The Changing Landscape for Project Management Life-Cycle Phases

INTRODUCTION:

For the past two decades, companies have embarked upon continuous improvement efforts in all areas of project management.  Most of the changes were small, even just cosmetic, and usually involved the forms, guidelines, templates and checklists we use for project management execution. The projects in most companies were regarded as operational rather than strategic projects. All of this is about to change.

Project management has now spread to the senior-most levels of management and even to the corporate boardroom. Project managers are expected to make both project-related and business-related decisions whereas in the past it was only a project-based decision. Today’s project managers are viewed as managing part of a business instead of merely a project.

The marriage of project management with business analyst activities has elevated project management to the corporate level. Project management is now seen as a strategic competency. Project managers no longer report to just a project sponsor. Instead, they report to a senior governance committee, an oversight committee or the senior-most levels of management. Project sponsorship is now committee governance rather than oversight by a single individual. This is because of the risks and complexities of today’s projects

Project management has undergone numerous changes. However, perhaps the most significant change is that the traditional project life-cycle may become obsolete and replaced with an investment life-cycle.

THE NEED FOR A PORTFOLIO PMO:

Not all companies maintain a PMO dedicated to portfolio management activities. Some companies may have a single PMO that includes the activities that might be assigned to specialized activities. Even if just one PMO exists, there can be dashboard displays that are unique to specific activities assigned to the PMO. Today, it is becoming more common to have a PMO dedicated to the management of the portfolio of projects. This can lead to changes in the role of the project manager, the metrics used, the dashboard displays and stakeholder relations management.

There are three important questions that must be addressed by the portfolio PMO:

  • Are we working on the right projects? (i.e., Do the projects support strategic initiatives and are they aligned with strategic objectives?)
  • Are we working on enough of the right projects? (i.e., Does the portfolio have the right mix of projects to maximize investment value? Shareholder value?)
  • Are we doing the right projects right? (i.e., When will we finish and at what cost?)

In all three questions, we address the word “right.” Today, this word has a value meaning or at least implies value. Simply stated, why select a project as part of the portfolio if the intent is not to create business value? And if the project is completed within time and cost, is it a success if business value was not created? In the future, you can expect “value” to become increasingly important. Consider the following definitions which illustrate this. The first two are the present and future definitions of a project:

  • PMBOK® Guide definition of a project: A temporary endeavor undertaken to create a unique product, service or result. (PMBOK® Guide - 5th edition glossary)
  • Future definition: A collection of sustainable business value scheduled for realization.

The next two are the present and future definitions of project success:

  • Traditional definition: Completion of the project within the triple constraints of time, cost and scope or within the competing constraints.
  • Future definition: Achieving the desired business value within the competing constraints.

The importance of value should now be clear. Success must be defined in terms of the value that was expected to be delivered. Business cases define the benefits to be achieved. Value is what the benefits are actually worth to the business at the completion of the project. Metrics must be designed to reflect this value. Project managers must now track business value and report the results to the PMO and possibly the board room.

As shown in Exhibit #1, projects can be selected as part of the portfolio based upon the type of value they are expected to deliver. The quadrants in Exhibit #1 are generic and each company can have their own categories of value based upon how they perform strategic planning.

The Changing Landscape for Project Management Life Cycle Phases image 21 600x454

Exhibit #1 Portfolio Value Categories for Projects

Defining success on a project has never been an easy task.  The focus has always been the triple constraint.  Today we believe that there are four cornerstones for success, where success is defined in terms of value that is expected:

  • Internal value: These projects are designed to improve the efficiency and effectiveness of the firm. The value obtained from these projects could be lowering costs, reducing waste and shortening the time to market for new products. These projects can also be to improve the enterprise project management methodology, in which case people with process skills would be needed.
  • Financial value: Companies need cash flow to survive. These projects could be to find better ways to market and sell the firm’s products and services, in which case people with marketing and sales knowledge would be beneficial.
  • Customer-related value: The near-term value in these projects is that they improve customer relations. It is not uncommon for near-term projects to drain cash rather than generate cash. The long-term value comes from future contracts to support cash flow. Resources needed on these projects are generally people who know the customer or may have worked on projects for the customer previously.
  • Future value: These projects are designed to create future value through new products and services. In most companies, the best technically-oriented people are assigned to these projects based upon the subcategories. These projects may be heavily oriented around RD. Typical subcategories might be radical breakthrough, next generation, addition to the family or add-ons and enhancements. Future value projects may require project managers with technical skills as well as business skills, and a good understanding of business risk management.

Exhibit 2 identifies the four broad categories from Exhibit 1 and the accompanying tracking metrics. There are numerous benefits and metrics that can be used for each category. Only a few appear here as examples. 

Exhibit 2 Typical Categories of Value and Tracking Metrics

       Category Benefits/Value Value Tracking Metrics
Internal value
  • Adherence to constraints
  • Repetitive delivery
  • Control of scope changes
  • Control of action items
  • Reduction in waste
  • Efficiency
  • Time
  • Cost
  • Scope
  • Quality
  • Number of scope changes
  • Duration of open action items
  • Number of resources
  • Amount of waste
  • Efficiency
Financial value
  • Improvements in ROI, NPV, IRR and payback period
  • Cash flow
  • Improvements in operating margins
  • ROI calculators
  • Financial metrics
  • Operating margins
Future value
  • Reducing time-to-market
  • Image/reputation
  • Technical superiority
  • Creation of new technology or products
  • Time
  • Surveys on image and reputation
  • Number of new products
  • Number of patents
  • Number of retained customers
  • Number of new customers
Customer-related value
  • Customer loyalty
  • Number of customers allowing you to use their name as a reference
  • Improvements in customer delivery
  • Customer satisfaction ratings
  • Loyalty/customer satisfaction surveys
  • Time-to-market
  • Quality

The value tracking metrics identified in Exhibit 2 are designed to track individual projects in each of the categories. These metrics are referred to as micro metrics. There are specific metrics that can be used to measure the overall effectiveness of a portfolio management PMO. Exhibit 3 shows the metrics that can be used to measure the overall value of project management, a traditional PMO and a portfolio PMO. The metrics listed under project management and many of the metrics under the traditional PMO are considered as micro metrics focusing on tactical objectives. The metrics listed under the portfolio PMO are macro level metrics and measure the relationship between projects and strategic business objectives. Both the traditional and portfolio PMOs are generally considered as overhead and subject to possible downsizing unless the PMOs can show through metrics how the organization benefits by their existence. 

Exhibit 3 Comparison of Project Management and PMO Metrics

Project Management(Micro Metrics) Traditional PMO(Macro Metrics) Portfolio PMO(Macro Metrics)
  • Adherence to schedule baselines
  • Adherence to cost baselines
  • Adherence to scope baselines
  • Adherence to quality requirements
  • Effective utilization of resources
  • Customer satisfaction levels
  • Project performance
  • Total number of deliverables produced
  • Growth in customer satisfaction
  • Number of projects at risk
  • Conformance to the methodology
  • Ways to reduce the number of scope changes
  • Growth in the yearly throughput of work
  • Validation of timing and funding
  • Ability to reduce project closure rates
  • Business portfolio profitability or ROI
  • Portfolio health
  • Percentage of successful portfolio projects
  • Percentage of projects that failed to deliver
  • Percentage of projects that were stopped
  • Percentage of benefits realized
  • Portfolio value achieved
  • Portfolio selection and mix of projects
  • Resource availability
  • Capacity available for the portfolio
  • Utilization of people for portfolio projects
  • Hours per portfolio project
  • Staff shortage
  • Percent with strategic alignment
  • Business performance enhancements
  • Business opportunities
  • Business outcomes
  • Portfolio budget versus actual
  • Portfolio deadline versus actual
  • ROI met and forecasted
  • Portfolio risk levels
  • Percent of projects to run the business
  • Percent of projects to grow the business
  • Percent of projects requiring innovation
  • Percent of projects that are long, medium, and short-term

VALUE MANAGEMENT AND BENEFITS REALIZATION:

Organizations in both the public and private sectors have been struggling with the creation of a portfolio of projects that would provide sustainable business value. All too often, companies would add all project requests to the queue for delivery without proper evaluation and with little regard if the project were aligned with business objectives or provided benefits and value upon successful completion. Projects were often submitted without any accompanying business cases. Many projects had accompanying business cases that were based upon highly exaggerated expectations and unrealistic benefits. Other “pet” projects were created because of the whims of management and the order in which the projects were completed was based upon the rank or title of the requestor. Simply because an executive says “Get It Done” does not mean it will happen. The result was often project failure and a waste of precious resources. In some highly visible and well-publicized cases, business value was eroded or destroyed rather than created.

With the growth of metrics and KPIs, especially value-reflective metrics as discussed in earlier chapters, it is highly beneficial to have the project managers participate in portfolio management activities. The project manager will have a better understanding of the value that is expected and the value attributes that are important to the executives. The project manager can also discuss with the executives how they wish to have the value-reflective metrics displayed. These discussions will mandate involvement by the project manager during the portfolio selection process.

PORTFOLIO INVESTMENT LIFE-CYCLE PHASES:

Typical project life-cycle phases begin once the project is approved and end after the deliverables have been created. However, when value management and benefits realization become important, there are additional life-cycle phases that must be included as shown in Exhibit 4. Exhibit 4 is more representative of an investment life-cycle than a project life-cycle. The project life-cycle is contained within the investment life-cycle. If value is to be created, then the benefits must be managed over the complete investment life-cycle. This mandates that the future project managers must participate in the entire investment life-cycle. More than six life-cycle phases could have been identified in the investment life-cycle, but only these six will be considered here for simplicity. Each of the life-cycle phases can and will have metrics specific to that phase. For most project managers, the metrics outside of the traditional project life-cycle will be new.

The Changing Landscape for Project Management Life Cycle Phases image Capture2

Exhibit 4 The Investment Life-Cycle

The Idea Generation Phase is where the idea for the project originates. The idea can originate in the client’s organization, within the senior level or lower levels of management in the parent company or the client, or within the organization funding the project. The output of the Idea Generation Phase is usually the creation of a business case that may include:

  • Opportunities such as improved efficiency, effectiveness, waste reduction, cost savings, new business, etc…
  • Benefits defined in both business and financial terms
  • A benefit realization plan if necessary
  • Project costs
  • Recommended metrics for tracking the benefits
  • Risks
  • Resource requirements
  • Schedules and milestones
  • Complexity
  • Assumptions and constraints
  • Technology requirements; new or existing technology
  • New business opportunities
  • Exit strategies if the project must be terminated

Although the idea originator may have a clear picture of the ultimate value of the project, the business case is defined in terms of expected benefits rather than value. Value is determined near the end of the project based upon the benefits that are actually achieved and quantified. The benefits actually achieved may be significantly different from the expected benefits defined at project initiation.

Not all projects require the creation of a business case. Examples might include projects that are mandatory for regulatory agency compliance or simply to allow the business to continue.

Once the business case is prepared, a request is sent to the Portfolio Project Management Office (PMO) for project approval. Companies today are establishing a portfolio PMO to control the Project Approval Phase and to monitor the performance of the portfolio of projects during delivery.

The PMO must make decisions for what is in the best interest of the entire company. A project that is considered as extremely important to one business unit may be a low priority when compared to all of the other corporate projects in the queue. The PMO must maximize the benefits through proper balancing of critical resources and proper prioritization of projects.

The third life-cycle phase is the Project Planning Phase. This phase includes preliminary planning, detailed planning, and benefits realization planning. Although the business case may include assumptions and constraints, there may be additional assumptions and constraints provided by the PMO related to overall business objectives and the impact that enterprise environmental factors may have on the project. The benefits realization plan that may have been created as part of the business case may undergo significant changes in this phase based upon the project manager’s ability to predict risks in project execution.

The benefits realization plan is not the same as the project plan but must be integrated with the project plan. The benefits realization plan may undergo continuous change as the project progresses based upon changing business conditions. Items that may be unique to the benefits realization plan include:

  • A description of the benefits
  • Identification of each benefit as tangible or intangible
  • Identification of the recipient of each benefit
  • How the benefits will be realized
  • How the benefits will be measured
  • The realization date for each benefit
  • The handover activities to another group that may be responsible for converting the project’s deliverables into benefits realization

The fourth life-cycle phase is the Delivery Phase. This phase is most commonly based upon the PMBOK® Guide standards or any other project management standards. Traditional project management methodologies are used. In this phase, the project manager works closely with the PMO and the steering/governance committee to maximize the realization of the benefits.

Performance reporting must be made available to the portfolio PMO as well as to the appropriate stakeholders. If the alignment of the project with business objectives has changed during delivery, the PMO may recommend that the project be redirected or even cancelled such that the resources will then be assigned to other projects that can provide a maximization of benefits.

There are numerous factors which may lead to project cancellation. Some of these include:

  • During project delivery, neglecting to recognize changes in the enterprise environmental factors and how they influence the benefits expected as well as senior management’s vision of the future
  • Unfavorable changes in the assumptions and constraints
  • Inadequate communications throughout the organization
  • Exaggerated or unrealistic benefits and value established during project approval
  • Poorly defined or ill-defined benefits
  • Poorly documented business case resulting in the approval of the wrong project
  • Failing to get executive and stakeholder buy-in right from the start
  • Poor executive governance resulting in lack of support and poor decision making
  • Constantly changing the membership of the governance team resulting in a constant change of project direction
  • Over-estimating resource competencies needed for project delivery
  • Poor capacity planning efforts resulting in an understaffed project or a project staffed with resources lacking the necessary skills
  • Functional managers refusing to commit the proper resources for the duration of the project
  • Failing to get employee commitment to the project and the expected benefits
  • Failing to explain the project well to the project delivery team
  • Failing to understand the magnitude of the organizational change needed for the benefits and value to be achieved
  • Unable to manage change effectively
  • Failing to consider the impact of changes in technology during the delivery of the project
  • Poor estimating of time and cost
  • Having an execution team that is unable to work with ill-defined or constantly changing requirement
  • Poor integration of the project across the entire organization

The last two life-cycle phases in Exhibit 4 are the Benefits Realization Phase and the Value Analysis Phase. The benefits realization plan, regardless in which life-cycle phase it is prepared, must identify the metrics that will be used to track the benefits and accompanying value. Benefits and value metrics are the weak links in benefits realization planning. Much has been written on the components of the plan but very little appears on the metrics to be used.

Metrics serves as early warning signs of possible problems. Some examples might be:

  • Metrics on the number of scope changes identify the possibly of a schedule slippage and cost overrun
  • Metrics on the number of people removed to put out fires elsewhere also indicate the possibility of a schedule slippage and cost overrun
  • Metrics on excessive overtime could indicate serious issues
  • Metrics on missed deadlines indicate that the time-to-market may slip and opportunities may be lost

It is important to understand that some of the micro metrics we use for tracking benefits may have a different meaning for the customer. As an example, let us assume that you are managing a project for an external client. The deliverable is a component that your customer will use in a product he/she is selling to their customers (i.e. your customer’s customers or consumers). Exhibit 5 shows how each of the metrics may be interpreted. It is important to realize that benefits and value are like beauty; they are in the eyes of the beholder. Customers and contractors can have a different perception of the meaning of benefits and value.

Exhibit 5 Interpretation of the Metrics

BenefitMetric Project Manager’s Interpretation Customer’s Interpretation Consumer’s Interpretation
Time Project duration Time-to-market Delivery date
Cost Project cost Selling price Purchasing price
Quality Performance Functionality Usability
Technology and scope Meeting specifications Strategic alignment Safe buy and reliable
Satisfaction Customer satisfaction Consumer satisfaction Esteem in ownership
Risks No future business from this client Loss of profits and market share Need for support and risk of obsolescence

Conclusions:

The role of the project manager will be changing significantly. The investment life-cycle will replace the traditional project management life-cycle. Project managers will be expected to have much greater understanding of business and strategy. Project managers may end up reporting directly to the corporate board room on some critical projects. The project managers will be involved at the beginning of the project, perhaps even during the idea generation stage, in order to understand the rationalization, assumptions, constraints and risks associated with the potential project. Now, most companies should understand why project management have evolved into a strategic competency rather than just another career path position.

This article is an original contribution by Dr. Harold Kerzner.

Article source: http://www.business2community.com/strategy/changing-landscape-project-management-life-cycle-phases-0936987

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