, Frank P. Saladis

• Publisher: Wiley
• Year: 2011
• Print ISBN: 9780470500804
• eBook ISBN: 9781118174425
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Industrial Engineering
• Index: Technology & Engineering

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 specifications, 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 efficiency, customer satisfaction, and enhanced products and services. Finally, the book helps you incorporate value into clearly defined 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 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.

Chapter 1

How Project Management Has Changed

Why Traditional Project Management May 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

Traditional project management works well when the direction of the project is clearly understood, the scope is well defined, 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 followers, the type of projects approved may be based on “fuzzy” objectives, optimism, and a willingness to take risks and basically do not follow a specific set of selection criteria.

More and more projects are highly complex and may require a technical breakthrough to achieve success. In addition, the risks associated with achieving the breakthrough can be significant, 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 further 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 defined and understood as projects in the past. The global economy, rising costs, and competition are driving many companies to take greater risks to achieve their business objectives. As a result, the traditional theories of project 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.

The statement of work (SOW) is:

• Not always well defined, especially on long-term projects
• Based on possibly flawed, irrational, or unrealistic assumptions
• Inconsiderate of unknown and rapidly changing economic and environmental conditions
• Based on a stationary, rather than moving target for final value

As projects become more complex, the statements of work (SOWs), in many cases, become less well defined and possibly ill defined. 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 define with any sense of confidence. 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 final 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 final value that is quite different from initial expectations. The greater the project duration, the greater the chance that the final result will be significantly 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 incorrect 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 final value of the project and could create a reason for project cancellation. These concerns will be discussed in later portions of the book.

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 flow
• Inflexible processes
• Periodically reporting time at completion and cost at completion but not value (or benefits) at completion
• Project continuation rather than canceling projects with limited or no value

Most companies either have or are in the process of developing an enterprise project management (EPM) methodology. EPM systems are usually rigid processes designed around policies and procedures, and work efficiently when the statement of work is well defined. But with the new type of projects expected over the next decade, these rigid and inflexible processes may be more of a hindrance.

EPM systems must become more flexible in order to satisfy business needs. The criteria for good systems will lean toward forms, guidelines, templates, and checklists rather than policies and procedures. Project managers will be given more flexibility 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 final value of the project, may result in extreme stakeholder dissatisfaction or significant opportunity cost.

Simply stated, today's view of project management is quite different than the views of the past, and this is partially the result of recognizing the many benefits realized through project management over the past two decades. The following illustrations show the changing views.

Today's View of Project Management

Today, we are managing our business by projects.

After more than 40 years of analysis, lessons learned, and the distribution of volumes of best practice documents; companies have come to the realization that a defined and efficiently implemented project management methodology does work and is very beneficial 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 generally manages projects that support higher-level business objectives, and line managers or functional managers are being trained in project 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 specifically designed career paths and positions for project managers.

Of significant importance is the focus on training executives to function as project sponsors. In this role, the project sponsor provides the project manager with funding and critical project information (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 conflicts and problems between the project manager and other business units or functional entities.

Project management has evolved into a business process rather than a project management process.

Because project management affects all parts of a business, it is now viewed as a business process rather than merely a methodology to meet a specific 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 customer's needs. Today, companies are integrating project management processes with their business management processes to become more efficient, 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’ requirements is sometimes accomplished through the expense of disrupting 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 company and the project.

The EPM methodology contains business processes as well as...

Table of contents

• Cover
• Title Page
• Copyright
• Preface
• Acknowledgments
• International Institute for Learning, Inc. (IIL)
• Chapter 1: How Project Management Has Changed
• Chapter 2: Changing Our Definition of Project Success
• Chapter 3: The Importance of Value
• Chapter 4: The Stakeholders’ View of Value
• Chapter 5: The Components of Success
• Chapter 6: Success and Best Practices
• Chapter 7: The Value Continuum
• Chapter 8: Assigning Value Through Objectives
• Chapter 9: Value Leadership and Senior Management
• Index