The Growth of Value- Driven Project Management

By Dr. Harold Kerzner

In 2009, IIL sponsored a global webinar entitled “Value-Driven Project Management”, where we discussed IIL’s predictions on what the future of project management might look like. Many of these topics are now included in the 7th?edition of PMI’s PMBOK? Guide, as well as in accompanying related documents.

Over the years, there have been changes in project management practices, some quick and some slow. Why was recognition of the global need for value-driven project management slow in acceptance? The reasons are discussed in the following sections.

The Need for Standardization

Perhaps the most significant reason for the slow growth of many needed project management changes was due to senior management’s desire for standardization of governance and execution for the multitude of traditional projects managed for external clients. Traditional projects were most often based upon well-defined customer requirements. Senior management wanted a one-size-fits-all methodology for these projects so that governance by senior management would be relatively painless and standardized. If a project were to fail, and result in the potential loss of a customer, the impact on the firm’s business strategy might not be significantly affected.

During this time, the strategic projects needed for the growth of the business were managed by functional managers whom executives trusted more so than the project managers that were managing the traditional projects. Functional managers were allowed to use whatever approach they desired on strategic projects, often bypassing the use of commonly identified tools and techniques identified in the?PMBOK? Guide.

Standardized practices were pleasing to most team members because it allowed them to remain in their comfort zones. If changes were to take place in how projects were managed, project team members might have to perform their jobs differently and this could seriously impact their career goals. Project team members recognized many of the deficiencies with existing project management practices but were unwilling to express their concerns for fear that the changes needed could remove them from their comfort zones. As such, they accepted the one-size-fits-all approach adopted for traditional projects and worked with a “let’s live with it” attitude for many of the issues, such as:

• Project management concepts were based upon well-defined requirements at the start of the projects, which were primarily short-term projects. Most project management concepts were not designed for strategic-type projects that could undergo continuous revisions over the life of the project.
• The assumptions provided by management, the contractual statement of work and the business cases needed at the start of a project were often flawed, irrational, or unrealistic.
• Little consideration was given to unknown or rapidly changing economic and environmental conditions. Environmental factors, once defined at the onset of a project, were expected to remain the same over the life of the project.
• Processes were based upon a stationary rather than moving target.
• Early versions of the?PMBOK? Guide?focused on ideal situations based upon theories rather than on a complete understanding of the workflow.
• Companies wanted “rigid” methodologies, such as a one-size-fits-all approach that could be used on all projects.
• The Earned Value Management System (EVMS) predicted the time at completion and the cost at completion but not the benefits or value expected at completion.
• Projects were allowed to continue to completion rather than cancellation even if the projects had limited, or no clear business value identified.

?The Recognition of the Need for Project Management Maturity

?In 1995 and 1996, IIL conducted two global webinars sponsored by Microsoft Corporation and Nortel Networks discussing how companies were becoming good at project management and were overcoming many of the “let’s-live-with-it” challenges discussed above. Following the webinars, companies flooded IIL with questions on how their company could become good at or improve their project management capability in a relatively short period. The result was the creation of one of the world’s first project management maturity models and was published by John Wiley & Sons in 2001. [1]

IIL’s seminars and webinars on project management maturity began more than two decades ago and laid the foundation for many of today’s value-driven project management practices. Some of the topics that were part of the birth of value-driven project management included:

• We are now managing our business by projects. Some companies argue that everything they do in their company can be considered as a project or part of a project.
• Project management has evolved into a business process rather than just a pure project management process.
• The enterprise project management methodologies now contain business processes as well as traditional project management processes.
• The new types of projects where we are applying project management practices are more strategic in nature and accompanied by:
• The need for innovation and creativity.
• A greater acceptance of risks, especially business risks, that may not have been fully understood at project approval.
• More uncertainty in the outcome of the project with no guarantee of any value at completion.
• Pressure for speed to market without fully understanding the risks.
• It doesn’t matter if you execute a project extremely well or extremely poorly if you are working on the wrong project.
• Being on time and on budget is not necessarily success.
• Completing a project within the triple constraints does not guarantee that the necessary business value will be there at project completion.
• Each stakeholder can have a different perception of value, and the perception is not necessarily a business-based perception of value.

Understanding the Terminology

[1] Kerzner, Harold (2001). Strategic Planning for Project Management using a Project Management Maturity Model, John Wiley Publishers.[1]

There were several reasons why value-driven project management was still slow to becoming accepted. One reason was that people understood what value meant but were unsure as to how to relate it to a project management environment. Therefore, it is important to understand the basic terminology.

Project value needs to be discussed along with project benefits. A?benefit?is an outcome from actions, behaviors, products, or services that is important or advantageous to specific individuals, such as business owners, or a group of individuals, such as stakeholders. Generic project benefits might include:

• Improvements in quality, productivity, or efficiency
• Cost avoidance or cost reduction
• Increase in revenue generation
• Improvements in customer service

Project?value?is what the benefits are worth to someone. Project or business value can be quantified whereas benefits are usually expressed qualitatively. When we say that the ROI should improve, we are discussing benefits. But when we say that the ROI should improve by 20%, we are discussing value. Progress toward value generation is easier to measure than benefits realization, especially during project execution. Benefits and value are generally inseparable; it is difficult to discuss one without the other.

The Growth of Strategic Projects

Another reason for the slow growth in value-driven project management was the rapid growth in strategic projects at the turn of the century. People understood that there must be a relationship between strategic projects and value-driven project management but unfortunately, because of a lack of understanding about how to use value-driven project management practices on strategic projects, there was some resistance. In traditional projects with well-defined requirements, both project benefits and value were measured primarily in financial terms related to the profitability of the project. Benefits and value were therefore short-term measures made at the completion of the project which was most likely for external stakeholders.

The growth of strategic projects delayed the acceptance of value-driven project management because strategic projects, such as those aligned with innovation and R&D, often begin based upon an idea rather than well-defined requirements. Therefore, team members needed guidance from senior management on what the expected business benefits and business value should be. Some of the challenges that had to be overcome with strategic projects included:

• Business cases did not include any benefits or value subcategories.
• Projects were approved without a well thought out business case or benefits realization plan. The result was often the approval of the wrong project.
• Even if a benefits realization plan were prepared, there was a high level of uncertainty and ambiguity in defining the benefits and value.
• There was often highly optimistic or unrealistic estimates of benefits and value made to get the project approval accompanied by a high priority.
• There was a heavy focus on the project’s deliverables rather than on benefits realization and the creation of business value.
• Benefits could be tangible or intangible, or a combination of both.
• Benefits were often hard to quantify especially in the early stages of a project.

The Growth of Agile and Scrum Practices

The growth and acceptance of Agile and Scrum as flexible project management methodologies made it easier for companies to accept value-driven project management concepts. Perhaps the most important reason for the slow growth of value-driven project management up to this time was the lack of benefits or value metrics. The result was that:

• Companies persisted in using the wrong metrics, unreliable metrics, or simply a lack of any metrics to track benefits and value.
• Companies failed to realize that, on many strategic projects, the true benefits and value are not evident until beyond the completion date of the project and must be tracked.

?Agile and Scrum made it easier to establish and report benefits and value metrics and track business benefits and value through the complete life cycle of both traditional and strategic projects. However, there was one final development that accelerated the acceptance of value-driven project management: the creation of strategic project management offices (PMOs).

Executives realized that with the growth of strategic projects as well as traditional projects, they could not provide effective governance to all projects. Strategic PMOs were created as shown in Exhibit 1 to provide some form of governance for the strategic projects.

Exhibit 1. The PMO and Project Pipeline Interfacing

Some of the benefits of creating a strategic PMO were:

• Ensuring that all strategic projects had a well-defined business case supported by a benefits realization plan with clear definition of the benefits and value anticipated.
• Making sure that the benefits and value were aligned to strategic business objectives.
• Identification of benefits and value metrics.
• Establishing cancellation criteria for early termination of those projects unable to meet the benefits and value expected.

?The strategic PMOs became the promoters for value-driven project management practices.

?Redefining?Project?Success

Value is quickly becoming the most important word in the project manager’s vocabulary, especially in the way that we define project success. In the glossary to the 6th?edition of the?PMBOK??Guide, a project is defined as a temporary endeavor undertaken to create a unique product, service, or result. The problem with this definition is that the unique product, service, or result might not create any business value after the project is completed. Perhaps a better definition of a project might be:

• A collection of sustainable business value scheduled for realization

The definition of project success has almost always been the completion of a project within the triple constraints of time, cost, and scope. This definition likewise must change because it lacks the word “value” and it doesn’t account for the fact that today we have significantly more than three constraints, and we refer to them as competing constraints. Any company can complete a project within time, cost, and scope and then the company discovers that they have no customers willing to purchase the product or service. This is not success. Therefore, the future definition of success might be:

• Achieving the desired business value within the competing constraints

This definition of project success that includes reference to value becomes extremely important when reporting the success of benefit realization and value management activities. With traditional project management, we create forecast reports that include the time at completion and cost at completion.?Using the new definition for success, we can now include in the forecast report benefits at completion and value at completion. This now elevates project performance reporting to the corporate boardroom.

Conclusion

Because of the importance of benefits and value, today’s project managers are more of business managers than the pure project managers of the past. Today’s project managers are expected to make business decisions as well as project-based decisions. Project managers today seem to know more about the business than their predecessors. Much of this is attributed to value-driven project management practices.

Dr. Harold Kerzner, Ph.D.

Senior Executive Director,?International Institute for Learning

Harold Kerzner, Ph.D. is IIL’s Senior Executive Director for Project Management. He is a globally recognized expert on project management and strategic planning, and the author of many best-selling textbooks, most recently?Project Management Next Generation: The Pillars for Organizational Excellence.