Management in Practice

Beyond the alphabet soup of PRINCE2, MSP, MoP, PMBOK, ITIL, Agile

What can accounting and finance teach project and program management?


what-can-accounting-and-finance-teach-us-about-project-program-managementNearly two decades ago I took one accounting paper and did just enough studying to pass it. I was studying for an IT degree at the time and only did the paper as it was a compulsory one. Wheels have now turned enough for me to come back to doing an MBA and by coincidence, starting back with accounting as my first paper. Today though my attitude is different. I can see use of quite a few accounting principles in managing projects, programs and portfolios – be it the IT domain or any other.

What is a project?

Neither of the two main project management bodies have very similar definitions of project.

… a temporary organization that is created for the purpose of delivering one or more business products according to an agreed business case – PRINCE2

… temporary in that it has defined beginning and end in time, defined scope and resources … unique that it is not a routine operation – PMI

What is the shortcoming in both definitions? Both are approaching the project from the point of view of those that are charged to deliver the outputs. Project teams do not undertake projects because they think it is a good idea. Where is the customer in all of this? It can be argued that the mention of the business case in the PRINCE2 definition means it now represents what the customer gets out of it. None of these are as clear as the accounting definition of project

an investment that increases the wealth of the owners.

You can define the terms owner and wealth to what is appropriate in your context. But this definition is the most focused one that I have found anywhere. If anyone was unclear as to the outcome they should be delivering, this leaves no room for doubt.

Is this project/program worth investing in?

Business cases for projects contain all manner of justifications. Accounting and finance provide the mechanisms for relative comparison. Whether justification is based on additional cashflows, reduced expenditure, or increased efficiency accounting provides mechanisms to objectively compare them. Key strength of accounting is it takes into account the time value of money too. A dollar earned today is much more valuable than a dollar earned sometime in future. The concept of Net Present Value (NPV) provides a way to compare cashflows that are invaluable tools for such comparison. Accounting also has very clear formulas to calculate break even points given different amounts of fixed and variable costs. Many business cases fail to address these fundamentals. It should be mandatory for those involved in preparing and evaluating business cases to have understanding of these concepts.

How is it going?

Accounting is full of metrics. Whether you are measuring efficiency, turnover, income, cash conversion cycle (how long before you lay money out for raw materials to when you get paid for it), what a share or bond should be worth etc. The closest project management comes in a traditional sense is earned value management (EVM) and more recently the burn down charts in some of the agile practices. Some service management organizations are better at it. They do measure mean time to failure and restore among other operational metrics. Singular focus on analysis and improvement on these is something project management can learn from.

How do I report?

I have seen and prepared all manner of project reports. If I don’t see another Red Amber Green report, I don’t think my life will miss much. While these reports are useful in getting our eyes focus on likely areas of problems they are pretty useless in contextualizing what the problem is. This is where accounting leads just about any profession. Generally accepted accounting principles (GAAP) mandates interpretations of exactly how reporting is undertaken. I am somewhat generalizing to make a point about standardization of reporting.

Does that mean accounting and finance have it all over project management? Not quite. The two are totally different disciplines. You can equally play the accounting system as the likes of Enron, Fanny Mae and Freddy Mac would attest to. The key is to take the strengths of other professions and make ours even stronger. As I go through some other papers I feel there may be a few more posts coming titled what can ” ” teach …

What parallels with other professions can you see?

Image credit: lewisaccountingandtaxservice.com

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Do managers need technical background?


Do-managers-need-technical-backgroundCouple of years ago I wrote a post on whether managers needed technical background to be successful. That article had a specific focus on project management. I have recently been thinking about the same topic on a slightly different context.

I recently embarked on an Executive MBA. The first paper I’m taking for the course is Accounting. The aim of the paper is not to turn managers into accountants, but to enable them to make sense of accounts, the information these give and what can be used to make management decisions. My study group contains an executive from local government, a consultant that works with ministers and mayors, a statistical analyst from a government department. I manage part of an IT professional services consultancy. We all seem to have forged successful careers which require interpretation and forecasting of financial information without being accountants. So I wondered important is domain knowledge really?

You can argue that we have taken up MBA precisely because we may have realised there is a gap in our expertise. There is an element of truth to that. Let’s explore this further. Most professional careers will require you to have some sort of qualification. Whoever is the team leader in that setting is one that is appointed on the basis of their experience and/or expertise in that area. It can be helpful in the next step up to managing business units as well. Once you get to group / divisional level usually domain knowledge is less helpful. You require expertise in other areas of business to be successful. Executives in your business may have little or no knowledge of the particular domain area, but they will usually bring significant strategy and business knowledge.

There are different skills required in different areas of management. Can you effectively devise strategy if you had no domain knowledge of the business. The answer is no. This is where senior managers use domain expertise to bounce ideas off, find what is feasible and risks and rewards of various approaches. Senior managers are judged by their ability to understand the totality of a business and impact of choices that get best outcome for the enterprise.

This need to get away from the details at certain levels is why many brilliant technical staff do not necessarily make great managers. Those that wish to move up the chain will at some point have to give up their control of specific areas they look after (be it engineering, software development, teaching) and trust others to provide the expertise and spend the time understanding the business as a whole. This is not an easy thing to let go of.

So my conclusion today is slightly modified from the one I had made a couple of years ago. Managers with domain knowledge is only useful up to a certain level in the organisation.

Do-managers-need-technical-background

Photo image credit: elandcables.com

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Useful Project Management Presentations


In this post I have attached some presentations I have done over the years on project management and related topics. As I was looking at my SlideShare uploads, it occurred to me that these can be quite handy for others too. Hopefully it is of benefit to the readers of this blog.

This presentation is on the topic of managed services, presented at the International Esri Distributor Summit in San Diego, CA in July 2013.

The following presentations are two flavours, first one delivered to the PRINCE2 User Group in Wellington regarding benefits of using multiple ideas together. Second is a presentation to internal PMO regarding improvements to existing processes in project management.

The final presentation is one given at an IT conference in Wellington, New Zealand based on experience of enterprise software implementation at a major port in the west coast of the United States.

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Is productivity gains the answer to improved business outcome?


Is productivity gains the answer to improved business outcomeI recently ran into an old school friend. At the time we were nearing the end of high school he was the coolest dude with a job at a fast food place. He had disposable income and an old second hand car. What else do you need in life? Those of us that were planning further studies or apprenticeships got plenty of advice from him on the futility of our endeavours. When someone mentioned better prospects and better pay, he simply said if he ever needed more money he can simply work a few extra hours.

All these years later I was surprised to see him holding training materials. I was intrigued with this change of attitude. At the time some of us were thinking of investing in our future and as a result consciously taking on a few more  years of hardship, he had no appreciation that his circumstances could change. He shared with me his predicament in working harder and harder to support his family. This larger than life character was backed into a corner. It is great to see him sorting his life out.

What has this got to do with business outcomes you may ask? It occurred to me how many organisations take a similar approach to making money. Everyone is in a mad rush to squeeze yet another billable hour out of staff, minimise non-utilised time. The only certainty is that the environments we operate in will change. As my friend found out eventually, there is only so much difference you can make using this approach.

True sustainable change comes when you have the commitment to review your methods, acknowledge the failings and change accordingly.

Image Credit: under30ceo.com

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Building PMO metrics


The Christmas and New Year is always a good time to take some time off the hurly burly of daily grind and reflect on how things are going. Towards the end of the year I did some work on what metrics would help us run our PMO more efficiently. Metrics are always difficult to establish, especially as they only tell a story once you have a baseline to measure against. This is probably a heavy topic for the first post of the year. Apologies for that.

Building-PMO-Metrics

While I see a pressing need for making decisions on evidence, I am also cautious against spurious interpretations of metrics, which can easily happen if taken out of context. You only have to look at statistics driven sports such as baseball or cricket where fans and officials will take diametrically opposing views of players or tactics using different statistics. Numbers are just that. What you interpret from them is what gives them meaning.

The first task was to explore what type of metrics would be useful for our business. I work for a IT professional services firm. It has unique challenges from other types of businesses. I did some research on what other similar organisations are doing. I found this compilation from OpenAir and excellent resource. There are three articles in this and the first one by Thomas Loh is by far the best. This was an excellent start. The key is not to go chasing every metric under the sun, but the ones that you need to measure. That is even more crucial when your PMO is lean and you are in the process of building its maturity. Capturing metrics and analysing them takes effort and time. You cannot afford to be spending either frivolously.

The standard metrics of utilisation, profitability, billing rate etc are quite easy to measure after the effect. We were looking at getting at least one forward looking metric that can help validate our decision making. We decided to invest in our effort in an area that is most challenging for a services business like ours – that is the pull between resource and demand.

Resource-vs-DemandIn services business you either have too much work or too many people. It is crucial to have a good handle of this to maximise profitability. The cycle of winning new business always takes time. If you have left your efforts to bring in new work too late, you will inevitably have periods of low revenue. Unlike products which you can sell at a later time and recoup some revenue, if not all, lost consulting time cannot be archived and sold. That is effectively lost.

To ensure an optimum work pipeline, we can use the charge rate to either stick to our margins, because work is plentiful or use discounting effectively to be more competitive than usual in tough market times. We want to be making a decision on them at the correct times (i.e., not stick to higher margins when market is tough or give away margins when not necessary). We are looking at using Backlog (total value of contracts yet to be executed) as a forward measurement for that.

The aim is to look at recording the backlog value three months out and updating the actuals at the end of the month. As we currently do not have a baseline, I do not expect us to be able to use this effectively in the next year. However, once we have built a picture, we should be able to predict with some confidence what it means to be at a certain point in our backlog and what that is likely to mean in terms of likely actual income.

Because we are looking at it three months out, we’re likely to have enough time to win new business to fill up the pipeline if it is looking less than promising. If pipeline is strong, we know we do not need to compromise on margins. There is likely a follow up on this topic this time next year on how this measurement plays out. Hopefully my challenge is not unique to me and the process is helpful for others to reflect on.

I am keen to understand what predictive measurements you have successfully implemented.

Image credit: communicationstuff.com

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