In Step with Projects

In Pace with Progress

Value-driven Project Management

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Author: Frank Saladis     Source: PMWJ&PMR

Background

Project Management is a continually evolving discipline and many people think its part science and part art. Project management techniques date back to the time the pyramids were built and have been changing and evolving ever since. Modern project management, and many of the tool and techniques used during project implementation, is often attributed to Henry Gantt, who played a crucial role in the history of project management, and is considered to be the founding father of modern project management.  He developed several planning and control techniques to help business leaders succeed and comply with regulations and labor laws that were being imposed by the U.S. Federal Government. Project management was further developed during after World War Ⅱ and new mathematical formulas were developed to improve estimating. The Program Evaluation Review Technique and the Critical Path Method were developed. Technology advanced quickly and project management was computerized. Advances and enhancements continued and are still evolving. Today we have predictive and Agile project management techniques, hybrid project management, Disciplined Agile and SAFe, (a set of organization and workflow patterns intended to guide enterprises in scaling lean and agile practices).

 

As project management evolved, metrics were established to track project progress. The well-known “Triple Constraints were established and were used to determine project health and level of success. Being on time, on budget, and within scope, while managing customer expectations about quality became the basis for project evaluations and drove project managers to near obsession in the quest for project success. 


Eventually, the Triple Constraints were revised and replaced with the “competing demands” of Time, Cost, Scope, Risk, Quality and Resources and other factors, depending on the type of project. These metrics, also known as KPIs – Key Performance Indicators. The use of KPIs resulted in the need for project “heath checks” as a means to determine where deviations from the plan existed. These “health checks” were basically audits and the focus was on the metrics. Scope creep, missed deadlines and cost overruns. These are somewhat important but they do not accurately provide a clear picture of the health of the project. The true “value” of the project was not being considered. 


 In 2009, I partnered with Dr. Harold Kerzner and, together, we produced a series of books that were focused on the changes that project management, as a profession, was experiencing. The books were intended to provide the readers with a broad perspective about project management for the benefit of executive managers and functional managers. The books were entitled:
What Functional Managers Need to Know about Project Management;
What Executives Need to Know About Project Management; and

Value Driven Project Management.


The books were published by The International Institute for Learning and John Wiley & Sons, Hoboken New Jersey. The books were intended to provide practical and straight forward information about project management. The intent was to assist executive and functional managers connect with and work with project managers more effectively and provide a non-theoretical view of “applied project management”. 

What is value-driven project management?
The value-driven project management approach differs from the more traditional plan-driven approach by focusing on outcome rather than output. Plan-driven projects produce a deliverable and the project is considered complete when the deliverable has been accepted. There is no focus on how the project will meet the needs of the recipient. The product was built to specs, the contract terms were satisfied. This signals the end of the project. Value-driven projects measure success based on the positive impacts the project creates when completed. The traditional approach is all about predictable results and delivering to a plan. In value-driven projects, the recipients or owners of the project’s deliverable are more deeply involved in project planning, reviews, and assessment of performance. There is a change management process but the goal is to achieve the “desired result” not the “planned result”. Changes are assessed on their perceived value rather than on how they may disrupt project progress.

Focus of value-driven project management
Value-driven project management introduced a new method for determining the actual value of a project. Value-driven project management is based on seven Postulates:
1) It doesn’t matter whether you execute a project extremely well if you are working on the wrong project.
2) Being on-time and on budget is not necessarily success.
3) Completing a project within the Triple Constraints does not guarantee that the necessary business value will be there at project completion.
4) Having mature project management practices, including Enterprise Project Management Methodology, does not guarantee that business value will be there at project completion.
5) Price is what you pay, value is what you get. (Warren Buffet)
6) Business value is what your customer perceives as worth paying for.

7) Success is achieved when business value is realized.


These postulates are the foundation of Value-driven project management. The key here is to understand and define what value means or how it is defined by a customer or client.  Value and quality are connected. The popular definition of quality is: the degree to which an object or entity (e.g., process, product, or service) satisfies a specified set of attributes or requirements. The real question is “How does your customer define quality? If you ask anyone to actually define what they mean by “quality”, you will probably get an answer like “I’ll know it when I see it.” That response is clearly not helpful but is does help us understand that defining quality is not as easy as it sounds. It is the same when asking someone to define value.

To help people define quality, a list of “ilities” was created. My recollection of the “ilities” dates back to 1990 and 1991 when I was studying for the PMP ® exam. Some of them were listed in a document I read. I believe the document was the predecessor to what we know today as the PMBOK ® Guide. The “ilities” are actually a great way to help people define what quality means to them. They are like “thought catalysts” that provide a client with vocabulary to describe quality. Examples of the “ilities” include: Maintainability, Availability, Portability, Usability, Durability, Operability, Stability, Affordability, Compatibility, Reliability, Producibility, Scalability, Serviceability, Adaptability, Social acceptability.

Providing a customer with this quality vocabulary will facilitate the discussion about help both sides reach an understanding about what must be accomplished to achieve acceptance of the product or service. 

In addition to the 7 Value Driven Postulates, there are, as Gary Heerkens says in his book, The Business Savvy Project Manager, a few “business value factors” must be considered: 
There are times when spending more money on a project could represent smart business, even if you go over the original budget.
A group of projects that all generate positive cash flows may not represent a company’s overall best opportunity for investment.
It is mathematically impossible for all projects to be ranked as the number one priority at the same time.
An organization does not really get more done by doing far too many projects at the same time.
Forcing project teams to agree to unrealistic deadlines is extremely harmful from a business perspective.

You can see the relationship between the value-driven project management Postulates and the Business Value Factors. Value-driven project management and the Business Savvy approach focus on the following:
Market need; Resource availability and capacity Risk; Feasibility; Connection to organizational strategic objectives and goals; Benefits realization- Tangible (financial) and Intangible (Good will, customer satisfaction, brand reputation). These items would normally be addressed in a business case for a project that is being proposed. 

Today’s emphasis, regarding project success, is shifting from the classic KPIs and Metrics that have been commonly used in the past (the competing demands) to a new set of metrics that address value.

Value is defined a similar way as the “ilities” were used in determining quality. There are actually many definitions of value. A common definition is “the importance or worth of something for someone”. If you check the definition of value using a search engine, you will find that it isn’t really defined well and has lots of interpretations. In the project environment, the stakeholders, specifically the customer and end-user will determine if they are experiencing value when they evaluate the product or service. Value will be interpreted by assessing the outcome of the project and the deliverable that has been produced. An outcome is something that follows as a result or consequence of an action.

Value-driven project management and Business Savvy Project Management focus on outcome. The outcome discussion includes: What has changed? What has improved? How has productivity increased? What is being done more efficiently? What have we saved as a result of the project? What processes are now more efficient? How did the project make a difference? Who is benefitting and how? These question provide the basis for value metrics. They are far more useful than “Did you complete the project on time? Did you remain within budget? Did you control the scope? If project managers and their teams focused on value instead of top-down, arbitrary metrics, their companies would likely experience additional business from delighted customers who will buy more products and share their experiences with other potential clients.

How to establish value-driven organization
The value-driven organization follows a simple formula:
1)  Every employee focuses on producing value every day. 
2) Producing value results in brand recognition.
3) Brand recognition indicates success.
4) Continued success requires the production of value.

It is an ongoing process similar to quality. It’s a journey, not a destination.

To achieve a value-driven organization, there are four cornerstones to establish: Financial Success, Internal Success. Customer Related Success, and Future Success.

Financial Success – The ability of a company to assess, select, and justify projects for implementation. The justification is based on the project’s benefits relative to cost. A detailed business case is necessary to ensure that the appropriate due diligence has been performed and incudes market analysis, feasibility, risk assessment, and return on investment. A project Portfolio Management Process would provide the means to analyze, select, assess, and approve projects that would yield the greatest benefits.

Internal Success – The organization has established a supportive environment and functional groups are working in a collaborative approach, internal processes are continually being improved, and there is a high degree of cooperation. Organizational leadership has established a change-ready workforce and encourages innovation and creativity.

Customer Related Success – Employees at all levels understand the importance of a delighted customer and work as a team to resolve issues quickly. Emphasis is placed on ensuring that customer expectations have been defined, roles and responsibilities are clear and each employee provides exceptional support to their internal and external customers.  

Future Success – The organization is highly adaptable and change-ready. Trends are monitored and management anticipates client needs. Technology is utilized effectively and the employee base is upskilled continuously to meet the demands of the future business environment.

Turning our attention to Future Success, the key is for the organization to have a clear strategic view and long-term plan for survivability. This means maintaining strong customer connections, constantly watching for new trends and changes in markets and preparing for technology changes. This also includes ensuring that the organization’s current talent has the skills to meet the coming changes. In other words, it is necessary to have a certain amount of “predictive management” in place to stay ahead of the competition. 

The term in use today is “Future Readiness”:
Future readiness is a term used define professionals who are ready to cope with change, especially in technology. 
By predicting and staying ahead of the curve, professionals learn and unlearn thought processes and prepare their minds for what’s to come before the actual event. 
This is also known as cognitive flexibility – the ability to unlearn the old ways and make room for the new techniques and knowledge needed to maintain a successful business presence.

Measuring value

If we revisit the competing demands discussed earlier, we can transform them into a value driven set of factors. Instead of time, cost and scope surrounding quality, risk, value and image / reputation, the new model shows Value, Quality and Image/reputation surrounding scope, time, cost, and risk. When Value, Quality, and Image/ Reputation are repositioned to be the driving metrics of success, an entire organization can be transformed. The attitudes and behaviors associated with being on time, within budget, and within scope are replaced with the need to provide the customer with the product or service that is needed, and not what can be delivered. 



Value Metrics can be customized by an organization and are based on a Value Scale. The following is an example of a value scale: 



Value attributes will vary by organization and may be different for each project, but, in all evaluations, there should be a financial attribute such as Net Present Value or Internal Rate of Return and that metric should have a significant weighting. The reason for the significant financial attribute is simple. All projects are financial investments and ROI should always be a factor. This model allows an organization to assess projects for their actual value. Low scoring projects are assessed to determine if they are worth saving or should be terminated and replaced with a better investment. This approach is very similar to the Multi-Criteria Decision Matrix, a tool that is often used in Project Portfolio Management, to make unbiased decisions by removing, as much as possible, the impact of personal feelings and preferences.  


Summary
Value-driven project management is a transformational approach. It takes strong leadership, a plan for organizational change, and the commitment of the entire organization. It replaces the mindset of “How much did we accomplish?” with “How well did we complete our work? How significant was the impact of our deliverable? What are the outcomes that will affect how we are perceived as an organization? It’s not really a new concept. It is just a shift to focus on what is truly important – delighting our customers and becoming a world-class organization whose reputation precedes it.  

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