Metrics and best practices for project management are few and far between, which is one reason why many projects fail. One of the main problems, this author argues, is that the projects are not aligned with organizational goals. From creating a Project Management Office to establishing and codifying best practices, the author has sound suggestions for making a project undertaken a project that succeeds.
A billion-dollar problem
Corporations throughout the world are losing billions in wasted project spending. This waste is being carefully hidden from management and investors. Moreover, a global research report completed by our firm shows that one of the biggest contributing factors to this waste is a severe lack of alignment between projects and corporate strategy.
The cost of the problem is staggering. A recent example is Royal Dutch Shell’s biggest and most prestigious project, Sakhalin Energy, a Siberian liquefied gas facility. Project costs for Sakhalin doubled from $10 billion to $20 billion (U.S). According to The Times of London, the humiliation was even greater because Shell’s CEO had not been made aware of the cost increase. The fiasco is not exclusive to Shell. In the IT sector, the results of The Chaos survey, by The Standish Group, shows that 71 per cent of all projects are either “challenged” due to late delivery, being over budget or delivering less than the required features, or they are “failed” because of being cancelled before completion or because the product developed is never used. This statistic has not effectively changed since 1994.
In addition, in 2004, PriceWaterhouseCoopers found that only a handful of projects initiated ever achieve success. Its survey focused on a broad range of industries, large and small, in 30 different countries — 10,640 projects, for a total value of $7.2 billion. The study found that only 2.5 per cent of global businesses achieve 100 per cent project success.
In Canada, project management waste is equally evident. According to The Globe and Mail, the Ontario government recently paid out $63 million to settle litigation with EDS Canada Ltd., the result of a failed attempt to create a computer network meant to connect the entire provincial justice system. Furthermore, Toronto’s auditor general says that a police database project called “eCops” that went $10 million over budget was woefully mismanaged.
We’ll never know about the many other projects in crisis in public companies. The reality is that examples can be found in just about every type of organization in Canada and abroad. It makes one wonder what it is going to take to get these organizations to invest just a fraction of their losses in order to save millions. Unfortunately, many firms seem too willing to pay out millions on bad project management. This article offers recommendations for more effective project management.
The crisis in project management
The frequency of project failures was the key factor in our firm’s research study on project management. We studied over 750 organizations around the world and looked in depth at their project management practices, successes and failures. Our findings indicate that businesses are in a crisis with respect to how projects are managed.
The research results confirm that many projects have a From crisis to control: New standards for project management negative impact on the bottom line. Organizations are spending millions of dollars on project cost overruns. But, despite the money being spent, these projects are not meeting customer expectations. As well, the wrong internal resources are often being applied to projects, further decreasing their chances of success.
Many organizations set up Project Management Offices (PMOs) as a tool to improve project management. However, the evidence shows that these fail more often than they succeed. In fact, the research indicated that over 75 per cent of organizations that set up a PMO shut it down within three years because it didn’t demonstrate any added value. Project Management Offices cost organizations about $500,000 per year to run. Their return on investment should be positive, but it is not.
After reviewing data from these 750 firms around the world, it became clear that tinkering around the edges of project management won’t help organizations work smarter. To get to the root cause of the problem, we’ve got to take a broader perspective and look at how organizations approach project management from a strategic level.
In that regard, we were able to use our research findings to develop a number of recommendations to help companies and organizations develop the right strategies to create the environment for successful project management practices.
Four strategies to move from crisis to control
There are four key strategies that will immediately make a difference for organizations.
- Ensure that all projects are strategically aligned.
- Create a culture that supports a project management environment.
- Implement strategic project management best practices.
- Create a strategic project measurement system.
1. Ensure that all projects are strategically aligned
A major reason for project failure is that most organizations do not ensure that all projects they initiate are aligned with their organization’s core strategies. In fact, 80 per cent of organizations in the research study had no formal business case for the development of their PMO, while 73 per cent identified “lack of executive
sponsorship” as the primary reason for the failure of their PMO.
If organizations were to implement only those projects that were aligned with their strategic goals, their success rate would increase dramatically. This is because executive sponsorship would not be an issue. However, the recent findings show that the majority of projects on the go are not associated with corporate and/or departmental strategic plans. Only 32 per cent of respondents said they had a process for prioritizing projects. It is not surprising therefore, that failure is rampant, because senior executives do not provide direction and support. As well, it was found that 68 per cent of organizations had no systematic approach for prioritizing projects or linking them to corporate and strategic goals.
How to align projects with corporate strategy
First, review lessons learned from projects currently under way or completed over the past year to uncover why they succeeded and to determine project prioritization issues. For example, if many projects were unsuccessful because of a lack of resources, then adequate should be considered a criterion for determining project viability.
Next, develop criteria against which all projects can be prioritized. Include their impact on corporate strategy and customers. To do this, work with a subcommittee of senior management. List all projects, along with their goal and strategic alignment. Then try to identify criteria necessary for determining the expected impact each project will have on the organization, its departments and its customers. Rank each project quantitatively and determine its level of priority.
Finally, align projects with corporate and departmental strategic plans, thereby demonstrating how each project’s successful execution will support the corporate and/or departmental strategic plan. Terminate projects that are of low priority or not somehow linked to corporate and/or departmental strategy. This will ensure that they stop costing the organization money, resources, time and lost customers.
2. Create a culture that supports a project management environment
The research identified a number of reasons why organizations set up a Project Management Office. These included: more successful implementation of projects (82 per cent); predictable, reusable project management tools, techniques and processes (74 per cent); organizational improvement (66 per cent); help to build a project management-oriented culture (64 per cent) and increased staff professionalism in project management (48 per cent). It is interesting to note that some of the more important reasons why organizations should set up a Project Management Office, such as organizational improvement and building the project management culture, were not the top reasons cited in the research. Rather, Project Management Offices were generally implemented for the right reasons, yet they failed to deliver. Essentially, the level at which they operated in the organization was too low; PMOs needed to move up to the senior executive level so that projects could be strategically aligned.
If a project is strategically aligned and if project management is built into the corporate culture, then everyone working on a project will know what their part is in making the project successful. Staff will not have to locate a PMO to tell them how to manage a project, what tools to use, what templates to use, and so on. Project management will be a competency embedded into everyone’s role, following much the same route as quality management, which has evolved over the past 20 years to the point where it has become a competency requirement for all jobs.
How to create a project-management culture
In order to establish a culture that adequately supports a project management environment, it is necessary to undertake a change strategy specific to creating it. Business Improvement Architects calls this a Project Culture Initiative™ (PCI™).
A Project Culture Initiative™ requires the forming of a cross-functional steering committee to develop the approach and process for creating corporate change. This includes the creation of values and principles that identify the unique project approach for the organization. A Project Culture Initiative™ will prepare staff for the changes that will be necessary to implement the project management and help staff to understand the benefits of the change. Most importantly, a Project Culture Initiative™ educates the entire organization on how to manage the change to a project management environment. This includes working with the project teams and communicating frequently on the new process.
Part of the cultural change will involve the creation of some structure around the management of projects. This includes the development of project methodologies and processes. These will have to be closely monitored in the beginning, to ensure that they are used consistently. As a result, it is important to continue to sell the benefits. Some people will think that developing a project’s scope and plan is more work than they’ve been required to do before. Therefore, they should be provided with the support and encouragement necessary to move beyond the initial time requirement. In this way, they will see that spending time in the initial phases will save time during the execution phase of the project.
Stay the course! Understand that changing the culture is a slow process and recognize that this is a journey — it’s never finished. A Project Management Office can be the change agent and it must champion a cultural change in how projects will be managed. Therefore, be prepared to evolve as organizational needs change. The outcome will be to move the Project Management Office from a “push” department (where it is giving information) to a “pull” department (where people are asking for help, guidance and coaching).
3. Project-management best practices
Our research identified the strategic priorities of most Project Management Offices and found that:
- 77 per cent developed project management methodologies,
- 76 per cent developed structures for their Project Management Offices,
- 69 per cent identified project roles and responsibilities,
- 60 per cent developed tools and templates,
- 54 per cent implemented project management training programs.
From these results, it became evident that Project Management Offices were task-oriented, not strategic. They didn’t consider lessons learned to be of great importance in their overall mandate.
Organizations throw away huge amounts of project knowledge every day. They fail to retain the knowledge from one project to the next. The type of questions that should be answered includes: “What were the successes from one project that can ensure other projects follow a similar path?” “What were the challenges, issues, risks, etc. that one project suffered that other projects might be able to anticipate in advance and prevent, or at least prepare for, should these events occur?”
The overall accuracy of time estimation, resource allocation and budgeting comes from the knowledge transferred from one project to another. However, according to the research findings, knowledge management, though often spoken about, was generally absent in the field of project management.
How to implement project-management best practices
Knowledge retention is a major benefit to organizations because it contributes to continuous learning and the avoidance of repeated mistakes. In order to retain project knowledge that can be passed on as “Lessons Learned” for future project teams, the Project Management Office must hold a formal “Project Close-out Meeting” as soon as possible after a project is completed. This is necessary at this time because knowledge about the management of the entire project is still fresh in everyone’s mind.
The purpose of the closing meeting is to review what happened in the project and what the team and the organization can learn from what happened. The project sponsor, project manager and project team should be in attendance as well as any outside resources and/or stakeholders who would like to contribute their ideas. To ensure that the discussions are kept objective, and that everyone’s input is captured, it is preferable for an outside facilitator to conduct this meeting.
The outcome of the project close-out meeting will be the creation of a formal document of “Lessons Learned” for archiving, to be carried to future projects, their managers and their teams.
4. Create a project-measurement system
Our research identified how Project Management Offices measured their success. Their measurements included projects on time (76 per cent), projects on budget (67 per cent), achieved scope requirements (66 per cent), customer requirements met (65 per cent) and achieved all milestone deliverables (52 per cent). The Project Management Offices chose traditional metrics to demonstrate success, not strategic ones. It is little wonder, then, that the research indicated that over 75 per cent of organizations shut down their Project Management Offices within three years because they didn’t add any value.
How to create a project measurement system
The establishment of project success measures will help to provide the senior management team with relevant information needed to make decisions affecting project completion. For example, the presentation of project success measures may convince management to reprioritize projects or to reallocate resources.
Project success measures will also provide the Project Management Office with the necessary information to continuously sell the impact the Project Management Office is having on organizational effectiveness. The strategic types of project success measurement criteria should include:
- Ability of the project to be managed within specified quality criteria.
- Ability to meet regulatory requirements,
- Number of resources used versus the number of resources they thought they would use.
- Ability of the project to meet its defined targets.
- Ability of the project to meet all deliverables.
- Successful management of all major issues.
- Customer post-surveys indicate satisfaction with the product or service delivery from the project.
- A successful and problem-free launch.
- Business case was proven through the rate of return.
Projects that fail mean wasted dollars that steal investor profits and that have a negative impact on the organization’s bottom line. Aligning projects with the strategic goals of the organization is critical for project success and proper return on investment. Superior business performance is dependent on good project management as well as the creation of a culture that supports projects. To this end, senior management needs to contribute more time and effort to sponsoring and prioritizing projects on the basis of their strategic fit. When projects are in alignment with corporate goals, they will be able to meet profitability targets and generate the necessary return on investment.