PMBOK® Guide Sixth Edition: What Would You Like to See Added?

Sometime in 2016, the next edition of the PMBOK® Guide should be published by the Project Management Institute. We could wait until too late and then complain about how the hard-working folks who author the “bible” haven’t seen fit to include our pet terms, techniques, metrics and ideas. Or we could start now by developing a list of items that we feel it should include, and perhaps either someone will notice it or we can summarize it and email it to PMI for consideration.

Toward this goal, I am starting a “PMBOK® Guide Sixth Edition Wish List” thread in the Discussion FORUM attached to this blog. I hope that readers will weigh in with their own suggestions/nominations, as well as comment on the suggestions of others. And periodically I will compile a summary of them.

For starters, here are ten items that I personally think should be included in the next edition, listed in descending order of how valuable I feel the inclusion of each would be. I will follow each with a brief explanation or descriptive link and a five-scale rating, running from VL (for Very Likely) to L to M to U to VU (for Very Unlikely), of my estimate of the probability of each being included.

  1. Change in the definition of “project” to eliminate the weasel word ”endeavor” and replace it with “investment in work”. My preferred redefinition would be: “An investment in work to create a unique product, service or result.” (No need for “temporary” either, until someone can show me something that isn’t temporary!) [U, even though this would have great benefit for the project management profession by recognizing our important role in utilizing the resources and funds with which we are entrusted to maximize value and ROI.)
  2. Expand the section on “Business Value” that was introduced in the 5th edition and that currently occupies most of pages 15-16, as well as being mentioned in the Glossary. The current description starts: “Business value is a concept that is unique to each organization.” That is indisputable. But it is also such a crucial concept (the raison d’etre of every project and/or program!) that surely it needs to be expanded to far more than two pages. Deserving of exploration are:
  • What are the commonalities of business value across any and all organizations?
  • How should it be measured? (Value is usually measured in monetary units.)
  • What generates the business value? (Answer: the product scope, with occasional contribution from the project scope if just doing the work adds value {e.g., a more experienced workforce}.)
  • What project documentation/technique should be used to define the business value? (Answer: the value breakdown structure (VBS) – which should definitely be included, and I think will be!)
  • How should business value be used to manage the other aspects of the project? (Through optimizing it in integration with schedule and cost, and using it to justify additional resources where their cost is less than the value they add.)

[VL. Business value is an obvious concept that lots of people have been writing about for a while. Whether any of the information mentioned above is included in the expanded treatment of the topic is much more doubtful. But almost any expansion would be useful.]

  1. Change the EVM term from planned value (PV) to planned cost (PC). It is cost, as the original earned value terms (that are still used in US Department of Defense contracting) BCWS, BCWP and ACWP emphasized: notice the “C” as the second letter in each of those. Yes, using two letters instead of four for each term made the metrics more accessible, and PMI has done a great job in spreading the use of the technique. However, the word “value” instead of “cost” in PV and (and in EV!) confuses people over the concept of business value. (For a great illustration of this, read Mike Hannon’s review of my book Managing Projects as Investment: Earned Value to Business Value.) [U. Okay, maybe I’m too optimistic and it should be VU. But if PMI wants (as it should!) to expand the concept of business value, it has to start clearly distinguishing between cost and value.]
  2. Include critical path drag as a scheduling metric. Wikipedia definition here. Every item on the critical path of a project or program has drag (unless two parallel paths are both critical, in which case neither has either drag or float but both, in combination, have drag compared to the next longest path). Why does the PMBOK® Guide include the non-critical float (slack) metrics but not the always-critical drag that costs the project time and money? Knowledgeable project managers are now computing drag “manually” – but drag analysis would be done so much more routinely if all the software did the calculation. That will happen someday – but much faster if the next PMBOK® Guide recognizes it. Besides, it’ll stimulate a lot of additional opportunity for PMP Exam questions! [L. Again, maybe I’m being overly optimistic — but it’s just hard to see how knowledgeable people could think that drag doesn’t belong in the Time Management section.]
  3. Stress the importance of a clear estimate of the value/cost of time as part of the charter or project business case or other initiation documentation. [U. It’s an obvious idea which would help tie PMBOK® Guide methods to the shutdown and turnaround discipline, where such estimates are standard and hugely important. I think it will happen eventually, but probably not in the 6th Edition]
  4. Include drag cost as either a Time Management or Integration Management metric, or both. Wikipedia definition here. On more than 98% of projects (by my estimation) extra duration (i.e., time on the critical path) reduces the expected value-over-cost (expected project profit (EPP?) of a project. And on those few exceptions, it’s important to know that they are exceptions! If critical path drag is included, it would be hard to understand a rationale for not mentioning drag cost. [M. Less likely to be included than plain naked drag, but still a good chance. If it is included, it would increase the chances for inclusion of #5, stressing the importance of a clear estimate of the value/cost of time.  But #5, recognition and quantification of the value/cost of time, is more important than just the act of tying it to an activity’s drag.]
  5. Mention and discuss the DIPP formula (DIPP = {$EMV of Scope ± $Acceleration or $Delay} ÷ Cost ETC} for planning, optimization and tracking. [VU. A rephrasing of the definition of “project” to include the word “investment” (see #1) would obviously make this more likely. But the “enabler” (see below) has to be recognition of projects as investments. Maybe this important metric will be included in the 7th or 8th]
  6. Recognize and discuss the multiplier effect on the value of “enabler” projects within a program, as well as the multiplier effect on an enabler’s acceleration premium and/or delay cost. The failure to recognize the special nature of enabler projects and to designate them as such leads to many bad decisions in terms of resource targeting. [U. Again, it’s an obvious and important concept. Some of the PMBOK® Guide authors are very smart people, so I hold out some hope.]
  7. Discuss/mention the doubled resource estimated duration (the DRED) as a technique for estimating the resource elasticity of an activity’s duration in response to additional resources. The DRED is an estimate of what an activity’s duration would become (shorter, longer or stay the same) if its assigned resources were doubled. [VU. Too bad, it’s a useful little tool for identifying where additional budget would help the most.]
  8. Discuss/explore the cost of leveling with unresolved bottlenecks (the CLUB). We know that resource insufficiencies cause delays. If we start measuring the value/cost of time, we will be able to quantify that cost and attach it to the specific bottleneck causing the delay. This metric is extremely valuable on a single project basis, and even more when compiled for an entire resource type or functional department across all the projects it supports – in other words, this is a toll that can move us toward right-sized staffing levels. [VU. But the CLUB is SO valuable to project and functional managers! I’m allowed to dream, ain’t I?]

Well, here are ten to start the ball rolling. C’mon, now, you must have some ideas too, don’t you? CCPM folks? Agile expansion suggestions? Add them to the list.

Fraternally in project management,

Steve the Bajan

Project Management and Senior Management: Reconciling Their Needs

I’ve been developing and teaching techniques and metrics for managing the business value of projects for over 20 years. My first major article was “When the DIPP Dips: A P&L Index for Project Decisions”, published in the Sep/Oct 1992 issue of Project Management Journal. And the first edition of my Total Project Control book included techniques such the DIPP Tracking Index, the value breakdown structure (VBS), drag cost and the cost of leveling with unresolved bottlenecks (the CLUB): all techniques for managing and tracking projects for optimum value.

But something was missing. I would explain these techniques to experienced project managers in corporate classes and PMI seminars, and from time to time I’d be hired as a consultant to help plan a big project or pull in a slipped schedule. And then I’d leave and realize that I’d only handed the organization a fish. Despite my efforts, I had failed to teach them how to implement the processes to catch it themselves.

teach a man to fish

About five years ago, during the fourth day of a corporate class on the TPC methodology, an attendee said:

“Steve, these concepts and techniques that you’ve been teaching us are great – but we’re the wrong audience. We’re just the master sergeants. You need to be teaching the colonels and generals in this company. Because they don’t understand any of this!”

I started thinking: what is it that I’m missing? Why is it that senior managers have almost no interest in learning about the techniques of something that so clearly impacts an organization’s bottom line?

And so it finally hit me: the concept that I had been talking all around for two decades, the magic word that would make senior managers sit up and take notice. Investment! The thing that senior managers do understand! Not just understand, but respect and study and believe in planning and tracking and optimizing.

Project managers are subject matter experts. They are engineers and chemists and programmers and biologists and doctors and geologists and… They know a lot! They have not only extensive education, but experience in things that it is very important to know!

Where they often don’t have a great deal of knowledge is in terms of what some would call “business skills”: investment and economics and marketing. And you know what? That’s okay! Knowing how to make sure that the building doesn’t collapse, or the airplane crash, or the software consume the hard drive, or the pharmaceutical compound kill someone, or the ground water get polluted… That’s hard and that’s important! Yes, it would be nice if these smart and conscientious folks also had business knowledge and skills – but if we want those skills, they are going to have to be “add-ons”, because these people have been busy all their lives putting their energy into other very valuable knowledge. And that’s why corporations bring in people like me to teach their SMEs project management.

Executives have learned an awful lot as well: about investment and economics and marketing and taxes and interests rates and corporate bonds and organizational structures and behavior… and that’s all important stuff too. What they don’t know about is project management. And most of the time, they are not willing to attend project management classes.

Now, I’ve met some senior managers who seem to think that project management is somehow “beneath” them. (After all, what’s the big deal about delivering a mall or a jet fighter or an oil well or a cure for depression by an arbitrary deadline for an arbitrary budget, right?) But actually most senior managers I have met are bright and conscientious people, too! It’s just that no one has explained to them why knowledge of project (and program!) management – its techniques, metrics, and governance — is importance to what they do: especially investment!

This is where both sides have to learn! They have to learn a common language. They have to institute and use common metrics that are based in the investment information that senior management respects. But those metrics must then guide the project teams in making the right decisions, and senior management must know that this is occurring.

This is the approach that I took in my book Managing Projects as Investments: Earned Value to Business Value that came out last September. It was intended to provide the “common ground”, the knowledge and understanding that both senior managers and project managers need to share. And that is why it was so rewarding for me when the June issue of PM Network included that very nice review of the book by Gary Heerkens, himself the author of The Business-Savvy Project Manager, which I strongly recommend.

Gary’s review said: “But what about during the project? Luckily, in his book,… Stephen Devaux makes solid points about what can be done to maximize ROI during project execution, and it reveals a large void in my perspective on the business of projects.”

Do not be fooled by Gary’s humility! His own book and his regular writings in his PM Network column have taught me a great deal that I didn’t know. Both of us (and let me emphasize that I have never met Gary!) share a love for project management, a desire to learn and, most important, a willingness to admit when we don’t know something. But what makes me happiest is that he identified, without any assistance from me, the deepest intention of the book: to create, define and explore that crucial nexus between the project management discipline and its techniques and the senior management interest in, and concerns about, business value and investment.

I believe project managers must say that word again and again – investment, investment, INVESTMENT! – to project sponsors and customers and all of senior management (especially, when possible, to the Chief Financial Officer!) to establish that we understand why we are doing these projects. (And then, of course, we must be sure to manage them as investments!)

By the way, I have seen this work in a slightly different arena: job interviewing. I often mentor former students through the interview process, and I always urge them to say, at an appropriate point: “Of course, all projects are investments and really need to be managed as such.” They invariably report back to me that the hiring manager’s face lights up. The next former student that tries this technique and later reports that they didn’t either get the job or at least get another interview will be the first!

This territory is also where this blog will continue to cultivate and nourish the improved status of and respect for project management. I believe it is where project/program management and business management must come together for the sake of organizational progress and efficiency.

Fraternally in project management,

Steve the Bajan

Disable de Sirens — But Put Out de Critical Path Fires, Too!

I share, with many others of the anglophone Caribbean culture, a propensity for exaggerated over-the-top hyperbole. And no, I’m not being redundant – any one, or even two, of those three terms would often be insufficient to describe the extended lengths to which we will sometimes go to draw attention to the point we’re trying to make.

As an illustration, there is the old story of the Bajan visiting London who is trying to describe the wonders of his home isle.

“In Barbados, we have mountains of sugar, rivers of rum, and fish that fly!”

To which, of course, the Englishman replies: “I might believe in the mountains of sugar and the rivers of rum, but I’m damned if I’ll believe in fish that fly!”

Slide1

So in my previous article, “Whaddya Do When the Critical Path Changes?”, I resorted to a little (for a Bajan!) hyperbole. I wrote that when the critical path changes, “sirens should wail.” And I was, quite properly, taken to task by a couple of people, including Shelley Horowitz in the Comments following that article, for suggesting the need for a state of alarm or danger due to such a change. And the criticism is quite correct. A half century spent in US cities, where sirens are an everyday occurrence, has perhaps combined with my West Indian exaggerations to dull me to the fact that, for many people in the world, sirens really do represent danger and appropriate panic: fire, tornadoes, tsunamis…

So I am taking this opportunity first to apologize, and then to explain in greater depth exactly what I meant.

The exact sentence in that previous article was:

“What should happen immediately is that sirens should wail, warning the project manager that Activity H, with a value-added of just 20% of $350K, or $70K, now has a negative NVA due to the fact that it now also has drag of 2 days and thus drag cost of $50K.”

So let’s eliminate the need for sirens. What I was suggesting is that a change in critical path during project execution can have a major impact on the future project plan. Work that made sense to perform in a certain way may now be a significant drag (!) on our project investment, requiring new analysis.

Figure 4 full network diagram after slippage

Notice, the key event as described in the quoted sentence above is NOT that the critical path changed — it is that this change caused specific activities to now have a negative impact on the project’s expected value! The project would now be better off without the optional Activity H, because its true cost is now greater than its value-added. And this is a potential hazard any time that the critical path changes.

But the problem is that such an event, as described in the linked article, would most probably not even be recognized. Or if it were, it would only be after a great deal of “manual” analysis. Even on a schedule of 100 activities (never mind a medium-sized project of 2000+ activities!), the chance of the scheduler or project manager noticing that one or more activities are suddenly costing more than they are worth is vanishingly small. Why? Because few of the techniques that would allow such a negative anomaly to be noticed are being used:

  1. Projects are not being defined as investments, so that expected monetary value (EMV, or NPV or ROI or any other investment value term you like) and its changes are not being incorporated into the PM software and tracked and optimized either upfront or during performance. The vast majority of commercial software packages do not provide a project-level field for attaching quantified investment value to a project, nor the functionality to manage and track changes that might affect it.
  2. The value-added of specific work packages is not being estimated and assembled into a value breakdown structure (VBS), so that in the diagram from the previous article the value-added of Activity H would be unknown.
  3. The value/cost of time, which usually has significant impact on project EMV, is not being estimated or tracked on most projects, and certainly not in the software. This in turn makes it impossible to compute either the drag cost or the true cost of an activity.
  4. Even on that small minority of projects where the value/cost of time is estimated, critical path drag and drag cost are not being computed. This means that the true cost of Activity H, and the fact that the slippage it is now making the net value-added (NVA) of Activity H negative, is therefore completely unknowable!

Notwithstanding my previous remark, what should happen when such an event occurs is not wailing sirens. Rather, the user’s PM software (MS Project, Primavera, or whatever) should take the info that was entered up front regarding the VBS and the value/cost of time, compute the new drag, drag cost and true cost totals for each new activity on the new CP and kick out an exception report, calling attention to Activity H, perhaps by highlighting it in red (preferably, fire engine red!). And now the team/PM can reassess and amend the plan.

But first, the team has to recognize the issue. And currently, none of that can happen because with the exception of one software package (Spider Project), none of the others (not MS Project, not Primavera, not Asta, not PlanView, not Safron, NONE!) is even computing critical path drag, far less supporting a VBS or drag cost, true cost, and net value-added computation! (And they should, because every project has a critical path, and critical path items have drag and drag cost!)

And that’s why projects are being performed all the time that generate less expected project profit (EPP) than they might because they include work whose true cost after a critical path change outweighs the value that it adds.

If you want to learn more about assembling a VBS and the other techniques mentioned above, they are explored in much greater detail in the new (2015) edition of my first book, Total Project Control: A Practitioner’s Guide to Managing Projects as Investments.

Again, thank so much to those who criticized my “siren” hyperbole and for making it clear that I need to post another article pointing out the implications (and cures!) listed above.

Fraternally in project management,

Steve the Bajan

“Whaddya do when the critical path changes?”

The title of this blog post may, alas, be a surprise to some less experienced project managers. “What – you mean the critical path might change?” Not only might it change, but if you did a good job of schedule optimization during your upfront planning, it very likely will change!

That’s because time is money and project value is usually increased by a shorter project schedule. The optimization process is usually one of iteratively squeezing critical path drag out of the longest path through fast tracking and added resources, thereby reducing float on the other paths. With less float, it often doesn’t take much delay for a secondary path to become critical, even though the entire project duration is still a lot shorter than it would have been without optimization, and the project will be more profitable.

But when a secondary path becomes critical, lots of important things change. Not only do activities that had drag now have float, but activities that had float now have drag! And drag cost! The basis for our critical path analysis is altered, and should require examination and re-evaluation of all our critical path activities, constraints and resources.

Let’s start by looking at a simple project network diagram as shown in Figure 1:

Figure 1 The VBS with Network

This diagram may contain info which some readers are not familiar with seeing in a project schedule. First, it includes the output of our value breakdown structure (VBS). As you can see, each box contains a letter, either M or O.

  • M stands for Mandatory and means that the activity must be performed as part of the project or the project will have no value. The value-added of all mandatory activities is equal to the project’s expected monetary value (EMV). Since the information at the top of the figure says that the project will have an expected value of $400K if completed on Day 55, and since the current schedule is 55 days, all mandatory activities have a value-added of $400K.
  • O stands for optional. These are activities that add value, but the project would have value even if they were excluded. All projects have such activities, and it is important both to recognize them and to estimate the value they are adding to the project. In Figure 1, Activities C, D, E and H are all optional, with value-addeds estimated to be 50%, 40%, 80% and 20%, respectively, of the project’s value.

In Figure 2 below, I have computed the drag, drag cost and true cost (TC) (TC = drag cost plus budget) for all the activities. If you want, do those calculations for practice before you look at Figure 2.

Figure 2 The VBS with drag drag cost and true cost

Notice that the planned true cost of activities that are not on the critical path is equal to their budgets, as they have no drag and thus zero drag cost.

With both the value-added and the true cost of each activity computed in Figure 2, we can now compute the net value-added (NVA) (NVA = value-added minus true cost) of each activity and ensure that each is worth performing. This is displayed in Figure 3.

Figure 3 Full network diagram including value addeds

As shown in Figure 3, all the activities have a positive NVA. The lowest NVA is Activity H, which has a value-added of only 20% of the project’s EMV, or $80K, but a TC equal to its budget of only $30K, for a net value-added of $50K.

Okay, so all is hunky-dory and we start the project with this plan. And then things start to happen. To be precise, Activity C, planned to take 13 days and finish at the end of Day 23, takes an extra 7 days and does not finish until the end of Day 30. As shown in Figure 4, this can change everything that’s important!

Figure 4 full network diagram after slippage

Suddenly, the critical path has changed and now goes through Activities F, H and I. Additionally, the project’s planned duration has slipped by two days, with a delay cost of $50K per day. As a result, the project’s EMV has slipped to $350K and the value of each activity, both mandatory and optional, has slipped accordingly.

What should happen immediately is that sirens should wail, warning the project manager that Activity H, with a value-added of just 20% of $350K, or $70K, now has a negative NVA due to the fact that it now also has drag of 2 days and thus drag cost of $50K. Its true cost is $80K, $10K less than the value it is adding. Either figure out a way to change the schedule (adding resources or changing the network logic) or jettison Activity I – the project will generate $10K more expected profit without it!

Two final points:

  1. $10,000 may not seem like much – but this is just an example. Projects are being performed every week that include work which, for the same reason as shown here, costs millions of dollars more than its worth.
  2. The only way to identify when this is happening is to have all the Total Project Control (TPC) data for both activity value-added and drag cost estimated and computed.

Fraternally in project management,

Steve the Bajan

The Benefits of Recognizing Projects as Investments: “And yet, it moves!”

One of the great afflictions of mankind throughout history has been the stubborn refusal of certain figures who see themselves as ”authorities” to alter their views in light of new ideas and evidence.

In the 17th and18th centuries, combustion was explained as the escape of a substance called phlogiston from a material. This theory was staunchly defended even after it was shown that magnesium gained mass when it burned. Finally, Antoine-Laurent Lavoisier proved conclusively that combustion was the combining of a material with oxygen. This new explanation led to giant steps forward in both physics and chemistry.

Galileo

Some of the most stubborn ideas are those that come with the imprimatur of sacred scripture. Thus the heliocentrism ideas of Copernicus, Kepler and Galileo were banned by the Vatican as conflicting with the Bible and the teachings of the Council of Trent. Galileo was threatened with burning as a heretic, placed under house arrest, and left only able to mutter about our planet: “Eppur si muove.”

Yesterday I had a discussion on a LinkedIn group in which I tried to explain that, in fact, all projects are investments and that recognizing them as such could have great benefit both for the development of better management techniques and metrics and for the greater esteem for our discipline. Alas, I ran into an individual who refused to accept any definitions or techniques beyond the pages of the Fifth Edition of the PMBOK® Guide.

Make no mistake – I regard the Guide as a very valuable book. But both I and PMI also regard it as a guide, and not as the entire body of knowledge of project management! It is also an evolving document, or there would be no need for new editions.

There are techniques and tools and metrics and, yes, definitions that are being used within our discipline that have not yet made it into the PMBOK® Guide. Undoubtedly many will some year. Critical path drag is an example – every project, however scheduled, has a longest path of activities and other delaying factors, and the amount that each item on that path delays completion is its drag. And drag is always there, and has been since the pharaohs’ projects, whether we and our software compute it or not! And this metric is enormously helpful whenever we are seeking places to compress our schedule! (Many clients have employed me over the years to use this technique to recover schedule.)

So what about the definition of a project that I use in my books?

“A project is an investment in work to create a product, service or result.”

First, is there anyone (apart from the gentleman from the LinkedIn group) who would argue that projects are not investments?

  • Investment: “1 The action or process of investing money for profit or material result;.. 1.2 An act of devoting time, effort, or energy to a particular undertaking with the expectation of a worthwhile result.”

http://www.oxforddictionaries.com/us/definition/american_english/investment

I believe we would all agree that every project is undertaken only if its probability-weighted value is expected to be greater than the cost (i.e., the invested amount). If we need a definition for value, the very first definition from the same source seems applicable:

Value: “1 The regard that something is held to deserve; the importance, worth, or usefulness of something”

http://www.oxforddictionaries.com/us/definition/american_english/value

A project’s value may be:

  • Revenues from a new product or service;
  • Future cost savings;
  • The opportunity to keep a plant open instead of being forced by the government to close it;
  • Avoiding fines;
  • Garnering votes;
  • Prosecuting criminals;
  • Saving lives; or
  • Any other of dozens of efforts intended to create a valuable result.

So every project is definitely an investment. But what might be the benefits of staring to recognize them as such?

  1. Project management would start to focus on the quantified aspects of those things that impact the value of the investment: the Golden Triangle of the integrated value/cost of scope, time and resource usage.
  2. Project managers would work harder to align the scope of the project with the benefits wanted by the sponsor/customer through the collaborative development and implementation of a value breakdown structure (VBS) and other techniques. (The failure to actually deliver the benefits for which a project is undertaken is a big issue in many circles, and this would help to solve the problem.)
  3. The value/cost of time on a project, which is currently almost always left as an unquantified externality and therefore rarely managed in terms of its actual impact on the investment, would suddenly be recognized for its importance. Many scheduling techniques that experienced PMs have mastered, like critical path analysis and resource leveling, would therefore suddenly be fully appreciated.
  4. Both drag cost and the true cost of work could be easily computed, meaning that activities on the critical path would be evaluated not only on the basis of their resource costs, but also their drag costs in terms of how much their drags are reducing the value of the investment. (True cost = resource costs plus drag cost.)
  5. Decisions across the Golden Triangle would be quantified in terms of investment value. Should we employ an additional resource costing $10,000 on a critical path activity? Well, will it reduce the drag cost by more than $10,000? Or would we be better off jettisoning that activity because its true cost will be greater than its value-added?
  6. We will be able to track each project during performance not just on the basis of earned value cost and schedule metrics, but on the basis of investment metrics: the expected project profit (EPP) of the project as tracked through the DIPP and the DIPP Progress Index.

All of these are just a sample of the benefits that would accrue if we start dealing with projects as investments. I believe that practitioners would rapidly develop new metrics and techniques to do an even better job of measuring and ensuring greater project investment value.

But perhaps the most important benefit would be for our profession: the value of project managers and project management techniques and contributions would become clearly measurable in value/cost terms. Instead of being looked upon as “overhead on cost centers” project managers would become valuable contributors to the organization’s bottom line.

Surely this would only help PMI to market its ideas and techniques to senior managers who know little about projects, but who care a great deal about investments!

Fraternally in project management,

Steve the Bajan

What is the True Cost of an Activity’s Work? Is It Worth It?

I have been delighted that my recent blogs about aligning the program and the project, the sponsor and the project team, have gotten a very positive response. In particular, the value breakdown structure (VBS), as a tool for accomplishing this, seems to have been very well received. So this article explores the next step, how to combine the VBS with other new investment-based techniques and metrics, to ensure that project effort and money are not being frittered away on low value products and work.

It is no revelation to the business community that projects are being completed every day that fail to generate the intended benefits. Many of these can be categorized, from an investment viewpoint, as “losses” – they cost more than they turn out to be worth.

The same principal that says that such project investments are losses also says to me that, on every calendar day and throughout the world, there will be a substantial number of projects completed that include work that costs significantly more than it is worth. No, I have not conducted a study to see if such is the case (although I think that it would be a very fruitful topic for research!). Rather, I deduce this from the fact that the following important steps in measuring both value and cost on projects are simply not being done:

  • Most projects never bother to create a value breakdown structure (VBS) and so have not even a guesstimate of what the value is of any optional scope;
  • Most projects do not bother to estimate the value/cost of time;
  • Many projects (and programs!) fail to perform even rudimentary critical path schedule analysis; and
  • Even on those projects that do perform critical path analysis, they rarely compute critical path drag and drag cost up front, and almost never re-calculate it during project performance. Such re-calculation is especially crucial when the critical path changes during execution.

If all of the above techniques are not used on a project (or program), then it is very likely that the effort will include products and work that cost more than the value they add.

My recent blog articles have discussed the essence of the first of the above points, the value breakdown structure (VBS). This is a tool for prioritizing project work packages and activities by estimating their relative importance and value. Some project components (like both the left wing AND the right wing on an airplane) are mandatory: the project cannot be completed without both of them. Other components are optional, included not because they are essential but for the value they are expected to add. If you have not yet read this blog article on the VBS, I urge you to do so now and then return to the rest of this article.

The True Cost of Work (TCW)

If would-be project sponsors could simply buy the exact product they want and have it immediately delivered and ready for use, they would elect to do so almost every time. In fact, they would usually even be willing to pay a significant premium for an off-the-shelf product that precisely meets their needs rather than funding a project to create it.

Why? Because (1) there are many more risks in creating the product than in buying something that has already been made and quality-checked, and (2) the time that it takes to create something you want almost always has a cost, and sometimes a great deal of cost!

Time is money, wrote Benjamin Franklin, and it is rarely more definitively so than when the sponsor/customer has to wait for project completion. But how much money is time worth on a given project? How much would the sponsor be willing to pay for each week earlier that they would be able to deploy the desired product?

Occasionally, it’s worth very little. Rarely, it might even be worth less if delivered early because its internal systems will start to run down and/or become obsolete. But such situations are so unusual that, when such is the case, it is crucial that the project manager and team know that this project is one of those “exceptions”! (And, by the way, it is almost always due to the fact that the specific project is part of a program but not on the program’s critical path!)

In the vast majority of cases, the value/cost of time on projects ranges from moderate to, yes, vast!

  • Our intended new product can generate no value until it’s deployed.
  • Our new product is an enabler and other revenue generators need it.
  • Competitors enter the market and make our product a “me-too”.
  • Market windows are missed.
  • Market share is lost.
  • We lose weeks in implementing a tool that will result in weekly cost reduction.
  • And sometimes humans die because of the delay.

Yet, sad to say, projects are initiated with arbitrarily-chosen “deadlines” and without any attempt to quantify the value/cost of being earlier (or, indeed, later!) than that target date.

So if an earlier deployment of a product would be worth $40,000 per week to a potential sponsor/customer, surely we can see that they would be delighted to consider an off-the-shelf product that costs $2M rather than execute a 30-week project with a $1.5M budget to create a similar product. All else being equal, the project approach would have a true cost of work (TCW) of $1.5M + (30 * $40,000) = $2.7M.

The TCW is the overhead-burdened cost of resource usage plus the value/cost of the time we lose in waiting for the work to be completed. If the work is serial in nature (i.e., one activity only, or simply one activity after another), it is easy to measure the time we must wait and “charge” each activity’s duration with the cost of that time.

But what if the work comprises a project that is part of a program that has other projects occurring in parallel? Or, onion-like, if the work is an activity in a project and it has other activities occurring in parallel?

As project managers understand, the determining factor of the duration of every project (and program!) is the work, constraints, re-work, dropped batons, and other delays that comprise the longest path, i.e., the as-built critical path (ABCP)! Activities and other delaying factors that are not on the critical path (even if with only one day of float!) are not delaying completion, and in TPC (i.e., Total Project Control) terms have zero drag – and thus zero drag cost! Therefore the true cost of work that is not on the critical path (either of the program or of the project) is simply the cost of resource usage.

But the TCW for each item of critical path work is the sum of its drag cost plus its resource usage costs. Thus comes the importance of computing these on every project and program, because without that computation, you really don’t know what each item of work is costing! And if the true cost of a work package, activity or project is greater than the value that it is adding (per the value breakdown structure), we should either figure out a way to reduce its true cost (perhaps by electing to use the DRED) or jettison it from the project (or program)!

In my next article, I will talk more about how work with negative value-added (value-subtracted?) often arises. But meanwhile, you might want to take a look at this article on drag (published here in Portuguese by Peter Mello) and perhaps at the drag cost and true cost exercises on the main page. (Or just read my two new books, Managing Projects as Investments: Earned Value to Business Value or the second edition of Total Project Control).

Fraternally in project management,

Steve the Bajan