Viewing Posts by Lynda Bourne
by Lynda Bourne
Projects mean reports! Many project teams are required to produce weekly and monthly reports for their client as part of a contract, or because of an internal set of reporting requirements. This process comes with challenges:
That raises a big question: Do we need traditional reports? Developments in business intelligence, artificial intelligence and system integrations offer a far more useful solution—putting real-time information in front of the people who really need to know now.
Most of the information on virtually every project (even traditional construction projects) is recorded in various software tools. With a little bit of organization, the data can be brought into a business intelligence (BI) system in real time. The result: a dashboard showing what’s occurring in real time, usually with a drill-down capability to see what has changed and why.
The problem with BI is usually too much information and added noise created by different elements within the tool being updated, edited and corrected at different times. This generates false differences for short periods of time. This is where artificial intelligence (AI) comes in to play two useful roles:
Do reports still have a role? My answer is yes, but it’s a different role. Reports are needed to explain something or to show the results of an investigation or inquiry. For example, a team (or individual) may be tasked to report on the preferred subcontractor to engage for a particular role on a project. The report provides leadership with the information and options needed to make a decision. In fact, this would be a far better use of the time currently spent by PMO and project staff preparing and distributing weekly and monthly reports.
I want to hear your thoughts: Do traditional reports still have a place among project teams?
By Lynda Bourne
In my last post, The Real Estimating Challenge Isn’t Calculating the Cost, I suggested that calculating a project cost estimate is the easy bit. Having the estimate accepted by either a client or your management—or both—and then delivering your project on budget is far more difficult. In this post, I want to look at the challenge of delivering on budget.
Knowing what a project is likely to cost is important from every perspective: personal, professional and organizational. But developing a realistic and achievable cost estimate has two components: first you develop the baseline estimate, then you need to develop a realistic contingency. Most people do step one; very few even think of step two.
The baseline estimate should be realistic, and there are many valid approaches to creating one. But what comes next?
If you simply stop at the net cost estimate based on expected resource usage and known cost rates, your project will inevitably overrun its budget. There are no allowances for risks, which will inevitably arise during the course of the work. No project is ever risk-free.
Risks are uncertainties that matter. From a cost perspective this includes both variability in estimates and performance, and uncertain events that may or may not occur.
Variability is inevitable. The work might be completed quicker or slower than planned, people might change and cost more or less per hour, etc. The only certainty is that the actual cost outcome will vary from the estimate.
The key question is: by how much? Use past performance as a guide to size this part of the contingency appropriately.
Managing Uncertain Events
This type of uncertainty is the realm of the risk register and its list of identifiable uncertainties, overlaid by other risk events that were not foreseen. These are the known unknowns and unknown unknowns of risk management.
This type of risk can be mitigated or reduced by good practice, but neither of the unknowns can be eliminated entirely. Residual risks always remain. The important question is: How do you compensate for the remaining risks in your business case or cost estimate?
One approach is to pad the estimate and hide the costs within the overall price. The problem with this approach was identified by Eliyahu Goldratt in Critical Chain (1997). He stated that when the contingencies are hidden, they tend to get absorbed by the work and are generally larger than needed. This is not a good way of working. For example, in developing software every test may fail, but only some will identify bugs that need fixing. Padding every test with some allowance for failures hides the money, and it is likely to get used anyway to cover all sorts of other events.
The better approach is to price each test on the assumption that the test will pass, and then create a contingency for bug fixes. This allows the cost of rectification to be seen, monitored and controlled independent of the costs associated with testing. If the number of bugs is too high, this becomes obvious and allows management to consider ways to improve processes.
Calculating the amount of money needed to adequately cover the risk exposure of the project is complex. It requires expertise. But once this has been done, the values calculated should be divided into two distinct parts:
These are not slush funds. They are calculated and held for explicit events that may occur and the use of the funds is constrained, controlled and reported on throughout the life of the project.
Developing a sensible level of contingency and reserve is a complex process and beyond the scope of this article. The message is simple, though: If you do not include contingencies, you will overrun your project budget!
The bigger challenge is to convince management to accept the need for a properly evaluated contingency in every project. Achieving this requires the solutions outlined in my last post, linked to a concerted program of support from both the organization’s PMO and its portfolio management team.
The challenge is not insurmountable. Large parts of the U.S. government under the auspices of the Government Accountability Office are mandating this approach, and the U.K. treasury has its Green Book. Your challenge is to inspire similar attitudes within your organization’s senior leadership team.
How does your project team develop realistic contingency plans?
By Lynda Bourne
Calculating a project cost estimate is the easy bit. Having the estimate accepted by either a client or your management—or both—and then delivering your project on budget is far more difficult.
The technical processes involved in developing a realistic and achievable estimate are well-defined in standards and guides such as the Practice Standard for Project Estimating - Second Edition. But, after the development of this cost baseline, every project faces two challenges: The first is dealing with the uncertainty associated with every estimate and developing an adequate (but not excessive) contingency to cover the known uncertainties. The second is having the estimate accepted to allow the project to proceed.
There are three interlinked issues that can lead to non-acceptance of the estimate:
Over many years, I have found any idiot can produce a winning bid or cut costs in a business case to get the project accepted, and then lose money doing the work. The work of Bent Flyvbjerg, professor of major programme management at Oxford University's Saïd Business School, would suggest that this is almost traditional in the accepted costs for megaprojects. But, under-pricing work to get the project started is hardly ethical, and likely to be career-limiting in the long run.
I’ve also noticed smart clients understand that an unrealistically low bid will cost them dearly in the long term due to diminished quality, excessive claims and/or the cost of dealing with a failed project. Unfortunately, smart clients are in the minority. But if it were your money and project at stake, would you want a client who puts the short-term expediency of a cheap price ahead of achieving value? Starting an under-priced project and attempting to cut costs to meet budget constraints almost always drives down quality and drives up costs over time.
There’s a well-known business quote, often attributed to John Ruskin: "There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey. It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money—that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.”
The antidote to these challenges is having the skills needed to develop a sound estimate that has a reasonable prospect of allowing the project to be delivered on budget, having the confidence to stand by the estimate and to justify the costs, and, most important of all, having the communication and stakeholder engagement skills needed to sell the estimate to either your client or your manager.
The factors underpinning your engagement and communication capabilities include:
Each of these elements work together to help you get good project proposals accepted. They also help you help your managers abandon projects that do not add value. If the project does not stack up at the proper price, it should not be funded.
How do you go about selling your good project proposals?
By Lynda Bourne
Eighty percent of the posts I’ve read about dealing with COVID-19 fall into three general categories:
While many of these posts contain good advice, to my mind they are all focused on threat mitigation. While minimizing threats is important, these approaches miss the opportunities inherent in unstable times. You need to do more than minimize threats to come out of the COVID-19 crisis in the best shape possible.
There are two factors that will help you get through this: your innovation skills and your negotiation skills. I discussed innovation in my previous post, Innovation and Design Thinking, Part One. In this post, I’d like to focus on negotiation in a time of uncertainty.
Of course, to be able to negotiate you do need to stay safe (the first category above). You also need to understand the current situation (the third). But, if you want some control over your future, you also need to be willing to have serious negotiations with the people who matter.
This is a very different situation than normal negotiations with employers, clients, subcontractors and suppliers. The traditional framework of negotiation involves having defined outcomes in mind, deciding on your “walk-away point” (best alternative to a negotiated agreement or BATNA) and using a range of negotiating stances and tactics to achieve your desired outcome. In the era of COVID-19, no one knows what the future holds, and everyone is suffering inconvenience and damage to different degrees. But we are all in this together, and playing hardball for short-term, illusory benefits is unlikely to help anyone.
For example, in normal times landlords around the globe tend to play hardball with tenants—you pay your rent or you are evicted. However, in Australia the government has now made it illegal for landlords to evict business tenants who are unable to pay their rent for the next six months (with the possibility of an extension). The objective of this measure is to ensure the tenant still has a business when the current lockdowns are over and that the landlord still has a tenant capable of paying rent in the future. There are government incentives and guidelines to encourage both parties to negotiate a workable agreement. Compare this to the normal business-as-usual alternative: The landlord evicts the tenant, the tenant goes bankrupt and the landlord misses out on 100 percent of rental income for two or three years until the market recovers.
The imposed solution has everyone sharing the pain. The tenant still has to pay some rent if possible, the landlord will receive less income, the banks support the landlords (after being asked by the government), and the government is paying some of the overall costs if there is an agreement. (Similar measures have also been introduced for private tenants.) This won’t save every business or every commercial landlord. But it will significantly reduce the damage to most businesses and the overall economy. At least, the government hopes this will be the outcome—no one really knows, given the unique situation we are all in.
So, how does this concept translate to your own situation during the COVID-19 crisis? Obviously, everyone and every business is in a unique situation, but there are some useful ideas you can apply at both the business and personal level:
People and organizations that come through the current situation ready to succeed in the post-COVID-19 world will be resilient, adaptive and collaborative. Great negotiating skills and innovative thinking will be essential.
Still, a little luck will go a long way. As I discussed in my post Probability vs. Luck: Lessons Learned From a Day at the Races, luck will also play a major part in deciding who comes out of this in the best shape. But, to quote Coleman Cox: “I am a great believer in luck. The harder I work, the more of it I seem to have.”
How are you preparing for the post-COVID-19 future?
By Lynda Bourne
Last November, my partner and I spent a lovely day in the country attending the Dunkeld Cup at Mt. Abrupt in Victoria, Australia. The location is very picturesque, and we had a thoroughly enjoyable day. To add to the pleasures of wining and dining, my partner developed a “foolproof method” that allowed him to pick five winners and a placegetter (among the top three) out of seven races with a total of eight bets.
So, should he give up his day job to exploit this newly discovered skill?
The Dunkeld Racecourse with The Grampians Mountains behind.
The horses he chose were not random picks: My partner used a selection method based on a guide that rated horses on their form from 0 to 100. Using a portfolio management approach, he first recognized that the difference between a 97 or 98 rating and a rating of 100 was too small to matter. Every assessment process has a range of error, and a difference of 2 to 3 percent is likely to be well within this range. This approach reduced the panel of potential winners to three or four horses in each race.
The second step in the selection process was to look at the variables. The form guide is printed well before race day, and it had recently rained. A soft track would benefit horses carrying a lighter weight. So out of the prospective panel, we placed our bets on the horse with the lowest weight.
Voilà! Six winners in seven races—a winning formula that would allow us to retire from managing projects and make our fortunes as professional punters … But not so fast.
The probability of repeating a six out of seven winning ratio in the future is very low. How much of our big day boiled down to effective process—and how much was pure dumb luck? That is a risk management question.
Step One: Consider the Probability: The first consideration is how likely was it that someone would pick six out of seven winners? There were several thousand people at the race, and it is highly probable, simply based on random chance, that someone would have a “winning streak” and back six winners using their own system. On this basis, there is a several-thousand-to-one chance of a repeat outcome. Someone will have a similar winning streak in 2020, but probably not us. There is a strong tendency for winners to ascribe the results of random chance to their skill. But pragmatic managers look deeper.
Step Two: Assess All Available Data (Not Just the Highlights): We placed eight bets: Five came in first, one finished third and the other two were placed sixth and seventh, respectively. All we can say for sure is we were likely to select horses that would finish between seventh and first. But as there can only be one winner and two placegetters, horses finishing fourth, fifth, sixth and seventh mean a lost bet. The median position is 3.5—which also means a lost bet. The mean is 2.6, so we may have been slightly in front, but “place bets” do not pay much. Adding in the range options, no horse can do better than first place, but there are many more places between seventh and last. Factor this in, and the margin of success in our small sample becomes doubtful.
So, what are the lessons learned from our day in the country? My take is that good processes help build success—but you should not confuse luck with skill. When Napoleon Bonaparte was criticized for winning battles simply because of luck, he famously retorted: “I’d rather have lucky generals than good ones.” I think we were just lucky.
We may well return to the Dunkeld Cup in 2020. It’s a great day out, and more data is needed to round out this research. In the meantime, applying simple probability analysis to my partner’s winning methodology suggests he needs to keep his day job. That’s a safe bet.