The Value of Project Management

Presented February 25, 2004

by

Kathy Schwalbe, Ph.D, PMP

Presentation Outline Background information on project

management Ways to measure the value of project

management Examples of project management in

health care organizations Question and answer session

What is a Project?

A project is “a temporary endeavor undertaken to accomplish a unique product or service” (PMBOK® Guide 2000, p. 4)

Attributes of projects– unique purpose– temporary– require resources, often from various areas– should have a primary sponsor and/or customer– involve uncertainty

Recent Project Statistics

The U.S. spends $2.3 trillion on projects every year, an amount equal to one-quarter of the nation’s gross domestic product*

More than sixteen million people regard project management as their profession; on average, a project manager earns more than $82,000 per year*

IT Project Managers are still in great demand and earn over $95,000/year on average (Ziv, 2002)

*PMI, The PMI Project Management Fact Book, Second Edition, 2001

What is Project Management? Project management is “the application of

knowledge, skills, tools, and techniques to project activities in order to meet project requirements” (PMI*, Project Management Body of Knowledge (PMBOK® Guide), 2000, p. 6)

In addition to meeting project requirements, it’s also important to satisfy key stakeholders and make sure the results of the project benefit the organization

Project management should be a strategic as well as a tactical tool

Project Management Framework*

*Schwalbe, Kathy. Information Technology Project Management, Third Edition, 2004

Project Management Tools and Techniques Project management tools and techniques assist

project managers and their teams in various aspects of project management

Some specific ones include– Business cases, project charters, scope statements, and

work breakdown structures (scope management)– Gantt charts, network diagrams, critical path analysis,

critical chain scheduling (time management)– Cost estimates, project portfolio management, and

earned value management (cost management)– See following charts for many more examples (all from

Schwalbe text, 2004)

Sample Gantt Chart

The WBS is on the left, and each task’s start and finish dateare shown on the right using a calendar timescale. Early Gantt charts, first used in 1917, were drawn by hand.

Work Breakdown Structure (WBS)

Sample Network Diagram

Each box is a project task from the WBS. Arrows show dependencies between tasks. The bolded tasks are on the critical path. If any tasks on the critical path take longer than planned, the whole project will slip unless something is done. Network diagrams were first used in 1958.

Sample Earned Value Chart

Many PM experts recommend using earned value managementto help track and manage projects. Assumes a good WBS,schedule, and cost information as well as entering actuals.

Sample Enterprise PM Tool

In recent years, organizations are taking advantage of software to help manage their projects throughout the enterprise.

BUT…PMs Can’t Neglect Business and

Leadership Skills• In addition to using appropriate PM tools

and techniques, PMs must use– Business skills: financial analysis, problem-

solving, decision-making– Leadership skills: negotiation, team-

building– Communication skills: listening, speaking,

writing, presenting

Don’t OveremphasizeUsing PM Software

• You can’t use PM software well if you don’t understand fundamental PM concepts

• “A fool with a tool is still just a fool”

Common PM Tools and Techniques by Knowledge Area

Knowledge Area/Category Tools and Techniques Integration management Stakeholder analysis

Project plans Project management software Change control boards Configuration management Project review meetings Work authorization systems Project leadership Executive sponsorship

Scope management Net present value, return on investment, payback Weighted scoring models Business cases Project charters Scope statements Work breakdown structures Statements of work Requirements analysis Scope change control

Time management Gantt charts Project network diagrams Critical path analysis Program evaluation review technique Critical chain scheduling Crashing Fast tracking Milestone reviews

Cost management Earned value management Project portfolio management Cost estimates Cost management plan Financial software

Common PM Tools and Techniques by Knowledge Area

Knowledge Area/Category Tools and Techniques Quality management Six sigma

Quality control charts Pareto diagrams Fishbone or Ishikawa diagrams Quality audits Maturity models Statistical methods

Human resource management Motivation techniques Empathic listening Team contracts Responsibility assignment matrices Resource histograms Resource loading Resource leveling Team building exercises

Communications management Communications management plan Conflict management Communications media selection Communications infrastructure Status reports Meetings Virtual communications Templates Project Web sites

Procurement management Make-or-buy analysis Contracts Requests for Proposals or Quotes Source selection Negotiating E-procurement

Risk management Risk management plan Probability/impact matrix Risk ranking Monte Carlo simulation Top-Ten Risk Item Tracking

Hard Part About PM…

“Because every project is unique, project managers and their teams must have a good understanding of what tools and techniques are available before they can make the more difficult decisions of which ones to use on their projects and how to implement them.”

Schwalbe, Kathy, “Project Management Techniques”, The Internet Encyclopedia, Volume 3 (2004), p. 108

Ways to Measure Value

Agreement on general benefits Improved project performance/results ROI of project management PM maturity levels Competitive advantage

“Price is what you pay. Value is what you get.”Warren Buffet

General Benefits of Project Management Better control of financial, physical, and

human resources Improved customer relations Shorter development times Lower costs Higher quality and increased reliability Improved productivity Better internal coordination Higher worker morale (less stress)

Improved Project Performance Project success is often based on meeting

project scope, time, and cost goals The Standish Group’s CHAOS studies are

well known for documenting IT project success rates and cost of failures*

Measure 1994 Data 2002 Data Result Successful projects 16% 34% Doubled Failed projects 31% 15% Halved Money wasted on challenged and failed projects

$140 B out of $250 B

$55 B out of $255 B

More than halved

*PM Network, July 2003, p. 16

Why the Improvements?

"The reasons for the increase in successful projects vary. First, the average cost of a project has been more than cut in half. Better tools have been created to monitor and control progress and better skilled project managers with better management processes are being used. The fact that there are processes is significant in itself.“*

*The Standish Group, "CHAOS 2001: A Recipe for Success" (2001)

Improvements to Key IT Project Metrics Due to Project Management*

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*Value of Project Management in IT Organizations survey,Center for Business Practices, 2002, cited in PM Network, July 2003, p. 16

“What the Winners Do”*• Recent research findings show that companies

that excel in project delivery capability:– Build an integrated project management toolbox

(use standard/advanced PM tools, lots of templates)– Grow competent project leaders, emphasizing

business and soft skills– Develop streamlined, consistent project delivery

processes– Install a sound but comprehensive set of project

performance metrics

*Milosevic, Dragan, Portland State University, “Delivering Projects:What the Winners Do,” PMI Conference Proceedings, November 2001

Using a Standardized Project Management Approach* Research found that a consistent (one-size-

fits-all) managerial approach may be essential to the successful standardization of certain aspects of project management, and a contingency approach is needed for certain aspects, too

Low standardization with a sufficient amount of variation is the more appropriate approach

*Milosevic and Pantanakul, “The Impact of Standardized Project Management: New Product Development Projects versus Software Development Projects,” Proceedings of PMI Research Conference 2002

Findings From 5-Year Study on Quantifying the Value of PM*1. Companies with more mature project

management practices have better project performance (on time and budget vs. 40% over time and 20% over cost targets)

2. Project management maturity is strongly correlated with more predictable project schedule and cost performance (i.e. .08 schedule performance index variation vs. .16)

3. Good project management companies have lower direct costs than poor project management companies (6-7% vs. 11-20%)

*Ibbs, William and Justin Reginato, Quantifying the Value of Project Management (2002)

Project Management ROI* Over 94% of senior project management

professionals say that implementing PM added value to their organizations

Formula to predict increased company ROI based on increased PMM level– Determine cost to improve PMM level,

improvement in cost performance index (CPI), then calculate PM ROI using profit margins and projected annual revenues

*Ibbs, William, “The $$$ Value of Project Management: Continuing the Search for PM’s ROI,” PDS ’02 Conference Proceedings, PMI-ISSIGhttp://www.ce.berkeley.edu/pmroi/PMROI%20PMI%20Presentation%20Feb2001.pdf

PM ROI Example*

Company initially has PMM of 2.3, CPI of .71, profit margin of 5% , $10 M projected annual revenues

Company improves PMM to 3.1, CPI to .94, profit margin to 6.6% at a cost of $400,000

PM ROI = (6.6%-5.0%)X$10,000,000 = 40%

$400,000

*Ibbs, William, “Managing Chaotic Projects: Improving your PM/ROI”http://www.ce.berkeley.edu/pmroi/PMROI%20PMI%20Presentation%20Feb2001.pdf

Project Management Maturity Models Similar to maturity models for improving software

like the Capability Maturity Model (CMM) Several PM firms have their own maturity models,

most using levels 1-5– The International Institute for Learning, Inc. calls the

five levels common language, common processes, singular methodology, benchmarking, and continuous improvement

– ESI’s five levels are called ad hoc, consistent, integrated, comprehensive, and optimizing

– PMI’s Organizational Project Management Maturity Model (OPM3) released their model in 2004

Berkeley Project Management Process Maturity Model

                                                                 

                                       

Sample PMM Assessment Questions*

*www.ibbsconsulting.com

Project Management Maturity by Knowledge Area and Industry

Feedback from Bill Ibbs* We've benchmarked a couple healthcare

organizations…what I can say is that the IT PM capability of those organizations was poor, especially in terms of initiating projects.  We helped one of those companies save several million dollars over a 2 year period by helping them focus better on the projects they launched.”

Wall Street reports that the healthcare industry in general is gearing up to spend even more $$$ on IT in the next couple years than they have in the past.  So there's a lot at stake.”

* From e-mail correspondence Feb. 2, 2004

Other Research Suggests That PM Maturity Models Only Measure Explicit Knowledge*

Explicit knowledge: “know what,” can be put into IT, a digital or discrete process that can be codified and transmitted in formal, systematic language (Nonaka 1994)

Tacit knowledge: “know how”, in one’s experience; hard to replicate and can be transferred indirectly though time consuming socialization processes (Kaplan et al 2001)

*Jugdev and Thomas, “Blueprint for Value Creation: Developing and Sustaining a Project Management Competitive Advantage Through the Resource Based View,” Proceedings of PMI Research Conference, 2002

Need to Make PM a Strategic Asset (Just Like IT) Many executives view project management as

having worth at the operational and tactical rather than strategic level

Resource Based View (RBV) frameworks emphasize how firms create value and profits from their internal resources and focus on strategic assets

RBV is relevant to project management because it emphasizes intellectual capital

Research Based View Model*

high Social StrategicCapital Assets

Know HowPMMaturity

low Know What

low high

*Jugdev, Kam, presented at PMI Research Conference, July 2002

Need to combine know what with know howto make PM a strategic asset!

Successful Examples of Applying PM in Healthcare Organizations Theory of Constraints aids in scheduling Focusing on meeting goals with good PM

helps organizations meet demands under budget constraints

Good project managers are critical to successful drug launches

Applying the Theory of Constraints (TOC) in Health Care*

TOC is a form of systems thinking that suggests that any complex system at any point in time often has only one aspect or constraint that limits its ability to achieve more of its goal. Need to exploit constraint and adjust scheduling and resource usage– A USAF base decreased waiting time for primary care

appointments from 17 days to 4.5 at no additional cost– Radcliff Infirmary in Oxford, England used TOC to

improve waiting times for neurosurgery and ophthalmology (noted a 100% reduction in elective cancellations and increases in throughput of over 16% at no additional cost

*Breen, Anne, Tracey Burton-Houle, and David C. Aron, “Applying the Theory of Con-straints in HealthCare: Part 1 – The Philosophy,” Quality Management in Health Care, (Vol 10, Number 3), Spring 2002, www.goldratt.com/for-cause/applyingtocinhcpt1fco.htm

Meeting Goals With Good Project Management* St. Mary’s National Health Service (NHS)

in London was facing a huge deficit, problems in staffing, and long outpatient waiting times

They focused on meeting specific goals by getting the right resources in the right places at the right times (basic PM concepts) and went from a one star to a three star rating by their trust

* Williams, Monica, “Healthy Returns,” PM Network, February 2002

Pharmaceutical Project Managers Are a Breed Apart* Significant investments in drug development

projects (12 years and $800M on average), the magnitude of risks in the development cycle, and extensive involvement of senor management makes it especially tough being a PM in this industry

“I know of no pharmaceutical company today attempting drug development without a project manager to oversee it” (Luis Cabassa, PMP, Genetech Inc.)

Pappas, Lorna, “The Right Prescription,” PM Network, October 2002

Examples of How Good Project Management Adds Value at Your

Organization?

Question & Answer Session

Feel free to contact me at schwalbe@augsburg.edu

Visit my Web site at www.kathyschwalbe.com