Project Management in Practice

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

Category Archives: Business Case

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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How do I balance competing investment priorities?


Organisations are forever grappling with the demand of competing investments that give a varying range of benefits. How do they go about prioritising these? Most organisations use business cases as a means to filter out the projects that deserve funding from the ones that have little or no merit. This then introduces a secondary problem of spending a lot of resources on going through a business case, which will never see the light of day. How do you make sure weak business cases do not get all the way before getting knocked back.

Example-ILM-Rail-Freight

Investment Logic Mapping (ILM) provides a good way to filter out some of these early investment dilemmas. This is part of the Investment Management Standard developed by the Victoria Department of Treasury and Finance in Australia. The main driver for the development of this standard was the number of complex investments that required compliance, but never articulated the benefits they were supposed to deliver.  Effectively what started as a mechanism to shape individual investments in 2004 has now matured into programme and organisation levels – including refocusing organisations and monitoring benefits.

The theory behind the standard is quite simple. Rather than a complex set of tools, it is centred around three key concepts

  1. The best way to aggregate knowledge is through an informed discussion that brings together those people with most knowledge of a subject.
  2. The logic underpinning any investment (the ‘investment story’) should be able to be depicted on a single page using language and concepts that can be understood by the lay person.
  3. Every investment should be able to describe how it is contributing to the benefits the organisation is seeking.

In Victoria it is now mandatory for most significant investments. In New Zealand the State Services Commission (SSC) mandates the use of ILM for High Value or High Risk (HVHR) projects as part of its Better Business Cases initiative. It must be remembered that ILM on its own is not the tool that will drive the investment. It is a tool to eliminate initiatives which lack merit.

I have just recently undertaken an Organisational ILM as part of a strategic review for an organisation. I have found it an excellent tool to bring out the challenges in an open forum and to agree on strategic responses. The two hour session was perfect to get enough senior leadership in one room to work through the organisational challenges. I also found it a good use of senior stakeholder time, as they are busy people and often trying to agree a course of action individually with all of them is a significant barrier to change programmes.

If you have used ILM before, I’m keen to know your experience. The only thing I had forgotten is being on your feet facilitating for two hours, while everyone else is seated discussing and having refreshments is quite tiring.

How do I trade off between cost and capacity?


In every organisation that I have worked in there has never been any argument that additional capacity can help better delivery of projects. But seldom are organisations in a position of luxury to have additional resources, which may not be contributing to the bottom line. For every staff hire, there is an expectation of revenue if it is a professional services organisation. Even for organisations where staff are not required to bring in income, like a ministry or a state services organisation, they add to the headcount the top brass are often under pressure to reduce. How then can we look to get a good balance of capacity and cost? Is this a pipe dream?

Let us explore that. Take the example of a professional services organisation. Cashflow is a key consideration for such organisations. Every staff you have that is not engaged in a fee earning work is contributing to an eroding bottom line. There is the temptation to therefore engage just in time sub-contract resourcing to minimise such risk. Because your sub-contractors are cheaper than the rate you are charging, your cashflow looks great and it looks like you are making a profit in markup as well. Why then bother about making any effort to have your own resources?

By relying more on sub-contractors, you are reliant on third party resources. Once the project is complete, hardly any intellectual property remain in your organisation. There may also be key customers that you do not want to expose to your sub-contractors. What is to stop them going directly to them the next time. You are also compromised in your ability to take on key projects that you want to, because you are operating little or no ability to be agile due to resource constraint. Then there is the challenge of getting time out for your key staff to up-skill, get certifications, do some research and development to keep your competitive edge. When you are resource constrained these are activities that go by the wayside.

Even though the cashflow looks good from month to month by having contract resources. If you do any analysis at the end of the year, you will inevitably find you would have made more of a profit over the course of the year by hiring your own resources. A particular month or two may have looked worse, but over the course of the year, your costs are so much lower because you are not having to pay premium contractor rates. In the bargain, you can also retain the intellectual property. Effectively the rate you have paid is to transfer the risk of potentially not having won this piece of work.

There is an alternative way of thinking. When we’re looking at resourcing, we always look at the right level of skill to apply to that. I have been thinking of ways to communicate the capacity challenge with dollar values, so I can make an effective business case for additional resources. For the cost of one senior staff, I can hire three graduates or at least two with some experience. And I have to get them only half (or a third) productive to have earned the same fee. After some months, whatever additional productivity they can provide actually adds to the capacity of my team. This is an approach that can only succeed if you have enough senior staff to mentor them.

If I get 120 billable hours from my senior staff, and I already have some, I would rather get three graduates and attempt at getting around 40 billable hours off them. My senior staff’s billable rate will suffer as he may end up mentoring them for 10 hours each. But even that requires me to get 50 billable hours each from the three new hires. Even taking into account the different rates I can charge for them would require me to be able to get 60 billable hours. Whatever I can get beyond 60 hours from these three new hires, is adding to the capacity of my team, despite the additional effort to integrate them and lower rates. And it is costing me little or no extra money.

What approaches have you tried? What has worked for you to make your case? If I have gone off the tangent and barking off the wrong tree let me know.

Image Credit: AshishGrover.Com

 

PMBOK or PRINCE2 … which one is better?


I often see debates on project management forums on LinkedIn, blogs and even at the water cooler around the office regarding what project management methodology is best. I have often wondered about the wisdom of such discussions. The two that are always compared are PMBOK (Project Management Body of Knowledge) and PRINCE2 (Projects in Controlled Environments Version 2 – 2009). One such discussion with a fellow professional led me to have a little bit of a think.

PMBOK Process Model – Credit: PMI

I will declare my hand at the outset. I have squarely gone for certification route through the Cabinet Office products for project, programme and service management (PRINCE2, MSP and ITIL). This is not necessarily because I was convinced these were the best frameworks, but my assessment of what the market around me considered more valuable. With the Australasian market following that of the United Kingdom and Europe, it made more sense for me to pursue this line, than the PMBOK based certifications from the Project Management Institute (PMI) in PMP and PgMP.

PRINCE2 Process Model – Credit: ILX

Genesis of PMBOK is in the engineering sector in North America. I can see that has led to significant emphasis on the tools and techniques of how to manage projects. I find it has excellent guidance in what it calls the knowledge areas. For example, it provides techniques for monitoring and controlling projects through Earned Value Analysis (EVA), estimation through the Program Evaluation and Review Technique (PERT) analysis. It elaborates on Precedence Diagramming Method (PDM) to identify sequencing and various lag options. It has tools and techniques for scheduling using Schedule Network Analysis, Critical Path and Critical Chain, discusses Resource Levelling and What-if Scenario Analysis. Tools and techniques is where PMBOK has it all over PRINCE2, which goes very little into the skills required to be a project manager.

PRINCE2 began with a desire to control capital IT projects in the United Kingdom. Interestingly, a methodology that began in such a technical sphere has very little in the form of guidance through tools and techniques. PRINCE2 is very strong on project governance. Its strength is in the focus on the continued business justification through a living Business Case. In managing by exceptions, it removes the temptation for death by project reports, but at the same time provides a mechanism for escalating when necessary. In managing by stages, it builds in regular reviews of whether the business case the project is trying to deliver to be still valid. The biggest outcome of this is the assertion that a project unlikely to deliver to business case is better cancelled than meandering along. Project structure and principles also ensure projects are delivering to strategic initiatives of the organisation.

I have previously posted about the challenge in implementing PRINCE2 as the project framework for supplier organisations. I have used the principles rather than exact implementation as described in the text. It is much easier to take the PMBOK tools and techniques and implement directly into your projects in a supplier context. PRINCE2 however does a better job of risk identification and management techniques with the various response options and planning. There are also pros and cons about the accreditation methods. PRINCE2 is often criticised for allowing potential non-practitioners to get certified because of its examination only method. In order to get a PMP accreditation, you have to go through a significant effort to prove hours under the belt. That is a good idea. But you have to accumulate Professional Development Units (PDU) to stay current. I have seen plenty of mickey mouse outfits dispensing PDUs like confetti to have any meaning to these.

When I consider all of this, it appears a futile argument from those in either camp. In my view the best option is to use PRINCE2 to understand “how” to run the project and PMBOK for guidance on “what” to do in the specific scenarios. The question is not one of PMBOK or PRINCE2, but how to use both in your projects.

How do I tailor PRINCE2 to deliver IT projects?


I had been reflecting on a comment Geoff Rankins made at a previous PRINCE2 User Group Meeting regarding most IT projects not delivering the stated benefits. I have concluded that I agree. Most of the business cases for these projects are put up by the IT departments and vastly overstate the benefits to get those approved. Some even go to the extent of hiding the cost in operational budgets, so they don’t have to put up a business case in the first place! The consequence is those benefits can never really be measured or met. IT is not the core business of most organisations. I don’t think many of us in the IT profession have quite grasped it. It exists to provide an answer to a business question. Therefore, IT should not be putting up business cases. Their role should be to be the subject matter experts that advise the business in how they can enable capabilities.

From my perspective, delivering IT projects, there are two significant gaps in PRINCE2. One the text readily acknowledges is the lack of guidance around specialist areas like IT. It is interesting given the genesis of PRINCE2 was to control capital it projects in the UK. The second is in transitioning the outputs into the business. Of the cabinet office products, MSP has the best guidance around transition, but what if your project is not part of a programme? Many it projects aren’t.

Now let’s consider the environment in which the projects are usually delivered. Rarely will a project be delivered in a Greenfield environment. Most organizations today will either have an infrastructure or existing capability of some manner. They have a framework for delivering to their business. More and more the best practice framework used is ITIL.

The process that wraps around service design, transition and operation in ITIL is the continuous service improvement process. This is responsible for measurement of existing services to identify areas of improvement to deliver maximum value. This is the crucial link to connect a service management framework like ITIL to a project management framework like PRINCE2. The organization has already put a value to having this service available to them. Tying this improvement process to business cases ensures what makes sense technically also makes sense strategically.

In a real life example … a software that is used by an organization was about to become unsupported. It was flagged as something needing upgrade. But the organization was thinking about changing business processes that would no longer require that software. The IT team had moved the cost of this upgrade into operational budget, so they wouldn’t have to go through a business case for it! What was the consequence? They upgraded the system, delivered within budget and time, but discontinued it in less than 4 months! Was this a successful project?

Paradigm is shifting in the way IT delivers to the business. Cloud is becoming a realistic option for many services, applications and even infrastructure delivery. The advantage of this approach is a known risk pattern and the level of elasticity it gives you. The fact that you can scale to demand and not have to design for peaks, are good ingredients for success. Custom development therefore should be the exception, rather than the norm. It is somewhat ironic coming from someone that started his career as a software developer.

There will be times when you will have to build custom systems. Either due to legislation, or simply the problem is unique. In my experience, software development is part science … we’re building machine instructions, part art … designing user interfaces for example … and part voodoo. The problem the customer explains, the BA understands, the developer codes … are often coloured by their interpretation of the problem. It is the role of the project manager to ensure the language isn’t muddled. This is where I have found agile practices very useful.

Agile methods allow for quick feedback cycles – starting early and often. The biggest benefit I have found is stopping unnecessary features being developed – all developers are guilty of that, trust me. It also ensures what is delivered does not come as a surprise to the customer. Agile requires delivery of working software at the end of each iteration. Lining iteration boundaries coincide with management stage boundaries will ensure if it is ever determined that the project is unlikely to deliver the desired benefits and is cancelled; the customer is left with the latest working product.

The model I strived to establish in projects is Continuous Service Improvement forming the basis for startup activities, using the service design principles during initiation as you define you product description, use agile practices to build the product and use transition processes to deploy to the organization and finally as part of closure to establish the operational practices so a new cycle of service improvement activities can begin.

I want to end by sharing a statistic from Keith Ellis of IAG consulting … only 1 in 3 software projects make it to completion in the United States. That is the good bit. Of the ones that do, 85% are late and over budget. Traditional project centric thinking has a lot to answer for in IT project failures. We must tailor PRINCE2 in context of the delivery environment and project challenges. Frameworks like ITIL; practices like agile can help us achieve that.

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