Tag Archives: Governance

Good Governance, Good Outcomes!

Good governance is focused on setting the ‘right’ rules and objectives for an organisation, management is about working within those rules to achieve the objectives. Prudent governors also require assurance that the rules are being followed and the objectives achieved (for more see the six functions of governance)

Within this governance framework, getting the ethics and culture of an organisation right comes before anything else – it has far more to do with people, and culture than it does with process and policing! But crafting or changing culture and the resultant behaviours is far from easy and requires a carefully crafted long term strategy supported from the very top of the organisation. The journey is difficult, but achievable, and can pay major dividends to the organisation concerned. One interesting example of this approach in practice is the implementation of effective major project management by the UK government.

The problems with megaprojects[1]

The challenges and issues associated with megaprojects are well known, we recently posted on one aspect of this in the reference case for management reserves. The source materials used in this post clearly show that UK government has been acutely aware of the issues for many years as does any review of the UK National Audit Office’s reports into failed government projects.  At the 2016 PGCS symposium in Canberra, Geraldine Barker, from the UK NAO offered an independent and authoritative overview of the UK perspective and experience from her review of the Major Projects Authority, on the approaches, challenges, and lessons to be learned in improving the performance of major projects at individual and portfolio levels. While there were still major issues, there had also been a number of welcome developments to address the issues including:

  • Improvements to accountability with greater clarity about the roles of senior responsible owners;
  • Investment by the Authority and departments to improve the capability of staff to deliver major projects, with departments reporting to us that they are seeing benefits from these initiatives;
  • Increased assurance and recognition of the role that assurance plays in improving project delivery; and
  • Initiatives to prevent departments from getting locked into solutions too early.

Amyas Morse, head of the National Audit Office, said in a report to the UK Parliament on 6 January 2016, “I acknowledge that a number of positive steps have been taken by the Authority and client departments. At the same time, I am concerned that a third of projects monitored by the Authority are red or amber-red and the overall picture of progress on project performance is opaque. More effort is needed if the success rate of project delivery is to improve[2].

The major challenges identified in that report were to:

  • Prevent departments making firm commitments on cost and timescales for delivery before their plans have been properly tested;
  • Develop an effective mechanism whereby all major projects are prioritised according to strategic importance and capability is deployed to priority areas; and
  • Put in place the systems and data which allow proper performance measurement.

The latest report from the Infrastructure and Projects Authority – IPA (formally the Major Projects Authority) has allowed the UK government to claim an improvement in its delivery of major projects, with the number of those at risk reducing from 44 to 38 in the past year.

The report says that there are 143 major projects on the Government Major Projects Portfolio (GMPP), worth £455.5bn and spread across 17 government departments.

The data shows a steady improvement in the way that government is delivering major projects:

  • More than 60% of projects by whole-life cost are likely to be successfully delivered;
  • Since last year’s report, the number of at risk projects has reduced from 44 to 38, which continues to be an improvement from 48 the previous year;

The data shows signs of steady improvement in the way government is delivering major projects. The question is how was this achieved?

The answer is ‘slowly’ looking from the outside there seem to be three parallel processes working together to change the culture of the UK civil service:

  • The first is making project management ‘attractive’ to senior executives. Since 2000 the government has been working to develop the internal skills needed to allow the deployment of capable ‘Senior Responsible Owners’ (SRO) on all of its major projects including establishing a well-respected course for SROs. The Major Projects Leadership Academy was developed in 2012 (first graduates 2013) and is run in partnership with the Saïd Oxford Business School and Deloitte. The academy builds the skills of senior project leaders across government, making it easier to carry out complex projects effectively. In the future, no one will be able to lead a major government project without completing the academy programme.
  • The second has been making the performance of its major projects public. This includes an on-going challenge to acquire realistic and meaningful data on performance (still a challenge) and is most obvious in the annual report from the Major Projects Authority. Their fifth report is now available for downloading.
  • Finally skills development and robust challenges are put to departments to ensure adequate front end planning is completed before government funds are committed to a project.

This process is not quick and given the risky nature of major projects will never deliver a 100% success rate, but the steady change in attitudes and performance in the UK clearly show that ‘good governance’ backed by a sound multi-faceted strategy focused on the stakeholders engaged in the work will pay dividends. Proponents advocating for this type of improvement have many challenges to deal with, not the least of which is the fact that as data quality improves, the number of problems that will be visible increase – add the glare of publicity and this can be politically embarrassing!  However, as the UK reports show, persistence pays off.

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[1] For a definition of megaprojects see: https://mosaicprojects.wordpress.com/2017/06/09/differentiating-normal-complex-and-megaprojects/

[2] See: https://www.nao.org.uk/report/delivering-major-projects-in-government-a-briefing-for-the-committee-of-public-accounts/

 

Differentiating normal, complex and megaprojects

The days when projects were simply projects and project success was defined by the ‘iron triangle’ are long gone.  The intention of this post is to try and bring together four aspects of current thinking and their embedded concepts into an overall model of project management in the 21st century.  The starting point is traditional project management as defined in the soon to be published 6th Edition of the PMBOK® Guide; the major change (incorporated in the 6th Ed.) is ‘Agile Project Management’.  The two significant extensions to traditional project management that go beyond the PMBOK® Guide are ‘Complex Project Management’ and ‘Megaproject Management’. The focus of this paper is on the skills and competencies needed by the ‘managers’ of these different classifications of ‘projects’ rather than the scope of the different concepts (more on this later).

As a starting point, there seems to be a generally accepted view that the competencies needed to be a successful project manager underpin all of the other concepts. There are some distinctly different techniques used in Agile, only some of which flow into traditional project management, but in other respects ‘agile’ and ‘good project management’ are very closely aligned.  Managing complexity requires a significant additional set of competencies that build onto the traditional requirements.  Then, whilst many complex projects do not meet the definition of a ‘megaproject’, every megaproject is by definition a complex project with an additional layer of management capabilities needed to deal with its impact on society.  This basic framework is outlined below:

Stakeholders

All forms of project management recognise the importance of the project stakeholders. Projects are done by people for people and the ultimate success or failure of a project is defined by people – all ‘stakeholders’.  My work on the PMBOK® Guide 6th Edition core team was very much focused on enhancing the sections on stakeholder engagement and communication (which is the primary tool for engaging stakeholders). And as the scale of projects increase, the number of stakeholders and the intensity of public focus increases dramatically.

A heuristic suggested by Prof. Bent Flyvbjerg is as a general rule of thumb: ‘megaprojects’ are measured in billions of dollars, ‘major projects’ in hundreds of millions, and ‘projects’ in tens of millions or less. To quote the late Spike Milligan, ‘Money can’t buy you friends but you do get a better class of enemy’ – and while many stakeholders may not be ‘enemies’, the ability of stakeholders to organise around a megaproject tends to be far greater than around a small internal project. Consequently, the focus on stakeholders should increase significantly in excess of the increment in cost as you flow from small to megaprojects.

However, regardless of size, the need to identify, engage, manage, and deliver value to stakeholders, through the realisation of beneficial change, is consistent through all of the concepts discussed below. This and the temporariness of each ‘project organisation (ie, team)’ are the two consistent factors that underpin the concept of project management; and ‘temporariness’ is the key factor that separates projects and programs from other forms of management and ‘business as usual’.

 

Traditional Project Management.

The recognised guide for traditional project management is the PMBOK® Guide augmented to a degree by ISO 21500. The publicly released information on the 6th Edition highlights the need for flexibility in applying its processes, including the requirement to actively consider ‘tailoring processes’ to meet project requirements, and the value agile thinking can bring to the overall management of projects (see below).

The frame of traditional project management starts once the project is defined and finishes once the project has delivered is objectives. While this scope is somewhat limited and there may be a need to expand the scope of project management to include project definition at the ‘front end’, and benefits realisation and value creation after the outputs have been delivered (this will be the subject of another post), the knowledge, skills and competencies required to manage this type of project management are well understood.

Each project has four basic dimensions, size (usually measured in $), technical difficulty, uncertainty and complexity (these are discussed in detail in: Project Size and Categorisation). In the right circumstances, Agile can be an effective approach to resolving uncertainty. However, at an undefined point, the increase in complexity reaches a point where the concept of ‘complex project management’ becomes significant and really large projects are the realm of ‘megaproject management’. But the underpinning capabilities required to manage all of these extensions remains the conventional project management skills.

 

Agile Project Management

Agile has many facets. The concepts contained in the Agile Manifesto basically reflect a shift away for a ridged focus on process towards a focus on people (stakeholders) and adapting to change to achieve a successful outcome.  These concepts are now firmly embedded in the PMBOK® Guide 6th Edition and apply to every project. Where agile projects separate from traditional projects is recognising that in a range of soft projects, including software development, taking an iterative and adaptive approach to understanding the scope can often achieve a better outcome. Understanding what is actually helpful to the client develops based on learned experience from earlier iterations and these needs are incorporated into the next iteration of the development allowing a better outcome to be delivered to the client. This is not significantly different to much older concepts such as ‘rolling wave planning’ and progressive elaboration – there really is little point in making detailed plans for work you don’t know much about. The difference is Agile actively expects the scope to be adapted to the emerging requirements of the client, the other approaches seek to add detail to the plans at an appropriate point in time whilst the overall scope remains fundamentally unchanged.

Agile does not even need a project to be useful. Many of the Agile techniques work in any situation where there is a backlog of work to get through and can be effectively used outside of the concept of a ‘project’, this particularly applies to routine maintenance work of almost any kind.  A discussion on the value of Agile, and its limitations, are contained in our paper Thoughts on Agile.

However, for the purposes of this post, the key aspects Agile brings to the discussion, that are essential for effectively managing most types of project, are contained in the Manifesto – a preference for:

  • Individuals and interactions over processes and tools.
  • Customer collaboration over contract negotiation.
  • Responding to change over following a plan.

The Manifesto recognises there is value in the items on the right, but values the items on the left more.

 

Complex Project Management

Complexity is a facet of every project and program. Complex project management skills become important at the point where complexity becomes a significant inhibitor affecting the delivery of a successful outcome from the project (or program). This point may occur well before ‘complexity’ becomes the defining feature of the project.

Complexity is a very different concept to a complicated project, technically complicated work can be predicted and managed; launching a new communication satellite is ‘rocket science’, but there are highly skilled rocket scientists available that undertake this type of work on a routine basis. As with any traditional project, the costs, resources and time required can be predicted reasonably accurately.

The dominant feature of complexity is the non-predictability of outcomes. Non-linearity, ‘the tipping point’, and emergence describe different ways outcomes from a slightly different starting point can vary significantly compared to previous experience or expectations (for more on the concepts of complexity see: Complexity Theory).  Complexity arises from various forms of complex system, these may be organic (eg, a river’s eco-system), man-made (eg, an overly complicated system-of-systems such as too many interconnected software applications automatically interacting with each other), or interpersonal (eg, the web of relationships within and between a project team and its surrounding stakeholder community).  In all of these situations, the ‘system’ behaves relatively predictably, dealing with the effects of stresses and stimuli up to a point (and normal management approaches work satisfactorily); but after that point adding or changing the situation by a small increment creates completely unexpected consequences.

Interestingly, from the perspective of managing a project, these three areas of complexity are closely interlinked, the complex behaviour of the environment and/or man-made systems-of-systems feeds back into the perceptions of stakeholders and the activity of stakeholders can impact on both the environment, and the way complex systems function. Similarly, dealing with emerging anomalies in the environment or in a complex system needs the active cooperation of at least some of the project’s stakeholders. Consequently, the focus of complex project management is dealing with the consequences of the inherently unpredictable and complex behaviours and attitudes of stakeholders, both within the team and within the surrounding stakeholder community.

Some projects and programs, particularly large ones, are obviously complex from the outset and can be set up to make effective use of the ideas embedded in complex project management. Others may be perceived as non-complex ‘business-as-usual’ and tip into complexity as a result of some unforeseen factor such as a ‘normal accident[1]’ occurring or simply because the perception of ‘straightforward’ was ill-founded. Underestimating complexity is a significant risk.

Where the project is perceived to be complex from the outset, a management team with the competencies required to deal with the nuances of managing a ‘complex project’ can be appointed from day one (and if appropriately skilled people are not available, support and training can be provided to overcome the deficiencies) – this maximises the probability of a successful outcome.  When a project unexpectedly falls into a state of complexity the situation is far more difficult to manage primarily because the people managing the work are unlikely to be skilled in complex project management, will try to use normal management techniques and most organisations lack the resources needed to help rectify the situation – skilled complex project managers are in short supply globally.

One initiative designed to overcome this shortage of ‘complex project managers’ and build an understanding of ‘complex project management’ is the International Centre for Complex Project Management (ICCPM).  ICCPM’s approach to complex project management is to see this capability as an extension of traditional project management (as inferred in the diagram above). The ICCPM view is that while traditional approaches are insufficient to effectively manage a complex project on their own, you cannot manage a complex project without a strong foundation based on these traditional skills and processes. The relationship is described by the ICCPM as:

What changes is in part the way the traditional capabilities such as scheduling and budgeting are used, overlaid with the expectation these artifacts will need to adjust and change as the situation around the project changes, augmented with a range of ‘special attributes’ particular to the process of managing a complex project. These ‘special attributes’ are valuable in the management of any project but become essential in the management of complex projects.  These capabilities and competencies are defined in the ICCPM’s Complex Project Manager Competency Standard available from: https://iccpm.com/.

Complex projects can vary in size from relatively small undertakings involving factors such as updating a complex systems-of-systems, or a high level of political sensitivity, through to the megaprojects discussed below. A complex project may not be a megaproject or even a major project, but every megaproject and many major projects will also be a complex project requiring complex project management capabilities for a successful outcome.

 

Megaproject Management

Megaprojects are defined as temporary endeavours (i.e. projects or programs) characterised by:

  • A large investment commitment;
  • Vast complexity (especially in organizational terms); and
  • A long-lasting impact on the economy (of a country or region), the environment, and society.

They are initiatives that are physical, very expensive, and public. By definition, megaprojects are complex endeavours requiring a high degree of capability in the management of complex projects.  In addition megaprojects typically involve a number of other facets:

  • Megaprojects are by definition a program of work (see: Defining Program Types).
  • Many are implemented under government legislation, requiring skills and knowledge of government processes and the ability to operate within the ambit of ‘government’. This is a very different space in terms of accountability and transparency compared to private enterprise.
  • Most interact with a range of government agencies at all levels of government from local to national. These stakeholders often have a very different set of agendas and success criteria compared to the organisation running the megaproject.
  • The size of a typical megaproject involves large amounts of money and therefore increases the risk of corruption and other malfeasance – governance and controls need to be robust[2] to maintain high ethical standards.
  • The ‘political attractiveness’ of doing a megaproject (eg, hosting the Olympics) distorts decision making; care in the megaproject development process is required to reduce the effect of optimism bias and strategic misrepresentation (see: The reference case for management reserves).
  • Megaprojects are financially fragile[3] and fragility is typically irreversible. Once broken the fragile entity cannot be readily restored to its original function. Financial (or investment) fragility is defined as the vulnerability of a financial investment to becoming non-viable, i.e., losing its ability to create net economic value. For example, the cost risks for big dams are significant; the actual costs more than doubles the original estimate for 2 out of 10 dams; triples for 1 out of every 10 big dams. But managers do not seem to learn; forecasts today are likely to be as wrong as they were between 1934 and 2007.

Recognising the scope and complexity of managing a megaproject and training people appropriately can mitigate the risks, the UK experience around Terminal 5 and Cross Rail (both £4 billion projects) suggest that achieving a good outcome is viable provided the organisation commissioning the megaproject is prepared to invest in its management. It’s probably no coincidence the management of megaprojects and their associated risk has been the focus of the Saïd Business School, University of Oxford for many years.

 

Summary

The competencies needed to manage projects grows in line with the increase in complexity and the increase in size. There are definitely additional elements of competency needed at each step in the framework outlined above.  What is far less clear is how to demarcate between normal, complex and megaprojects! Every project has a degree of complexity and a degree of size.  The values suggested above to separate normal, major and mega projects are arbitrary and there is even less clarity as to the transition between normal and complex projects.

I suspect the domain map demarcating the different disciplines will end up looking something like this but there’s a lot of research needed to define the boundaries and assign values to the axis (especially in terms of measuring the degree of complexity).  Hopefully, this blog will serve to start the discussion.

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[1] Normal accidents are system accidents that are inevitable in extremely complex systems. The three
conditions that make a system likely to be susceptible to Normal Accidents are:
–  The system is complex
–  The system is tightly coupled
–  The system has catastrophic potential
The characteristic of the system leads to multiple failures which interact with each other, despite efforts to avoid them.

[2] For more on governance and ethics see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov1

[3] From: Big Is Fragile: An Attempt at Theorizing Scale, in Bent Flyvbjerg, ed., The Oxford Handbook of Megaproject Management (Oxford: Oxford University Press)

The reference case for management reserves

Risk management and Earned Value practitioners, and a range of standards, advocate the inclusion of contingencies in the project baseline to compensate for defined risk events. The contingency may (should) include an appropriate allowance for variability in the estimates modelled using Monte Carlo or similar; these are the ‘known unknowns’.  They also advocate creating a management reserve that should be held outside of the project baseline, but within the overall budget to protect the performing organisation from the effects of ‘unknown unknowns’.  Following these guidelines, the components of a typical project budget are shown below.

PMBOK® Guide Figure 7-8

The calculations of contingency reserves should be incorporated into an effective estimating process to determine an appropriate cost estimate for the project[1]. The application of appropriate tools and techniques supported by skilled judgement can arrive at a predictable cost estimate which in turn becomes the cost baseline once the project is approved. The included contingencies are held within the project and are accessed by the project management team through normal risk management processes. In summary, good cost estimating[2] is a well understood (if not always well executed) practice, that combines art and science, and includes the calculation of appropriate contingencies. Setting an appropriate management reserve is an altogether different problem.

 

Setting a realistic management reserve

Management reserves are an amount of money held outside of the project baseline to ‘protect the performing organisation’ against unexpected cost overruns. The reserves should be designed to compensate for two primary factors.  The first are genuine ‘black swans’ the other is estimating errors (including underestimating the levels of contingency needed).

The definition of a ‘black swan’ event is a significant unpredicted and unpredictable event[3].  In his book of the same name, N.N. Taleb defines ‘Black Swans’ as having three distinct characteristics: they are unexpected and unpredictable outliers, they have extreme impacts, and they appear obvious after they have happened. The primary defence against ‘black swans’ is organisational resilience rather than budget allowances but there is nothing wrong with including an allowance for these impacts.

Estimating errors leading to a low-cost baseline, on the other hand, are both normal and predictable; there are several different drivers for this phenomenon most innate to the human condition. The factors leading to the routine underestimating of costs and delivery times, and the over estimating of benefits to be realised, can be explained in terms of optimism bias and strategic misrepresentation.  The resulting inaccurate estimates of project costs, benefits, and other impacts are major source of uncertainty in project management – the occurrence is predictable and normal, the degree of error is the unknown variable leading to risk.

The way to manage this component of the management reserves is through the application of reference class forecasting which enhances the accuracy of the budget estimates by basing forecasts on actual performance in a reference class of comparable projects. This approach bypasses both optimism bias and strategic misrepresentation.

Reference class forecasting is based on theories of decision-making in situations of uncertainty and promises more accuracy in forecasts by taking an ‘outside view’ of the projects being estimated. Conventional estimating takes an ‘inside view’ based on the elements of the project being estimated – the project team assesses the elements that make up the project and determine a cost. This ‘inside’ process is essential, but on its own insufficient to achieve a realistic budget. The ‘outside’ view adds to the base estimate based on knowledge about the actual performance of a reference class of comparable projects and resolves to a percentage markup to be added to the estimated price to arrive at a realistic budget.  This addition should be used to assess the value of the project (with a corresponding discounting of benefits) during the selection/investment decision making processes[4], and logically should be held in management reserves.

Overcoming bias by simply hoping for an improvement in the estimating practice is not an effective strategy!  Prof. Bent Flyvbjerg’s 2006 paper ‘From Nobel Prize to Project Management: Getting Risks Right[5]’ looked at 70 years of data.  He found: Forecasts of cost, demand, and other impacts of planned projects have remained constantly and remarkably inaccurate for decades. No improvement in forecasting accuracy seems to have taken place, despite all claims of improved forecasting models, better data, etc.  For transportation infrastructure projects, inaccuracy in cost forecasts in constant prices is on average 44.7% for rail, 33.8% for bridges and tunnels, and 20.4% for roads.

The consistency of the error and the bias towards significant underestimating of costs (and a corresponding overestimate of benefits) suggest the root causes of the inaccuracies are psychological and political rather than technical – technical errors should average towards ‘zero’ (plusses balancing out minuses) and should improve over time as industry becomes more capable, whereas there is no imperative for psychological or political factors to change:

  • Psychological explanations can account for inaccuracy in terms of optimism bias; that is, a cognitive predisposition found with most people to judge future events in a more positive light than is warranted by actual experience[6].
  • Political factors can explain inaccuracy in terms of strategic misrepresentation. When forecasting the outcomes of projects, managers deliberately and strategically overestimate benefits and underestimate costs in order to increase the likelihood that their project will gain approval and funding either ahead of competitors in a portfolio assessment process or by avoiding being perceived as ‘too expensive’ in a public forum – this tendency particularly affects mega-projects such as bids for hosting Olympic Games.

 

Optimism Bias

Reference class forecasting was originally developed to compensate for the type of cognitive bias that Kahneman and Tversky found in their work on decision-making under uncertainty, which won Kahneman the 2002 Nobel Prize in economics[7]. They demonstrated that:

  • Errors of judgment are often systematic and predictable rather than random.
  • Many errors of judgment are shared by experts and laypeople alike.
  • The errors remain compelling even when one is fully aware of their nature.

Because awareness of a perceptual or cognitive bias does not by itself produce a more accurate perception of reality, any corrective process needs to allow for this.

 

Strategic Misrepresentation

When strategic misrepresentation is the main cause of inaccuracy, differences between estimated and actual costs and benefits are created by political and organisational pressures, typically to have a business case approved, or a project accepted, or to get on top of issues in the 24-hour news cycle.  The Grattan Institute (Australia) has reported that in the last 15 years Australian governments had spent $28 billion more than taxpayers had been led to expect. A key ‘political driver’ for these cost overruns was announcing the project (to feed the 24-hour news cycle) before the project team had properly assessed its costs.  While ‘only’ 32% of the projects were announced early, these accounted for 74% of the value of the cost overruns.

The Grattan Institute (Australia) has reported that in the last 15 years Australian governments had spent $28 billion more than taxpayers had been led to expect on transport infrastructure projects. One of the key ‘political drivers’ for these cost overruns was announcing the project (to feed the 24-hour news cycle) before the project team had properly assessed its costs.  While ‘only’ 32% of the projects were announced early, these projects accounted for 74% of the value of the cost overruns.

Reference class forecasting will still improve accuracy in these circumstances, but the managers and estimators may not be interested in this outcome because the inaccuracy is deliberate. Biased forecasts serve their strategic purpose and overrides their commitment to accuracy and truth; consequently the application of reference class forecasting needs strong support from the organisation’s overall governance functions.

 

Applying Reference Class Forecasting

Reference class forecasting does not try to forecast specific uncertain events that will affect a particular project, but instead places the project in a statistical distribution of outcomes from the class of reference projects.  For any particular project it requires the following three steps:

  1. Identification of a relevant reference class of past, similar projects. The reference class must be broad enough to be statistically meaningful, but narrow enough to be truly comparable with the specific project – good data is essential.
  2. Establishing a probability distribution for the selected reference class. This requires access to credible, empirical data for a sufficient number of projects within the reference class to make statistically meaningful conclusions.
  3. Comparing the specific project with the reference class distribution, in order to establish the most likely outcome for the specific project.

The UK government (Dept. of Treasury) were early users of reference class forecasting and continue its practice.  A study in 2002 by Mott MacDonald for Treasury found over the previous 20 years on government projects the average works duration was underestimated by 17%, CAPEX was underestimated by 47%, and OPEX was underestimated by 41%.  There was also a small shortfall in benefits realised.

 

This study fed into the updating of the Treasury’s ‘Green Book’ in 2003, which is still the standard reference in this area. The Treasury’s Supplementary Green Book Guidance: Optimism Bias[8] provides the recommended range of markups with a requirement for the ‘upper bound’ to be used in the first instance by project or program assessors.

These are very large markups to shift from an estimate to a likely cost and are related to the UK government’s estimating (ie, the client’s view), not the final contractors’ estimates – errors of this size would bankrupt most contractors.  However, Gartner and most other authorities routinely state project and programs overrun costs and time estimates (particularly internal projects and programs) and the reported ‘failure rates’ and overruns have remained relatively stable over extended periods.

 

Conclusion

Organisations can choose to treat each of their project failures as a ‘unique one-off’ occurrence (another manifestation of optimism bias) or learn from the past and develop their own framework for reference class forecasting. The markups don’t need to be included in the cost baseline (the project’s estimates are their estimates and they should attempt to deliver as promised); but they should be included in assessment process for approving projects and the management reserves held outside of the baseline to protect the organisation from the effects of both optimism bias and strategic misrepresentation.  As systems, and particularly business cases, improve the reference class adjustments should reduce but they are never likely to reduce to zero, optimism is an innate characteristic of most people and political pressures are a normal part of business.

If this post has sparked your interest, I recommend exploring the UK information to develop a process that works in your organisation: http://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent

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[1] For more on risk assessment see: http://www.mosaicprojects.com.au/WhitePapers/WP1015_Risk_Assessment.pdf

[2] For more on cost estimating see: http://www.mosaicprojects.com.au/WhitePapers/WP1051_Cost_Estimating.pdf

[3] For more on ‘black swans’ see: https://mosaicprojects.wordpress.com/2011/02/11/black-swan-risks/

[4] For more on portfolio management see: http://www.mosaicprojects.com.au/WhitePapers/WP1017_Portfolios.pdf

[5] Project Management Journal, August 2006.

[6] For more on the effects of bias see: http://www.mosaicprojects.com.au/WhitePapers/WP1069_Bias.pdf

[7] Kahneman, D. (1994). New challenges to the rationality assumption. Journal of Institutional and Theoretical
Economics, 150, 18–36.

[8] Green Book documents can be downloaded from: http://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent

How the chair can make a meeting ineffective

The chair of any meeting has a unique ability to destroy the value of the meeting!

Eight of the key ways to reduce the meeting’s value are:

  1. Playing favourites. Bad chairs tend to shut down some attendees whilst allowing others they see as politically important to occupy most of the speaking time. The outcome from this behaviour tends to be poor decision-making; bad chairs don’t care. Their interest is to stay the good books of the people they see as politically important.
  2. Changing the rules. Bad chairs keep the rules to themselves and change the rules when it suits them. They don’t give advice on what preparation attendees need to make or advise how the meeting will be conducted. While this trait may appear to appear to be a gambit to leave the chair in control, in reality it means the meeting is likely to be less than useful.
  3. Showing bias. When there is a vigorous debate between various groups in the meeting a bad chair will obviously be supporting one side.  Good chairs remain neutral whilst they may feel strongly about subject their primary function is to ensure the meeting reaches a consensus, not that the meeting reaches a decision that they predetermine as being optimum (although they need to be part of the consensus).
  4. Failing to define its purpose. Bad chairs do not define a clear objective for the meeting, fail to set priorities, and don’t circulate an agreed agenda. Good chairs define the purpose of every meeting with crystal clarity so attendees can come prepared and stay focused.
  5. Losing control. The hallmarks of a bad chair during the meeting include running over time, getting off track, get rattled, and allowing discussion to descend into personal arguments. Good facilitators keep their hands firmly on the reins consistently and politely guiding discussion back to the purpose of the meeting.
  6. Failing to communicate. Bad chairs tend to display no sense of appreciation for the points made by contributors to the discussion and tend to ignore many of the attendees. Good chairs are great communicators remember everybody’s name, include newcomers, and are excellent at active listening and summarising points to ensure everybody has a clear understanding of the current state discussion[1].
  7. Failing to make decisions. Deadlocks happen in most meetings, bad chairs cannot solve them. A good chair will either take a vote, extend discussion for a set (limited) period, set up a working party, or call an extraordinary meeting to deal with the item later; any of these options are better than allowing the meeting to waffle on allowing tension and confusion to grow.
  8. Failing to engage with meeting participants outside of the meeting. Bad chairs are missing in action, too busy to be involved with the delegates other than during the meeting. Good chairs recognise the meeting is part of a continuing process that requires responsive input and support between meetings.

Meetings are an expensive resource often costing thousands of dollars an hour to run. If you are the chair of the meeting, or are responsible for calling a meeting, you need to ensure the meeting is managed effectively to maximise the opportunity for success.  This is important for every type of meeting from a short team ‘stand-up’ through to company board meetings – the further up the hierarchy the greater the cost of ineffective meetings. Unfortunately ‘bad chairs’ seem to be common at all levels; the idea for this post came from an article by Kath Walters in the AICD March 2017 magazine focused on the behaviour of dysfunctional boards of directors.

Recognising poor performance is one thing, doing something about it is another; for more on managing effective meetings see: http://www.mosaicprojects.com.au/WhitePapers/WP1075_Meetings.pdf

Meeting management and effective communication also feature in our PMP and CAPM courses – the next 5-day intensive course starts 20th March, see: http://www.mosaicproject.com.au/

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[1] For more on active listening see: http://www.mosaicprojects.com.au/WhitePapers/WP1012_Active_Listening.pdf

USA moving to formalise project and program management capabilities

The concept of professional project management is gathering pace. The USA Government’s Program Management Improvement and Accountability Act of 2015 (PMIAA) was unanimously passed by the US Senate by in November 2015, and was passed by Congress in September 2016 on a 404-11 vote.  Because Congress made some minor changes, it now has to was returned to the Senate before it can be and signed into law by the President on the 14th December 2016 (see comment below).

obama-law

The Act requires the Deputy Director for Management of the Office of Management and Budget (OMB) to:

  • adopt and oversee implementation of government-wide standards, policies, and guidelines for program and project management for executive agencies;
  • chair the Program Management Policy Council (established by this Act);
  • establish standards and policies for executive agencies consistent with widely accepted standards for program and project management planning and delivery;
  • engage with the private sector to identify best practices in program and project management that would improve Federal program and project management;
  • conduct portfolio reviews to address programs identified as high risk by the Government Accountability Office (GAO);
  • conduct portfolio reviews of agency programs at least annually to assess the quality and effectiveness of program management; and
  • establish a five-year strategic plan for program and project management.

The Act also requires the head of each federal agency that is required to have a Chief Financial Officer (other than Defence which has its own rules) to designate a Program Management Improvement Officer to implement agency program management policies and develop a strategy for enhancing the role of program managers within the agency.

The Office of Personnel Management must issue regulations that:

  1. identify key skills and competencies needed for an agency program and project manager,
  2. establish a new job series or update and improve an existing job series for program and project management within an agency, and
  3. establish a new career path for program and project managers.

And finally, the GAO must issue a report within three years of enactment, in conjunction with its high-risk list, examining the effectiveness of the following (as required or established under this Act) on improving Federal program and project management:

  • the standards, policies, and guidelines for program and project management;
  • the strategic plan;
  • Program Management Improvement Officers; and
  • the Program Management Policy Council.

When enacted the Act will enhance accountability and best practices in project and program management throughout the federal government by:

  1. Creating a formal job series and career path for program/project managers in the federal government, to include training and mentoring – PMP, PMI-SP and similar certifications will become increasingly important!
  2. Developing and implementing, with input from private industry, a standards-based program/project management policy across the federal government.
  3. Recognizing the essential role of executive sponsorship and engagement by designating a senior executive in federal agencies to be responsible for program/project management policy and strategy.
  4. Sharing knowledge of successful approaches to program/project management through an inter-agency council on program and project management.
  5. Implementing program/project portfolio reviews.
  6. Establishing a 5-year strategic plan for program/project management.

You can read the text of the Act here, and stay up-to-date on the Act’s progress here.  The approach USA is aligned with regulatory actions in both the UK and the EU to require government agencies to improve project and program delivery. If this trend continues hopefully the ‘accidental’ project manager / sponsor will be consigned to history and the use of qualified professionals will become the norm.

Follow these links for more on achieving your PMP credential of PMI-SP credential.

Governmentality – the cultural underpinning of governance

Governmentality1Two major governance failures in recent times highlight the importance of organisational culture in delivering a well-governed entity.  Professor Ralf Müller has adapted the term ‘governmentality’ to describe the systems of governance and the willingness of the people within an organisation to support the governance objectives of the organisation’s governing body. When the willingness to be governed breaks down, as these two examples demonstrate, governance failures follow.

Toyota

The Lexus ‘unintended acceleration problem’ from 2009 has cost  car manufacturer Toyota a staggering $1.2 billion fine to avoid prosecution for covering up severe safety problems and continuing to make cars with parts the FBI said Toyota “knew were deadly.”  In addition to numerous civil actions and costs of reputational damage.  The saga was described as a classic case of corporate culture that favoured the seemingly easy way out instead of paying the cost and doing the right thing.  But, the actions of the people who magnified the problem by attempting to cover up the issues fundamentally contradicts the ‘Toyota Way’ that has guided Toyota since 2001. The Toyota Way has two core principles, respect for people and continuous improvement (kaizen).

Respect for people puts ‘people before profits’, and this is not an idle slogan.  Following an Australian Government decision in 2014, all motor vehicle manufacturing in Australia will cease by 2018 (this affects General Motors Holden, Ford and Toyota). In February 2014 Toyota president Akio Toyoda personally came to Australia to tell his workers of the closure and Toyota’s commitment to its staff through training and other activities has maintained staff commitment at our local Altona plant with everyone working to make the “last car the best global car!”.

The difference between the “people first equals customer first” attitude demonstrated in the approach to closing the Altona plant where people are still being released for paid training to up skill for new roles and the ‘customer last’ approach that dominated the Lexus saga is staggering.  The reaffirmation of the ‘Toyota Way’ may have been driven in part by the Lexus disaster but this does not explain why quality and customer service was allowed to fail so badly in the company that practically invented modern quality.

Volkswagen

A similar dichotomy is apparent in the Volkswagen diesel engine emissions scandal.  A company renowned for engineering excellence, from a country renowned for engineering excellence allowed engineering standards to slip to a point where the cars being sold were illegal.  The actual emissions were only part of the problem, Volkswagen engineers had developed a software program dubbed the ‘diesel dupe’ that could detect when the cars were being tested and change the engine performance to improve results. When the cars were operating under controlled laboratory conditions – which typically involve putting them on a stationary test rig – the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance thereby reducing emissions. Once on the road, the engines switched out of this test mode.

Governance issues

Neither of these issues involved ‘a few bad apples’ – the excuse used by most institutions to explain banking and financial scandals. They both required extensive management involvement and cover-ups or acquiescence. A substantial subset of both organisation’s management felt that doing the wrong thing was in the best interests of either themselves or the organisation (or both, at least in the short term). But the governing bodies of both organisations would seem to have maintained a commitment to their overall philosophy, the ‘Toyota Way’ and ‘Engineering excellence’.  So what caused the governance failure?

Governmentality

One element that seems central to both of these failures was a breakdown in the willingness of managers to comply with the overall governance philosophy of the organisation which in turn caused the governance processes to fail; this is the domain of governmentality. Governance cannot be successfully imposed on a population that does not want to be governed!

Governmentality2Governmentality is a term coined by philosopher Michel Foucault around 1980 and refers to the way in which the state (or another governing body) exercises control over, or governs, the body of its populace. The concept involves a complex series of two-way transactions involving:

  • the way governing bodies try to produce the people best suited to fulfil those governments’ policies;
  • the organised practices (mentalities, rationalities, and techniques) through which people are governed, and
  • the techniques and strategies by which a society is rendered governable.

In the same way as governments rely on most people complying with legislation most of the time, organisational governance mechanisms such as ‘project management offices’ and ‘portfolio management’ cannot function effectively without the cooperation of the people being governed. When governmentality breaks down and people no longer support the governance processes they cease to be effective.

The challenge facing every governing body, in every organisation, is in three parts

  1. Creating an authentic vision and mission for the organisation.
  2. Creating an effective governance system that supports the achievement of the vision.
  3. Creating and maintaining an ethical culture that embraces and supports governmentality.

Effective governance systems can weed out the bad apples and correct errors, but they cannot oversee the actions of every manager all of the time if the majority of people do not wish to follow the governance dictates, or actively work to subvert them.

Developing the ‘right culture’ by employing the right people (and importantly offloading the wrong people) starts at the top.  The governing body needs to ‘walk the talk’, their CEO and senior executives need to model the desired behaviours and ‘doing the right thing’ needs to be encouraged throughout the organisation.

Achieving this requires authenticity and a holistic approach to the way the organisation functions; all of the elements need to work together cohesively. Achieving this is the primary responsibility and challenge for the ‘governing body’, in most organisations, the Board of Directors!

If you get the vision, mission and culture right, even major lapses such as the ‘Lexus unintended acceleration problem’ can be overcome.  Despite the damage this caused, Toyota is now the world’s largest automotive manufacturer with a market capitalisation that is nearly double that of Ford and GM combined.  This is also the reason why Objectives, ethics and culture are the top three elements in my model for the ‘Functions of Governance’.

Seeking a definition of a project.

Good definitions are short and unambiguous and are essential for almost every aspect of life. Even something as simple as ordering a snack requires a clear understanding of what’ required – this understanding is the basis of a definition. For example, doughnuts and bagels have a lot in common, they are both round and have a hole (a torus), and are made from dough but they are ‘definitely’ very different commodities! If you need a bagel for breakfast or a doughnut for you coffee everyone involved in the transaction needs to understand your requirements if your expectations are to be fulfilled.

bagel

donut

 

 

 

 

 

The simple fact is if you cannot define something precisely, you have real problems explaining what it is, what it does and the value it offers, and this lack of definition/understanding seems to be a key challenge facing the project management community (by the way, the bagel is on the left…… the other picture is a Krispy Kreme donut).

Definitions serve two interlinked purposes, they describe the subject of the definition in sufficient detail to allow the concept to be recognised and understood and they exclude similar ‘concepts’ that do not fit the definition. Definitions do not explain the subject, merely define it.

Way back in 2002 we suggested the definition of ‘a project’ was flawed. Almost any temporary work organised to achieve an objective could fit into almost all of the definitions currently in use – unfortunately not much has changed since. PMI’s definition of a ‘project’ is still a: temporary endeavour undertaken to create a unique product, service or result. This definition is imprecise, for example, a football team engaged in a match is involved in:

  • A temporary endeavour – the match lasts a defined time.
  • Undertaken to create a unique result – the papers are full of results on the weekend and each match is unique.
  • Undertaken to create a unique product or service – the value is in the entertainment provided to fans, either as a ‘product’ (using a marketing perspective) or as a service to the team’s fans.

Add in elements from other definitions of a project such as a ‘defined start and end’, ‘planned sequence of activities’, etcetera and you still fail to clearly differentiate a team engaged in a project from a football team engaged in a match; but no-one considers a game of football a project. Football captains may be team leaders, but they are not ‘project managers’.

The definition we proposed in 2002 looked at the social and stakeholder aspects of a project and arrived at an augmented description: A project is a temporary endeavour undertaken to create a unique product, service or result which the relevant stakeholders agree shall be managed as a project. This definition would clearly exclude the football team engaged in a match unless everyone of significance decided to treat the match as a project but still suffers from a number of weaknesses. To see how this definition works download the 2002 paper from, www.mosaicprojects.com.au/PDF_Papers/P007_Project_Fact.pdf

 

Updating the definition

Since 2002 there has been a significant amount of academic work undertaken that looks at how projects really function which may provide the basis for a better definition of a project.  The key area of research has been focused on describing projects as temporary organisations that need governing and managing; either as a standalone organisation involving actors from many different ‘permanent organisations’ such as the group of people assembled on a construction site, or as a temporary organisation within a larger organisation such a an internal project team (particularly cross-functional project teams). The research suggests that all projects are undertaken by temporary teams that are assembled to undertake the work and then dissipate at the end of the project.

My feeling is recognising the concept of a project as a particular type of temporary organisation provides the basis for a precise and unambiguous definition of ‘a project’. But on its own this is insufficient – whilst every project involves a temporary organisation, many temporary organisations are not involved in projects.

Another fundamental problem with the basic PMBOK definition is the concept of an ‘endeavour’.  The definition of endeavour used as a noun is: an attempt to achieve a goal; as a verb it is: try hard to do or achieve something.  But, ‘making an effort to do something’ is completely intangible; projects involve people! Hitting a nail with a hammer is an endeavour to drive it into a piece of wood but this information is not a lot of use on its own; you need to know who is endeavouring to drive the nail and for what purpose?

Nail-Quote-Abraham-Maslow

Another issue is the focus on outputs – a product service or result; the output is not the project, the project is the work needed to create the output. Once the output is finished, the project ceases to exist!  A building project is the work involved in creating the building, once the building is finished it is a building, not a project. But confronted with the need to create a new building different people will create different projects to achieve similar results:

  • One organisation may choose to create two projects, one to design the building, another to construct it;
  • A different organisation may choose to create a single ‘design and construct’ project;
  • Another organisation may simply treat the work as ‘business as usual’.

The scope of the work involved in any particular project is determined by its stakeholders – projects are a construct created by people for their mutual convenience, not by some immutable fact of nature.

 

A concise definition of a project

Unpacking the elements involved in a project we find:

  • A temporary organisation is always involved, but not all temporary organisations are project teams.
  •  Projects cause a change by creating something new or different – this objective defines the work to be accomplished and usually includes constraints such as the time and money available for the work. These requirements and scope of work included in a project have to be defined and agreed by the relevant stakeholders at some point – there are no pre-set parameters.
  • The stakeholders have to agree that the work to accomplish the scope will be managed as ‘a project’ for the project to exist; the alternative is ‘business as usual’ or some other form of activity.

Modifying our 2002 definition to incorporate these factors suggests a definition along these lines:

A project is a temporary organisation established to deliver a defined set of requirements and scope of work, which the relevant stakeholders agree shall be managed as a project.

The definition originally proposed has been updated based on discussions with colleagues to:

Project:  A temporary organisation established to accomplish an objective, under the leadership of a person (or people) nominated to fulfil the role of project manager.

Project manager: A person (or people) appointed to lead and direct the work of  a project organisation on behalf of its stakeholders, to achieve its objective. The job title and the degree of authority and autonomy granted to the project manager are determined by the governance arrangements established by the project’s stakeholders.

Project management: The application of knowledge, skills tools and techniques to lead and direct the work of a project organisation.

This definition overcomes many of the fundamental problems with the existing options:

  • It recognises projects are done by people for people, they are not amorphous expenditures of ‘energy’.
  • It allows for the fact that projects do not exist in nature, they are ‘artificial constructs’ created by people for their mutual convenience, and different people confronting similar objectives can create very different arrangements to accomplish the work.
  • It recognises that projects are only projects if the people doing the work and the people overseeing the work decide to treat the work as a project.  The ‘always present’ factors are:
    • People decide to call the work a project (but just calling it a project is not enough)
    • The work is directed to achieving an objective that involves a change in something (new, altered, improved, demolished, etc)
    • The people doing the work are part of a temporary organisation (team / contract / ad hoc / etc) created to facilitate achieving the objective.
    • The work is led by a person fulfilling the role of a project manager and the work is managed as a project (PMBOK / ISO 21500 / Agile / etc).

What do you think a good project definition may be that is concise and unambiguous?

The challenge is to craft a technically correct definition, and then apply the Socratic method of thinking outlined in our 2002 paper at:  www.mosaicprojects.com.au/PDF_Papers/P007_Project_Fact.pdf.

I look forward to your thoughts!