FIVE NEW INSIGHTS FOR THE FUTURE IN PROJECT MANAGEMENT
Tal Ben-Zvi and Thomas Lechler
The field of project management has exploded in recent years. But with this expansion of project numbers, resources, tools and personnel required to manage ever-more complex projects has come a host of new challenges. Economic conditions have also placed pressure on the project management function.
Fortunately, new research and insights have recently emerged from the study of complex organizational projects and their management. An awareness of these five new ideas will confer a competitive edge to those organizations and project managers seeking to add maximum value to projects:
1. Adjusting portfolio sizes can have a marked impact on efficiency. When planning a large project, the natural reaction for project managers is to dedicate all resources to getting it to the finish line. In a perfect world, this is a sensible solution — and, in an economic climate where managers are forced to do more with fewer employees and smaller budgets, it sometimes feels like the only solution. But this approach runs into problems in organizations that push many projects over time and budget. When managers commit all resources to a project, there is nowhere to turn when the unforeseen occurs. Meanwhile, other projects inevitably suffer as delays multiply.
The solution may be as simple as it is unintuitive: managers ought to maintain reserves of idle resources. Our own research has discovered that a buffer of idle resources yields substantially higher value and return on investment than full allocation of resources. The extra resources are utilized when problems arise, and thus, they prevent the need to deploy resources from other projects.
These buffers don’t come without a cost — managers must build risk into their budget plan by having resources available on a contingency basis — but it’s more cost efficient to have those extra resources readily available than it is to divert them from other projects when things go wrong.
2. Over-reliance on multitasking may be more costly than beneficial. Another source of pain for project managers is the practice of multitasking. While it is common to see employees wearing multiple hats while working on multiple projects as a way for managers to control costs, it turns out to be less efficient overall to utilize employees working far out of their comfort zones.
Instead, we find that it is higher-level planning from managers that ultimately saved costs and delivered more predictable results on the execution side. This can often mean more projects completed on time and within budget, creating a better opportunity for improved return on investment.
3. Managers often confuse risk with uncertainty. At Stevens, we studied 41 corporate project cases in depth. These projects ranged in duration from 3 months to 36 months, with budgets ranging from $200,000 to $69 million.
We found something interesting: even experienced project managers frequently confuse risk with uncertainty, though these are two very different concepts. Uncertainties cannot be managed in the same way as risks, since they are unknown and cannot be identified or planned for until they arise. Some uncertainties even create unanticipated positive effects or results. Yet, 32% of the managers we interviewed during the course of our research exhibited some confusion between the terms.
Awareness of this crucial distinction between risk and uncertainty will be important for professional managers to bear in mind moving forward, and for education institutions to teach carefully in project management curricula. Since uncertainties are inherent in projects, managers must understand the elements of an uncertain environment in order to find practical tools to deal with uncertain situations and perhaps even transform uncertainty into opportunity, creating additional project value.
4. Project managers are key in identifying opportunities in projects. Not every uncertain situation leads automatically to an opportunity, of course, and the identification of opportunities is not self-evident. This is a highly creative process that takes place in the midst of an uncertain situation and is accompanied by deadline and time pressure. And the process does not end with the simple creation and identification of opportunity; the process finally concludes with the exploitation of these opportunities to gain value.
During our research, we asked the question, “Who identifies opportunities in situations of uncertainty?” We identified four different stakeholder groups who were involved in the discovery and recognition of value opportunities—and in two-thirds of these situations, it was the project manager who directly identified the positive opportunity. Boards of directors, project sponsors and steering committees count for only one-third of the identified positive opportunities among those studied.
These numbers paint a clear picture. Project managers are most often involved in identifying a value enhancing opportunity. Firms that choose to look for the value hidden in the cloud of uncertainty will need to rely on front-line project managers, encourage and train them using tools of value assessment and analysis.
5. Classical project management processes and curricula must evolve. It is clear that classical project management process-based standards no longer sufficiently address the more fluid management techniques required for situations of uncertainty, nor do they speak to the potential for enhanced value and the tools needed for assessment and analysis.
Classical project management training is built on the foundation of processes and routines. But this model must evolve now with the times. Project sponsors will need to determine how closely they will align management techniques to the triple-constraint (scope, time, cost) methodology. The prioritization between budget and time constraints will need to be assessed against the value possibilities associated with the exploration of an uncertain environment and the degree of willingness to modify the initial baseline. Project managers will need enhanced skills to extract value from the opportunities embedded within uncertainty; skills such as flexible management expertise, the ability to analyze the impact of the change, and the ability to communicate the potential value of the opportunity.
Project management education will also necessarily evolve. As the nuances between risk and uncertainty become more discernible, the methods for educating project managers and their teams must be revised to include the techniques for identifying and differentiating between risk and uncertainty. Project managers need to be able to identify both risks and uncertainties and apply a business-oriented approach to evaluate the alternatives, rather than simply applying the constraint methodology in order to constrain variance from the baseline. This will require the educational focus to transition from a process-orientation to a business-orientation that analyzes the business value associated with the potential changes to the baseline in an uncertain environment. Analysis and business skills will become extremely valuable to project managers interested in taking a more strategic outlook on their projects.
Project management has never been more complex and nuanced, nor more critical to organizations. As thinking around this key organizational function continues to evolve, it is important for managers and their managers to follow new insights in the discipline and initiate practical applications of novel ideas within their own organizations in order to maximize project value.
Increasing Value by Decreasing Project Portfolio Size
Tal Ben-Zvi and Thomas Lechler
When planning a big project, the natural reaction for most managers is to dedicate all resources toward getting it to the finish line.
In a perfect world, that’s a sensible solution — and in an economic climate where managers are forced to do more with fewer employees and smaller budgets, it sometimes feels like the only solution.
But how, then, do you react when problems arise?
This is a major problem in modern offices that push so many projects over time and budget. When managers commit all their resources to a project, they have no one to turn to when the unforeseen happens — and other projects inevitably suffer, as delays to the one project trickle down to everything else in the company’s pipeline.
The solution may be as simple as it is unintuitive: In planning how to tackle a project, managers are better off having a reserve of idle resources available than they are throwing all hands on deck.
A close examination of the data reveals the wisdom of more reasoned resource allocation. Our research found having that buffer of idle resources yields substantially higher value and return on investment than full allocation of resources. Those extra resources are utilized when problems build and therefore prevent the need to pull resources off other projects to meet deadlines.
Buffers don’t come without a cost — managers essentially build risk into their budget by having resources available on a contingency basis — but it’s more cost efficient to have those extra resources readily available than it is to divert them from other projects when things go wrong.
Another source of pain for management and budgets alike is multitasking. While it’s common to have employees wearing multiple hats while working on a project, as a way for managers to save money, it’s less efficient to have these employees working far out of their comfort zones.
Ultimately, it’s higher-level planning from managers that winds up saving costs, and delivering more predictable results, on the execution side. That can mean projects that are on time and within budget, creating a much rosier opportunity for improved return on investment.
To view faculty page for Professor Tal Ben Zvi
The Silver Lining of Project Uncertainties: Discovering Opportunities to Enhance Project Value
Thomas Lechler and Barbara Edington
Introduction - The Problem
By virtue of their unique nature, projects are mired in risks and uncertainty. Classic project management offers the techniques and tools to manage risks, but unlike risks uncertainties cannot be managed in the same ways since they are unknown until they arise thereby making long term upfront planning an inadequate form of management. Planning is a major component of classic project management but it does not allow for uncertainties that have not, nor could be identified.
The risk management approach adapted by the classic project management standards is concerned with managing the variation around the baseline but does not include the notion of maximization; therefore, both uncertainty and risks are similarly treated as threats to achieving the a priori defined project goals. This may add to the confusion we discovered in this study between the two terms and it may also partially explain the misperception abut opportunities since project value opportunities are only recognized, and subsequently evaluated and exploited, if the predefined baseline is fundamentally questioned and this is not concept that is included in the standards.
But every project manager has faced an unanticipated situation. The question is if situations of uncertainty could provide opportunities or is it associated only with the potential for negative impact to the project? Since uncertainties are inherent in projects, we must understand the elements of an uncertain environment in order to find practical tools to deal with these situations and perhaps even transform uncertainty into an opportunity for additional project value. Following the arguments of the economists, uncertainties are related with the existence of opportunities. In contrast to risks, uncertainties are not necessarily limited to negative consequences; there are positive implications as well or, as the economists call it, opportunities. If we accept the economic principle that uncertainty is a precondition for opportunity, then project managers can be viewed as pioneers facing uncertain territory seeking for opportunities to create project value. In our study we set out to explore the question if opportunities exist in situations of uncertainty and what they look like and who perceives them.
We used a qualitative approach to study the situation of uncertainty in projects. The primary means of data collection was semi-structured interviews with the project managers responsible for the case under investigation. In all, 41 in-depth cases were collected in different industries representing six distinct categories of projects with the majority of cases relating to information systems projects. Projects ranged from three months to 36 months in duration with budgets between $200,000 and $69 million.
What did we find?
In a qualitative study using open-ended questions, it is not unusual to be surprised at the information gathered from the interviewees. What we thought were straight-forward questions, such as “Did you encounter any uncertainty during the project?”, were often answered with responses which indicated that the question itself was being interpreted in different ways, or that the terminology was confusing. In particular, the terms risk and uncertainty were often used interchangeably and the concept of project related opportunities was not well understood. In addition we also observed misperceptions about the identification of opportunities. Another major insight of the study is that project managers were the stakeholders who most often identified opportunities placing them in a unique position to find areas of increased business value for their firms.
Terminology confusion: risk vs. uncertainty
PMBoK© terminology which is the common vocabulary of most project managers is clearly not as standardized as we would like to believe. Confusion between risk and uncertainty was evident from the initial interviews.
In 14 cases or 32% of the interviewed project managers mistook risks as uncertainties. This is an important issue, since we proposed that opportunities are linked to uncertainties. Project managers who misperceived a situation of risk as uncertainty might also likely misperceive the concept of opportunity..
The situations related to uncertainties during project implementation vary widely across the 41 cases. In general we classified these situations into six categories. The most frequent category of project uncertainties is related to a project’s stakeholders. About 38% of the identified situations are related to specific characteristics or activities of project stakeholders. Other categories of uncertainties are linked to the organizational and the external contexts in which projects are implemented. Specific project characteristics and malmanagement are events related to uncertainties. In particular, malmanagement was a category of uncertainty that was surprising. In these cases uncertainties were caused by improper management procedures that neglected common project management standards.
Perceptions and Misperceptions of Opportunities
Project opportunities provide the potential to exceed the predefined stakeholder value of a project during that project’s implementation. Opportunities have many different characteristics, but all represent a potential for the significant value increase of a project. Basically, when exploited, they can lead to a redefinition of a project’s initial baseline. They represent various means for adding value to a project, such as implementing new technologies or processes, or identifying new projects for the future. Since uncertainty can be the precursor to opportunity, the ability to recognize it is the first small step to the eventual possibility of improving upon the project’s initial anticipated value.
The identification of opportunities is a more common process than we expected; there were only 4 projects (9.5%) where no opportunity was identified. We found that a single opportunity was identified in 15 projects (36%) and multiple opportunities were identified in 7 (17%) projects. Based on the different opportunities identified in the case studies, we identified four distinct opportunity categories:
The results support the idea that opportunities could be related to situations of uncertainty. While not all projects were related to opportunities, opportunities were only identified in situations of uncertainty. The more surprising result of our case analysis is that we could identify in 20 projects (47%) at least one misperceived opportunity.
Stakeholders involved in opportunity identification
Not every situation of uncertainty leads automatically to an opportunity and the identification of opportunities is not self-evident. It is a highly creative process that takes place in the midst of an uncertain situation and is accompanied by deadline and time pressure. However, the process does not end with the creation and identification of opportunities; it ultimately concludes with their exploitation. This is not self-evident either, since the exploitation of opportunities requires significant project changes which will impact the various stakeholders in different ways.
Opportunities are often identified during the implementation stage of a project. The cases indicate that once an opportunity is identified the possibility that it will be exploited is quite high. An important question is “who identifies opportunities in situations of uncertainties?” We identified four different stakeholder groups who were involved in the discovery and recognition of value opportunities.
Board of directors
Project steering committee
The numbers paint a clear picture. Project managers are most often involved in identifying a value enhancing opportunity.
Implication for Project Management Education
As the nuances between risk and uncertainty become more discernible, the content and methodology for educating project managers and their teams must be revised to include the techniques for identifying and differentiating between risk and uncertainty. First and foremost, educational initiatives will need to address the nuances between the two concepts. Project managers need to be able to identify both risks and uncertainties and then apply a business-oriented approach to evaluate the alternatives rather than simply applying the constraint methodologies in order to constrain variance from the baseline. This will require the educational focus to transition from a process-orientation to business-orientation that analyzes the business value associated with the potential changes to the baseline in an uncertain environment. Analysis and business skills will be extremely valuable to PMs who are interested in taking a more strategic outlook to their projects.
Classical project management training is built on the foundation of processes and routines. The emphasis on constraint management rather than opportunity and value management reduces the implementation of a project to a “to do” list, while disregarding the potential for leveraging uncertainty as a positive context for value creation. Some of the “soft skills” or business skills such as negotiation or managing conflict have only recently been discussed as auxiliary content, however, the main focus remains on the structured, repeatable processes identified within the PMBOK® Guide. The strategic transition initiatives that will elevate the PM’s role and provide the potential for enhanced business value are:
- Introduce the discovery and exploitation of opportunity to project management
- Augment process knowledge with business knowledge
- Integrate academic business disciplines into project management
Changes in Practice
The cases we analyzed force us to examine how risk and uncertainty impact the potential for business value opportunity with emphasis on the question: What does the differentiation between risk and uncertainty mean for the current practices of project management?
The results indicate that classical project management process-based standards do not sufficiently address the more fluid management techniques needed for situations of uncertainty, nor do they speak to the potential for enhanced value and the tools needed for assessment and analysis. Project sponsors will need to determine how closely they will align the management techniques to the triple-constraint methodology. The prioritization between budget and time constraints will have to be assessed against the value possibilities associated with the exploration of an uncertain environment and the degree of willingness to modify the initial baseline.
Preparedness is a critical element for management, but with uncertainty that luxury does not exist, and therefore project managers will need enhanced skills to extract value from the opportunities embedded within uncertainty. These skills include:
Flexible management expertise to quickly assess situations and identify opportunities
- Ability to analyze the impact of the change
- Ability to communicate the potential value of the opportunity
Our findings demonstrate the important differences between the management of risk and the management of uncertainty. The practical insights of this research offer project managers and business sponsors the basic foundation of a business perspective in managing projects. Uncertainty is not occurring on a daily basis, and its management requires a very different set of tools and mindset. First, it requires the relinquishment of the baseline view and the ability, and authority, to question the project’s fundamental value proposition. Second, it requires a business perspective to identify opportunities for maximizing project value that could sacrifice significant project goals, such as significantly extending the budget or schedule, or changing the scope. Third, it requires leadership skills to moderate and lead the discussions with the different stakeholders in order to successfully exploit an identified opportunity.
Firms that choose to look for the value hidden in the cloud of uncertainty will need to rely on front-line project managers who will most often be the first to identify those opportunities — if indeed they are encouraged and trained as to the means of value assessment and analysis. Projects provide a rich environment for both risks and uncertainties, and while classic project management provides a deep and broad array of tools and techniques for managing risks, it does not address the methodology and tools necessary for dealing with uncertainty. Embracing uncertainty is not for the faint of heart, but in order to capture the value that is now slipping through the cracks in floorboards, it must no longer be our enemy.
To view faculty page for Professor Thomas Lechler
Download the Articles:
Five Insights in PM
The Silver Lining of Project Uncertainties
Increasing Value by Decreasing Project Portfolio Size