Value of Project Management

The Value $ of PM

(Can Good PM Cost Less?)

Orlando A. [email protected] 408.656.2498

Orlando Moreno, “Quantifying theOrlando Moreno, “Quantifying theValue of Project Management”Value of Project Management”

A new PMI Publication!

Copyright 2002 Orlando A. Moreno

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AgendaAgenda

PM/ROI SM Phase 1 Research Findings

PM/ROI SM Phase 2 Research Findings

Good PM doesn’t need to be expensive!

Because PM can add value, it can be a core competence


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Benefits of Project ManagementBenefits of Project Management Increased PM Maturity Leads to:

Better Cost and Schedule Management

Less expensive PM

Improved PM/ROI

PM Cost % = $(Value of Projects Delivered)

$(Labor, IT, Consultants, etc.)


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Our WorkOur Work

We assess PM Maturity using …

PM Process Maturity Model

Proprietary Assessment Tool

PM/ROI


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PM Process Maturity Model PM Process Maturity Model Sustained

level 5

Managedlevel 3

Integratedlevel 4

Plannedlevel 2

Ad-hoclevel 1

Basic PM Process

Individual ProjectPlanning

Integrated Multi-ProjectPlanning and Control

Systematic ProjectPlanning and Control

Continuous PMProcess Improvement


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Comprehensive Assessment ToolComprehensive Assessment Tool

General Company Information: PM Cost, staffing ratios, organizational structure, etc.

162 detailed Maturity questions regarding PM processes

Project Cost, Schedule, Quality, Scope Results (Key Performance Indicators)


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Assessment Tool to evaluate your Assessment Tool to evaluate your Company’s PM Maturity in terms of…Company’s PM Maturity in terms of…

6 Project Lifecycle Phases9 PMBOK Functional Areas

CostManagement

QualityManagement

Communi-cation

Management

RiskManagement

TimeManagement

ProcurementManagement

ScopeManagement

PMBOK

HumanResource

ManagementIntegration

Project-DrivenOrganizationEnvironment

Close OutInitiate Define &Organize

Plan Track &Manage


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Analyze Integrated Project Schedule

Critical path identified.

– No critical path calculation done. Each sub-project identifies critical tasks independently and sets work priorities

– Critical path based on committed milestone dates. No CPM calculation performed, or CPM used on individual sub-projects

– Key critical tasks identified through non-quantifiable means, and used to drive the critical path calculation

– Critical path calculated through integrated schedule, but only key milestone dates communicated back to sub-projects

– All critical tasks identified and indicated in each individual sub-project schedule. Critical path determined through integrated schedule

ResultsResults

(PM as an Insurance Policy)(PM as an Insurance Policy)


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Higher PM Maturity Yields Higher PM Maturity Yields … Better Project Schedule Performance … Better Project Schedule Performance

0

0.2

0.4

0.6

0.8

1

1.2

1 2 3 4 5

PM Maturity

SchedulePerformanceIndex(Plan/Actual)

Where you are today

Where you want to be

SPI = 0.568 ln (PMM) + 0.224 R2 = 0.62


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Higher PM Maturity also Higher PM Maturity also … Yields Better Project Cost Performance … Yields Better Project Cost Performance

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1 2 3 4 5

PM Maturity

CostPerformance

Today

Tomorrow!

CPI = 0.691 ln (PMM) + 0.119 R2 = 0.49


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Higher PM Maturity Levels Higher PM Maturity Levels …result in Lower PM …result in Lower PM

CostsCostsPM Cost = -0.0147PMM2 + 0.0869PMM - 0.0195

R2 = 0.371

0%

5%

10%

15%

20%

25%

1 2 3 4 5

PM Maturity

PM Cost


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Higher PM Maturity leads to Higher PM Maturity leads to More Predictable CPI PerformanceMore Predictable CPI Performance

CPIv = 1.0411PMM-1.7514

R2 = 0.8654

0.00

0.04

0.08

0.12

0.16

0.20

1 2 3 4 5

PM Maturity

CPI Variation

N = 55


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Higher PM Maturity leads to Higher PM Maturity leads to More Predictable SPI PerformanceMore Predictable SPI Performance

SPIV = 0.0604PMM2 - 0.5087PMM + 1.1404

R2 = 0.8003

0.00

0.04

0.08

0.12

0.16

0.20

1 2 3 4 5

PM Maturity

SPI Variation

N = 57


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Virtuous Cycle of Project ManagementVirtuous Cycle of Project Management

PM/ROI

PM Cost (%)

Q II

Quadrant I

Q III

Q IV

High Cost, Low Return

High Cost, High Return

Low Cost, Low Return Low Cost,

High Return

IM

P R VO E ME

NT

28%

9%


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Definition of a Core CompetencyDefinition of a Core Competency

1. Provide Benefit to Customers

2. Advantage Must be Sustainable

3. Continuously Improved


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1. Provide Benefit to Customers


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1. Customer Benefit1. Customer Benefit

Perceivable Benefit or Value Proposition

Reduced PM Cost Ratios (Quadrant IV) Reduced Project Duration (Early Mover or Fast

Follower Advantage) Smoother and/or Greater Project Throughput Conformance with Project Scope


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Company A B C

PM Cost (%)

4.0% 4.3% 22%

PM/ROI 32% 18% 32%

Quadrant LC-HR LC-LR HC-HR

IT Project Management

Company A Has the Highest PM/ROI at the Lowest Cost to the Customer


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Company A D

Customer Performance Requirements

99% 88%

Customer-Directed Changes

81% 72%

Product Defect Rate

1% 20%

Quadrant LC-HR HC-HR

Company A Higher Level of Quality


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2. Advantage Must Be Sustainable


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Increased PMM:

Better Cost and Schedule Performance (CPI and SPI).

Decreased Variation on CPI and SPI Performance (CPI and SPI).

Increased PMM Leads to More Repeatable Results

2. Sustainability2. Sustainability

Cost Performance Index = CPI = Actual Cost

Planned Budget

Schedule Performance Index = SPI = Actual DurationPlanned Duration


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2. Sustainability2. Sustainability

1 42 3 5

CPI & SPI

PM Maturity

0.32

0.16

0.00

CPI:

8 Companies

51 Projects

y = 0.1443x2-0.7095x-0.9274

r2 = 0.1939

SPI:

9 Companies

54 Projects

y = 0.3027x2-2.1675x-3.9532

r2 = 0.7718

As PM Maturity Increases…

Va

riability

De

creas

es


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3. Continuous Improvement


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3. Continuous Improvement3. Continuous Improvement

…but improvement ahead of the Competition

Improvements that Customers Desire

Ubiquitous skills are not core competencies

Competencies need nurturing

The Good News: For Best Companies (Quadrant IV), Subsequent Improvements in PM are less expensive

Not Just Continuous Improvement…


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3. Continuous Improvement3. Continuous Improvement

1 42 3 5PM Maturity

Incremental Cost of PM Improvement

$$$

Low Maturity

$High Maturity


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3. Continuous Improvement3. Continuous ImprovementCompany E

Improved PM Maturity by 6% While Increasing PM Cost by Only 0.1%

In the Past 6 Years:

– Improved Both Cost and Schedule Performance by 10%

– Overall Project Delivery Saving of $150M+


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SummarySummary

Good PM can cost less (< 10%)

Good PM can give higher CPI, SPI on average

Good PM can give more predictable CPI, SPI


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SummarySummary

1. Provide Benefit to Customers.

2. Advantage Must be Sustainable.

3. Continuously Improved.

Project Management can be a Core Competency:


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SummarySummary

And PM/ROI sm Assessments can

evaluate and document those benefits!


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Orlando Moreno, “Quantifying the Value of Project Management”

408.656.2498408.656.2498

[email protected]@hotmail.com

Value of Project Management

Business

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