The Business Savvy Project Manager - Hardcover

HEERKENS

Hardcover

ISBN 10: 007144307X ISBN 13: 9780071443074

Publisher: McGraw Hill, 2005

Synopsis

Valuable business skills from a leading project management expert

To make the leap from average to superior, you must develop the skills to manage each project like a small business. The Business-Savvy Project Manager thoroughly explains key concepts, principles, and tools for project managers to provide organizations with superior return-oninvestment and top performance. From portfolio management and strategic alignment to calculation of economic metrics and effective use of both financial and nonfinancial criteria in project proposals, it gives you the business savvy for top-level performance and certain career success.

About this title

About the Author

Gary Heerkens is president of Management Solutions Group, which specializes in providing unique project management educational solutions and comprehensive organizational development support. A certified Project Management Professional (PMP), a Certified Project Manager (CPM), and a Certified Business Manager (CBM), Heerkens is a regular speaker at project management conferences around the world. He is an active member of the Project Management Institute and the International Association of Program and Project Management (IAPPM), and is author of the bestselling book Project Management (McGraw-Hill).

From the Back Cover

Integrate the business needs and goals of your organization into every project decision you make

A well-managed project is a fundamental building block of business growth, and the project manager is the driver of that growth. The Business-Savvy Project Manager provides you with the concepts, principles, and tools you need to implement and lead projects that will consistently provide shareholders with superior return on investment.

This step-by-step guidebook, filled with examples of project management success and failure, shows you how to become an accomplished project leader who can:

• Identify the most essential initiatives that must be addressed in your firm, helping prevent the cost and waste of pursuing low-priority projects
• Propose, manage, and report on projects based on concerns that matter to your senior executives, from increasing cash flows to minimizing financial risk
• Structure and perform a convincing, project-specific financial analysis that details the amount of wealth generated, or net present value, of the project

The long-term success of an organization is based on the quality and execution of its projects. The Business-Savvy Project Manager walks you through the steps of a successful project, explaining what you must do to make each project successful from a business, as opposed to a technical, perspective.

Achieve full economic and operational success with each project

A project is much more than just a logistical exercise in staying on time and within budget. It is, in fact, a business imperative, a major financial investment with goals that must be successfully achieved if an enterprise is to remain competitively viable.

The Business-Savvy Project Manager is your guide to designing and managing projects that make meaningful, positive economic contributions to your organization. From the big-picture fundamentals of finance, accounting, and organizational management to focused techniques for designing effective projects, keeping them financially sound, and pulling long-term economic value from their results, this bottom line–driven book will supply you with the managerial knowledge and insights you need to:

• Prepare and present a compelling business case that convinces decision makers of the merits of committing company money to a project
• Apply risk management tools and techniques to the entire project life cycle, including incorporating risk analysis as a key component of project selection and oversight
• Create a cash flow chart that identifies and models the relevant cash inflows and outflows to assess your project’s financial strength
• Verify that projects integrate well with your organization’s overall project investment portfolio
• Conduct post-project audits that examine the actual results of projects after completion and indicate ways to improve the overall project process

At root, businesses are meant to produce positive cash flow for their investors, and projects are meant to help businesses achieve that financial objective. The problem is, many organizations lose sight of business goals, judging the success or failure of critical projects more on the technical aspects of staying within budgeted time and cost constraints, rather than on the real-world aspects of economic value provided.

The Business-Savvy Project Manager shows you how to combine the two ideas into a results-driven, innovative, and economically productive approach to managing and measuring each project, based on its success at achieving business goals. Whether you are a practicing project manager or an organizational manager charged with conceiving and designing projects, it will show you how to increase overall cash flow, and gain full economic value, from each project you pursue.

Excerpt. © Reprinted by permission. All rights reserved.

THE BUSINESS SAVVY PROJECT MANAGER

Indispensable Knowledge and Skills for Success

By GARY HEERKENS

The McGraw-Hill Companies, Inc.

Copyright © 2006 The McGraw-Hill Companies, Inc.
All rights reserved.

ISBN: 978-0-07-144307-4

Contents

Introduction
Permissions
PART ONE BUILDING FOUNDATIONAL KNOWLEDGE
Chapter 1 Project Management as a Business Function
Chapter 2 The Core of Business Knowledge: Finance and Accounting
Chapter 3 Fundamentals of Organizational Management
Chapter 4 Cost Management in Organizations
PART TWO APPLYING SOUND BUSINESS PRACTICES AT THE ENTERPRISE LEVEL
Chapter 5 Project Portfolio Management, Phase I: Identifying the "Right" 
Business Initiatives
Chapter 6 Project Portfolio Management, Phase II: Identifying, 
Categorizing, and Prioritizing Project Solutions
Chapter 7 Project Portfolio Management, Phase III: Selecting, Launching, 
and Coordinating Projects
PART THREE APPLYING SOUND BUSINESS PRACTICES AT THE PROJECT LEVEL
Chapter 8 Project Economics, Part I: Foundational Principles
Chapter 9 Project Economics, Part II: Preparing for a Project Financial 
Analysis
Chapter 10 Project Economics, Part III: Performing a Project Financial 
Analysis
Chapter 11 Risk Management, Decision-Making, and Business
PART FOUR PREPARING THE BUSINESS CASE
Chapter 12 Business Cases and Business Case Preparation
PART FIVE APPENDIXES
Appendix A Guidelines for Preparing a Project Business Case
Appendix B Interest Tables
Glossary
Index

Excerpt

CHAPTER 1

Project Management as a Business Function

If you're like most people, you probably have at least some of your money tiedup in financial investments. Companies are not really all that different fromyou in this regard. Why? Because all companies have money tied up in projects.The reality is this: The projects that companies pursue are really just anothertype of financial investment.

So, who manages your personal investments? An engineer? A scientist ortechnician?

Or someone with a title that sounds something like "financial planner" or"investment analyst"?

Well, here's some interesting food for thought: In most companies, projectmanagement has long been viewed as a technical function. Accordingly, the roleof project manager has traditionally been filled by technical specialists. Inmany companies today, this continues to be so.

But wait a minute ... didn't we just say projects are financial investments?

A FEW REVELATIONS AS WE BEGIN ...

If you are someone who is steeped in the traditional rules and regulations thatsurround the discipline of project management, prepare to be surprised. Some ofthe thoughts and principles that I am about to present may strike you as beingoutrageous.

For example, few would argue the long-standing contention that finishing aproject on time and on budget are crucial project objectives. And I certainlywouldn't debate their importance. But let's take another look at this from abusiness standpoint and ask some tough, objective questions.

First, in the grand scheme of things, exactly how important are the objectivesof completing a project on the originally specified day at the originallyspecified cost?

Second, isn't there actually a "larger picture" that we should focus on? Don'tmore important objectives exist?

The answer to the last two questions is a resounding "Yes," and simply reflectsthe notion that projects are an integral element of a very largeframework—the framework of business. And so, for just about any companytoday, projects are (or should be) recognized as key agents in the pursuit ofbusiness excellence.

If we begin adjusting our perspective to accept the principle that projectmanagement is primarily a business function, it follows that we may have toconsider adjusting our entire perspective regarding the things that representthe most important project objectives. Confused? Perhaps some of the followingrevelations will help clarify this point and put you in the appropriate frame ofmind for reading the remainder of the book.

Revelation #1: It really doesn't matter how well you execute a project, ifyou're working on the wrong project!

A recurring theme throughout this book will be the notion that one of the mostbasic objectives of any project is to make or save money. Generating positivecash flows is a key element of nearly every business operation. On the surface,projects are pursued for a wide variety of objectives, including increasingcustomer satisfaction, expanding presence in a particular segment of a market,or enabling higher efficiency in day-to-day operations. But the true impetus fordoing any of these things can be traced back to the same objective: to make orsave money.

This certainly seems obvious, doesn't it? Not necessarily. Consider for a momenta project that is executed flawlessly, yet ends up costing more money than itsaves. It almost seems silly to ask whether that project should be considered asuccess. And yet, day after day, week after week, countless projects like thisare pursued by companies. Why? Well, for many possible reasons. What I havefound, though, is a fairly consistent pattern of insufficient, flawed, or biasedupfront work. And, as we will discover a bit later in the book, the upfront workis focused on ensuring that companies have identified and selected the bestpossible project opportunities. Only after this has been done should companiesshift their attention to issues such as the pursuit of cost and scheduleexcellence. Sadly, this sequence is not always followed.

Let's examine how this phenomenon plays out at the personal level. Before mostpeople enter into any kind of personal financial investment, they often spend aconsiderable amount of time carefully researching that investment. I'm not surethe same can be said for all companies that enter into the pursuit of newprojects. The reality is that an alarming number of projects get launchedwithout a rigorous analysis of whether they represent a sound businessinvestment. Many are launched with virtually no analysis whatsoever. And, in analarming number of cases, projects are launched on little more than the notionthat they "seem like a very good idea."

A famous adage in the world of project management says doing the right projectand doing the project right are two different factors, both of which must begiven serious consideration. This is quite true. However, the question "Are wedoing the right project?" often is underplayed or largely bypassed, while thequestion "Are we doing the project right?" often is examined in excruciatingdetail.

To illustrate, I can tell you that I frequently receive telephone calls and e-mails from potential clients requesting services such as delivering a trainingcourse on how to use project scheduling software, assisting them in setting upand administering an earned value measurement process, or facilitating a sessionon how to construct a work breakdown schedule. I receive considerably fewercalls asking me to coach project managers on how to develop a solid businesscase or to advise senior managers on how to develop a strategically alignedportfolio of projects. In short, I have observed more examples than I care toadmit where companies agonize over issues related to excellence on projectexecution, directing this attention at projects that they should not even bepursuing in the first place!

Revelation #1 is founded in the notion that the issue of doing the right projectis a business consideration; whereas, the question of doing the project right isa logistical consideration. Although both considerations are important, it'scrucial to recognize that the questions must be asked in the correct order.Finding out that a project has not achieved the desired business impact after ithas been executed flawlessly is simply not good business.

Revelation #2: There are times when spending more money on a project could besmart business—even if you exceed the original budget!

To some, this statement may seem outrageous. I suspect that this revelation ismost unsettling to those who firmly believe that bringing a project in "onbudget" is one of the ultimate measures of project success. However, imaginethat you are managing a project and come to recognize that an additionalexpenditure of $50,000 (over the original budget) would result in additionalcost savings of $200,000 for your company. The appropriate decision here seemsobvious, doesn't it? Yet day after day, week after week, countless projectmanagers would not be given the opportunity to pursue this seemingly logicalbusiness decision. Sadder still, most would actually be discouraged from makinga business decision such as this—all in the name of sticking to theoriginal budget. Management's rationale? Flexibility and variances from projectplans equate to disorganization and chaos. The reality? A lack of flexibilitycan sometimes lead to missed opportunities.

This exact scenario played out (quite painfully) for one project manager withwhom I had a recent conversation. She told me of a large project that she wasworking on for a major U.S. corporation. Her project centered on themodification of equipment in a production department that was part of one of thecompany's overall manufacturing operation. The project had a very strongfinancial justification. Its entire premise revolved around the recognition thatautomating equipment would allow for a significant reduction in thatdepartment's direct labor costs. Against the backdrop of this premise, I foundher sad tale to be particularly ironic—and much like the scenario justdescribed.

She told me that, as her project entered the installation phase, the engineeringstaff approached her with an idea. The idea was based on the implementation of alimited amount of redesign, coupled with the purchase of some additionaltooling. The financial justification of this incremental change was evenstronger than the original justification.

One problem, though. The incremental costs to accommodate this change had notbeen included as part of the original project budget. The proposal was turneddown. The opportunity came and went.

Revelation #3: There are times when spending more time on a project could besmart business, even if the project is delivered after the original deadline!

This is the time-based corollary to Revelation #2. And virtually all of theissues described in that revelation hold true for this one as well. Together,this pair of revelations is directly tied to the recurring theme throughout thisbook—flexibility may not always be a bad thing. After all, anyone who isbusiness-savvy recognizes that the business climate is ever-changing.

As mentioned, few would argue that maintaining an on-time project delivery, ortrying to hold to the original schedule is an appropriate goal when managingprojects. However, it is equally critical to note that fostering anorganizational culture and project environment that allows sufficient latitudeand process flexibility to seize businesses opportunities as they arise cansignificantly contribute to improving the profitability of an organization'soverall project portfolio.

Doug DeCarlo, a well-respected consultant and author, eloquently and thoroughlydescribes this need for flexibility throughout his book, eXtreme ProjectManagement: Using Leadership, Principles and Tools to Deliver Value in the Faceof Volatility.

DeCarlo points out that the ultimate goal of project management is not todeliver the planned result, but rather the desired result. That is, thedefinition of success (i.e., schedule, budget, quality, scope, ROI) will likelychange throughout the project, based on changing business, economic, politicalconditions, and a potential host of other factors. To reinforce the need forflexibility, DeCarlo urges project managers to relentlessly focus on, and updateanswers to, what he calls "The Four Business Questions":

1. Who needs what and why?

2. What will it take to get it?

3. Can we get what it takes?

4. Is it worth it?

When considered collectively, these Four Business Questions serve as a constantreminder to all stakeholders that the project is first and foremost a businessventure.

In practice, applying the Four Business Questions should translate intopractices such as continually updating the business case to reflect the latestexpectations and projections.

According to DeCarlo, Business Question 1 is a statement of the customerrequirements and the project deliverable at any point in time, coupled with asuccinct statement of the fundamental business need and the answer to why theproject is being undertaken. Importantly, the management sponsor should beviewed as "owning" the answer to Business Question 1, although the projectmanager may act as a facilitator who helps extract and solidify the customerneed.

The business Question 2 is owned squarely by the project manager. It's her jobto estimate what it will take to get the project done (e.g., schedule, budget,stakeholder participation, etc.) as the project objective is presently defined.Business Question 2 can also refer to the technical feasibility of the venture.

The answer to Business Question 3 is a result of a negotiation between themanagement sponsor and project manager for resources, money, and time(schedule). If the answer to question 3 is "No, we can't get what it takes," theproject has to be redefined (Question 1) or a decision is made to proceed nofurther. If it can be done (technically, financially, or otherwise), then thefourth and final Business Question kicks in: Is the project (still) justifiablefrom a business perspective in light of what it will take to succeed? This isclearly the sponsor's call.

The entire key to the flexibility principle comes when DeCarlo emphasizes thatthe answers to the Four Business Questions can change weekly and in some cases,daily, as new information comes in. Finally, he notes that rigid, unwaveringcompliance to schedule, budget, or any other project constraint can result indelivering an elegant solution that cannot be justified in terms of economicvalue.

Revelation #4: Forcing the project team to agree to an unrealistic deadline maynot be very smart, from a business standpoint.

Unfortunately, it is not uncommon for project managers and project teams to beforced into agreeing to unrealistic project deadlines. Although completing aproject as soon as possible is a virtuous objective, gearing the project'sjustification and approval to unrealistically aggressive deadlines can have direconsequences. Consider the project whose financial justification is based on theassumption that it will be completed in 1 year, even though the project team,through careful and intelligent planning, has determined that 15 to 16 months isrequired to complete the effort. In Chapter 9, Project Economics, Part II:Preparing for a Project Financial Analysis, we explore the business implicationof this specific situation, because it is so common. You will undoubtedly besurprised (if not shocked) at what a simple financial analysis reveals. A lessonis to be learned from this scenario: Relying on high-quality input data (honestestimates, in this case) and pursuing rational and logical approaches (faith inthe expertise of good project teams) are cornerstone behaviors in deliveringconsistently positive business results. Some traditional practices (likedeveloping "stretch goals," in this case) may be popular and conceptuallypleasing management behaviors, but they are not necessarily consistent withsound business practices.

Revelation #5: A portfolio of projects that all generate a positive cash flowmay not represent an organization's best opportunities for investment.

So far, all the revelations we've discussed related to individual projects. Butsimilar revelations can hold true at the organizational level as well. Forexample, even organizations that routinely perform financial justifications as aprerequisite to project approval can fall victim easily to Revelation #5. Theculprit here is a surprisingly common phenomenon in companies today—asignificant disconnect between the people who establish strategic direction andthose who are charged with the job of generating new project ideas. The problembegins at budget time. One of the first things that many companies do issubdivide their overall budget, and disperse it across organizational units. Aswe'll discover a bit later, as soon as budgets are departmentalized, focus onwhat is best for the overall company has been forever lost. Each individualorganizational manager now begins to focus on what is best for his organization(you can't really blame his). Unfortunately, the inevitable outcome is asuboptimized portfolio of projects.

One particular company I worked with did not realize (or believe) this kind ofsuboptimization was possible until they agreed to engage in an exercise in whichthey took all the projects listed within all their organizations and created amaster project list. After some analysis, the problem came into focus. Theydiscovered several instances in which projects in one organization were droppedbecause of funding constraints, while other, much less worthy projects in otherorganizations were authorized.

When we discuss portfolio management techniques in Chapters 5 through 7, weexplore ways to ensure that this doesn't happen in your organization. And as wediscover, one of the keys is maintaining portfolio balance, not acrossorganizational units, but across strategic objectives and critical projectdimensions.

THE LANDSCAPE OF PROJECT MANAGEMENT IS CHANGING

Figure 1.1 illustrates how the fundamental focus within the discipline ofproject management has changed over the past few decades. In the early days ofproject management, the focus was on the technical aspects of managing projects(the term technical aspects does not refer to the technology embedded within theproject, but to the technology of project management, such as developingdetailed task listings and carefully crafted project schedules). Normally, theprimary emphasis was on perfection in scheduling and flawless execution of theproject work. The principle was simple: If an excellent schedule was excellentlycontrolled and executed, the resulting outcome was guaranteed to be excellent.(In Figure 1.1, the technical aspects of a project are used as a baseline ofcomparison.)

Throughout the 1980s and 1990s, the emphasis shifted to the interpersonal andbehavioral aspects of managing projects. Although the technical aspects stillwere considered important, many came to realize that behaviorally basedconsiderations, such as motivational skills, leadership skills, conflictresolution skills, and other so-called soft skills were a major influencer ofproject success and failure.

The critical importance of these soft skills remains widely acknowledged today.However, the realization is now advancing to the forefront of the projectmanagement discipline that projects are critical agents in nearly everycompany's quest to achieve positive business results. In that regard, a simplerealization now is beginning to sink in for many companies. It is therealization that, to a large extent, it doesn't matter how good the schedule is,or how well the people in the project are managed interpersonally, if thosevalues are being applied to poor business ventures. For some companies, thisrealization is certainly not news. But for many other companies, thisrealization represents a potential awakening.

(Continues...)

Excerpted from THE BUSINESS SAVVY PROJECT MANAGER by GARY HEERKENS. Copyright © 2006 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Edition details

• Publisher: McGraw Hill
• Publication date: 2005
• Language: English
• ISBN 10: 007144307X
• ISBN 13: 9780071443074
• Binding: Hardcover
• Edition number: 1
• Number of pages: 384