IMPACT OF FAILURE:
According to Roger Sessions, http://www.infoq.com/news/2013/05/it-projects-failure-costs, the cost of failed IT projects in the US exceeds $1.2 trillion annually. Global IT project failure exceeds $6 trillion. If one looks at non IT project failure impact, the numbers are simply staggering!
How much of that failure loss does your organization own?
DEFINITION OF A SUCCESSFUL PROJECT:
Delivering the approved scope for the approved budget and schedule.
Adding more time and money to get the project completed – is still failure.
Do not accept failure. Demand more of your project management!
THE ROOT OF THE PROBLEM:
Project management is a mature industry still operating from a “let’s figure everything out from scratch” mentality. Even those who follow PMBOK (Project Management Body of Knowledge) from PMI (Project Management Institute), do not typically have the tools and skills necessary to manage projects successfully.
An Extremely Easy Method to Determine Your Project Management’s Expertise:
Ask your project management staff:
- How do you determine the budget?
- How do you determine the schedule?
- Do you monitor the projects with metrics or meaningless colors of red, yellow and green?
Project managers who do not understand these most basic concepts will have an extremely low chance of managing successful projects. Therefore, precious organization assets will likely be at risk.
Determination of the Budget:
Business View of the Budget
Project Management View of the Budget (Best Case)
The reason the above example is considered “Best Case” is that the WBS utilized in less than 8 % of all projects. PMI maintains it takes the WBS (Work Breakdown Structure) to understand what work must be done, what it will cost and how long it will take. Yet, 92% of project managers begin with a Gantt Chart. This is akin to saying, “we have no idea what work must be done, how long it will take or what it will cost – so we will begin by scheduling it”. If this isn’t a recipe for disaster, I’m not certain what is.
As you can see in the example above, there is a huge disparity.
Also, budgets must include costs for meetings, incentives, recruitment, training, procurements, the EMV (Expected Monetary Value) of risk, project management costs, initiating and planning costs – which project management typically does not consider. There are proper methods for determining costs for each of these items.
Another Budget failure issue – Sponsor’s provide the budget
As you undoubtedly are aware, project sponsors usually have a vested interest in getting their project approved. If your organization evaluates potential project for selection based upon ROI (Return on Investment), the incentive is for the project sponsor to understate costs. There are many situations I have personally witnessed where the sponsor who underestimated the most – WON.
Even if the project sponsor did their best to come up with a reasonable budget, did it include all the items in the pie chart above? How was the work defined and estimated? These project sponsor estimates are typically ROM (Rough Order of Magnitude) estimates and are considered to be accurate to +/- 50%. Due to the vested interest, addressed above, costs are rarely over estimated.
Over sixty percent of all project budgets are given by sponsors. These generally are fail.
A VP of Sales pushed strongly for a CRM (Customer Relationship Management) system to be implemented in his organization. He vastly underestimated costs and over stated benefits so, when his organization chose projects based upon Return on Investment, he was a winner! Mysteriously, the project manager assigned accepted his budget.
When the project cost five times the budget, the organization suffered significant loss. It did not matter much to the VP of Sales. His bonus was calculated based upon increases in sales. Those certainly came! He had a multimillion dollar bonus check coming.
Yet Another Budget failure issue –
If Capacity Planning is not addressed, there is little chance for projects to succeed. Yet, project managers typically have no concept of what it is or how to use it.
Capacity Planning adjusts all estimates for the affects of non worked and non productive hours.
If the team has estimated the amount of work each activity on the WBS would take, they do so based upon working constantly until that activity is completed. Best case project managers will total all hours necessary, multiply by the hourly rate that approximates team member costs and establish a budget off that number. Then they take the total hours, divide by 40 (hours per week) and they know how many people they need and how long the project will cost. Then they sit back and watch as the project fails.
Non worked time Capacity Planning adjustment:
Team members have holidays, vacations, sick time, mandatory training and other issues that take them away from productive work time.
Non Worked Hour Example:
Assuming 5 day work weeks there are 260 work days per year.
Impact of Vacation, Sick Days and Holidays:
- Assuming 10 days vacation and sick leave per year (please verify these with the organization), and 10 holidays per year, that results in 20 days per team members that you may be paying for that does not result in accomplishing work.
- This means an impact of 13% (20/260).
- Two legally required fifteen minute breaks per 8 hour day in the US means only 7.5 hours per day are available for working. This is a 6.25% adjustment (.5 hours/8).
- The 6.25% needs to be added to the budget and the schedule to adjust for non worked time.
- Further adjustments must be made to reflect mandatory training, etc.
So, twenty percent is normally a meaningful and accurate adjustment to total hours required be PAID for this time even if NOTHING is produced.
Adjust for non productive time:
According to a Price Coopers Waterhouse study published in the Wall Street Journal in 2009, average employees are only productively working 60% of the time. This nonproductive time includes restroom breaks, phone calls, talking to coworkers, checking email, IM, etc.
Therefore, 40% needs to be added to hours required and included in the budget and schedule.
The issue – you pay for this 40% even though it does not result in project completion activities.
It is easy to see where failure to consider Capacity Planning in project management results in project failure.
Determination of the schedule:
- Utilize the WBS to determine all the work that must be done.
- Use a Network Diagram (used in less than 8% of all projects) to understand and track the Critical Path which determines how long the project will take.
- Determine the impact of Capacity Planning as explained above.
- Address resource availability at the onset.
- Add the ETV (Expected Time Value) of risk to the schedule. PMBOK defines how project managers multiply the monetary impact of each risk item by the likelihood the risk will occur to come to the EMV (Expected Monetary Value) of that risk to add to the budget. That makes perfect sense. What PMBOK does not address – is that there are also risks of delays. This means the time impact of each risk should be multiplied by the likelihood the risk will occur to come to the ETV of risk to be added to the schedule.
Otherwise – projects fail.
Monitoring Projects with Metrics:
Metrics should display precisely how a project is performing at any point in time. Yet, less than one percent of project management uses them. Most project managers use completely subjective colors of green, yellow or red to display how their project is performing.
An example of the failure –
- A $1.2 billion budget for projects in 2010.
- All projects were rated in “GREEN” the entire year.
- At the beginning of 2011, when accounting was completed for 2010, the amount spent on projects was $3.1 billion. That means projects cost nearly three times their budget.
One can be assured, this organization was not happy with their project management.
An example of a project managed by metrics:
Produced by UltimatePM software
The above metrics show precisely how the project is performing and provides much greater insight than subjective colors.
Project Managers should be required to manage with metrics.
What Can Organizations Do?
- Stop hiring project managers based upon years of managing similar projects! Ask, instead, questions regarding how they develop budgets, schedules and monitor projects. A project manager with thirty years of managing failed similar projects will likely fail the next one. Elite project managers understand project management and avoid failure.
- Find a superior project management organization (one who can provide similar information discussed in this article) and pay for a Project Management Audit. This relatively inexpensive service should:
- Review the way projects are managed in your organization.
- Compare results with industry best practices.
- Examine the gap between the way projects are managed and how they should be managed – and produce an impact document quantifying the cost of the gap.
- Provide a roadmap to bridging the gap which may include training, tools, etc.
The time is now for organizations to demand more of project management. Do not simply accept failed projects for yet another year.