Managing Project Success

1
Managing Project Success

• Vladimir Liberzon
• Spider Management Technologies
• spider_at_mail.cnt.ru

2
Part 1

• Project Success Criteria

3
Project Success Criteria

• Setting project targets is a key task that
  defines the process of project decision making
  and project performance analysis.
• The usual approach of triple constraints is very
  complicated, yet it does not include all the
  necessary considerations for determining if a
  project is successful.

4
Project Success Criteria

• Is Sydney Opera construction an example of
  successful project?
• No, because actual expenses exceeded the planned
  budget by several times.
• Yes, because it became one of the most famous
  Sydney attractions, bringing many tourists and a
  lot of money.

5
Project Success Criteria

• The Motorola Iridium Project was finished on time
  and within budget. Can it be considered a
  successful project?
• No!
• Iridium, backed by Motorola Inc. (MOT), sought
  bankruptcy-court protection in 1999 after its 5
  billion low-Earth orbit satellite (LEOS) fleet
  failed to attract customers or provide the
  quality service its backers had hoped for.

6
Project Success Criteria

• If project success criteria are set as finishing
  project on time and under budget then proper
  decision making will be complicated.
• It does not allow us to interpret the
  significance if the project exceeds the planned
  budget but is finished earlier than expected or
  if it is finished late but saves some money.
• It fails to evaluate the consequences if the
  project was on time and within planned budget but
  expected revenues were not achieved.

7
Project Success Criteria

• We suggest to set one single project success
  criterion that integrates project schedule, cost
  and business goals.
• Establishing this single criterion is complex
  since it must include project scheduling, project
  budgeting, estimating of the future business
  benefits from the project product delivery, and
  risk analysis and simulation.

8
Project Success Criteria

• If a project is business oriented then this
  project must have business targets and criteria
  of its success or failure.
• The natural choice setting target Internal Rate
  of Return (IRR).
• Con
• The Product Life Cycle may be too long for
  reliable IRR estimation,
• Uncertainties may be too great for proper IRR
  management.

9
Project Success Criteria

• One of the potential alternative options to set
  a target profit that should be achieved at some
  point in time based on the forecast of the
  revenues to be realized after the project results
  are delivered.
• If the project profit meets or exceeds the target
  profit then performance is successful.
• Such success criterion will permit weighting and
  balancing of time and money to make reasonable
  managerial decisions.

10
Project Success Criteria

• On the next slide we will see the project
  schedule that is calculated without allowing for
  project financing and supply restrictions.
• There are periods when the project has no money
  to proceed.

11
Project Success Criteria

• But, if project manager can find enough money and
  materials then the project total profit on the
  imposed date will be close to 219,000.

12
Project Success Criteria

• If we calculate the project schedule that
  accounts for financing, supply, and resource
  constraints then the total profit will be more
  than 25,000 lower.

13
Project Success Criteria

• Maybe it is reasonable to borrow money or to find
  some other solution?
• To be able to weight options and to choose the
  best it is necessary to look beyond the project
  results delivery date. It is necessary to
  simulate not only expenses but also revenues and
  resource constraints. This approach is especially
  important for portfolio management.

14
Project Success Criteria

• For setting project success criterion it is
  necessary to incorporate the following data
• Target finish that may be achieved with
  reasonable probability,
• Target budget that may be achieved with
  reasonable probability,
• Forecast of the probable future benefits (for an
  example future profit or revenue curve).
• The target finish and target budget shall be
  calculated, taking into account all project
  constraints (including resource, financing and
  supply constraints) and using risk simulation.

15
Project Success Target

• The next step is to define a specific point in
  time for measuring project success.
• Lets suppose that probable project NPV at this
  moment is a defined number of dollars. This date
  and amount can then be used as the project target
  defining the single project success criterion for
  the project management team.
• It will, therefore, influence the project
  managers decision making processes.

16
Project Success Target

• Now management decisions will be made by
  estimating their full business consequences.
  Project managers may decide to spend additional
  money to accelerate project performance if the
  NPV at the targeted date will rise as a result of
  this action.
• At any time project performance may be measured
  by the forecasted NPV if it exceeds the target
  then total project performance is successful. The
  current value of the forecasted NPV defines
  project status.

17
Project Success Target

• NPV forecast depends not only on project
  performance results but also on the market
  conditions and other project environmental
  parameters. So project managers will analyze not
  only project performance but also revenue/profit
  forecasts. Their objective will be trying to
  improve everything.

18
Project Success Targets

• But this target value is not a single value.
• We recommend setting the following success
  targets
• optimistic project target that is set for the
  project team,
• project management team target that includes
  contingency reserve,
• management target that includes contingency and
  management reserves,
• failure target that defines conditions under
  which project execution will be terminated.

19
Project Success Targets

• Project Team Target
• Project Management Team Target
• Management Target
• Failure

Contingency Reserve
Management Reserve
Still Profitable
Project Failure
Target Date
20
Part 2

• Setting Project Targets
• (deterministic approach)

21
Necessary Steps

• 1) Develop corporate databases
• 2) Develop typical fragnet library,
• 3) Create project model,
• 4) Define constraints,
• 5) Create project schedule,
• 6) Forecast future benefits,
• 7) Define project targets.

22
Step 1. Develop corporate databases

• Corporate project management has to be based on
  corporate standards. These standards must include
  not only processes and document templates but
  also estimates of the typical activity and
  assignment parameters.
• Activities, resources and assignments belong to
  the same type if they share the same
  characteristics like unit costs, material
  consumption per work volume (quantity) unit,
  resource productivity, etc.

23
Step 1. Develop corporate databases

• Corporate databases (Reference-books) should
  include at least
• Activity cost and material requirements per
  activity type volume unit,
• Resource assignment cost and material
  requirements per assignment type volume unit,
• Resource assignment productivity,
• Assignment work load.

24
Step 2. Develop typical fragnet library

• Project fragnets usually describe typical
  processes and technologies that are used more
  than once.
• Creating project computer models using the
  corporate library of typical fragnets will help
  to avoid inconsistencies and assures that the
  project model follows corporate standards.
• A library of typical fragnets is a very important
  tool for the development of corporate culture and
  management standards.

25
Step 3. Create project model

• Project model will be developed using typical
  fragnet library with project parameter
  estimations based on the corporate
  reference-books.
• This approach helps to create reliable project
  models that correspond with the corporate
  standards for technologies to be used and
  parameter (activity duration, costs, resource
  productivities, etc.) values.

26
Step 4. Define constraints

• Project constraints include
• time constraints,
• resource constraints,
• financing constraints (financing schedule),
• supply constraints (supply schedule),
• calendar constraints.

27
Step 5. Create project schedule

• The problem of project schedule development
  without allowing for resource constraints has a
  correct mathematical solution (Critical Path
  Method), which would be the same for all PM
  packages, provided that the initial data are
  identical. All other problems are solved using
  different approaches and yielding different
  results.

28
Step 5. Create project schedule

• Traditional notion of Critical Path works only in
  case of unlimited resources availability.
• Let us consider a simple project consisting of
  five activities, presented at the next slide.

29
Step 5. Create project schedule

• Activities 2 and 5 are performed by the same
  resource.

30
Step 5. Create project schedule

• Please pay attention to activities that became
  critical. Now delaying each of the activities 1,
  2 and 5 will delay the project finish date. We
  call these activities Resource Critical and their
  sequence comprises Resource Critical Path.

31
Step 5. Create project schedule

• In many projects it is necessary to simulate
  financing and production, and calculate project
  schedules taking into account all limitations
  (including availability of renewable resources,
  material supply and financing schedules). True
  critical path should account for all schedule
  constraints including resource and financial
  limitations.

32
Step 5. Create project schedule

• We call it Resource Critical Path (RCP) to
  distinguish it from the traditional
  interpretation of the critical path definition.
• The calculation of RCP is similar to the
  calculation of the traditional critical path with
  the exception that both early and late dates (and
  corresponding activity floats) are calculated
  during forward and backward resource (and
  material, and cost) leveling.

33
Step 5. Create project schedule

• This technique permits us to identify resource
  constrained floats.
• Activity resource constrained float shows the
  period for which activity execution may be
  postponed within the current schedule with the
  set of resources available in this project.
• It appears that by adding financial and supply
  constraints to the Critical Chain definition as
  well as the method of the Critical Chain
  calculation, we will obtain something very
  similar to RCP.

34
Step 6. Forecast future benefits

• Usually a project is considered to be finished
  when the project result is delivered and starts
  to bring benefits.
• Without forecast of these benefits it is
  impossible to evaluate the consequences of
  management decisions made during project
  execution.
• That is why the forecast of the future benefits
  must be included in the project model.

35
Step 7. Define project target

• Future benefits depend on time.
• By defining the target date we restrict the
  horizon of benefit forecasting and will be able
  to calculate the cash flow value to that moment.
• This value can be set as the project success
  criterion if the cash flow forecast meets or
  exceeds this value then project performance may
  be considered to be successful.

36
Step 7. Define project target

• Separate management target cash flow values may
  be defined for the same project. This target
  includes management reserve set for unknown
  unknowns. In deterministic approach to project
  planning this management reserve can be estimated
  based on past experience and expert judgements.
• The probabilistic approach allows us to calculate
  necessary contingency and management reserves.

37
Part 3

• Setting Project Targets
• (probabilistic approach)

38
Necessary Steps

• 8) Analyze risks,
• 9) Define target success probability for project
  management team,
• 10) Define target success probability for the
  organization (management),
• 11) Calculate target values for PM team and top
  management,
• 12) Define failure value.

39
Risk Simulation

• Risk simulation may be based on
• Monte Carlo simulation
• Three scenarios approach

40
Risk Simulation three scenarios approach

• A project planner obtains three estimates
  (optimistic, most probable and pessimistic) for
  all initial project data (duration, volumes,
  productivity, calendars, costs, etc.).
• Risk events are selected and ranked using the
  usual approach to risk qualitative analysis.
  Usually we recommend including negative risk
  events with probability
• exceeding 90 in the optimistic scenario,
• exceeding 50 in the most probable scenario,
• all selected risks in the pessimistic scenario.
• Selection of positive risk events is opposite.

41
Risk Simulation three scenarios approach

• The most probable and pessimistic project
  scenarios may contain additional activities and
  costs due to corresponding risk events and may
  employ additional resources and different
  calendars than the optimistic project scenario.
• As a result the project planner obtains three
  expected finish dates, costs and material
  consumptions for all major milestones.

42
Recommended Parameters

• They are used to rebuild probability curves for
  the dates, costs and material requirements.
• Defining desired probabilities of meeting project
  targets a project planner obtains recommended
  finish dates, costs and material requirements for
  any project deliverable.

43
Success Probabilities

• If different targets were approved then it is
  necessary to calculate the probabilities of
  meeting these targets. If they are reasonable
  then they may be accepted.
• Probabilities to meet approved project targets we
  call Success Probabilities.
• These targets may be set for all project
  parameters that will be controlled (profit,
  expenses, duration, material consumption).

44
Baseline

• Target dates do not belong to any schedule.
  Usually they are between most probable and
  pessimistic dates. A set of target dates and
  costs (analogue of milestone schedule) is the
  real project baseline.
• But, the baseline schedule does not exist!

45
Buffers

• We recommend using the optimistic scenario for
  setting task objectives for project implementers
  and managing project reserves at the management
  level.
• The difference between scheduled and target
  finish dates shows current schedule contingency
  reserve (buffer),
• Cost buffer is the difference between targeted
  and calculated cost.

46
Buffers

• As we discussed earlier there are several targets
  for each parameter and corresponding buffers (PM
  team targets, top management targets, contract
  targets, failure targets).
• Each target has its own initial probability of
  successful achievement.
• Example
• Project team target profit can be achieved with
  65 probability,
• Management target profit has 80 probability of
  success,
• Failure profit will be exceeded with 95 initial
  probability.

47
Risk Analysis Sample

• There are time, cost and material buffers that
  show contingency reserves not only for a project
  as a whole (analogue of Critical Chain project
  buffer) but also for any activity in the
  optimistic project schedule.

48

• Management by Trends

Part 4
49
Trend Analysis

• Project Performance Management will be based on
  trend analysis.
• It is necessary to discover problems as soon as
  possible and, by analyzing trends of the major
  project parameters, the project manager can
  quickly understand if there are problems with
  project performance.

50
Trend Analysis (Deterministic approach)

• If risks were not analyzed and simulated it is
  reasonable to analyze trends of the forecasts for
  data that were used in success criteria
  definition.
• If we defined that the project performance will
  be considered as successful if NPV forecast for
  the specified date exceeds the target value then
  we will analyze if this forecast is growing or
  not.
• Negative trend shows problems in project
  performance and requires consideration of
  corrective actions.

51
Success Probability Trends

• The best way to measure project performance is to
  analyze what is going on with the project success
  probabilities. If they are increasing it means
  that contingency reserves were spent slower than
  expected, if they dropped it means that project
  performance is not as good as planned and
  corrective actions are needed.

52
Success Probability Trends

• Success probabilities may change due to
• Performance results
• Scope changes
• Cost changes
• Risk changes
• Resource changes
• Market conditions changes

53
Success Probability Trends

• Thus, success probability trends reflect not only
  project performance results but also what is
  going on around the project.
• We consider success probability trends to be the
  really integrated project performance measurement
  tool.

54
Success Probability Trends

• Success probability trends may be used as the
  only information about project performance at the
  top management level because this information is
  sufficient for project performance estimation and
  for appropriate decision making.
• We call the described methodology Success Driven
  Project Management.

55
Part 5

• Managing Project Success

56
Success Management Steps

• Project Success Management includes following
  steps
• 1) Define integrated project success criterion
  that is based on the project business goal.
  Usually this criterion is the project cash flow
  (profit) value at some specific date in the
  future.
• 2) Set reasonable and achievable target values of
  project success criterion for project stuff, for
  project management team, for organization
  management.
• 3) Define what business results mean that project
  termination shall be considered.

57
Project Success Management Steps

• 4) Basing on performance management results
  calculate current value of success criterion, and
  current probabilities to meet project targets.
• 5) Analyze success probability trends. If this
  trends are negative consider corrective actions.
• 6) Determine, analyze and implement corrective
  actions. Corrective action should raise success
  criterion value.

58
Project Success Management Benefits

• One single integrated success criterion makes
  management and project performance analysis
  easier and more reliable.
• Risk simulation helps to determine necessary
  contingency and management reserves and to set
  reasonable targets.
• Success Probability Trends integrate project
  performance results and show performance problems
  immediately.

59
Project Success Management Benefits

• Success Probability Trends integrate project
  scope, time, cost, risk, and procurement
  performance information. They may be used at the
  top management level as the only and sufficient
  tool for reliable project performance analysis
  and decision making.

60
THANK YOU!

• I will appreciate your feedback
• and future discussions.
• Vladimir Liberzon
• spider_at_mail.cnt.ru
• www.spiderproject.ru