STEVE’S STIPULATIONS REGARDING THE VALUE/COST OF TIME ON PROJECTS

So someone posted a message on LinkedIn asking what's so good about shorter schedules. It's a good question. Those are the things we need to analyze when trying to turn critical path drag into drag cost , the metric that justifies added resources for critical path activities.

Here are some answers:

(Please note that the word “EXPECT” is always capitalized below. This is to emphasize that an investment does not always turn out as EXPECTED!)

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1.??????ALL projects are investments! No sane person EVER invests even $100 unless they EXPECT to receive MORE than $100 in value.

2.??????“Value” is value to the investor! It doesn’t matter if the team/contractor thinks blue is a better color than purple and can purchase blue paint for half the price. The investor values purple! (But if the difference in time/cost between painting it blue vs. purple is substantial, the investor has the right to know and to reconsider a previous decision!)

3.??????The value from a project comes from its SCOPE: mostly from product scope, but occasionally some value (e.g., experience with a new technology) may accrue from just doing the work. But the sponsor/investor always EXPECTS greater value from the product scope than they have to invest in order to get it. (The value to the investor of components/work should be entered into a value breakdown structure (VBS) .

4.??????As with ALL investments, the time it takes to generate the value is ALWAYS important: if you’re considering ?buying a stock that you EXPECT to generate value that’s 15% above its cost, it makes a huge difference if that value will be realized in 12, 24 or 36 months!

5.??????Sometimes a project fails to generate the EXPECTED value. Okay. So how is that different from any other investment? Except the investor has NO control over what some CEO or CFO decides to do, but does have some control over a project/programme that they’re sponsoring: hire the right people, define the scope clearly, make sure the schedule has been optimized, approve the plan, track progress and make adjustments designed to maximize EXPECTED profit. Projects can be good investments, if managed properly!

6.??????There is a VERY SMALL percentage of projects/programmes where there is no advantage to finishing earlier. Such situations are often due to a project not being on the critical path of the overall programme. Therefore the project has no critical path drag and the programme is not shortened by finishing that project earlier.

7.??????There is a TEENY percentage of projects whose value to the investor will DECREASE if finished earlier. (Launching a rocket to intercept a passing meteor may be one.) The fact that acceleration on such a project would be detrimental is important and must be communicated to team members.

8.??????Contracts often make the benefit to the investor at odds with the benefit to the contractor. These are badly-written contracts! They are often cost-plus or time-and-materials contracts with no penalties for late delivery or awards for early delivery. (“Why should I ever finish this project when this fool is gonna keep paying my people for as long as it goes on and I won’t have to find another job to keep them billable?”) The terms “principal-agent problem”, “moral hazard” and “fraud” apply to these situations. Any customer in a cost-plus contract without a late delivery penalty is liable to get hosed. If you are dealing with subcontractors, remember this!

9.??????So why are shorter projects better? For the same reason that any investment is considered to be better than another: because the difference between the EXPECTED value (to the investor!) and the amount invested is greater. (It is sometimes called EXPECTED “ROI” or “profit”!)

10.??What are some of the things that allow a shorter project schedule to be more “profitable”?

a.??????Earlier deployment allows the value generation to start sooner.

b.??????The customer is willing to pay more for earlier deployment and will choose the contractor who offers it.

c.??????The product beats competitors with similar products to market (HUGE in pharma/medical devices, and many other product development projects!)

d.??????Earlier completion of an “enabler” project on the critical path of a programme can accelerate other valuable projects and increase their value. Earlier completion of a platform on which many other commercial products are going to be designed to work may allow ALL those other “ornaments” to reach market earlier! (Enabler projects are of huge importance. Both their value and the value of their time is rarely recognized. If you are managing an enabler project, you and your work are VERY valuable!)

e.??????An earlier schedule allows greater schedule reserve. If you HAVE to finish in 100d, would you rather have a 95d schedule with 5d of reserve or an 80d schedule with 20d of reserve? (This is ESPECIALLY valuable for projects related to market windows: you don’t want your new hotel in Barbados to miss the start of the tourist season!)

f.???????As soon as you finish a project early, you retire 99% of the risk of finishing it late! (Remember, there’s at least a 1% chance of it not really being finished!)

g.??????The cost each day of not having a needed product/piece of equipment/facility can be huge! (E.g., a working nuclear power plant, where each day offline may cost up to $5M).

h.??????Time gained through an optimized schedule can sometimes be exchanged for added scope. People often think that testing/quality adds time to a project. Well, if it’s on the critical path, it does. But if you first compress your schedule by 20d, you now have that time to add more testing. Or, indeed, to add any valuable optional scope you feel is worthwhile.

i.????????“Marching Army” costs. Every day your project goes on may be driving up your costs through “indirect costs”: rent, electricity, health insurance, project reporting, finance department functions, etc. When the project ends, you don’t have to “feed the army” any longer. (On government contracts in the US, overhead costs tend to run from 15% to 25%.)

j.????????Liquidated damages, court costs, and the risk of them on projects that are completed late.

k.??????Saved Opportunity Costs! If you finish one project earlier, your staff can start working on the next value-generating project earlier!

l.????????Please remember: on projects in certain fields—healthcare, hospital construction, pharmaceutical development, potable water, famine relief, emergency response, national security—the cost of delay can often be measured in lost lives and human misery!