One key aspect of project management is assessing the value of a project—but unfortunately, value assessment doesn’t always get the attention it deserves. As project managers, we all know it to be true: the definition of project success belongs in the initial project documentation phase. Project managers know that projects promising a big return, or ones that avoid “big losses,” often get funded first, so it pays to address value and critical success factors thoroughly.
Over my years as a project manager, I’ve realized that organizations embrace project management when they stand to gain a profit by doing it, or to lose a lot of money or opportunity by not doing it. This makes it all the more important to clarify the project’s goals, objectives, and value from the outset. Both project managers and their sponsors need the leverage of a good financial return to get their project through the approval process.
The importance of value assessment
The methodologies for value assessment vary from organization to organization. What matters most is that it’s being done at all. Many organizations with a project management methodology will have a designated section of initial documentation requiring that the project’s success criteria be documented. Templates may provide the formulas, and the project manager is asked to plug in the numbers and crank out the value proposition.
When the process is automated in this way, organizations might use project management methodology for routine job assignments that are not projects at all. Even in legitimate projects, the amount of attention paid to value analysis can vary based on the profitability of the project or the relative strength of the organization’s own profit picture. Mergers, acquisitions, and global competition can also change the methods being used to calculate value. One organization’s definition of value or success might differ from another’s, creating decision ambiguity for the project manager and team.
If there’s push-back from management, this might signal a hidden risk. Perhaps the business objective is still in contention. There may be a political aspect to the mission or goal being publicly displayed, such as protecting market position or business intelligence. It is also possible that the differing views of project value have not been reconciled among affected executive stakeholders, signaling a need to get management’s heads together on corporate strategy.
Regardless of the reason for pushback, the project manager should dig it out and put it in the plan, including the risk plan. Projects involve risk, and managing risk is a key strategy for delivering project value. Just deciding to create a project involves risk. There are many difficult tradeoffs made during project execution, the most common being the tradeoffs between staying on schedule, keeping costs within projections, and delivering a quality product while staying within the originally defined scope of the project.
Those midnight emergencies, when left to chance without a crystal-clear understanding of what the customer or sponsor considers to be “value,” can compromise the ultimate success of the project. It’s the project manager’s role to be sure value is defined and assessed from the beginning.
Value assessment changes according to time and circumstance
For most senior project management professionals, pinning down the real value of the project at its earliest phase has always been an accepted part of the project manager’s responsibilities. But this important role has not always been appreciated or understood.
During the recessions in the 1980s and early 1990s, after the tech boom and 9/11, and again in 2009, assessing a project’s value became a key focus. Managers had fewer resources available to them. If they expected to cover the cost of delivering critical outcomes from high priority projects, they needed to prioritize their investments carefully. When managers compete with each other for scarce resources, ignoring project value is no longer an option.
But during the early years of introducing Information Systems and leveraging Information Technology, project profitability was not discussed much. Every expenditure on both systems and software generated money, so it was presumed that value was gained simply by automating laborious processes. The comparison of projects’ values fell out of favor. Later, when technology moved on and the internet moved into more areas, IS/IT fell back into the general operations arena. Many IS/IT projects have lost their ability to promise profits with every project. The obvious risks associated with newness, the need for scarce expertise for specialized technology, and high salaries for that expertise have threatened project financial performance.
In recent years, there has been a rash of undervaluing project managers and business analysts. This is unfortunate, because project managers use their knowledge, skill, experience, and judgment to assess the relative risk and potential success of a project. These are the professionals who traditionally have been responsible for making those hard project decisions, digging out the decision data, and making adjustments or refinements during project development and execution. Some organizations have even removed decision-making authority from the project manager’s job role, effectively relegating them to communications coordinator or schedule expediter rather than project manager and specialized professional. Such decisions flag a weak understanding of what project management is and why it is fundamental to business success.
Operations management and project management differ significantly. Operations managers can tap senior staff for a second opinion or enlist support from executives to achieve their operations objectives. It is a role that works with “known” variables, with peers already on-board with how things are done. In projects, the volatility of decision-making, the tight timelines, and the lack of access to external opinions require a project manager who can set up, drive, and troubleshoot a rapidly changing work flow toward successful outcomes.
Organizations with a lower level of project management maturity rely too heavily on formal spreadsheets and formulas to calculate the project’s revenue contribution, and expect operations managers to know how to make the right project tradeoffs with limited knowledge. These organizations may not recognize that there are often two or more views of project success, with the corporate executive board having totally different parameters than the customer or user. Understanding and defining these differing priorities can be critically important, and project managers are the best-equipped to do it.
The high costs of devaluing project management
A high-profile project done poorly can harm the organization’s reputation and do significant damage to its profit profile. Whether the economy is booming or in recession, whether the success factors are driven by the sponsor or the customer, and whether the plan is right for the risks and opportunities the project offers, getting the project value proposition right is critical. It is the project manager’s responsibility to reconcile the realities of the management environment with the requirements of the project. Failure to do this can have massive costs.
The Deepwater Horizon well drilling project in the Gulf of Mexico that created the BP Oil Spill in 2010 was a failed tradeoff between cost and safety. Top management wanted cost-cutting. The geologist engineers wanted precise shielding of the drill due to fragile layers in the seabed floor. The drillers wanted to avoid the delays involved if they ordered extra bracing. The inflated costs of added bracing, which were not in the general budget, could draw top management’s attention to their well.
Even though the well was significantly deeper than prior wells, and therefore different than normal drilling operations, the operation was not managed as a project. The drilling proceeded as it normally did, without the bracing, and the walls of the hole blew out, releasing millions of gallons of crude oil into the Gulf and killing 11 crewmembers. In hindsight, the goal of cost-cutting was almost ludicrous given the cost of remediation. Many senior project management professionals say the Deepwater Horizon tragedy can be categorized as a massive failure of project management.
Another example showing the consequences of de-prioritizing project management was Arthur Andersen’s project to automate the British health care system. Poor cost estimating and scope creep resulted in a huge fee, and problems with priority tradeoffs got Arthur Andersen called before Parliament. Their risks and losses were front-page news.
Given the importance of “getting it right,” project management professionals must source out the true reasons for the project as well as the financial value of the intended outcome. The project manager needs the clarity of value assessment and success criteria in order to defend the project’s cost, scope, and approach. Since so much of a project’s decision-making is dependent on a clear view of the project’s anticipated value proposition, beginning a project without a clear statement is a primary risk that will need to be aggressively managed in the project’s risk plan. Turf battles, managerial silos, fuzzy objectives, and fragile communication channels among sponsor and customer are all risks that need to be managed by the project team.
To meet the success criteria as defined by the project’s real value requires a cogent understanding of the financial return on investment, the net present value of the money put forward for implementation, and the mission and goals of top executives among all the stakeholders. To achieve this level of understanding and value assessment, it is vital for organizations to appreciate the role of project management.