The Money Files

Value Management: Translating Aspirations into Performance is a new book by Roger H. Davies and Adam J. Davies (Gower, 2011). It’s heavy going, but if you are into getting the best value out of the change programmes you are delivering, then it makes useful reading.

There is a fair amount of theory, but there are techniques in here that you can apply to your programmes straight away. I’d say that it is aimed at people in a pure programme management, portfolio office or senior executive role, as there is not much here that project managers will be able to put into practice without senior support.

Defining value

The authors define value as:

Or, to describe it less financially:

I would argue that value means different things to different people, but I understand that you need a common ground on which to base the rest of the book.

Asking the right questions

The book starts with a really nice feature that I’ve never seen before: executive questions. Here’s an example:

Q: How does Value Management address the challenge of delivering greater value from change programmes?

A: Value Management provides the means to deliver more benefit for less cost and risk. Value Management targets, times and aligns initiatives to maximise overall value. This is achieved by linking programmes explicitly to attributable benefits. This requires precise quantification of cause and effect relationships between programme deliverables, the drivers of business performance and consequential stakeholder benefits.

Reference: See Chapter 7 (Programming Value) and Chapter 8 (Aligning Value)

This is a neat way of explaining to people picking up the book the kind of questions that will be answered by reading it, and forms a kind of annotated table of contents so you can flick to the section that most interests you first.

Is it a good read?

Value Management is not an easy read, but perhaps I’m just not in a role where I can act effectively on the information in here. There is also a good glossary and lots and lots of graphs, figures and tables, so the authors make it as easy as possible to understand the concepts discussed. They also draw on real life examples and their own anecdotes, including examples from the movies, so they have tried to make the theory as accessible as possible.

One of the authors was obviously very taken with neuro-linguistic programming (NLP) and there are a number of references to how powerful this can be. The authors write: “The ability most relelvant to Value Management is to produce radical shifts in performance by re-programming limiting perceptions and ... enable clients to release latent potential through change.” They call this a value breakthrough, but this was one of the weaker points of the book for me. I’m sure you could achieve similar results with cultural change without having to ‘NLP’ your entire organisation.

If you are looking to drive savings and ensure that your change programmes and portfolio of projects delivers the best possible value for your company – and you work in an organisation with a high level of maturity when it comes to PMO practices and project thinking – then you could get a lot from this book. If your company doesn’t have a mature approach to programme management, you could struggle to get any of this implemented, but at least understanding the concepts will help you assess which are likely to be the best programmes for your business, and how to get the last drop of value out of them.

Over the past months we have looked at payback period, internal rate of return, benefit cost ration and net present value. Today I want to introduce two other financial metrics.

Discounted Cash Flow

As with a lot of these metrics, different companies have different ways of calculating them. Discounted cash flow is all about the time value of money. You use it to work out how much stuff in the future will cost you at today’s prices.

You can use it to value a project in terms that the project board – or whoever is assessing the business case – will understand. If we do this project, the value is £x, and that project has a value of £y.

In other words, you work out how much cash your new fancy project will generate for the company, knock a bit off of because prices go up in the future, and that tells you the value of the income today.

OK, that is a terribly simplistic view of discounted cash flow. The good thing is that you probably won’t ever have to work it out yourself. Your Finance team or your project office accountant will be able to plug the right figures into the equation, use the standard discount rate for your type of project and you just add the numbers to the business case.

The only other useful thing to know is that discount rates are normally linked to the cost of the capital. So, if it costs you 5% a year to borrow money to invest in your new engineering product or to hire the land that the new shop is going on, then that will factor into the discount rate calculation. In other words, it’s not just about inflation.

Activity-Based Cost Management

Don’t you just love all this terminology? I think it’s important for project managers to understand these terms because even if we never have to work them out for ourselves you don’t want to be bamboozled by your colleagues in Finance, or even business people who are used to dealing with profit and loss accounts and business cases.

Activity-based cost management, or ABC/M, just means working out how much each activity costs. It’s a bit more scientific than just assigning day rates to different types of resources as it also looks at processes. The idea is to calculate how much different routes through the processes cost, using different types of resources including customers.

That gives you the activity-based part. You can then do the management part, which is analysing the results and working out if there are smarter ways to do things. If you know the elements that add the most cost to the process, you can work out how to influence these and deliver more stuff for less money.

Personally, I can see the value in doing this in manufacturing and engineering environments, but up until recently I couldn’t see the value in doing it in other sectors. After all, so much is non-standard, as we try to give personal service to everyone. But actually there are a lot of things that can be standardised, and even standard costs give you an indication of the success (or value) of the process.  Projects drop out of this data.

For example, turnaround times in airports. If you knew which type of planes, terminals, crews and passenger combinations took the most time to get the flight in the air, you could launch a project to assess the process and speed it up. Or you could look at locations and crews that had great turnaround times and replicate the success where you could. The same goes for the cost of surgery in hospitals, supply chains, and customer service teams handling different types of customer problems.

While ABC/M takes a lot of effort and number crunching, it’s a useful tool. Does your Project Management Office do anything like this? Let us know in the comments.

Ken Livingstone, former Mayor of London, spoke at Synergy 2011 last month in London for International Project Management Day.
 
He talked about the U.K.'s reputation and ability to carry out large construction and civil engineering projects. He used the example of the Thames Barrier project which was instigated after a number of floods in the 1950s. The project was finally approved to go ahead in the 1970s. It was finally completed a few weeks before some more floods. He explained that there was no incentive or structure put in place for the project to be finished and no one built into the plans any proposals for on time delivery. In fact, it was in the project team’s interest that the project as long as possible. No wonder that the project went eight times over budget.
 
"What is so wrong about public services in Britain that we just can't complete these projects?" he said.

When Livingstone was leader of the Greater London Council, it was at a time when there was no central government funding for capital investment projects. He also said that during the Thatcher years a law was passed making it a requirement for local councils to have their capital spending plans reviewed by the government before they took place, so even if there was the money, there was no chance that investment projects would happen.

Implementing the congestion charge

Livingstone was elected Mayor of London in 2000 and one of his first challenges was to deal with the transport situation in the capital. He said he did not want to be remembered as the Mayor for failed projects, so when he decided to implement the congestion charge, he brought in a team of people with the experience of delivering this type of thing.

Livingtone bemoaned the situation in the UK that meant he had to look elsewhere for the skills required.
 
TFL is the largest transport organisation in the world. No one in the organisation from bus drivers to managers had a record of successful management at the time, he said. The Jubilee line extension was the only thing the city had managed to pull off and that had hardly been a roaring success. He told us that 27 of the top 30 executives were pensioned off in his first year as Mayor. "Far too many people simply accept what they are told by people who have a vested interest in the outcome."

His overseas team settled in London and took on the job of implementing the congestion charge. Every fortnight they had "an incredibly bruising meeting where all the assumptions were tested,” he said. “That level of real scrutiny, done that scale, meant that it worked perfectly from day one, with one small glitch." That small glitch was that there were not enough people available to answer the phone when drivers called in with questions. The congestion charge project was launched as expected and the introduction was remarkably smooth. Londoners now have come to accept paying to drive into the capital, and we even manage to keep up to date when the boundaries of the congestion zone change or the rates are amended.

Working with the Olympics team

Livingstone was Mayor during the time that the UK was preparing a bid for London to host the Olympics. Despite having no interest in sport himself, Livingstone saw the Olympics as a great opportunity for the city, because the country would be forced to invest in a transport infrastructure in East London. He also knew that the government would want to run the construction if they were successful in winning the bid.

Luckily (or unluckily, depending on which side you are on), no one in the senior civil services thought London had a credible chance of winning the bid for the Olympics. The way Livingstone tells the story, this meant that the Olympics team had the opportunity to structure the contract in a way that reduced central government involvement and allowed the office of the Mayor a significant say in how the investment projects were run. The projects could go ahead under that contract without needing to be substantially changed.

"Every change you make magnifies the cost," Livingstone said. The Olympic site is virtually complete and £800 million under budget at the moment. He said that he had to bring in an American woman to plan it and an Australian man to build it. It’s unfortunately, he said, that we don’t have enough of those types of skills in the UK. It’s the legacy of not having investment projects during the 80’s, as we didn’t learn the lessons from capital initiatives. "What worries me so much at the moment,” he said, “in response to the economic downturn, is cancelling all the investment projects and losing another generation of competent project managers."

Welcome to the October/November 2011 edition of the Carnival of Project Management, hosted this time here at Gantthead.

New to the Carnival? It's a round up of interesting blog posts related to project management, to help you discover some new blogs and some new ideas. It runs every two months and is hosted by a number of project management blogs including A Girl's Guide to Project Management and PMTips.net.

So, without further ado, here are this edition's great articles.

Rodney Maley presents Effective To Do Lists posted at Life-fficient. This is an interesting take on to do lists.

Ken Lange presents Grace Under Pressure posted at Kenneth Lange.

CA presents On estimating project tasks posted at Project Management - The Kanban Way, saying, "The post talks about issues surrounding project task estimation process". CA also submitted two other articles: Speed up project delivery using Critical Chain and Making Kanban work in matrix organizations. Useful reading if you are working with Kanban.

VyrtuNet presents Did I Do That? How to Stop “The Urkel Effect” posted at P3 Peak Performance, saying, "The Urkel Effect is a syndrome that often consumes certain key members of a project team, whereas they are often seen spinning seamlessly in multiple directions until they disappear altogether. One begins to observe this phenomenon when certain delusional symptoms appear, often followed by the words “Did I do that?” So where do project team members turn for relief? Enter the Project Manager equipped with just the right tool. Thokk the Project Troll has come up with a solution; a cure that may finally put an end to this awful spectacle."

Bob Lieberman presents The Can-Do Attitude posted at Cultivating Creativity – Developing Leaders for the Creative Economy.

Rich Maltzman, PMP presents The Elephant and the Swiss Army Knife posted at Earth PM. Rich is one of the authors of the book that won the Cleland prize for literature at PMI's awards last month, for his book, Green PM, so his views are certainly worth reading.

Anna Farmery presents 6 Tips to Reinvent your Next Meeting posted at The Engaging Brand. I particularly like the tip to decide before the meeting, not during it.

Stuart Arthur presents The Challenges of Project Management posted at Stuart Arthur. This is an interesting discussion of the differences between Scrum and PRINCE2, although I dispute the idea that a PRINCE2 approach can't be at least a bit Agile.

There's also another link worth sharing, particularly if you are looking for the best value for an investment in your PMO. Find The Best is a human-curated website with a section for project management software tools, so if you are working out where to spend your 2012 budget, you could find that useful. The good thing about being human-curated is that it's more intelligent than a search tool that just crawls the internet automatically.