The fourth project management constraint

Robert Graham, in an article titled ‘Beyond the Triple Constraints’ makes the case that project managers need to consider contribution to shareholder value as an additional variable. Anyone who has studied project management will be familiar with the triple constraints of time, quality and cost. Graham suggests that in the modern business environment focusing on these constraints alone is not enough.

He says that because project outcomes are increasingly vague (agile development methodologies and more fluid market place), costs are continually changing (caused by constantly changing outcomes) and schedules are more externally driven, an additional metric is needed.

A project manager who focuses exclusively on delivering a project in the quickest time to the highest quality and lowest cost may be doing a disservice to the organisation. Because the business environment is constantly changing, delivering on a plan that was agreed months or years before may not be the best outcome for the organisation now.

Suppose for example that a project manager was working on delivering a new product but during development some new technology emerged that made that project redundant. Continuing to work on that project would not be in the best interests of the organisation. Project managers need to consider more than just time, cost and quality. Graham suggests that an additional metric of shareholder value should be included. Increasing shareholder value is chosen of course because it should be the goal of any publically trading organisation (non-profit organisations aside). Project Managers need to constantly ask themselves, is my mix of projects maximising shareholder value given the way that the market is now; not the way it was a few months ago.

I agree with him that this should be the case but suggest that most project managers will be unable to ascertain which courses of action would best maximise shareholder value. Instead, project managers should focus on advancing strategic goals as communicated by senior management. It is the responsibility of senior management to communicate a small number of strategic goals that will lead to shareholder value maximisation, that all employees should be striving towards. This will result in a more coordinated, unified organisation and will avoid the danger where project managers take a course of action that increases shareholder value in the short term but damages its ability to do so in the long term.

Of course, for a project management office (PMO) to be able to take a real time look at its mix of projects requires a project and portfolio management tool. With such a tool, individuals within the organisation can take a holistic view of the PMO and ensure that it is constantly aligned with its strategic goals. If you would like to discuss how you can get that real time, holistic view of your PMO, please get in touch with us.

The science behind PPM

If you think about it, projects and investment funds have a lot in common. Both involve an initial outlay of costs but the hope is that they will bring a financial gain to the investor in the future. Given the constraints of finite resources, the investor will need to be clever about his choices. Selecting one project or investment fund will naturally exclude the selection of others. The selections cannot be based on a whim and must be approached in a dispassionate manner that allows each option to be quantified and mathematically compared.

Dr. Harry Markowitz won the Nobel Prize for economics in 1990 for his work on the Efficient Frontier theory. This theory looks at selecting a portfolio of investments so as to maximise the return to an organisation. Project and Portfolio Management (PPM) has its roots in investment fund portfolio management. As with financial investments, the idea is to get the maximum return for the mix of projects that a company can choose from.

This includes both selecting the right projects and periodically reviewing the selection to ensure that the mix continues to be the best possible for the organisation. This optimisation ensures that we neither overspend on IT nor miss revenue generating or cost saving opportunities for further investment.

The Efficient Frontier
The Efficient Frontier helps organisations understand the tradeoffs between portfolio value and cost. It effectively identifies the set of all portfolios that will give the highest expected return for each given level of risk. The organisation can then make a decision about the level of risk that it wants to adopt.

Obviously, to be able to compare portfolios in this way requires that information about projects and project execution be entered into a software application. Mariner is one such application that companies such as Starbucks and Yahoo have used to build successful business models.

Reducing Project Failure

Most organisations have war stories of projects that were never completed or failed to deliver on what they promised. It is far too common an occurrence. A report from The Standish Group in 2004 entitled “CHAOS Chronicles”, which studied over 40,000 projects, showed that project success rates had more than doubled to 34% from their previous study a decade earlier! 34% is still a success rate that most organisations would consider to be unacceptable.

Project and Portfolio Management (PPM) has been generating a lot of hype recently because it addresses this high failure rate. It looks not just at how individual projects are being managed but at how those projects fit in the wider context of the organisation’s strategic goals. PPM asks the question, “Are the projects being pursued the ones that should be done in the first place?”

Forrester Benchmarks
When considering if PPM is right for your organisation, consider the following key benchmarks on PPM success from Forrester, the independent technology and market research company.

· Visibility of the total project portfolio
Elimination of redundant, underperforming, low-value and poorly aligned projects
Benchmark #1: Reduced Project Cost: 1% - 5%, Forrester, 9/05

· Better utilization of resources
Efficient allocation, reduced bottlenecks and balanced workloads
Benchmark #2: Reduced Resource FTEs: 1% - 5%, Forrester, 9/05

· Improved project success
More projects delivered on-time and within budget
Benchmark #3: Improved Project Success Rate: 15% - 30%, Forrester, 9/05

· Improved operational efficiency
Reduction in manual effort required for PPM processes.
Benchmark #4: Reduction in manual effort 20 - 30%, Forrester 9/05

· Better investment decisions
Minimize the full lifecycle costs while maximizing benefits of technology investments.
Benchmark #5: Savings in total IT costs of 5% - 8%, Forrester 9/05

· Alignment of the application portfolio
Consolidate the application portfolio, replace high cost applications, and enforce standards.
Benchmark #6: Savings in application maintenance cost: 10 – 20%, Forrester 9/05

If you would like to discuss how Mariner from Serena can help your organisation achieve these kinds of results, please contact us.

Your Maturity Matters

It has been said that Project and Portfolio Management (PPM) is largely a discussion about maturity. The more mature your key processes, the better your IT governance. As an organisation’s IT governance processes mature, it becomes more successful at doing the right projects right.

As discussed in a previous article, where project management focuses on the execution of projects, PPM looks at ensuring that the right projects are selected in the first place and that there is a balance in the portfolio of projects that is congruent with the pursuit of the strategic goals of the organisation.

Now, an organisation cannot become mature over night. Maturity takes time and effort and must be done in a progressive manner. Obviously the organisation needs to know where it currently is and what direction it should head in to make this change.

QMA
The Quick Maturity Assessment (QMA) is intended to help in this regard. It takes the form of a two hour telephone survey where key people from the organisation, with the help of an expert, answer set questions about the way it operates in seven key areas.

The output of the QMA is a report that shows, amongst other things, how the organisation scores in these seven areas. This gives the organisation a sense of what its current maturity level is. The report also details which are the areas that would bring about the most advancement in maturity for the least cost. Obviously by tackling these first, the organisation gets the most benefit for the least effort.

The screenshot below shows the Future State Maturity graph from a sample QMA which maps the organisation’s current maturity and shows where it could expect to be if it was to implement the next level of the plan from the QMA report.


The QMA is a free service that Client Solutions is now offering. Please contact us if you want to talk about your maturity and getting a free QMA.

The common misunderstanding of Project & Portfolio Management

Project and Portfolio Management (PPM) is often misunderstood to be simply a method of managing multiple projects. This misses out on the key benefit of PPM which is to do with aligning projects with the strategic goals and direction of the organisation. To assign the PPM function to the Project Management Office (PMO) is to severely limit the advantages that can be achieved from it.

The core mistake is to think that PPM is fundamentally the management of multiple projects. This definitely is not so. PPM is the management of the project portfolio so as to maximise the contribution of projects to the overall welfare and success of the enterprise.

PPM effectively bridges the gap that exists between the PMO and other business operations. It is about bringing projects into harmony with the strategies, resources and executive oversight of the organisation and it provides the structure and processes for project portfolio governance. It is not so much about doing projects right as it is about doing the right projects right. Projects that are out of line with the organisation’s strategic goals or that have excessive risk can waste precious resources and time.

The ability of managers and employees to stay strategic, i.e. focus is on advancing the organisation’s strategic goals, is vital for an organisation if it is to move forward as a single unit. If projects don’t advance those strategic goals (directly or indirectly) then they waste resources and energy. We can call such non-strategic projects ‘distracting projects’ because they misdirect parts of the organisation’s intent as defined at senior management level in the form of strategic goals. Distracting projects can be thought of as projects that negatively impact on the overall aerodynamics of the portfolio. They hinder the portfolio’s ability to move the company forward in the direction set out by senior management.

The earlier that an organisation can weed out ‘distracting projects’ the better. In fact, not starting ‘distracting’ projects at all is the ideal!

As an example of a company that successfully weeded out distracting projects consider the following the merger between HP and Compaq. During the first 90 days of the merger the global project management office stopped over 100 projects or programmes that were not aligned with the emerging strategy or made poor use of resources. This is a rather extreme example but one year after the merger they had achieved over $3 billion in savings. In a later blog article I will examine this merger in greater detail and look at the way HP implemented PPM throughout the organisation.

Communication
The integration of projects and other business activities cannot be achieved without good communication structures. Key information must be shared. Management needs to be able to clearly communicate what the strategic goals of the organisation are and the PMO needs to be able to provide visibility on how those goals are being pursued (directly or indirectly). What often happens is that both groups (management and the PMO) are off in their own worlds, working to do the best that they can pursuing their own objectives. What a waste!

PPM sets out to bridge the gap between these groups by providing two way communication. One of the best ways of describing what PPM is about is to say that it provides insight.

Management get insight into what is happening throughout the organisation in the pursuit of its strategic goals. The rest of the organisation gets insight into what direction management wants it to be moving in.

Technology
It has been said that PPM is largely about process, people and technology. The technology is vital to allow the communication to take place and provide good visibility into what is happening in the PMO. Serena Mariner provides portfolio, project, resource, demand and financial management for complete Project and Portfolio Management. Unlike other products whose bottom-up approach is difficult to implement, Mariner offers an approach that ensures rapid results and on-going incremental value. With packaged integrations to Serena ALM applications, Mariner provides complete visibility into the entire application lifecycle—from initial idea to application retirement.

For more information click on the link below or contact us to request a visit so that we can discuss the Mariner solution with you.

http://www.serena.com/products/mariner/index.html