Program Management: How Hard Can It Be?

From the Game Theory in Management Blog
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Modelling Business Decisions and their Consequences

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The “insight” that Program Management (ProjectManagement.com’s February theme) is simply a collection of like projects in a governable portfolio is about as profound as asserting that a person ought to tie their shoelaces in order to run a marathon, and as about as useful. It’s also positively ubiquitous, which means it’s an irresistible target for a curmudgeon like me.

But first, a couple of self-references. In my second book, I lay out the argument that there are three types of management, Asset, Project, and Strategic, each with their own objectives, tools, and tactics, and that these objectives, tools, and tactics can (and often do) interfere with each other as their adherents attempt to advance the cause of the organization (or their own particular career at the expense of everybody else, which I address at length in my third book). This fact, when combined with the old conservative saying that there are no solutions, only trade-offs, provides the basis for some fairly important Program Management discussions.

Many project-based organizations have a team set aside for helping the actual workers generate proposals in order to attract more work. Indeed, I once worked for a Beltway Bandit that fully expected its employees to put in a significant amount of free overtime performing this function, and would quickly place those who didn’t on the top of the to-be-laid-off list. These types of proposals would augment those prepared by the full-time proposal prep team, and made up a significant portion of the proposal backlog. Now, these regular-workers turned proposal-writers would tend to write proposals to their existing customers, in areas where they were familiar and confident they could perform the work should they get a contract or task order released. But what happens when an RFP (Request for Proposal) is released that is on the fringes of the organization’s experience, and management is not as confident that they could bring the work in on-time, on-budget (the very point of Project Management)?

This is where things get really dicey in Program Management space. By way of illustration, let’s say you are the CEO of a medium-sized company, and you have your Chief Financial Officer (the leader of the Asset Managers), Program Management Office director, and head of the Strategic Management office, all in the conference room where the discussion centers on just such an RFP. The question before you: do you spend any budget or time preparing a response? It’s significant in size, and would represent a major addition to the Program Management portfolio, but it’s not really within your organization’s realm of experience. The discussion goes something like this:

CFO: I’ve had some of my analysts perform a Return on Investment calculation on this, and the results range from marginally profitable to moderate losses. My vote is no.

PMO Director: The closest projects we have to the one in the RFP are ABC and XYZ. They are both performing adequately, but not exceptionally. This RFP would require us to hire at least three more engineers or technicians, augment the training of a couple more, and we’ll need a sizeable investment in new equipment, too. I think we could bring it in under cost and on-schedule, but it’s more likely we’d be looking at a mild overrun or delay under a cost-competitive bid.

Strategic Manager: These types of projects are expected to proliferate in the next five to ten years, and we’re facing more and more intense competition from other companies for the types of projects that make up the bulk of our current Program Management portfolio. The way I see it, we have one of two choices: either we start to pursue work in these new areas of unfolding technology, or else we come up with a way of performing our current projects significantly better or cheaper than our competitors, and can reflect that in our proposals. Otherwise, we’re done.

CFO: I couldn’t disagree more. The PMO Director has his project teams performing well, and our existing customers know it. Since the point of all management is to maximize shareholder wealth, and our ROI analysis shows this to be a risky line of business, my vote remains no.

PMO Director: I said we were performing adequately, not “well.” StratMan is right: most of our competitors are also delivering projects on-time, on-budget. The contract values for this type of work are shrinking, and many of the recent ones are actually Firm Fixed Price. If we can’t do the routine much better, we’ll need to do the novel, and soon.

CFO: But if you hire the talent to put us in a position to win this type of work – not to mention the equipment and training you referenced – and don’t get the job, then we’ll be out those costs, with nothing to show for it.

Strategic Manager: We’ll probably be able to find some kind of work for the new staff, and we can turn around and sell the equipment, admittedly at a loss, but we wouldn’t have to eat the entire amount.

CFO: Any amount lost at all is unacceptable, particularly since we would be pursuing a project with a low-to-negative ROI.

PMO Director: Who calculated this ROI, exactly? I get that you can quantify the cost of the equipment, but did you take into account that we could re-sell it? Or that the new techs could be re-assigned?

CFO: Well, I’m not sure…

Strategic Manager: ROI is projected profit, divided by estimated costs, times one hundred, right? How did you capture the expected profit? This one project might return a 5% fee, but our performing it will put us in a position to attract several other projects like it, which we wouldn’t have a chance without having executed this one. Did you calculate that? If so, how?

CFO: I can’t believe you are implying that I haven’t properly quantified the needed parameters. Could you give me even a gross estimate of the increased odds of our attracting similar work in the future if we do this one job? Or even of the size of the contracts that you say will be coming out in the next five to ten years? If so, how did you calculate these?

Strategic Manager: Okay, I’ll admit to some gut-feel and subjective-take assertions here. Will you?

PMO Director: Gentlemen, I would appreciate, well, a little appreciation. If we don’t pursue this new work, then the pressure is on me and my project teams to perform better with lower costs in the existing arena to keep the competition at bay. And if we do pursue the new work, the pressure will again be on my teams to quickly and efficiently master the new techniques needed to bring the work in on-time, on-budget. No matter which one of you is satisfied, the whole Program Management gig just got a whole lot more difficult.

CFO: But I read on one of those Project Management blog sites OTHER THAN ProjectManagement.com that Program Management is simply collecting similar projects into one manageable portfolio! How hard can that be?

PMO Director: This hard.

 

 

Posted on: February 05, 2018 10:27 PM | Permalink

Comments (2)

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The fact that the CEO is so quiet says it all ;-)

Thanks for sharing this, Michael.

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