Forces Pushing Projects Towards Failure

 

In previous blogs I’ve referred to the old saw, Availability, Affordability, Quality: Pick Any Two. To elaborate:

• If it’s readily available and affordable, it’s probably not high quality.
• If it’s high quality and available, it’s going to be expensive.
• And, if it’s high quality and affordable, there’s probably going to be a lot of people in line in front of you to get one.

Another rather inescapable rule of free market economics: the price of an item or service is what aligns supply with demand. When the price of something is allowed to move freely, rare somethings will command higher prices, signaling the macro economy that more of that something is in demand. If there’s an excess, prices will fall, and the macro economy will respond in such a way that the resources used to produce the something could be better directed elsewhere.

Now consider what happens when some outside controlling influence, like government, decides that a certain good or service is “too important” to be allowed to have its price set by something as seemingly arbitrary as supply and demand – in the United States, gasoline in the late 1970s, or health care now. With the price set lower than it otherwise would be by something as arbitrary as bureaucrats, what happens to availability and quality? In most instances, they both suffer reverses from what they would have otherwise attained in a truly free marketplace. In the case of the gasoline shortages during the 1970s, since the artificially capped price of gasoline meant that oil producers could not with confidence make a profit, American oil production actually went down during the period, resulting in more unintended negative consequences to the macro economy. As far as health care is considered, the effects are identical: by employing the political “solution” of artificially holding down prices, there’s an abundance of evidence that both quality and availability are suffering (along with the patients!). Conversely, if those cases where the price is artificially set too high, surpluses will occur as consumers seek viable alternatives. If the something that is subjected to artificially high prices is perishable, massive amounts of waste will ensue – it’s pretty much automatic.

Meanwhile, Back In The Project Management World…

So, what does all of this basic economics have to do with Project Management, specifically? Let’s indulge in a little thought exercise, where we are setting up a PM consulting firm. Our start-up is capitalized, but we’re not rich. Since nobody is going to hire outside PM help that’s not provably advanced, we can’t skimp on the quality aspect of our service; nor will customers be inclined to wait, so our deployable consultants had better be able to arrive on-site relatively quickly, meaning that the availability parameter is already set. Can we, then, expect to be successful if we are charging high rates? Clearly not – as a startup, we’re going to have to come right out of the starting gate offering the full availability—quality —affordability (AQA) trifecta.

For the sake of this analysis, let’s say our new little PM consulting firm does pull off that very trifecta for its first three fiscal quarters, and we’re attracting more customers than we can quickly address. What to do? We will have to select which two aspects of the AQA model we want to maintain, since:

• If our people have been providing a high-quality service at an affordable price, then they’re probably being underpaid, meaning that in order to retain them, our prices will need to go up;
• If we fail to provide consultants to customers on a timely basis, they’ll look elsewhere;
• If we hire additional people at bargain-basement rates, odds are our quality will quickly drop below that at which our customers could probably provide in-house.

In short, competition in the free marketplace will inevitably force us to decide which one of the two AQA functions we should embrace. There is, however, one aspect that allows an overcoming of these decision-driving factors: technology advances.

Referring back to gasoline prices, an advancement in extraction technology – hydraulic fracturing, or fracking – made so much more crude oil available in the United States that it changed energy prices around the world. Similarly, advances in the Project Management sciences will put those discovering or embracing them into a superior position to consistently deliver a higher-quality service at a more affordable price than the competition, with availability far easier to maintain. That’s one of the reasons I keep harping about the need for the PM community to not only return to performing legitimate management science research, but to shed the vestiges of the more archaic or obsolete aspects of PM.

To summarize, then: any formal guidance that posits a cap on PM budgets – a 5% limit is often bandied about – represents an arbitrary application of pressure on the price of the Project Management role, and is a force pushing any PMO so afflicted towards failure. The solution? I’m not going to offer a solution per se, other than to point out that any organization claiming to produce usable PM guidance that attempts to set a cap on Project Management (or any other function, for that matter) expenses has already exposed itself as being singularly backwards in the realm of basic economics.

Do we really want to accept guidance or advice from those organizations?