First Amendment to Current PM Practice: All Projects are Investments

My recent blog article, “Ten Amendments to the Current Practice of Project Management,” has experienced such positive feedback that I’ve decided to follow it up with articles that explore each of the “amendments” in more detail. This article will explore my proposed:

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Amendment 1: Get agreement from everyone (team members to senior management and customers) that projects are investments.

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In Greek mythology, Athena sprang fully formed from the head of Zeus. However, few things come into existence fully formed, either from someone’s head or anywhere else. Philosophies, science and practices all tend to evolve over time, modified to meet changing conditions and needs.

How well I remember when the first edition of the PMBOK® Guide was published in 1996. I had been teaching corporate classes in project management for eight years. Occasionally an attendee would skeptically assert something like: “Who says we have to use this WBS thing?” (Or CPM thing or earned value thing.) “We do a task list and that seems just as good to me.” And then I’d have to explain why a hierarchical chart offered benefits a task list didn’t: summed data, templates, easy modification, etc. Sometimes they were persuaded and sometimes they weren’t.

The first PMBOK Guide changed all that. Suddenly I could point to an authoritative compendium of “best practices” and say: “Well, here is the way that many of the most experienced organizations are doing it.” Besides, it was now in a book, all beautifully bound – that fact alone carried much more authority than anything little Stevie might say!

Because something is not in a specific edition of the PMBOK Guide (for a current example, critical path drag and drag cost), it doesn’t mean that it won’t be in four or eight years. First, although so many people insist on calling it the PMBOK, it is the Guide to the project management body of knowledge! Second, even as a guide, it must evolve or risk obsolescence as the needs of the project world change.

Until that first edition of the PMBOK Guide was published, there was little agreement even on what a project is. What separates a project from other types of work (e.g., manufacturing, or retail, or hotel operations)? Thence came the two adjectives in the current definition of a project:

  1. Temporary”, as opposed to an effort that continued unchanged day after day and perhaps year after year; and
  2. Unique” to describe the output of a project, as opposed to manufacturing a million identical widgets.

But the real problem comes with defining a project as an endeavor. What exactly is an endeavor? The American Heritage Dictionary defines endeavor as: “1. A conscientious or concerted effort toward an end; an earnest attempt. 2. Purposeful or industrious activity; enterprise.”

So what does that mean? Endeavor is one of those nebulous words, applicable to many different types of activity. If I jump to touch the ceiling fan, that’s an endeavor. So too is trying to fall asleep at night, walking through the park, or getting a date with that attractive neighbor. But are all of these projects? And should we necessarily study the PMBOK Guide before approaching the neighbor?

Suppose we were trying to describe ice hockey to a visiting Alpha Centaurian. We might say: “It’s an endeavor we earthlings undertake that involves hitting a hard rubber disk with bent sticks across a surface of frozen water toward rectangular frames with nets while wearing boots with blades at the bottom.”

Nothing we have said above is untrue – but would our visitor have any sense of what ice hockey really is? Or why we undertake this “endeavor”? Until we use a more precise word like game or sport or contest (“game” is the second word in the American Heritage Dictionary’s definition), our Alpha Centaurian would have little idea of the essence of ice hockey or why so many Canadians love it.

What kind of endeavor is a project? It’s an investment. Every project is. No one ever funds a project unless they expect the eventual product, service or result to be worth more (to them!) than the expected invested amount. And while there may often be cost and time constraints on projects (we may only have so much money available to invest, and if we don’t finish it before New Year’s Day it will become worthless) and value drivers that seem less tangible (loss leaders, good publicity, enabler projects, etc.), the ultimate determinant of success is, as with every investment, a relative one: how much more (or less!) value did it generate than it actually cost, i.e., its profit.

When a project finishes, we rarely know its actual value – that may take years to determine. The same is true of many other investments. But we should manage all our investments in ways designed maximize their profits (i.e., their expected project profit, or EPP). And that should be based on quantified decision-making across the variables of:

  • Scope (which generates the value);
  • Time (which almost always impacts the value of the scope, positively or negatively);
  • Cost of resources (which drives the invested amount); and
  • Risk/opportunity (which can impact any or all of the other variables).

All this is discussed in this November blog article Turning Iron into Gold! and in much greater depth in my book Managing Projects as Investments.

But all the metrics, techniques and tools must necessarily follow from the understanding of the essence of a project. To do otherwise is to participate in ice hockey without understanding its essence as a game. Once the customer/sponsor starts to define their project as an investment (which, by the way, most understand intuitively if not explicitly), they will start to rely on typical investment metrics like ROI and profit. And those metrics should, in turn, drive the tools of project management: not just WBS and CPM and earned value, but their investment-based extensions: value breakdown structure (VBS), critical path drag and drag cost, the DIPP and DIPP Progress Index (DPI), and who knows what further advanced techniques that others may develop in the future?

I would love it if senior managers and sponsor/customers would suddenly become aware both of the importance of managing projects as investments and of the appropriate tools that can be used. But the most likely way for this to happen is through the project management community itself: those who “labor in the fields” to start marketing their services as customer-centric, benefits-based and investment-driven. After all, those are the things that customers want – they just don’t know how to get them!

But the project managers, and project management consultants and companies, who do comprehend them can work to reach that initial understanding with the potential client. Then they can win assignments and contracts that they otherwise mightn’t, because the client now understands the investment approach and wants this kind of “client-benefit-based” project management that is being offered. A persuasive enumeration might include:

  1. “We approach your projects as investments.”
  2. “We want to collaborate in determining the factors that drive your benefits and value.”
  3. “We will provide you with project progress metrics that are based in those factors.”
  4. “We will use our innovative techniques to maximize your ROI on the investment.”

From my own experience, I have found that an approach that starts with the MoSCoW method of prioritization and uses it to build a VBS for the customer’s values can be very impressive and persuasive.

And finally, the standing of the project manager, and of our whole discipline, will rise dramatically if projects are redefined as investments. Instead of being viewed as overhead on a cost center, the project manager will become a valued leader of a profit center, maximizing benefits-above-cost through their knowledge, experience and decision-making. And I think that’s a pretty good deal for us.

Fraternally in project management,

Steve the Bajan

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