A NEW MODEL
C H A P T E R
WHY YOUR BUSINESS SUCCESS DEPENDS ON PROJECTS
GENERALLY SPEAKING, you can divide your organization’s activity into two categories: operations and projects. Operations involve repetitive, ongoing activities, such as manufacturing, service, and production, whereas projects involve unique, one-time initiatives, such as launching new products, new organizations, or new ventures, improving existing products, and investing in the company’s infrastructure. Projects drive business innovation and change; in fact, the only way organizations can change, implement a strategy, innovate, or gain competitive advantage is through projects. Furthermore, if you think about it, every operational process began as a project that put things in motion.
With high demand for growth and innovation, the share of operations in most organizations is declining and the share of projects is on the rise (see figure 1-1
). This trend began in the early 1900s, and it is accelerating in almost every organization and industry: not only do product life cycles become shorter, but also customers today demand greater variety and more choices, forcing companies to offer more products in almost every market. For example, in 2003 GM offered eighty-nine models, selling an average of fifty thousand cars per model; in the 1950s, in contrast, a single model would sell in the millions.1
In addition, market globalization is forcing businesses to respond to local demands and to low-cost competition around the world. Moreover, the information technology (IT) and Internet revolution is not slowing
down. Even in stable industries such as banking and insurance, organizations must continuously invest in new IT infrastructure to keep up with growing demand and competition. Each of these trends intensifies the project activity in almost every organization and industry.
The increasing share of projects
Ironically, during most of the twentieth century many organizations focused on improving their operations but not their projects. This trend began with the scientific management principles of Frederick Taylor, which greatly influenced the evolution of efficient mass production systems.2
The efforts to improve operational efficiency continued for decades with more recent concepts such as just in time, lean manufacturing, reengineering, supply-chain management, and six sigma.
Although operational efficiency remains important, there is a limit to how much you can improve. With time, at least in theory, all companies can reach a similar level of efficiency. For example, think about quality. In the 1980s, high quality was considered an important source of competitive advantage. Not any more. Customers now take quality for granted, rather than view it as a unique advantage. High quality has become a must, and essentially a license to do business. A similar case can be made for organizational efficiency.3
No business enterprise can survive if it is focused only on improving its operations. The next untapped candidate for significant improvements in a company’s pursuit of competitiveness is the project activity of the organization. Projects are the engines that drive innovations from idea to commercialization. But projects are also the drivers that make organizations better, stronger, and more efficient. And because most organizations
accelerate toward a project-based world, shouldn’t you ask yourself how your organization is doing with its projects? Are you doing a better job than your competitors?
This situation presents a tremendous opportunity. It is time to unleash the underutilized potential that exists in projects. The premise of this book is that organizational success depends more and more on projects. The good news is that because all organizations—commercial companies, government agencies, educational institutions, and charitable funds—have projects, managers at all levels can play a critical role in turning project management into an organizational competitive asset. The time has come to recognize that project management is everyone’s business.
For the purpose of this book we define a project as a temporary organization and process set up to achieve a specified goal under the constraints of time, budget, and other resources
. Project management is the set of managerial activities needed to lead a project to a successful end
The Bad News: Most Projects Still Fail
As the data proves, most projects fail to meet their goals. They do not meet time and budget goals, do not meet their business objectives, or both. Consider the following:
The Standish Group found that in 2000 only about 28 percent of IT projects were successful. The rest were either total failures or failed to meet business requirements.5
The Standish Group also estimated that of the $382 billion spent in 2003 on IT projects in the United States, $82 billion was a total waste. One-third of the projects that either failed or did not meet business requirements had overruns of 200 to 300 percent.6
Robert Cooper’s studies on new-product development showed that about 46 percent of all resources were allocated to projects that were canceled or failed to yield an adequate financial return. Only one of four products that entered development became a commercial success.7
A study conducted in 1998 by the Bull Computer Corporation in the United Kingdom found that 75 percent of IT projects missed their deadlines, 55 percent exceeded their budgets, and 37 percent did not meet project requirements.8
For fifteen years we have collected data on more than six hundred projects in the business, government, and nonprofit sectors in various
countries and have documented hundreds of project case studies. (See appendix 1
for a description of our research. Later appendixes include some of our research instruments.) Some 85 percent of the projects we studied failed to meet time and budget goals, with an average overrun of 70 percent in time and 60 percent in budget.9
Why Even Well-Managed Projects Fail
You may think that projects fail because of poor planning, lack of communication, or inadequate resources; but as the evidence suggests, failure is often found even in well-managed projects that are run by experienced managers and supported by highly regarded organizations. Consider the following:
Denver International Airport was initiated in 1989 to take over Denver’s Stapleton Airport, which had outgrown its maximum capacity.10
But the project suffered an extensive delay of sixteen months and an enormous cost overrun of $1.5 billion. As it turned out, one component—the automatic bag-handling system—had a higher risk than the project’s other elements, but it was treated as a standard, well-proven subsystem, just like any other part of the project.
The Segway personal transportation system was expected to change the way people traveled, particularly in big cities.11
With high sales expectations, its builders prepared a substantial infrastructure for mass production. Although the product was well designed and fun to ride, it did not fulfill its business forecasts; sales were short of predictions and, in retrospect, the extensive investment in production capabilities seemed unjustified.
NASA’s Mars Climate Orbiter (MCO) was supposed to circle the planet Mars and collect weather data as well as act as a relay communication station to a second vehicle, Mars Polar Lander. MCO was launched by NASA as planned on December 11, 1998, but after nine and a half months in space, its signal was lost just as it began its final insertion maneuver. The failure was later described as a technical error due to a failure to use metric units in the coding of one of the ground software files.12
These projects took place in different industries, were aimed at different markets, and used different technologies. Yet they had one thing is common. They all had highly talented and dedicated managers, the best professional teams, the latest project management tools, and total support from top management. It seemed that each of these projects had every ingredient needed to succeed, but all of them failed to meet their expectations; when managers finally understood what went wrong and why, it was too late to fix the problem. The common theme to all of these failures was that executives as well as project teams failed to appreciate up front the extent of uncertainty and complexity involved (or failed to communicate this extent to each other) and failed to adapt their management style to the situation. The full story of these projects will be told later in the book.
These projects are not unique. We can find similar situations in every organization, where well-managed projects fail to deliver on their promises and end up in disappointment.
Why We Need a New Framework and a New Approach
Many executives believe that if they come up with the right strategy or business plan, their project teams will “get it done” and execute the strategy as directed. As we have observed, top managers frequently look at project budgets as a cost, not an investment, and see project activities as part of operations. They rarely appoint a “chief project officer” or vice president of projects, and their project teams are left on their own with little guidance or help from the top.
Project teams often try to follow a well-established set of guidelines that has become standard in the discipline of project management (see “The Evolution of a Discipline”). Although the conventional project management body of knowledge forms a good foundation for basic training and initial learning, it may not suffice for addressing the complex problems of today’s projects. Simply asked, if you apply the standard tools and follow the rules and processes as prescribed, will your project be successful? As we have found, the answer is, not always. Often, even if you do everything by the book of conventional project management, you may still fail.
Most project problems are not technical but managerial. When technical errors cause projects to fail, it is usually management that failed to put the right system in place so that these errors would be detected in time. Such problems stem from the framework and the mind-set that drive the traditional approach to project management, rather than from a
lack of process or practice. The critical questions are these: Can we help project teams make the right assessment before presenting their project proposals to top management? Can we show executives how to ask the right questions and foresee danger before they make a commitment to a project and before it is too late? And can we guide project teams in adapting their project management style to the circumstances, environment, and task? It seems that managers at all levels need a new framework and a new language to communicate with each other about projects. Our goal in this book is to offer such a framework, which represents a new and more realistic approach to project management.
The Evolution of a Discipline
When you look at the Pyramids, the Great Wall of China, the Greek Pantheon, and even Stonehenge, you realize that projects have been an important part of every civilization. Yet not until modern times did companies begin organizing work around projects; and when tools, techniques, and methods became standard across industries, a new discipline—project management—emerged.
As a formal discipline, project management as we know it was born in the middle of the twentieth century. The Manhattan Project, which built the first atomic bomb during World War II, exhibited the principles of organization, planning, and direction that inf...