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Managing Project Success

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Title: Managing Project Success


1
Managing Project Success
  • Vladimir Liberzon
  • Spider Management Technologies
  • spider_at_mail.cnt.ru

2
Part 1
  • Project Success Criteria

3
Project Success Criteria
  • Setting project targets is a key task that
    defines the process of project decision making
    and project performance analysis.
  • The usual approach of triple constraints is very
    complicated, yet it does not include all the
    necessary considerations for determining if a
    project is successful.

4
Project Success Criteria
  • Is Sydney Opera construction an example of
    successful project?
  • No, because actual expenses exceeded the planned
    budget by several times.
  • Yes, because it became one of the most famous
    Sydney attractions, bringing many tourists and a
    lot of money.

5
Project Success Criteria
  • The Motorola Iridium Project was finished on time
    and within budget. Can it be considered a
    successful project?
  • No!
  • Iridium, backed by Motorola Inc. (MOT), sought
    bankruptcy-court protection in 1999 after its 5
    billion low-Earth orbit satellite (LEOS) fleet
    failed to attract customers or provide the
    quality service its backers had hoped for.

6
Project Success Criteria
  • If project success criteria are set as finishing
    project on time and under budget then proper
    decision making will be complicated.
  • It does not allow us to interpret the
    significance if the project exceeds the planned
    budget but is finished earlier than expected or
    if it is finished late but saves some money.
  • It fails to evaluate the consequences if the
    project was on time and within planned budget but
    expected revenues were not achieved.

7
Project Success Criteria
  • We suggest to set one single project success
    criterion that integrates project schedule, cost
    and business goals.
  • Establishing this single criterion is complex
    since it must include project scheduling, project
    budgeting, estimating of the future business
    benefits from the project product delivery, and
    risk analysis and simulation.

8
Project Success Criteria
  • If a project is business oriented then this
    project must have business targets and criteria
    of its success or failure.
  • The natural choice setting target Internal Rate
    of Return (IRR).
  • Con
  • The Product Life Cycle may be too long for
    reliable IRR estimation,
  • Uncertainties may be too great for proper IRR
    management.

9
Project Success Criteria
  • One of the potential alternative options to set
    a target profit that should be achieved at some
    point in time based on the forecast of the
    revenues to be realized after the project results
    are delivered.
  • If the project profit meets or exceeds the target
    profit then performance is successful.
  • Such success criterion will permit weighting and
    balancing of time and money to make reasonable
    managerial decisions.

10
Project Success Criteria
  • On the next slide we will see the project
    schedule that is calculated without allowing for
    project financing and supply restrictions.
  • There are periods when the project has no money
    to proceed.

11
Project Success Criteria
  • But, if project manager can find enough money and
    materials then the project total profit on the
    imposed date will be close to 219,000.

12
Project Success Criteria
  • If we calculate the project schedule that
    accounts for financing, supply, and resource
    constraints then the total profit will be more
    than 25,000 lower.

13
Project Success Criteria
  • Maybe it is reasonable to borrow money or to find
    some other solution?
  • To be able to weight options and to choose the
    best it is necessary to look beyond the project
    results delivery date. It is necessary to
    simulate not only expenses but also revenues and
    resource constraints. This approach is especially
    important for portfolio management.

14
Project Success Criteria
  • For setting project success criterion it is
    necessary to incorporate the following data
  • Target finish that may be achieved with
    reasonable probability,
  • Target budget that may be achieved with
    reasonable probability,
  • Forecast of the probable future benefits (for an
    example future profit or revenue curve).
  • The target finish and target budget shall be
    calculated, taking into account all project
    constraints (including resource, financing and
    supply constraints) and using risk simulation.

15
Project Success Target
  • The next step is to define a specific point in
    time for measuring project success.
  • Lets suppose that probable project NPV at this
    moment is a defined number of dollars. This date
    and amount can then be used as the project target
    defining the single project success criterion for
    the project management team.
  • It will, therefore, influence the project
    managers decision making processes.

16
Project Success Target
  • Now management decisions will be made by
    estimating their full business consequences.
    Project managers may decide to spend additional
    money to accelerate project performance if the
    NPV at the targeted date will rise as a result of
    this action.
  • At any time project performance may be measured
    by the forecasted NPV if it exceeds the target
    then total project performance is successful. The
    current value of the forecasted NPV defines
    project status.

17
Project Success Target
  • NPV forecast depends not only on project
    performance results but also on the market
    conditions and other project environmental
    parameters. So project managers will analyze not
    only project performance but also revenue/profit
    forecasts. Their objective will be trying to
    improve everything.

18
Project Success Targets
  • But this target value is not a single value.
  • We recommend setting the following success
    targets
  • optimistic project target that is set for the
    project team,
  • project management team target that includes
    contingency reserve,
  • management target that includes contingency and
    management reserves,
  • failure target that defines conditions under
    which project execution will be terminated.

19
Project Success Targets
  • Project Team Target
  • Project Management Team Target
  • Management Target
  • Failure

Contingency Reserve
Management Reserve
Still Profitable
Project Failure
Target Date
20
Part 2
  • Setting Project Targets
  • (deterministic approach)

21
Necessary Steps
  • 1) Develop corporate databases
  • 2) Develop typical fragnet library,
  • 3) Create project model,
  • 4) Define constraints,
  • 5) Create project schedule,
  • 6) Forecast future benefits,
  • 7) Define project targets.

22
Step 1. Develop corporate databases
  • Corporate project management has to be based on
    corporate standards. These standards must include
    not only processes and document templates but
    also estimates of the typical activity and
    assignment parameters.
  • Activities, resources and assignments belong to
    the same type if they share the same
    characteristics like unit costs, material
    consumption per work volume (quantity) unit,
    resource productivity, etc.

23
Step 1. Develop corporate databases
  • Corporate databases (Reference-books) should
    include at least
  • Activity cost and material requirements per
    activity type volume unit,
  • Resource assignment cost and material
    requirements per assignment type volume unit,
  • Resource assignment productivity,
  • Assignment work load.

24
Step 2. Develop typical fragnet library
  • Project fragnets usually describe typical
    processes and technologies that are used more
    than once.
  • Creating project computer models using the
    corporate library of typical fragnets will help
    to avoid inconsistencies and assures that the
    project model follows corporate standards.
  • A library of typical fragnets is a very important
    tool for the development of corporate culture and
    management standards.

25
Step 3. Create project model
  • Project model will be developed using typical
    fragnet library with project parameter
    estimations based on the corporate
    reference-books.
  • This approach helps to create reliable project
    models that correspond with the corporate
    standards for technologies to be used and
    parameter (activity duration, costs, resource
    productivities, etc.) values.

26
Step 4. Define constraints
  • Project constraints include
  • time constraints,
  • resource constraints,
  • financing constraints (financing schedule),
  • supply constraints (supply schedule),
  • calendar constraints.

27
Step 5. Create project schedule
  • The problem of project schedule development
    without allowing for resource constraints has a
    correct mathematical solution (Critical Path
    Method), which would be the same for all PM
    packages, provided that the initial data are
    identical. All other problems are solved using
    different approaches and yielding different
    results.

28
Step 5. Create project schedule
  • Traditional notion of Critical Path works only in
    case of unlimited resources availability.
  • Let us consider a simple project consisting of
    five activities, presented at the next slide.

29
Step 5. Create project schedule
  • Activities 2 and 5 are performed by the same
    resource.

30
Step 5. Create project schedule
  • Please pay attention to activities that became
    critical. Now delaying each of the activities 1,
    2 and 5 will delay the project finish date. We
    call these activities Resource Critical and their
    sequence comprises Resource Critical Path.

31
Step 5. Create project schedule
  • In many projects it is necessary to simulate
    financing and production, and calculate project
    schedules taking into account all limitations
    (including availability of renewable resources,
    material supply and financing schedules). True
    critical path should account for all schedule
    constraints including resource and financial
    limitations.

32
Step 5. Create project schedule
  • We call it Resource Critical Path (RCP) to
    distinguish it from the traditional
    interpretation of the critical path definition.
  • The calculation of RCP is similar to the
    calculation of the traditional critical path with
    the exception that both early and late dates (and
    corresponding activity floats) are calculated
    during forward and backward resource (and
    material, and cost) leveling.

33
Step 5. Create project schedule
  • This technique permits us to identify resource
    constrained floats.
  • Activity resource constrained float shows the
    period for which activity execution may be
    postponed within the current schedule with the
    set of resources available in this project.
  • It appears that by adding financial and supply
    constraints to the Critical Chain definition as
    well as the method of the Critical Chain
    calculation, we will obtain something very
    similar to RCP.

34
Step 6. Forecast future benefits
  • Usually a project is considered to be finished
    when the project result is delivered and starts
    to bring benefits.
  • Without forecast of these benefits it is
    impossible to evaluate the consequences of
    management decisions made during project
    execution.
  • That is why the forecast of the future benefits
    must be included in the project model.

35
Step 7. Define project target
  • Future benefits depend on time.
  • By defining the target date we restrict the
    horizon of benefit forecasting and will be able
    to calculate the cash flow value to that moment.
  • This value can be set as the project success
    criterion if the cash flow forecast meets or
    exceeds this value then project performance may
    be considered to be successful.

36
Step 7. Define project target
  • Separate management target cash flow values may
    be defined for the same project. This target
    includes management reserve set for unknown
    unknowns. In deterministic approach to project
    planning this management reserve can be estimated
    based on past experience and expert judgements.
  • The probabilistic approach allows us to calculate
    necessary contingency and management reserves.

37
Part 3
  • Setting Project Targets
  • (probabilistic approach)

38
Necessary Steps
  • 8) Analyze risks,
  • 9) Define target success probability for project
    management team,
  • 10) Define target success probability for the
    organization (management),
  • 11) Calculate target values for PM team and top
    management,
  • 12) Define failure value.

39
Risk Simulation
  • Risk simulation may be based on
  • Monte Carlo simulation
  • Three scenarios approach

40
Risk Simulation three scenarios approach
  • A project planner obtains three estimates
    (optimistic, most probable and pessimistic) for
    all initial project data (duration, volumes,
    productivity, calendars, costs, etc.).
  • Risk events are selected and ranked using the
    usual approach to risk qualitative analysis.
    Usually we recommend including negative risk
    events with probability
  • exceeding 90 in the optimistic scenario,
  • exceeding 50 in the most probable scenario,
  • all selected risks in the pessimistic scenario.
  • Selection of positive risk events is opposite.

41
Risk Simulation three scenarios approach
  • The most probable and pessimistic project
    scenarios may contain additional activities and
    costs due to corresponding risk events and may
    employ additional resources and different
    calendars than the optimistic project scenario.
  • As a result the project planner obtains three
    expected finish dates, costs and material
    consumptions for all major milestones.

42
Recommended Parameters
  • They are used to rebuild probability curves for
    the dates, costs and material requirements.
  • Defining desired probabilities of meeting project
    targets a project planner obtains recommended
    finish dates, costs and material requirements for
    any project deliverable.

43
Success Probabilities
  • If different targets were approved then it is
    necessary to calculate the probabilities of
    meeting these targets. If they are reasonable
    then they may be accepted.
  • Probabilities to meet approved project targets we
    call Success Probabilities.
  • These targets may be set for all project
    parameters that will be controlled (profit,
    expenses, duration, material consumption).

44
Baseline
  • Target dates do not belong to any schedule.
    Usually they are between most probable and
    pessimistic dates. A set of target dates and
    costs (analogue of milestone schedule) is the
    real project baseline.
  • But, the baseline schedule does not exist!

45
Buffers
  • We recommend using the optimistic scenario for
    setting task objectives for project implementers
    and managing project reserves at the management
    level.
  • The difference between scheduled and target
    finish dates shows current schedule contingency
    reserve (buffer),
  • Cost buffer is the difference between targeted
    and calculated cost.

46
Buffers
  • As we discussed earlier there are several targets
    for each parameter and corresponding buffers (PM
    team targets, top management targets, contract
    targets, failure targets).
  • Each target has its own initial probability of
    successful achievement.
  • Example
  • Project team target profit can be achieved with
    65 probability,
  • Management target profit has 80 probability of
    success,
  • Failure profit will be exceeded with 95 initial
    probability.

47
Risk Analysis Sample
  • There are time, cost and material buffers that
    show contingency reserves not only for a project
    as a whole (analogue of Critical Chain project
    buffer) but also for any activity in the
    optimistic project schedule.

48
  • Management by Trends

Part 4
49
Trend Analysis
  • Project Performance Management will be based on
    trend analysis.
  • It is necessary to discover problems as soon as
    possible and, by analyzing trends of the major
    project parameters, the project manager can
    quickly understand if there are problems with
    project performance.

50
Trend Analysis (Deterministic approach)
  • If risks were not analyzed and simulated it is
    reasonable to analyze trends of the forecasts for
    data that were used in success criteria
    definition.
  • If we defined that the project performance will
    be considered as successful if NPV forecast for
    the specified date exceeds the target value then
    we will analyze if this forecast is growing or
    not.
  • Negative trend shows problems in project
    performance and requires consideration of
    corrective actions.

51
Success Probability Trends
  • The best way to measure project performance is to
    analyze what is going on with the project success
    probabilities. If they are increasing it means
    that contingency reserves were spent slower than
    expected, if they dropped it means that project
    performance is not as good as planned and
    corrective actions are needed.

52
Success Probability Trends
  • Success probabilities may change due to
  • Performance results
  • Scope changes
  • Cost changes
  • Risk changes
  • Resource changes
  • Market conditions changes

53
Success Probability Trends
  • Thus, success probability trends reflect not only
    project performance results but also what is
    going on around the project.
  • We consider success probability trends to be the
    really integrated project performance measurement
    tool.

54
Success Probability Trends
  • Success probability trends may be used as the
    only information about project performance at the
    top management level because this information is
    sufficient for project performance estimation and
    for appropriate decision making.
  • We call the described methodology Success Driven
    Project Management.

55
Part 5
  • Managing Project Success

56
Success Management Steps
  • Project Success Management includes following
    steps
  • 1) Define integrated project success criterion
    that is based on the project business goal.
    Usually this criterion is the project cash flow
    (profit) value at some specific date in the
    future.
  • 2) Set reasonable and achievable target values of
    project success criterion for project stuff, for
    project management team, for organization
    management.
  • 3) Define what business results mean that project
    termination shall be considered.

57
Project Success Management Steps
  • 4) Basing on performance management results
    calculate current value of success criterion, and
    current probabilities to meet project targets.
  • 5) Analyze success probability trends. If this
    trends are negative consider corrective actions.
  • 6) Determine, analyze and implement corrective
    actions. Corrective action should raise success
    criterion value.

58
Project Success Management Benefits
  • One single integrated success criterion makes
    management and project performance analysis
    easier and more reliable.
  • Risk simulation helps to determine necessary
    contingency and management reserves and to set
    reasonable targets.
  • Success Probability Trends integrate project
    performance results and show performance problems
    immediately.

59
Project Success Management Benefits
  • Success Probability Trends integrate project
    scope, time, cost, risk, and procurement
    performance information. They may be used at the
    top management level as the only and sufficient
    tool for reliable project performance analysis
    and decision making.

60
THANK YOU!
  • I will appreciate your feedback
  • and future discussions.
  • Vladimir Liberzon
  • spider_at_mail.cnt.ru
  • www.spiderproject.ru
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