Project Management and the Relationship to Corporate

Governance

by Andrew Willis andMichael PorierJuly 18, 2002

2

Company BackgroundProtiviti is an independent business and technology risk consulting firm that specializes in information security, technology and operational risk consulting, internal audit, and financial and commodity risk consulting. Our Risk Consulting services trace their origins back to 1989, as many of our team members were formerly aligned with the Andersen professional services firm. From Andersen, we bring with us thirteen years of investment in tools, methodologies, and people which has prepared us to provide a broad spectrum of services across all industries. We have already made the investment and our clients are the beneficiaries of our cumulative experiences.

Risk Consulting Approximately 800 ProfessionalsRepresenting 75 Different Universities,Possessing 40 Representative Degrees, and 50 Professional and Technical Certifications

Technology 

• IT Internal Audit• IT Process Assessment• Enterprise Security• Application Controls and Effectiveness• Business Continuity Planning• Project Risk Management

Business Process 

• Internal Audit Services• Trading and Marketing• Treasury Operations• Environmental• Supply Chain Management• Construction Risk Management

Financial & Commodity 

• Deal Structuring & Accounting• Market Risk Management• Risk Systems• Risk Measurement & Valuation

Our vision at Protiviti is to be the premier provider of independent risk consulting services. Our clients immediately gain access to over 50 partners and more than 750 professionals across the United States, which represent a national pool of resources unfettered by restrictions in scope of practice or independence conflicts. We have 13 partners and over 175 professionals in the Houston and Dallas offices, who possess deep knowledge and experience providing unique solutions to clients from all parts of the corporate value chain. We enjoy critical mass in key offices and across key industries, and our strategic alliances enhance our range of solutions.

3

Company Locations

Atlanta, GAChicago, ILCincinnati, OHCleveland, OHDallas, TXDenver, COFt. Lauderdale, FLHouston, TXKansas City, MOLos Angeles, CAMilwaukee, CAMinneapolis, MN

New York City, NYOrlando, FLPhiladelphia, PAPhoenix, AZPittsburgh, PASacramento, CASalt Lake City, UT

San Francisco, CASan Jose, CASeattle, WASt. Louis, MOTampa, FLVienna, WA

We have hundreds of senior professionals in 25 major markets with unparalleled experience gained from working with world-class global companies.

“I cannot imagine any condition which could cause this ship to flounder. I cannot conceive of any vital disaster happening to this vessel.” E.J. Smith, Captain of the Titanic

5

Trends in Project Management TodayProject Management Statistics• 31.1% of projects will be cancelled before completion• 52.7% of projects will cost 189% of their original estimates• 16.2% of software projects are completed on-time and within

budget• 9.2% of projects within large companies are completed on-time

and within budget• 222% of the original estimate is the average time overrun on

projects• $145 billion will be spent on unsuccessful projectsReasons for Project Failures

Source: Michael O’MalleyWebsite: http://www.smu-training.comArticle Title: Project Failures Spur Management Back to Basics

Improperly defined

objectives17%

Unfamiliar scope17%

Lack of effective

communication20%

Poor project management

skills32%

Inability to cope with technology

14%

6

Project Success by Size (in dollars)

According to a study performed by The Standish Group, the chance of a successful project decreases as the project size increases.

Source: Standish GroupWebsite: www.standishgroup.comArticle: CHAOS: A Recipe for Success

0

20

40

60

80

100

Less than$750K

$750K to$1.5M

$1.5M to $3M $3M to $6M $6M to $10M Over $10M

Project Size (in dollars)

Pro

ject

Su

cces

s R

ate

(%)

)

0

20

40

60

80

100

Less than$750K

$750K to$1.5M

$1.5M to $3M $3M to $6M $6M to $10M Over $10M

Project Size (in dollars)

Pro

ject

Su

cces

s R

ate

(%)

)

7

Examples of Failed Projects

Project Project ObjectiveObjective

Reasons for Reasons for Project FailureProject Failure ResultResult

Create a more efficient billing system

Inconsistent leadership and constant scope expansions

Completed project, but overdue and millions of dollars over budget

Implement an ERP system

Change in deadline

12% drop in sales ($150 million) during the quarter after the system went live

Convert to a new order entry system

Inability to operate new technology

40% increase in operating costs and a loss of franchises to its customers

Other potential impacts of poor project management • Business performance/return on investment will suffer• Loss of confidence in the organization’s ability to successfully

complete projects and causing future initiatives to suffer• Loss of customers• Legal repercussions

Source: www.fortera.com/44NFailchart.pdfArticle Title: Top 10 Corporate Information Technology Failures

8

What is Project Management?

Project Management

“Project management is the application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needsand expectations from a project. Meeting or exceeding stakeholder needsand expectations invariably involves balancing competing demands among:

Source: Project Management Institute - Project Management Body of KnowledgePage: 6

•Scope, time, cost, and quality•Stakeholders differing needs and expectation•Identified requirements (needs) and unidentified requirements (expectations)”

Confidential: This document is for your company's internal use only and may not be distributed to any third-party.9

Project Risk Management Framework (source)

The PRM framework illustrates Protiviti’s approach to managing project management risk. Our methodology, depicted by the outer circle, is a continuous process of risk management activities targeted to minimizing the potential impact of risks to the success of a project.

10

Project Management Component Processes

A stimulus such as a business need, project plan, or market demand will spark the need for another project or project phase to begin. During the initiating processes, the organization realizes and commits to this need.

In the planning stage of the project or phase, a plan is established to address the needs of the project and to reach the project objectives.

Executing involves gathering the necessary resources to perform the project plan activities and the actual execution of the plan.

Controlling processes primarily involve the monitoring of project progress to identify significant variances to prevent problems from arising.

During the closing processes, final open items will be resolved and a formal acceptance of the project or phase completion will occur.

Source: Project Management Institute - Project Management Body of Knowledge

Page: 29

11

Project RisksThese four risks are inherent in any project and within all of the 5 processes of the project life cycle:

Project Management Project Support

Project Life Cycle Project environment

Scope

Time

Quality

Cost

Resources

Risk

Communication

Change

Project Management Office

Business Integration

Planning

Design

Testing

ImplementationDevelopment

Rollout

Strategic alignment

Business environment

Stakeholders

Competition

Culture

12

Project ElementsStrong control environment ensures that project risks are mitigated and the primary goals of quality, time, and cost are achieved.

Project management is the balancing of quality, time, and cost. It is difficult to achieve all three goals on one project.

Is the projectsatisfying the needs for which the projectwas undertaken?

Is the project being completedwithin the approved budget?

Is the project being completedin a timely manner?

Process

ToolsPeople

The foundation of a project control environment is

comprised of the people, processes,

and technology.

13

PRM Methodology

Steps to ensure a strong project management framework. These steps should be part of a continuous improvement methodology to ensure that projects continue to deliver needs and expectations to stakeholders.

Through these methodologies, we will assist your organization:

•Evaluate your current risk management process,

•Target areas for improvement,

•Enable change, and

•Perform ongoing monitoring and improvement.

14

Do you Need PRM?

Is there a high dependency upon technology-centric projects to support or drive business strategy and key business processes?Does the implementation of major new systems or products have significant impact on business strategy?Does the introduction of unproven or unfamiliar technologies have strategic business impact?Is your infrastructure highly complex, fragmented and/or immature?Have you experienced significant personnel turnover, open positions, and gaps in key technical and management positions?Have you experienced significant or rapid changes in the business?Does management have concerns about cost containment and ROI?Has management been dissatisfied with project management issues?

15

What is Corporate Governance?• “Corporate governance is about promoting corporate fairness,

transparency, and accountability.” – J. Wolfensohn, president of the World Bank. July 21,1999

• “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” – Journal of Finance, 1997

Fairness Responsibility Accountability Transparency

Directors Company Mgmt Shareholders StakeholdersDirectors Company Mgmt Shareholders

Stakeholders

Fairness Responsibility Accountability Transparency

16

Why Bother with Governance?

Provides assurance that management is acting with integrity

Creates competitive advantage

Reduces fraud and malpractice

Shareholder protection

Affects valuation

Compliance with laws and regulations

17

Governance Framework

Shareholders Board of Directors

Other Stakeholders

Audit Committees ExecutiveManagement

IT SteeringCommittee

Management

Employees

18

Perception vs. Reality

Perception• IT projects deliver quality,

are on time and within budget

• Harness and exploit IT to return business value

• Leverage IT to improve efficiency and productivity while managing risksReality

• Business losses/damaged reputations and lost market position

• Enterprise and core process inefficiencies due to IT

• Failure of IT initiatives to bring innovation or deliver promise

19

Enterprise Governance

Corporate Governance focuseson the enterprise’s:Future HealthStrategyAccounting ManagementRisk ManagementManage Critical EventsTrustee Financial Resources

IT Governance focuses on IT’s:Alignment with enterprise objectivesUse of IT resourcesManagement of IT related risksValue delivery

Corporate GovernanceTraditionally includes:Duties of Directors/LeadersLegislative/Fiduciary Compliance & ControlEthics & IntegrityBusiness Operations, Risks & ControlFinancial Accounting & ReportingAsset Management

IT GovernanceCovers: Enterprise/IT ObjectivesLegislative/Fiduciary Compliance & ControlIT ResourcesInformationKnowledge ManagementSystemsCommunicationsNet Centric TechnologyIT Operations, Risks, &Controle-Commerce/EDI/EFTIT Asset Management

Source: Ron Saull, IT Coordinators AssociationPresentation Title: IT Governance in Use

20

Key issues confronting project sponsors

• Do not receive adequate decision support informationStatus reports do not support managementMinimal to no third-party assessments

• Projects tend to be initiated under irrational assumptionsIn an effort to “do the deal” significant warning indicators are often overlookedPolitical agendas skew decisions

• Project financing has not adequately allocated commercial risksSPE’s and other finance mechanisms capitalize projects

•Underlying data does not have transparency or integrityProject management and control systems are not effectively operatingProcesses and internal controls inadequate

•Public Confidence