The appointment for the air-conditioning maintenance man was for 9.00am last Saturday morning so when he still had not arrived at 10:30am I called him up and asked where he was. “Sorry ah! Will be a bit late ah! 2pm ah!” was the response. He turned up at 3pm some 6 hours late.
Then on Sunday I had to fly to Miri and while sitting in the departure hall came the announcement that we all dread to hear, the plane had been delayed leaving KL and would be 30 minutes late.
So, what has all this got to do with project management? Well, Its all about setting baselines for the deliverables of their services in both cases. If I had initially asked the ‘aircon’ man to come without setting a time then technically he could not have been late turning up at 3:00pm. If the airline had not set a departure time then it would not have been delayed. However, appointments and departure times where established resulting in notable delays to those baselines.
When a contractor embarks upon a project it is usual for the client to set contractual milestones that must be met or else the contractor will be penalized. When linked to the activities of work these contractual milestones form an immovable ‘peg in the ground’ that will generate a logical path to achieve the deliverables by the required date. Upon agreement by both parties a baseline is set against which progress is measured to determine if the deliverables are being met.
If baselines are not established then the project has no means to measure its performance against, resulting in no early warning indicators that the project may be slipping into the ‘sick’ category. Similarly, the contract will define what the contractor is required to deliver and these requirements should be strictly controlled to ensure both parties do not diverge from their commitments without justifiable compensation.
Baselines can take on a number of forms depending on what critical success factors where defined at the beginning of the project but the three most common ones are cost, schedule and scope.
Cost Baselines are time-phased budgets that will monitor and measure cost performance throughout the project life cycle. They form a forecast indicator as to the possibility of the project running over budget at any given point in time thus allowing for remedial action such as re-financing to be implemented.
Schedule baselines form the most common type of baselines that will highlight if the project will complete on time and are critical to the success of the project not only from a contractual point of view but also from the contractors financial perspective as any slippage from the contractual completion date will result in a depletion of profits through the overuse of indirect resources. When the project schedule is baselined each activity can be measured for slippage and highlight the necessity for a recovery plan to be implemented.
Scope baselines form the most critical baseline that defines the complete scope of the project as understood by both parties at the beginning of the project. Any changes within the scope baseline will require the other two baselines to be re-visited also as additional work will require it to be costed and schedule in with the original scope.
Because the baseline serves as the primary metric for evaluating performance as the project progresses, the stability of the baselines are crucial. Therefore, after establishing the baselines they must be put under some form of version control to ensure all changes are legitimately approved and entered.
Once the project has been baselined within these three dimensions, it is available to be measured, monitored and controlled.
We constantly use baselines in our daily lives to compare what we need or what is required to be done, against pre-defined benchmarks. Consider the following common baselines: Greenwich Mean Time (GMT) displayed in a clock or watch indicating how much time is left to complete a task or to meet an appointment; a rule or tape measure used to compare the length of an object or a distance required; and even the fuel gauge in your car that measures the actual fuel used against what is remaining.
Imagine how difficult life would be without these items that we all take so much for granted.
Baselines provide the benchmark against which we measure progress and without formal baselines projects cannot be monitored or controlled and will ultimately end up as a statistic in the archives of ‘failed’ projects.
Friday, April 30, 2010
Friday, April 16, 2010
Development and Use of Project Contingency (Borneo Post 16th april 2010)
It is common practice for practitioners tendering for lump sum contracts to apply a contingency to the estimated sum prior to client submittal however, the development and use of contingencies is often misunderstood.
It is not unusual for a company to simply apply 10 or 15 percent of the estimated sum as a contingency value to be used at the discretion of the Project Manager (PM) throughout the project life cycle.
The typical uses of the contingency fund by the PM vary with justifications ranging from additional scope of work, design changes, additional resources, scope creep or even that end of project party. In addition to how contingency is used the PM also usually determines when it is used and in most cases will ensure that it is in fact used before the end of the project, instead of returning any unused portion to the company coffers.
This misuse of contingency is a very common practice both in the development and use of contingency costs and if you are telling yourself ‘well that’s how we have always done it’ then consider the following reasons for not doing it.
Allocating subjective contingencies to projects could deprive the funding of budgets to other company projects resulting in those projects not being allowed to proceed. Conversely, the allocated contingency could be inadequate and the project has to be abandoned at the cost of the company. The reality is that contingency funds are an essential budgetary item that requires objective development and strict governance in the use thereof.
So first let’s look at the real reason for applying contingencies by looking at a simple example. You save all year for that holiday during Chinese New Year and a week before the time actually comes to fly off to that exotic island or back to your homeland to see long lost relatives, you look at the money you have saved and think to yourself “Maybe I should take a little extra, just in case something goes wrong like an accident, illness, robbery or loss of personal possessions or money”. Now that’s contingency!
Note I didn’t say “Maybe I should take a little extra, in case I run out of money” or “… in case I decide to stay a little longer”, because that’s not contingency.
Contingency is an allocation of funds to be used in the event of identified risks eventuating, remembering that risks are potential events that cannot be forseen.
If the holiday went as planned, then one should return home with the contingency fund in the pocket. It should not be exchanged at the duty free store for goods that you never knew existed prior to walking into the store, it should be returned to your bank account for the next holiday.
So contingency is used for use during the eventuation of identified risks and therefore it requires some objective method of determining both how much money to allocate in total and when to spend that allocation. If the amount allocated is a lump sum determined subjectively then it is expected the spending of that allocation can only be subjective also.
When we talk of ‘risk’ we think of harmful or damaging results but there are also positive risks that if eventuate are opportunities for a project to capitalize on. As such, contingency allocations should be made available to seize opportunities as well as remove hazards. This can only be executed effectively if each individual potential risk is identified and allocated a contingency budget.
Before determining the contingency value thought must be given to the probability of the individual risk occurring and the consequence should it occur, then estimate what impact in terms of time and cost that risk will have on the project.
Each identified risk should, if possible, be associated with certain activities in the project schedule, however certain risks may only be applicable to activities in a particular timeframe like cyclones. If these activities are delayed then they could move outside the cyclonic weather window and the potential risk may reduce or increase as the case may be.
The next step is to develop strategies to be implemented should the potential risk occur or to mitigate the risk from occurring and it is these strategies that need to be costed for the contingency allocation. In the event that the potential risk does occur then the mitigation strategy can be implemented utilising the allocated contingency.
After totaling all the individual values the PM has a total contingency budget determined objectively that can be justified to senior management. In addition, senior management can monitor the spending of the contingency and forecast any unspent money for allocation to other projects upon its return.
There are other methods of determining the contingency funds, one being a quantitative method using ‘Monte Carlo’ analysis. This use of standard deviation to calculate the contingency is very popular with the larger organisations or enterprises but requires the use of sophisticated software for a full analysis of the data outputs.
Whatever method is employed the bottom line is, anything is better than a subjective assessment of adding 10 to 15 percent to the estimated value.
On May 29, 2006, an Indonesian company drilled a well into pressurized rocks in an East Java oil field but something went wrong when the well breached rocks somewhere around 3,000 meters underground, depressurizing the fluid in the rocks below.
Since the rupture, more than 90 million cubic meters (approx 14 football fields) per day of 80 degree Celsius clay and water have percolated to the surface displacing 30,000 people and causing roughly USD1 billion in damages.
I can guarantee you that every future risk management workshop held in that company will be identifying that risk as maybe a medium possibility with an extremely high consequence resulting in the allocation of well defined contingencies.
It is not unusual for a company to simply apply 10 or 15 percent of the estimated sum as a contingency value to be used at the discretion of the Project Manager (PM) throughout the project life cycle.
The typical uses of the contingency fund by the PM vary with justifications ranging from additional scope of work, design changes, additional resources, scope creep or even that end of project party. In addition to how contingency is used the PM also usually determines when it is used and in most cases will ensure that it is in fact used before the end of the project, instead of returning any unused portion to the company coffers.
This misuse of contingency is a very common practice both in the development and use of contingency costs and if you are telling yourself ‘well that’s how we have always done it’ then consider the following reasons for not doing it.
Allocating subjective contingencies to projects could deprive the funding of budgets to other company projects resulting in those projects not being allowed to proceed. Conversely, the allocated contingency could be inadequate and the project has to be abandoned at the cost of the company. The reality is that contingency funds are an essential budgetary item that requires objective development and strict governance in the use thereof.
So first let’s look at the real reason for applying contingencies by looking at a simple example. You save all year for that holiday during Chinese New Year and a week before the time actually comes to fly off to that exotic island or back to your homeland to see long lost relatives, you look at the money you have saved and think to yourself “Maybe I should take a little extra, just in case something goes wrong like an accident, illness, robbery or loss of personal possessions or money”. Now that’s contingency!
Note I didn’t say “Maybe I should take a little extra, in case I run out of money” or “… in case I decide to stay a little longer”, because that’s not contingency.
Contingency is an allocation of funds to be used in the event of identified risks eventuating, remembering that risks are potential events that cannot be forseen.
If the holiday went as planned, then one should return home with the contingency fund in the pocket. It should not be exchanged at the duty free store for goods that you never knew existed prior to walking into the store, it should be returned to your bank account for the next holiday.
So contingency is used for use during the eventuation of identified risks and therefore it requires some objective method of determining both how much money to allocate in total and when to spend that allocation. If the amount allocated is a lump sum determined subjectively then it is expected the spending of that allocation can only be subjective also.
When we talk of ‘risk’ we think of harmful or damaging results but there are also positive risks that if eventuate are opportunities for a project to capitalize on. As such, contingency allocations should be made available to seize opportunities as well as remove hazards. This can only be executed effectively if each individual potential risk is identified and allocated a contingency budget.
Before determining the contingency value thought must be given to the probability of the individual risk occurring and the consequence should it occur, then estimate what impact in terms of time and cost that risk will have on the project.
Each identified risk should, if possible, be associated with certain activities in the project schedule, however certain risks may only be applicable to activities in a particular timeframe like cyclones. If these activities are delayed then they could move outside the cyclonic weather window and the potential risk may reduce or increase as the case may be.
The next step is to develop strategies to be implemented should the potential risk occur or to mitigate the risk from occurring and it is these strategies that need to be costed for the contingency allocation. In the event that the potential risk does occur then the mitigation strategy can be implemented utilising the allocated contingency.
After totaling all the individual values the PM has a total contingency budget determined objectively that can be justified to senior management. In addition, senior management can monitor the spending of the contingency and forecast any unspent money for allocation to other projects upon its return.
There are other methods of determining the contingency funds, one being a quantitative method using ‘Monte Carlo’ analysis. This use of standard deviation to calculate the contingency is very popular with the larger organisations or enterprises but requires the use of sophisticated software for a full analysis of the data outputs.
Whatever method is employed the bottom line is, anything is better than a subjective assessment of adding 10 to 15 percent to the estimated value.
On May 29, 2006, an Indonesian company drilled a well into pressurized rocks in an East Java oil field but something went wrong when the well breached rocks somewhere around 3,000 meters underground, depressurizing the fluid in the rocks below.
Since the rupture, more than 90 million cubic meters (approx 14 football fields) per day of 80 degree Celsius clay and water have percolated to the surface displacing 30,000 people and causing roughly USD1 billion in damages.
I can guarantee you that every future risk management workshop held in that company will be identifying that risk as maybe a medium possibility with an extremely high consequence resulting in the allocation of well defined contingencies.
Thursday, April 8, 2010
A Failure to Plan is a Plan to Failure (Borneo Post Friday 9th April 2010)
I recently needed to take a business trip from Kuching to Miri and then on to Brunei and as I needed to call in on a number of clients in both locations I decided this was a great opportunity to undertake the journey by car. As this was the first time I had driven to these places I needed to establish how to get there so I purchased a map of Borneo and after making the appointments decided to plan the route I would take.
Projects are also ‘journeys’ and need a plan if they are to have any hope of being successful. When a project commences it is essential that the scope of work is defined to understand what deliverables are required (appointments) and a project schedule is developed to understand how those deliverables will be produced (the road map).
Projects, by definition, are unique and are never repeated, no matter how similar they were to the last project undertaken.
Take for instance road construction. Sure, the basic method of constructing a road does not change but no two roads are the same and therefore a plan must be developed to ensure it is completed within the given time frame, to the required client specification and within the agreed budget through the efficient use of resources (people, equipment and material).
The adoption of standardised project planning methodologies returns greater benefits than those typically perceived by some organisations evident by the production of a few shaded cells in a spreadsheet and submitted as a project schedule. However,, research does suggests that many organisations only undertake planning to conform with client requirements rather than the inherent value that it returns to the project and business as a whole, remembering that ‘project success equals business success’.
A client once told me they didn’t have time to do any planning as the project was so urgent they needed to ‘just get on with it’. I later learnt that the project completed seven weeks late and wondered how they didn’t have enough time to do any planning but they did manage find an additional seven weeks to complete the project which, cost them dearly in additional indirect costs and liquidated ascertained damages (LAD’s).
Fortunately in Sarawak many contractors do realise these benefits and have implemented methodologies such as ‘critical path method’ (CPM) that determines which activities of work, if delayed, will delay the project completion date (known as the critical path).
The project schedule in most industries is a contractual document that not only shows the project execution timeframe but after baselining, forms a benchmark against which progress is measured. This single document is the result of a concerted effort from the project management team and indicates their capability to perform the work logically, systematically and efficiently.
Planning is about establishing baselines against which progress is measured and involves defining the contractual deliverables, defining and sequencing the activities of work, defining and assigning the required resources, establishing budgeted cost, assigning responsibilities and identifying elements of risk together with their contingency plans.
Think of it this way. If you are planning to get married (yes, getting married is a project) you need to determine what type of ceremony and reception is required (scope) when it will occur and when the individual deliverable milestones are required (time) and how much money should be allocated (cost). You will need to determine who will arrange the ceremony, reception and organise the honeymoon (responsibilities) and what are the contingencies should something not go as planned (risk).
As I mentioned earlier all projects are unique so each wedding must be planned individually and to emphasis this point may I say I have been married twice (to the same person) so you would have thought that these two weddings would have been, at the very least, similar, but nothing was further from the truth. The first one happened in Australia and the second in my wife’s kampong so consider the cultural, social, environmental, legal, logistical and financial differences of these two events and one quickly realises that individual planning was absolutely essential.
Divergences from planned baselines that affect the projects ability to produce contractual deliverables are essential ‘early warning indicators’ that trigger corrective actions. If a project is planned correctly and a baseline applied at the outset then you have established a benchmark to monitor where you should be today and where you are heading tomorrow.
Remember the story about the Cheshire cat in ‘Alice’s Adventures in Wonderland’ where Alice comes upon the cat sitting in a tree at the junction of 3 paths and she asks the cat which path she should take. The cat replies “Well, where would you like to go?” Alice says, “I don’t know.” The cat responds “Then any path will take you there”. Apply that to projects and it is easy to see that a failure to plan is a definite plan to failure.
Projects are also ‘journeys’ and need a plan if they are to have any hope of being successful. When a project commences it is essential that the scope of work is defined to understand what deliverables are required (appointments) and a project schedule is developed to understand how those deliverables will be produced (the road map).
Projects, by definition, are unique and are never repeated, no matter how similar they were to the last project undertaken.
Take for instance road construction. Sure, the basic method of constructing a road does not change but no two roads are the same and therefore a plan must be developed to ensure it is completed within the given time frame, to the required client specification and within the agreed budget through the efficient use of resources (people, equipment and material).
The adoption of standardised project planning methodologies returns greater benefits than those typically perceived by some organisations evident by the production of a few shaded cells in a spreadsheet and submitted as a project schedule. However,, research does suggests that many organisations only undertake planning to conform with client requirements rather than the inherent value that it returns to the project and business as a whole, remembering that ‘project success equals business success’.
A client once told me they didn’t have time to do any planning as the project was so urgent they needed to ‘just get on with it’. I later learnt that the project completed seven weeks late and wondered how they didn’t have enough time to do any planning but they did manage find an additional seven weeks to complete the project which, cost them dearly in additional indirect costs and liquidated ascertained damages (LAD’s).
Fortunately in Sarawak many contractors do realise these benefits and have implemented methodologies such as ‘critical path method’ (CPM) that determines which activities of work, if delayed, will delay the project completion date (known as the critical path).
The project schedule in most industries is a contractual document that not only shows the project execution timeframe but after baselining, forms a benchmark against which progress is measured. This single document is the result of a concerted effort from the project management team and indicates their capability to perform the work logically, systematically and efficiently.
Planning is about establishing baselines against which progress is measured and involves defining the contractual deliverables, defining and sequencing the activities of work, defining and assigning the required resources, establishing budgeted cost, assigning responsibilities and identifying elements of risk together with their contingency plans.
Think of it this way. If you are planning to get married (yes, getting married is a project) you need to determine what type of ceremony and reception is required (scope) when it will occur and when the individual deliverable milestones are required (time) and how much money should be allocated (cost). You will need to determine who will arrange the ceremony, reception and organise the honeymoon (responsibilities) and what are the contingencies should something not go as planned (risk).
As I mentioned earlier all projects are unique so each wedding must be planned individually and to emphasis this point may I say I have been married twice (to the same person) so you would have thought that these two weddings would have been, at the very least, similar, but nothing was further from the truth. The first one happened in Australia and the second in my wife’s kampong so consider the cultural, social, environmental, legal, logistical and financial differences of these two events and one quickly realises that individual planning was absolutely essential.
Divergences from planned baselines that affect the projects ability to produce contractual deliverables are essential ‘early warning indicators’ that trigger corrective actions. If a project is planned correctly and a baseline applied at the outset then you have established a benchmark to monitor where you should be today and where you are heading tomorrow.
Remember the story about the Cheshire cat in ‘Alice’s Adventures in Wonderland’ where Alice comes upon the cat sitting in a tree at the junction of 3 paths and she asks the cat which path she should take. The cat replies “Well, where would you like to go?” Alice says, “I don’t know.” The cat responds “Then any path will take you there”. Apply that to projects and it is easy to see that a failure to plan is a definite plan to failure.
Saturday, March 27, 2010
Project Success or Failure? (Borneo Post Friday 26th March)
We often talk about and hear the term ‘project success’ but what is meant by this term how is the success of a project determined?
Kodak embarked upon a massive project to implement a new Advantix photographic system and upon completion in 1997 the Project Management Institute (PMI) recognized it as the International Project of the Year, and Business Week selected the system as one of the best new products of 1996. But Kodak's stock price fell 67% since the introduction of the Advantix system, in part because it failed to anticipate the accelerating switch to digital photography. Was this a successful project?
On the other side of the coin the Sydney Opera House (SOH) with its graceful sails dominating Sydney Harbor is arguably one of the most recognized buildings in the world and when construction started in 1959, it was estimated to cost $7 million and take four years to build. It was finally completed in 1973, some 14 years later, costing over $100 million. Today the SOH is considered one of the 7 modern wonders of the world and on 28th June 2007 was included on the UNESCO World Heritage List as ‘A masterpiece of human creative genius’. So, was the project a success?
Before you are able to answer both these questions another question must be asked and that is “from whose perspective are you determining the success?” A project has many stakeholders with differing objectives in terms of what is being delivered (the product) and how it is being delivered (the management) all of which need be identified and documented prior to the project commencing. These objectives form the ‘critical success factors’ that can be measured at project completion and thus determine the success of the project from individual stakeholder requirements.
Project success then, depends on two aspects namely ‘product success’ and ‘project management success’ depending on who you are and what your vested interest is in the project. A project may have been managed extremely well however, the end product may not be ‘fit for purpose’ rendering it a complete failure (Kodak) alternatively a project could have been totally mismanaged but the end product is a resounding success (SOH).
Product ‘success’ is linked to the strategic objectives (goals) of individual stakeholders thus the owner of the project is more likely to place a greater importance on the long term benefits of the project than on the short term effects of how it was managed. So while the SOH project was grossly over budget and delivered 14 years late all that is forgotten now as the reality is it is an enormous success. Kodak on the other hand failed to forecast the onslaught of the digital age, consequently the end product was deemed a failure as it did not meet the strategic objectives of senior stakeholders.
‘Project Management’ success focuses on the process of management the project and is usually measured through the achievement of metrics such as the triple constraints of time, cost and performance and therefore the contractor undertaking the project is more concerned with producing the deliverables on time, within budget and to the clients specification rather than whether the end product suits the needs of the users or if it has strategic alignment with the companies objectives.
The strategic objectives of the product success may seem somewhat obscure to external stakeholders or within the lower ranks of a company but items such as market share, political gain or company improvements may override the success of actually managing the project.
The term ‘project success’ cannot be stated in isolation from that of whose perspective the success is spoken about otherwise it will always be open to disagreement from other stakeholders. The SOH project whilst a total failure from a project managers perspective, is in fact a resounding project success to the owners due to the ongoing iconic value that the end product generates in tourism dollars as well as providing a world class stage for the performing arts.
So does a successful project rely on both ‘product’ and ‘project management’ success? Some believe that it does but my opinion is that at least one must be successful and to stick my neck right on the chopping block I believe that no matter how well the project is executed if it does not meet the client’s specification, then it is a failure.
The bottom line is that all stakeholders must agree on the critical success factors before the project even begins then, those factors can be used as a benchmark to measure the overall project successfulness upon completion.
Kodak embarked upon a massive project to implement a new Advantix photographic system and upon completion in 1997 the Project Management Institute (PMI) recognized it as the International Project of the Year, and Business Week selected the system as one of the best new products of 1996. But Kodak's stock price fell 67% since the introduction of the Advantix system, in part because it failed to anticipate the accelerating switch to digital photography. Was this a successful project?
On the other side of the coin the Sydney Opera House (SOH) with its graceful sails dominating Sydney Harbor is arguably one of the most recognized buildings in the world and when construction started in 1959, it was estimated to cost $7 million and take four years to build. It was finally completed in 1973, some 14 years later, costing over $100 million. Today the SOH is considered one of the 7 modern wonders of the world and on 28th June 2007 was included on the UNESCO World Heritage List as ‘A masterpiece of human creative genius’. So, was the project a success?
Before you are able to answer both these questions another question must be asked and that is “from whose perspective are you determining the success?” A project has many stakeholders with differing objectives in terms of what is being delivered (the product) and how it is being delivered (the management) all of which need be identified and documented prior to the project commencing. These objectives form the ‘critical success factors’ that can be measured at project completion and thus determine the success of the project from individual stakeholder requirements.
Project success then, depends on two aspects namely ‘product success’ and ‘project management success’ depending on who you are and what your vested interest is in the project. A project may have been managed extremely well however, the end product may not be ‘fit for purpose’ rendering it a complete failure (Kodak) alternatively a project could have been totally mismanaged but the end product is a resounding success (SOH).
Product ‘success’ is linked to the strategic objectives (goals) of individual stakeholders thus the owner of the project is more likely to place a greater importance on the long term benefits of the project than on the short term effects of how it was managed. So while the SOH project was grossly over budget and delivered 14 years late all that is forgotten now as the reality is it is an enormous success. Kodak on the other hand failed to forecast the onslaught of the digital age, consequently the end product was deemed a failure as it did not meet the strategic objectives of senior stakeholders.
‘Project Management’ success focuses on the process of management the project and is usually measured through the achievement of metrics such as the triple constraints of time, cost and performance and therefore the contractor undertaking the project is more concerned with producing the deliverables on time, within budget and to the clients specification rather than whether the end product suits the needs of the users or if it has strategic alignment with the companies objectives.
The strategic objectives of the product success may seem somewhat obscure to external stakeholders or within the lower ranks of a company but items such as market share, political gain or company improvements may override the success of actually managing the project.
The term ‘project success’ cannot be stated in isolation from that of whose perspective the success is spoken about otherwise it will always be open to disagreement from other stakeholders. The SOH project whilst a total failure from a project managers perspective, is in fact a resounding project success to the owners due to the ongoing iconic value that the end product generates in tourism dollars as well as providing a world class stage for the performing arts.
So does a successful project rely on both ‘product’ and ‘project management’ success? Some believe that it does but my opinion is that at least one must be successful and to stick my neck right on the chopping block I believe that no matter how well the project is executed if it does not meet the client’s specification, then it is a failure.
The bottom line is that all stakeholders must agree on the critical success factors before the project even begins then, those factors can be used as a benchmark to measure the overall project successfulness upon completion.
Monday, March 22, 2010
Treasury Re-classifies ‘Sick’ Projects (Borneo Post Friday 19th March 2010)
On Sept 1 2009 the Finance Ministry issued a new circular asking the Public Works Department (PWD) and other agencies to classify any project whose completion had been delayed by more than 20 per cent or two months, as a ‘sick’ project. This circular changes the existing criteria of categorizing a project as ‘sick’ when the completion delay exceeded 30 per cent or three months after the scheduled completion.
The Works Minister Datuk Shaziman Abu Mansor said on 24th November 2009 the re-classification of ‘sick’ projects will be immediately enforced on projects tendered out from September 2009 but existing projects the circular will be enforced beginning June 2010.
Before analyzing what this means let us discuss the intent of this classification.
As this circular has been imposed by the Finance Ministry one would have imagined there would be some cost restrictions or penalties imposed on those contractors whose projects fall into its classification however, we are assured by the minister that this is not the case. So what happens to projects that are delayed to the point that they are tagged as ‘sick’? The circular states that if a contractor cannot demonstrate its ability to recover the project to complete on time the ministries agents can terminate their contract and re-appoint a new contractor.
However, on Wednesday 23rd December the Borneo Post ( Page 22) reported the Health Minister Datuk Seri Liow Tiong Lai as saying “Another 18 ministry infrastructure projects out of 86 (21%) are now catogorised as ‘sick”. These contractors will now “...be imposed a penalty of RM3,600 for every delayed day, until the project is completed”.
One thing for sure is this classification should not be used by the contractor as a decision point for the commencement of action once the project reaches the 20% behind schedule point. Instead the circular should be the catalyst for companies to implement standardised project controls tools and methodologies providing the ‘early warning indicators’ that the project is diverging from the approved baselines.
Research has proven that any divergence from the baseline evident as early as 20% into the project forms an unrecoverable trend to completion. This is an important statistic as what it implies is that project recovery is almost impossible even at this early stage in the project life cycle. Therefore, early warning indicators should trigger the implementation of acceleration strategies as early as possible thus ensuring the project never reaches 20% behind schedule.
So why do so many projects fall behind schedule and what can contractors do to keep their projects ‘healthy’?
To ensure a project is completed successfully requires controlling the critical elements of scope, time, cost, resources and risk. Most contractors believe they do manage these elements, however if they are honest with themselves they will see they are only paying ‘lip service’ to these requirements as many will simply prepare a rudimentary project schedule, a budget allocation spreadsheet, a resource distribution document, a list of deliverables from the contract and then discuss the risk of the project over a cup of coffee.
Even if these elements are undertaken methodically the main characteristic that is missed is the integration of the above elements onto a single platform so that if a change occurs in any one of the scope, time, cost, resource or risk elements the others can be adjusted to reflect that change.
So if say a change in the scope of work occurs requiring additional deliverables, the schedule can be adjusted by adding the relevant activities required to produce the deliverables, the required resources can be assigned to those activities which in turn will generate the associated costs and, any risks associated with the change can be logged, monitored and controlled.
One platform that manages this integration extremely well is Primavera Project Management (P6) software in that it utilises a single database and the functionality therein is integrated to manage each of the elements of scope, time, cost, resource and risk. What must be remembered is that Primavera Project Management (P6) software is a project management tool to facilitate a methodology and the tool alone is not enough to produce successful projects. However, if the tool is implemented correctly and standardised methodologies are adopted then together they will produce an accurate assessment as to the health of a project through objective performance reports.
Should a project start to diverge from its approved baseline then early warning indicators obtained from the performance reports will trigger intervention and recovery action can be implemented to ensure the project is kept out of the ‘sick’ category and the contractor from being blacklisted.
Over the coming weeks I will discuss each of the elements of project scope, time, cost, resource and risk management in more detail showing the benefits of undertaking these in a structured and integrated manner.
The Works Minister Datuk Shaziman Abu Mansor said on 24th November 2009 the re-classification of ‘sick’ projects will be immediately enforced on projects tendered out from September 2009 but existing projects the circular will be enforced beginning June 2010.
Before analyzing what this means let us discuss the intent of this classification.
As this circular has been imposed by the Finance Ministry one would have imagined there would be some cost restrictions or penalties imposed on those contractors whose projects fall into its classification however, we are assured by the minister that this is not the case. So what happens to projects that are delayed to the point that they are tagged as ‘sick’? The circular states that if a contractor cannot demonstrate its ability to recover the project to complete on time the ministries agents can terminate their contract and re-appoint a new contractor.
However, on Wednesday 23rd December the Borneo Post ( Page 22) reported the Health Minister Datuk Seri Liow Tiong Lai as saying “Another 18 ministry infrastructure projects out of 86 (21%) are now catogorised as ‘sick”. These contractors will now “...be imposed a penalty of RM3,600 for every delayed day, until the project is completed”.
One thing for sure is this classification should not be used by the contractor as a decision point for the commencement of action once the project reaches the 20% behind schedule point. Instead the circular should be the catalyst for companies to implement standardised project controls tools and methodologies providing the ‘early warning indicators’ that the project is diverging from the approved baselines.
Research has proven that any divergence from the baseline evident as early as 20% into the project forms an unrecoverable trend to completion. This is an important statistic as what it implies is that project recovery is almost impossible even at this early stage in the project life cycle. Therefore, early warning indicators should trigger the implementation of acceleration strategies as early as possible thus ensuring the project never reaches 20% behind schedule.
So why do so many projects fall behind schedule and what can contractors do to keep their projects ‘healthy’?
To ensure a project is completed successfully requires controlling the critical elements of scope, time, cost, resources and risk. Most contractors believe they do manage these elements, however if they are honest with themselves they will see they are only paying ‘lip service’ to these requirements as many will simply prepare a rudimentary project schedule, a budget allocation spreadsheet, a resource distribution document, a list of deliverables from the contract and then discuss the risk of the project over a cup of coffee.
Even if these elements are undertaken methodically the main characteristic that is missed is the integration of the above elements onto a single platform so that if a change occurs in any one of the scope, time, cost, resource or risk elements the others can be adjusted to reflect that change.
So if say a change in the scope of work occurs requiring additional deliverables, the schedule can be adjusted by adding the relevant activities required to produce the deliverables, the required resources can be assigned to those activities which in turn will generate the associated costs and, any risks associated with the change can be logged, monitored and controlled.
One platform that manages this integration extremely well is Primavera Project Management (P6) software in that it utilises a single database and the functionality therein is integrated to manage each of the elements of scope, time, cost, resource and risk. What must be remembered is that Primavera Project Management (P6) software is a project management tool to facilitate a methodology and the tool alone is not enough to produce successful projects. However, if the tool is implemented correctly and standardised methodologies are adopted then together they will produce an accurate assessment as to the health of a project through objective performance reports.
Should a project start to diverge from its approved baseline then early warning indicators obtained from the performance reports will trigger intervention and recovery action can be implemented to ensure the project is kept out of the ‘sick’ category and the contractor from being blacklisted.
Over the coming weeks I will discuss each of the elements of project scope, time, cost, resource and risk management in more detail showing the benefits of undertaking these in a structured and integrated manner.
Thursday, March 11, 2010
Formal Training Essential for PM’s (Borneo Post 12th March 2010)
As Sarawak embarks upon a portfolio of projects under the SCORE banner it is essential that contractors and sub-contractors alike prepare to implement standardised project management methodologies to ensure these projects are completed successfully, on time, within budget and to the clients’ specification.
Foreign investors along with local stakeholders will be keeping a close eye on the progress of these projects and as such project management competencies such as Scope, Time, Cost, Resource and Risk management need to be improved. However, the most important competency is the ability for the Project Manager to manage the project team and provide leadership if the aforementioned competencies are to provide the required benefits.
I was having a coffee with a colleague last week when a friend of his turned up unexpectedly. After the initial introductions I casually asked what his profession was to which he responded he was a Civil Engineer but had been appointed as the Project Manager some twelve months prior.
“So how do you like the role of Project Manager?” I further enquired. “I really enjoy it; the only thing I don’t like is dealing with the ‘people’ issues”. This response left me speechless!
The natural progression from a degreed Engineer to that of Project Manager is a transition that must be accompanied with some formal project management training to fulfill the requirements of this extremely responsible and challenging position. It is also very common nowadays for the Project Manager not to have any formal engineering degree or to have a degree in some diversified field unrelated to the project they are currently engaged on.
Whatever the situation the roles of Project Manager and that of an Engineer are streets apart from each other as engineering deals with managing the technical issues of a project where as project management focuses on managing the people issues. Many people think project management is about ‘project business’ but in reality it is about ‘people business’ especially when it comes to communication, motivation and negotiation. To be a successful Project Manager takes a great amount of knowledge and skill especially with regard to the ‘people’ issues which is why it is classified as both a science and an art.
The Project Manager is akin to the conductor of an orchestra (credit to Ian McKinnon for the analogy) where the conductor must exercise his ‘people skills’ to motivate, coordinate and lead. If the conductor is skillful in his role he will build synergy between the individual talented musicians resulting in a masterpiece even though he may not be able to play all or even any of the individual instruments himself. And this is where a major problem exists when we see job advertisement for Project Mangers. In the main we will see requirements like, ‘10 years in Civil Engineering’ or ‘must have experience in the construction industry’ or ‘proven track record in road construction’. But what the position critically requires is the essential skill to manage and lead a project team and, to understand the requirements of project management methodologies. Just because a person is a good Engineer it may not necessarily follow that they will make a good Project Manager.
There are three main areas a Project Manager needs to focus on namely time, cost and performance (quality) and the Project Manager cannot cover these areas adequately without the engagement of other professional project management team members. I continually hear of projects that are required to provide to their clients, on a regular basis, a critical path network diagram (CPM), project schedules, resource reports and progress ‘S’ curves, but the role to provide these critical decision making performance reports is allocated to the Site Engineer to be performed on a part time basis rather than to a dedicated Planning Engineer.
Most projects do engage a dedicated Cost Engineer because the company needs to keep track of the actual and forecast project costs, but where many companies fail is the realisation in the benefits of a dedicated Planning Engineer who can monitor and control the projects deliverables, identify any divergence from the baseline and forecast variances to the completion date.
Without this skill the project will undoubtedly result in extension of time claims, additional costs in overtime or indirect costs, additional resources to catch up and the ultimate penalty of having liquidated and ascertained damages (LAD’s) applied from the client, all of which equate to money off the ‘bottom line’.
Many years ago I was engaged as the Project Controls Manager on the design, development and implementation of the public transport contactless smart card (CSC) system in Singapore where the Project Manager openly admitted he knew nothing of CSC technology and was in fact a Mechanical Engineer. His skill was in leadership derived partly from a charismatic personality plus experience, but in the main from formal project management training. He understood the importance of time, cost and quality management and engaged the appropriate skill sets to produce the deliverables he required to manage the project which ultimately led to project a successful completion.
Formal training is now available in Sarawak at a number of institutions with Curtin University of Technology (Curtin) in Miri providing a Master of Science post graduate degree in Project Management but there are also a number of short courses available that provide basic Project Management training. Curtin also provide a short 3 day project management course based on the 9 competencies of project management as detailed in the ‘Guide to Project Management Body of Knowledge’ (PMBOK) and upon completion will receive a certificate from Curtin.
Whatever project management course is embarked upon, any formal training will greatly enhance a Project Managers people skills that will go a long way in ensuring projects are completed successfully and thus keeping them out of the ‘sick’ category and being blacklisted.
As Sarawak embarks upon a portfolio of projects under the SCORE banner it is essential that contractors and sub-contractors alike prepare to implement standardised project management methodologies to ensure these projects are completed successfully, on time, within budget and to the clients’ specification.
Foreign investors along with local stakeholders will be keeping a close eye on the progress of these projects and as such project management competencies such as Scope, Time, Cost, Resource and Risk management need to be improved. However, the most important competency is the ability for the Project Manager to manage the project team and provide leadership if the aforementioned competencies are to provide the required benefits.
I was having a coffee with a colleague last week when a friend of his turned up unexpectedly. After the initial introductions I casually asked what his profession was to which he responded he was a Civil Engineer but had been appointed as the Project Manager some twelve months prior.
“So how do you like the role of Project Manager?” I further enquired. “I really enjoy it; the only thing I don’t like is dealing with the ‘people’ issues”. This response left me speechless!
The natural progression from a degreed Engineer to that of Project Manager is a transition that must be accompanied with some formal project management training to fulfill the requirements of this extremely responsible and challenging position. It is also very common nowadays for the Project Manager not to have any formal engineering degree or to have a degree in some diversified field unrelated to the project they are currently engaged on.
Whatever the situation the roles of Project Manager and that of an Engineer are streets apart from each other as engineering deals with managing the technical issues of a project where as project management focuses on managing the people issues. Many people think project management is about ‘project business’ but in reality it is about ‘people business’ especially when it comes to communication, motivation and negotiation. To be a successful Project Manager takes a great amount of knowledge and skill especially with regard to the ‘people’ issues which is why it is classified as both a science and an art.
The Project Manager is akin to the conductor of an orchestra (credit to Ian McKinnon for the analogy) where the conductor must exercise his ‘people skills’ to motivate, coordinate and lead. If the conductor is skillful in his role he will build synergy between the individual talented musicians resulting in a masterpiece even though he may not be able to play all or even any of the individual instruments himself. And this is where a major problem exists when we see job advertisement for Project Mangers. In the main we will see requirements like, ‘10 years in Civil Engineering’ or ‘must have experience in the construction industry’ or ‘proven track record in road construction’. But what the position critically requires is the essential skill to manage and lead a project team and, to understand the requirements of project management methodologies. Just because a person is a good Engineer it may not necessarily follow that they will make a good Project Manager.
There are three main areas a Project Manager needs to focus on namely time, cost and performance (quality) and the Project Manager cannot cover these areas adequately without the engagement of other professional project management team members. I continually hear of projects that are required to provide to their clients, on a regular basis, a critical path network diagram (CPM), project schedules, resource reports and progress ‘S’ curves, but the role to provide these critical decision making performance reports is allocated to the Site Engineer to be performed on a part time basis rather than to a dedicated Planning Engineer.
Most projects do engage a dedicated Cost Engineer because the company needs to keep track of the actual and forecast project costs, but where many companies fail is the realisation in the benefits of a dedicated Planning Engineer who can monitor and control the projects deliverables, identify any divergence from the baseline and forecast variances to the completion date.
Without this skill the project will undoubtedly result in extension of time claims, additional costs in overtime or indirect costs, additional resources to catch up and the ultimate penalty of having liquidated and ascertained damages (LAD’s) applied from the client, all of which equate to money off the ‘bottom line’.
Many years ago I was engaged as the Project Controls Manager on the design, development and implementation of the public transport contactless smart card (CSC) system in Singapore where the Project Manager openly admitted he knew nothing of CSC technology and was in fact a Mechanical Engineer. His skill was in leadership derived partly from a charismatic personality plus experience, but in the main from formal project management training. He understood the importance of time, cost and quality management and engaged the appropriate skill sets to produce the deliverables he required to manage the project which ultimately led to project a successful completion.
Formal training is now available in Sarawak at a number of institutions with Curtin University of Technology (Curtin) in Miri providing a Master of Science post graduate degree in Project Management but there are also a number of short courses available that provide basic Project Management training. Curtin also provide a short 3 day project management course based on the 9 competencies of project management as detailed in the ‘Guide to Project Management Body of Knowledge’ (PMBOK) and upon completion will receive a certificate from Curtin.
Whatever project management course is embarked upon, any formal training will greatly enhance a Project Managers people skills that will go a long way in ensuring projects are completed successfully and thus keeping them out of the ‘sick’ category and being blacklisted.
Monday, February 1, 2010
Systems Approach to Project Management
For the academics Systems Theory has been around since the early 1800’s popularized by German philosopher Georg Wilhelm Freidrich Hagel who said:
- ‘The whole is more than the sum of the parts’,
- ‘The parts are dynamically interrelated & interdependent’ and
- 'The parts cannot be understood if considered in isolation from the whole’
Systems Theory leads onto Systems Thinking that teaches us to look at the total system performance and the relationships between systems. Take for instance the human body, it is a system that has many inter-related sub-systems like the heart, lungs, arteries and veins. While the heart is the most efficient and relatively maintenance free ‘pump’ known to man, on its own it is just a pump, but when it is inter-related with the lungs, arteries and veins it provides life to the human body.
Every project is a ‘system’ in that it consists of many interrelated and interconnected parts or elements which must function together as a ‘whole’. Project Managers need to be concerned with the ‘big picture’, and as such, they must be systems thinkers and allocate adequate attention to every part of the project management system.
When we talk about controlling projects we are talking about the management of Scope, Time, Cost, Resources and Risk which are all sub-systems of project management as a whole however, as sub-systems they cannot work in isolation they must be interrelated.
Scope Management is mission critical for the success of all projects and must be identified, documented and baselined prior to the commencement of any work. This provides a solid foundation to the project management processes to enable accurate progress monitoring and a baseline to determine if additional work is within the original scope. This will decide if the additional work constitutes an authorised variation order that could result in an extension of time (EOT) or additional costs to the contractor.
Time Management utilises the documented and baselined scope as the project deliverables in the form of a Work Breakdown Structure (WBS). The project schedule will be developed by assigning activities that define how the deliverables in the WBS will be produced and the duration each of those activities will take.
Resource Management sees the assignment of labour, material and equipment resources to the project schedule activities and ensures the activities can be completed through optimisation of the available resources
Cost Management applies the rates in terms of manhours and/or dollars to the assigned resources to enable the generation of performance reports such as progress ‘S’ curves, Earned Value Management (EVM) and cash flow.
Risk Management determines the probability of completing the project through quantitative analysis models such as Monte Carlo and/or qualitative brainstorming sessions. The result from both will identify potential risks as to the probability of occurrence and the impact on the project should they occur. The amount of contingency allocated to cover these potential risks can be determined objectively and applied to the overall project cost budget.
One of the main reasons why projects are not completed successfully today is firstly not all the above sub-systems are utilised on projects and secondly if they are utilised they are done in isolation from each other. Let’s model a typical construction contractor that tenders for a project worth around RM20 million and analyse the bid document they submit.
Scope Management is usually determined through the bill of quantities (BOQ) but no formal scope statement or WBS will be generated resulting in difficulties when determining if deliverables are within the original scope or not.
Time Management may see the development of a high level schedule developed without using Critical Path Method (CPM) and usually in a spreadsheet format that shows high level activities to be performed.
Resource Management is usually a high level arbitrary estimate of what resources would be required documented in a spreadsheet.
Cost Management will see rates applied to each BQ line item to determine the total direct cost. The total direct cost will then have an arbitrary 10%-15% added for contingency determined from a ‘gut feel’ rather than any objective method. In addition an overhead cost plus profit margin is added to finalise the estimated cost to complete the project.
Risk Management is rarely undertaken as a formal process to identify and manage potential risks and only a few companies in my experience have utilised the results to determine contingency costs.
Therefore, if any changes occur to the scope of work there will be a knock on effect to the project schedule activities, resource assignments, cost allocations and risks to the project as a whole and all changes along with the effected project management elements require management to ensure total control over the project.
There are software tools available that allow the integration of the 5 elements of project controls, the most comprehensive being Primavera Project Management (P6). This software provides functionality to manage projects objectively, and reports that highlight divergence from all baselines as early warning indicators ensuring effective intervention necessary to complete projects successfully within the triple constraints of Time, Cost and Performance.
Conclusion
To undertake any of the 5 elements described above in isolation from each is only paying lip service to project management methodologies and will more than likely result in project failure, remebering the example of the human heart, if beating in isolation is of no benefit to the human body as a whole.
I hope this article provides some enlightenment to the students at Curtin University of Technology (Miri) MSc. (Project Management) programme, assignment No.1.
All comments are welcomed.
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