The current economic turmoil that is impacting the globe is forcing corporations to creatively identify opportunities to cut cost. CFOs are focusing investments on short-term paybacks rather than long-term strategic objectives. Projects that are not part of a company’s direct line of business are being reevaluated to determine immediate impact on profitability. As a result, corporate executives and PMO directors are being asked to tightening the checkbook on PMO projects.
According to research performed by the Standish Group, an international IT research firm with an expertise in project and value performance, 71 percent of IT projects are either over budget, over time, or under scope. Based on this historical data along with the troubling times of the global economy, it is anticipated that CFOs and Procurement Managers will begin awarding contracts to firms that demonstrate a strong capacity to effectively manage project costs. Earned value management is a project management technique that promotes timely performance measurement and cost management controls.
Earned Value Management
What is Earned Value Management anyway? It is the process of integrating the project costs and the project schedule in order to measure actual performance and forecast future performance against the established baseline. With proper implementation of EVM, accurate measurement can occur at anytime throughout the project lifecycle. However, accuracy requires that a thorough Earned Value Management System is in place and is being utilized consistently throughout the project.
Sponsorship Commitment
Successful use of an Earned Value Management Systems (EVMS) requires commitment, input, and agreement among all project stakeholders including the sponsor. Early involvement from senior leaders help to reduce team resistance and encourages more accurate reporting, resulting in more realistic data for better performance measurement. As the future of the world economy unfolds, one thing is clear, measuring the money being spent against the products and services being received will be scrutinized more than ever before.
Cost Overruns
There are seven major factors that contribute to significant cost overruns. Identifying these factors and including mitigation plans to address them in response to RFPs, will give vendors the competitive edge by positioning themselves as thought leaders in Project Cost Management. The following answers the question, “Why do projects close over budget?”
• Lack of experienced Project Managers
• Lack of Commitment and Accountability of Project Sponsors
• Unclear Scope Definition
• Poor Project Planning
• Poor Costs and Schedule Estimates
• Inability to manage Scope Creep
• Inability to Manage Change and Project Risks
Project Management firms seeking contracts from companies are being required to demonstrate its ability to effectively manage project costs. As a result, those firms that include Earned Value Management techniques in their proposals will likely be given more consideration than those without. The reason is because Earned Value Management answers the question, “What am I getting for the money being spent?”
Early Warnings
Utilizing EVM techniques does not prevent project costs overruns, but it does provide project managers with data for more effective cost and risk management, which has become increasingly important to corporations. Risks that are identified through the use of EVM provide early warning signals that immanent project risks exist.
The early warning signals allow project managers to identify, analyze and mitigate these risks before project success is threatened. Therefore, Earned Value Management is an important tool in maintaining and managing total project performance and would prove beneficial to organizations seeking to minimize unnecessary project expenses.
Clear Scope Definition
An important requirement of EVM is a clearly defined scope. Without it, project success is impossible to quantitatively measure. Defining scope means to ensure the project team and project sponsors, have a common understanding of the requirements that are included and the opportunities that are excluded from a project.
While corporations are demanding project management firms to manage cost more effectively, they must also be prepared provide these firms with more detailed scope requirements and offer active and engaged sponsors.
To assist corporations in scope definition, the project manager must perform two important tasks – engage the appropriate resources and develop a work breakdown structure to graphically depict the work that needs to be accomplished into measurable work packages. From work packages, a project timeline can be created and the associated costs can be defined. With the scope, schedule and costs detailed and agreed upon, the project baseline can be created, allowing U.S. companies to measure project performance throughout the project lifecycle.
Summary
As the economy experiences unprecedented volatility, corporations must be positioned to avoid negative impact by reducing expenses. Many cost cutting measures result in staff reductions and postponing strategic projects. However, those projects that remain as “in-flight” projects are now more than ever expected to stay on budget. Effectively managing project cost is quickly becoming a more scrutinized prerequisite in awarding project management contracts to vendors. Offering Earned Value Management is an outstanding solution.
Saturday, December 27, 2008
Thursday, December 25, 2008
Project Sponsors Often Fail Us
With the collapse of firms such as AIG, Lehman Brothers, Countrywide, General Motors, Ford, Chrysler and many others, the light is shining on Presidents and CEOs of corporations, causing the board of directors, shareholders, and the general public to assess the effectiveness of executive leadership. They are now “behind the eight ball” to demonstrate how their decision-making as Commander-in Chief has benefited stakeholders. As project managers, this is a perfect opportunity for us to request what we frequently need – an available project sponsor to support our delivery efforts.
Project sponsors are to projects what CEOs are to corporations. Both are expected to utilize their expertise (or the expertise of their delegated) to critically analyze requirements, proposals, status reports, schedules, change requests, and the like – all in an effort to reduce constraints that may impede project or corporate success. We often attribute factors such as an incomplete scope and an unrealistic budget allocation to justify late deliverables and cost overruns. Many project failures (of course you and I have never been late completing a project or run over budget) are the direct result of the sponsoring organization’s failure to be actively engaged throughout the project management lifecycle.
As project managers, we recognize that most project sponsors are not involved in day-to-day project execution. However, we expect these leaders (or their delegated resources) to either be engaged throughout the project management lifecycle or empower us with decision-making authority and control. This empowerment will support our efforts to deliver our projects on time, under budget and according to the specified scope. We need project sponsors to remove barriers that may impede our progress or give us decision-making authority and support to remove them.
Empower us in decision-making and control
Empowerment is particularly important when the project manager is an outside consultant and team resources are either part of the sponsoring organization or are assigned by the project sponsor. Under this scenario, team resistance can be high and cause late completion of project tasks. Gone are the days when we have dedicated project support. We now work in matrix organizations utilizing matrix resources who are not 100 percent committed to the most important projects – ours. Of course, as project managers, we have the skills necessary to keep our team inspired and motivated, but sponsor empowerment allows us to respond appropriately to low performers. Also, with empowerment along with decision-making authority, we can quickly analyze and mitigate risks, as well as make prompt decisions regarding change requests. With this empowerment, timely decisions will be made, reducing the likelihood of delay to our project schedule and thus, keeping cost under control.
Engage Project Managers and Subject Matter Expert during Initiation
Much heartache could be avoided if we could specify every minute detail of every single project prior to starting the execution phase of each project? Today, we often work under contract and frequently join projects after requirements have been gathered, the scope has been defined, and a targeted completion date has been set. However, during planning and execution, new details of project requirements ultimately present new discoveries, which introduce the need for adjustments to project scope, schedule, and budget. Generally, these adjustments are necessary when fixed completion dates are dictated rather than allowing subject matter experts to identify the estimated work effort for completion. To create more realistic scope, schedule and budget estimates, subject matter experts should be involved during the initiation and planning phases in order create work breakdown structures. This task allows us to establish a more realistic scope, schedule, and cost baseline for more accurate targets. Whether we gather these details during the planning phase or during the execution phase, this work effort must be factored into schedule and budget estimates if we are to keep our projects on track. Project managers and subject matter experts should be involved as early as possible.
Be critical of status reports we present
Project managers are like magicians. We juggle a multitude of moving parts. We lead and motivate people. We analyze details. We communicate appropriately to all audiences with a very reasonable project status. Then we approach our finally – the delivery date. But, now we need to extend the project because of a delay in approving a change request. Or, one of our vendors has experience difficulty receiving a needed part to complete its project task. Or, we are over budget because we added additional resources to backup the many who suddenly left the project. Now, the sponsor is wondering, “What went wrong?”
As the smoke dissipates and the mirrors are revealed the sponsor recognizes that our status reports could have been more detailed. As project managers, we believe that we can get back on track without missing a beat. We build strong relationships with our teams and inspire and motivate each team member to give extra effort. As a result, we provide status reports that reflect the best estimates of our projects. We are always truthful; we simply provide our best estimates. However, if our project sponsors become more critical of the status reports we present, we would be challenged to provide a more accurate assessment of project temperature. We need our sponsors to “pay no attention to the man behind the curtain.” We need them to ask more detailed questions during our status meetings. Similarly, we need to ask more detailed questions of our subject matter experts. This way, late deliveries, increased budgets, or changes in scope would be no surprise.
Summary
Project sponsors that empower project managers, involve them and subject matter experts during initiation, and are critical of project status reports will enjoy a higher percentage of successful projects. A more collaborative team environment will result, individual performance will be enhanced, and on-time completion of projects will increase. Although these benefits are our direct responsibility as project managers, various factors such as an incomplete scope, change request submissions, or an ineffective project team member jeopardizes project success. With empowerment from project sponsors or sponsor involvement, we enhance our ability to deliver.
Project sponsors are to projects what CEOs are to corporations. Both are expected to utilize their expertise (or the expertise of their delegated) to critically analyze requirements, proposals, status reports, schedules, change requests, and the like – all in an effort to reduce constraints that may impede project or corporate success. We often attribute factors such as an incomplete scope and an unrealistic budget allocation to justify late deliverables and cost overruns. Many project failures (of course you and I have never been late completing a project or run over budget) are the direct result of the sponsoring organization’s failure to be actively engaged throughout the project management lifecycle.
As project managers, we recognize that most project sponsors are not involved in day-to-day project execution. However, we expect these leaders (or their delegated resources) to either be engaged throughout the project management lifecycle or empower us with decision-making authority and control. This empowerment will support our efforts to deliver our projects on time, under budget and according to the specified scope. We need project sponsors to remove barriers that may impede our progress or give us decision-making authority and support to remove them.
Empower us in decision-making and control
Empowerment is particularly important when the project manager is an outside consultant and team resources are either part of the sponsoring organization or are assigned by the project sponsor. Under this scenario, team resistance can be high and cause late completion of project tasks. Gone are the days when we have dedicated project support. We now work in matrix organizations utilizing matrix resources who are not 100 percent committed to the most important projects – ours. Of course, as project managers, we have the skills necessary to keep our team inspired and motivated, but sponsor empowerment allows us to respond appropriately to low performers. Also, with empowerment along with decision-making authority, we can quickly analyze and mitigate risks, as well as make prompt decisions regarding change requests. With this empowerment, timely decisions will be made, reducing the likelihood of delay to our project schedule and thus, keeping cost under control.
Engage Project Managers and Subject Matter Expert during Initiation
Much heartache could be avoided if we could specify every minute detail of every single project prior to starting the execution phase of each project? Today, we often work under contract and frequently join projects after requirements have been gathered, the scope has been defined, and a targeted completion date has been set. However, during planning and execution, new details of project requirements ultimately present new discoveries, which introduce the need for adjustments to project scope, schedule, and budget. Generally, these adjustments are necessary when fixed completion dates are dictated rather than allowing subject matter experts to identify the estimated work effort for completion. To create more realistic scope, schedule and budget estimates, subject matter experts should be involved during the initiation and planning phases in order create work breakdown structures. This task allows us to establish a more realistic scope, schedule, and cost baseline for more accurate targets. Whether we gather these details during the planning phase or during the execution phase, this work effort must be factored into schedule and budget estimates if we are to keep our projects on track. Project managers and subject matter experts should be involved as early as possible.
Be critical of status reports we present
Project managers are like magicians. We juggle a multitude of moving parts. We lead and motivate people. We analyze details. We communicate appropriately to all audiences with a very reasonable project status. Then we approach our finally – the delivery date. But, now we need to extend the project because of a delay in approving a change request. Or, one of our vendors has experience difficulty receiving a needed part to complete its project task. Or, we are over budget because we added additional resources to backup the many who suddenly left the project. Now, the sponsor is wondering, “What went wrong?”
As the smoke dissipates and the mirrors are revealed the sponsor recognizes that our status reports could have been more detailed. As project managers, we believe that we can get back on track without missing a beat. We build strong relationships with our teams and inspire and motivate each team member to give extra effort. As a result, we provide status reports that reflect the best estimates of our projects. We are always truthful; we simply provide our best estimates. However, if our project sponsors become more critical of the status reports we present, we would be challenged to provide a more accurate assessment of project temperature. We need our sponsors to “pay no attention to the man behind the curtain.” We need them to ask more detailed questions during our status meetings. Similarly, we need to ask more detailed questions of our subject matter experts. This way, late deliveries, increased budgets, or changes in scope would be no surprise.
Summary
Project sponsors that empower project managers, involve them and subject matter experts during initiation, and are critical of project status reports will enjoy a higher percentage of successful projects. A more collaborative team environment will result, individual performance will be enhanced, and on-time completion of projects will increase. Although these benefits are our direct responsibility as project managers, various factors such as an incomplete scope, change request submissions, or an ineffective project team member jeopardizes project success. With empowerment from project sponsors or sponsor involvement, we enhance our ability to deliver.
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