The Value of Project Management Emasoft, 2006. Presentation Outline Background information on...
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The Value of Project Management
Emasoft, 2006
Presentation Outline Background information on project
management Ways to measure the value of project
management Examples of project management in
different organizations Question and answer session
What is a Project?
A project is “a temporary endeavor undertaken to accomplish a unique product or service” (PMBOK® Guide 2000, p. 4)
Attributes of projects– unique purpose– temporary– require resources, often from various areas– should have a primary sponsor and/or customer– involve uncertainty
Recent Project Statistics
The U.S. spends $2.3 trillion on projects every year, an amount equal to one-quarter of the nation’s gross domestic product*
More than sixteen million people regard project management as their profession; on average, a project manager earns more than $82,000 per year*
IT Project Managers are still in great demand and earn over $95,000/year on average (Ziv, 2002)
*PMI, The PMI Project Management Fact Book, Second Edition, 2001
What is Project Management? Project management is “the application of
knowledge, skills, tools, and techniques to project activities in order to meet project requirements” (PMI*, Project Management Body of Knowledge (PMBOK® Guide), 2000, p. 6)
In addition to meeting project requirements, it’s also important to satisfy key stakeholders and make sure the results of the project benefit the organization
Project management should be a strategic as well as a tactical tool
Project Management Framework*
*Schwalbe, Kathy. Information Technology Project Management, Third Edition, 2004
Project Management Tools and Techniques Project management tools and techniques assist
project managers and their teams in various aspects of project management
Some specific ones include– Business cases, project charters, scope statements, and
work breakdown structures (scope management)– Gantt charts, network diagrams, critical path analysis,
critical chain scheduling (time management)– Cost estimates, project portfolio management, and
earned value management (cost management)– See following charts for many more examples (all from
Schwalbe text, 2004)
Sample Gantt Chart
The WBS is on the left, and each task’s start and finish dateare shown on the right using a calendar timescale. Early Gantt charts, first used in 1917, were drawn by hand.
Work Breakdown Structure (WBS)
Sample Network Diagram
Each box is a project task from the WBS. Arrows show dependencies between tasks. The bolded tasks are on the critical path. If any tasks on the critical path take longer than planned, the whole project will slip unless something is done. Network diagrams were first used in 1958.
Sample Earned Value Chart
Many PM experts recommend using earned value managementto help track and manage projects. Assumes a good WBS,schedule, and cost information as well as entering actuals.
Sample Enterprise PM Tool
In recent years, organizations are taking advantage of software to help manage their projects throughout the enterprise.
BUT…PMs Can’t Neglect Business and
Leadership Skills• In addition to using appropriate PM tools
and techniques, PMs must use– Business skills: financial analysis, problem-
solving, decision-making– Leadership skills: negotiation, team-
building– Communication skills: listening, speaking,
writing, presenting
Don’t OveremphasizeUsing PM Software
• You can’t use PM software well if you don’t understand fundamental PM concepts
• “A fool with a tool is still just a fool”
Common PM Tools and Techniques by Knowledge Area
Knowledge Area/Category Tools and Techniques Integration management Stakeholder analysis
Project plans Project management software Change control boards Configuration management Project review meetings Work authorization systems Project leadership Executive sponsorship
Scope management Net present value, return on investment, payback Weighted scoring models Business cases Project charters Scope statements Work breakdown structures Statements of work Requirements analysis Scope change control
Time management Gantt charts Project network diagrams Critical path analysis Program evaluation review technique Critical chain scheduling Crashing Fast tracking Milestone reviews
Cost management Earned value management Project portfolio management Cost estimates Cost management plan Financial software
Common PM Tools and Techniques by Knowledge Area
Knowledge Area/Category Tools and Techniques Quality management Six sigma
Quality control charts Pareto diagrams Fishbone or Ishikawa diagrams Quality audits Maturity models Statistical methods
Human resource management Motivation techniques Empathic listening Team contracts Responsibility assignment matrices Resource histograms Resource loading Resource leveling Team building exercises
Communications management Communications management plan Conflict management Communications media selection Communications infrastructure Status reports Meetings Virtual communications Templates Project Web sites
Procurement management Make-or-buy analysis Contracts Requests for Proposals or Quotes Source selection Negotiating E-procurement
Risk management Risk management plan Probability/impact matrix Risk ranking Monte Carlo simulation Top-Ten Risk Item Tracking
Hard Part About PM…
“Because every project is unique, project managers and their teams must have a good understanding of what tools and techniques are available before they can make the more difficult decisions of which ones to use on their projects and how to implement them.”
Schwalbe, Kathy, “Project Management Techniques”, The Internet Encyclopedia, Volume 3 (2004), p. 108
Ways to Measure Value
Agreement on general benefits Improved project performance/results ROI of project management PM maturity levels Competitive advantage
“Price is what you pay. Value is what you get.”Warren Buffet
General Benefits of Project Management Better control of financial, physical, and
human resources Improved customer relations Shorter development times Lower costs Higher quality and increased reliability Improved productivity Better internal coordination Higher worker morale (less stress)
Improved Project Performance Project success is often based on meeting
project scope, time, and cost goals The Standish Group’s CHAOS studies are
well known for documenting IT project success rates and cost of failures*
Measure 1994 Data 2002 Data Result Successful projects 16% 34% Doubled Failed projects 31% 15% Halved Money wasted on challenged and failed projects
$140 B out of $250 B
$55 B out of $255 B
More than halved
*PM Network, July 2003, p. 16
Why the Improvements?
"The reasons for the increase in successful projects vary. First, the average cost of a project has been more than cut in half. Better tools have been created to monitor and control progress and better skilled project managers with better management processes are being used. The fact that there are processes is significant in itself.“*
*The Standish Group, "CHAOS 2001: A Recipe for Success" (2001)
Improvements to Key IT Project Metrics Due to Project Management*
38.6 37.6 3732.8 32.5 32.1 31.9
25.6 23.8 23 22.8 21.7
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*Value of Project Management in IT Organizations survey,Center for Business Practices, 2002, cited in PM Network, July 2003, p. 16
“What the Winners Do”*• Recent research findings show that companies
that excel in project delivery capability:– Build an integrated project management toolbox
(use standard/advanced PM tools, lots of templates)– Grow competent project leaders, emphasizing
business and soft skills– Develop streamlined, consistent project delivery
processes– Install a sound but comprehensive set of project
performance metrics
*Milosevic, Dragan, Portland State University, “Delivering Projects:What the Winners Do,” PMI Conference Proceedings, November 2001
Using a Standardized Project Management Approach* Research found that a consistent (one-size-
fits-all) managerial approach may be essential to the successful standardization of certain aspects of project management, and a contingency approach is needed for certain aspects, too
Low standardization with a sufficient amount of variation is the more appropriate approach
*Milosevic and Pantanakul, “The Impact of Standardized Project Management: New Product Development Projects versus Software Development Projects,” Proceedings of PMI Research Conference 2002
Findings From 5-Year Study on Quantifying the Value of PM*1. Companies with more mature project
management practices have better project performance (on time and budget vs. 40% over time and 20% over cost targets)
2. Project management maturity is strongly correlated with more predictable project schedule and cost performance (i.e. .08 schedule performance index variation vs. .16)
3. Good project management companies have lower direct costs than poor project management companies (6-7% vs. 11-20%)
*Ibbs, William and Justin Reginato, Quantifying the Value of Project Management (2002)
Project Management ROI* Over 94% of senior project management
professionals say that implementing PM added value to their organizations
Formula to predict increased company ROI based on increased PMM level– Determine cost to improve PMM level,
improvement in cost performance index (CPI), then calculate PM ROI using profit margins and projected annual revenues
*Ibbs, William, “The $$$ Value of Project Management: Continuing the Search for PM’s ROI,” PDS ’02 Conference Proceedings, PMI-ISSIGhttp://www.ce.berkeley.edu/pmroi/PMROI%20PMI%20Presentation%20Feb2001.pdf
PM ROI Example*
Company initially has PMM of 2.3, CPI of .71, profit margin of 5% , $10 M projected annual revenues
Company improves PMM to 3.1, CPI to .94, profit margin to 6.6% at a cost of $400,000
PM ROI = (6.6%-5.0%)X$10,000,000 = 40%
$400,000
*Ibbs, William, “Managing Chaotic Projects: Improving your PM/ROI”http://www.ce.berkeley.edu/pmroi/PMROI%20PMI%20Presentation%20Feb2001.pdf
Project Management Maturity Models Similar to maturity models for improving software
like the Capability Maturity Model (CMM) Several PM firms have their own maturity models,
most using levels 1-5– The International Institute for Learning, Inc. calls the
five levels common language, common processes, singular methodology, benchmarking, and continuous improvement
– ESI’s five levels are called ad hoc, consistent, integrated, comprehensive, and optimizing
– PMI’s Organizational Project Management Maturity Model (OPM3) released their model in 2004
Berkeley Project Management Process Maturity Model
Sample PMM Assessment Questions*
*www.ibbsconsulting.com
Project Management Maturity by Knowledge Area and Industry
Feedback from Bill Ibbs* We've benchmarked a couple healthcare
organizations…what I can say is that the IT PM capability of those organizations was poor, especially in terms of initiating projects. We helped one of those companies save several million dollars over a 2 year period by helping them focus better on the projects they launched.”
Wall Street reports that the healthcare industry in general is gearing up to spend even more $$$ on IT in the next couple years than they have in the past. So there's a lot at stake.”
* From e-mail correspondence Feb. 2, 2004
Other Research Suggests That PM Maturity Models Only Measure Explicit Knowledge*
Explicit knowledge: “know what,” can be put into IT, a digital or discrete process that can be codified and transmitted in formal, systematic language (Nonaka 1994)
Tacit knowledge: “know how”, in one’s experience; hard to replicate and can be transferred indirectly though time consuming socialization processes (Kaplan et al 2001)
*Jugdev and Thomas, “Blueprint for Value Creation: Developing and Sustaining a Project Management Competitive Advantage Through the Resource Based View,” Proceedings of PMI Research Conference, 2002
Need to Make PM a Strategic Asset (Just Like IT) Many executives view project management as
having worth at the operational and tactical rather than strategic level
Resource Based View (RBV) frameworks emphasize how firms create value and profits from their internal resources and focus on strategic assets
RBV is relevant to project management because it emphasizes intellectual capital
Research Based View Model*
high Social StrategicCapital Assets
Know HowPMMaturity
low Know What
low high
*Jugdev, Kam, presented at PMI Research Conference, July 2002
Need to combine know what with know howto make PM a strategic asset!
Meeting Goals With Good Project Management* St. Mary’s National Health Service (NHS)
in London was facing a huge deficit, problems in staffing, and long outpatient waiting times
They focused on meeting specific goals by getting the right resources in the right places at the right times (basic PM concepts) and went from a one star to a three star rating by their trust
* Williams, Monica, “Healthy Returns,” PM Network, February 2002
Examples of How Good Project Management Adds Value at Your
Organization?
Question & Answer Session