Tuesday, April 25, 2017

The Reverse Triple Constraint of Troubled Projects

Project Management Reversed Triple Constraint Triangle
Assuming you suspect or know that one of your projects is in trouble the first step is always an extensive project review. After such a review you hopefully have the necessary information for decision-making as well as the team’s support for the recovery of the project.

It may be highly unlikely that the original requirements can still be met without some serious tradeoffs. You must now work with the team and determine the tradeoff options that you will present to the stakeholders.

When the project first began, the triple constraints most likely looked like what you see in the figure below.

Project Management Triple Constraint Triangle

Time, cost and scope were the primary constraints and tradeoffs would have been made on the secondary constraints of quality, risk, value and image/reputation.

When a project becomes distressed, stakeholders know that the original budget and schedule may no longer be valid. The project may take longer and may cost significantly more money than originally thought.

As such, the primary concerns for the stakeholders as to whether or not to support the project further may change to value, quality and image/reputation as shown in the figure below.

Project Management Reversed Triple Constraint Triangle

This happens almost every time I work on a troubled project recovery. After focussing on these the project actually runs a lot smoother and high-value outcomes are prioritized and supported.

So the big question is why don't we start projects with the reversed constraint triangle? Why put our image and reputation on the line by letting it come that far? Why work on things that obviously do not have such a high value because when it comes hard on hard they are not needed? Why make the quality first a priority when we already feel the pain of bad quality?

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Wednesday, April 19, 2017

8 Signs of troubled projects for project sponsors

When you’re dealing with a troubled project, there are usually a number of red flags surrounding you. This article is written from the perspective of senior management (for instance the project sponsor, members of the Steering Committee, or the executive management).

All of us have endured troubled projects that didn’t accomplish their intended business goals. Such watermelon projects, which come across as green on our project dashboards but are, in fact, red, upon closer inspection, are very typical in a company’s project portfolio.

Generally, during the failure of a project, the last people to find out are those in senior management. However, at some point, failure becomes readily apparent. When the scenario gets to that point, you might not have any other choice but to start everything over from scratch. What separates failure from success is isolating the red flags of a troublesome project early. Here’s a brief synopsis of early signs to look out for in order to prevent a disaster.

1) Always Green Lights, Minimal Activity

Most of us are known with labeling a project as green when they are budgeted and scheduled; yellow when the project is under the gun, and red when the project is late and over budget. Maybe your primary project has been reporting green for a while, but strangely, there’s been minimal activity associated with it. That’s a strong indication of the project being in dire straits.

2) Many TBD’s (To Be Determined)

Proper issue and risk management is vital for a project to be successful but is typically neglected. If your primary project has surpassed the early stages, yet marking plenty of TBD’s in the “resolution” column for issues and risk, then it’s more than likely facing a series of problems, regardless of whether a schedule discloses it.

3) Avoiders

The charge leader in your primary project might be a business line manager or a formal project manager. No matter who they are, your gut is telling you that they’re avoiding you intentionally. Maybe they’re not seen in meetings, they walk the other way when they see you coming, they don’t pick up their phones, or aren’t sending you status updates. Chances are you’re being avoided because the project is in trouble.

4) Problematic Trends

An up-to-date Product Backlog tells you exactly what has been accomplished for what money in what time. Or methods like EVM (Earned Value Management) to identify the progression of a project could be used. They contrast real results by what was intended, expenses incurred, and time allocated. While your projects might not use these methods, you can catch substantial drops or increases in expenditures, large modifications to work being sent, or immediate alterations to a timetable without new dates. Pay close attention when this is the case.

5) Non-Progress Reports

You’re smart, so you have consulted your project manager about offering weekly status reports. That said, those reports don’t show any sign of progression, ironically. More specifically, if you’ve obtained a couple of weekly status reports without chronicled progression, chances are your project is either in trouble, or about to be.

6) Failure to Display Physical Results

During the timeline of your project, you request a demonstration or assessment of finished work so far (Sprint Reviews for example). However, the meeting for such reviews is regularly postponed and rescheduled, perhaps by days or even weeks. Further, you’ve made a spontaneous visit to the project leader, but instead receiving a demonstration of work done you are getting documents, PowerPoint presentations and a lot of hot air talk. If this is the case, you probably have a troubled project on your hands.

7) Lack of Communication

Poor engagement, whether it’s informal and formal, is a red flag. If the stakeholders, including users and group members, aren’t interacting with one other, guess what? You’re facing trouble.

8) Instinct

You are mindful of what projects are high-risk. When your primary project is mentioned, you know something is up, even if you can’t pinpoint what. By trusting your instincts, you’re inclined to discover something noteworthy.

Conclusion

Be mindful that these red flags are just signs, and nothing more. They don’t suggest failure of a project, or that people have failed. Each project endures its highs and lows, and you simply have to account for them. The red flags might suggest that a project is in need of proper attention from executive management.

Managers are encouraged to do nothing more than observe closely for a couple of weeks before taking action. A detailed project review is required when no tangible improvements have been realized in this period.

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Sunday, April 09, 2017

Your real project costs

At the top of the budget hierarchy in most companies and organizations stand two major kinds of budgets, a capital budget, and an operating budget. These two kinds of budgets do not overlap: they handle distinctly different spending categories. Capital and operating budgets, moreover, are built through different budgeting processes, by different managers, and they use different criteria for prioritizing and deciding spending.

A capital expenditure (CapEx) is defined as an expenditure contributing value to the property and equipment of a business. It is an expenditure toward capital assets, as contrasted with spending that covers operating expenses (OpEx) or purchase of investments unrelated to the company's primary business.

Many projects I am involved in only looked at the potential (and mostly theoretical) business benefits and the CapEx cost upfront. They "forgot" or "ignored" the OpEx side of the project. These can be very high compared to the initial project costs. Especially when you implement a new technology/product in your company where there is no team yet that understands it and is able to run it without help from outside.

Even when working with both CapEx and OpEx a number of "hidden" costs are easily forgotten, hence the concept of Total Cost of Ownership (TCO) for 3 or 5 years.

Let me start with a quick definition of CapEx, OpEx, and TCO.

Capital Expidenture (CapEx)

CapEx is an expense where the benefit continues over a long period, rather than being exhausted in a short period. Such expenditure is of a non-recurring nature and results in an acquisition of permanent assets. It is thus distinct from a recurring expense.

For tax purposes, CapEx is a cost which cannot be deducted in the year in which it is paid or incurred and must be capitalized. The general rule is that if the acquired property's useful life is longer than the taxable year, then the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. Further to the above, CapEx creates or adds basis to the asset or property, which once adjusted, will determine tax liability in the event of sale or transfer.

Included in capital expenditures are amounts spent on:

1. acquiring fixed, and in some cases, intangible assets
2. repairing an existing asset so as to improve its useful life
3. upgrading an existing asset if it results in a superior fixture
4. preparing an asset to be used in business
5. restoring property or adapting it to a new or different use
6. starting or acquiring a new business

An ongoing question for the accounting of any company is whether certain expenses should be capitalized or expensed. Costs which are expensed in a particular month simply appear on the financial statement as a cost incurred that month. Costs that are capitalized, however, are amortized or depreciated over multiple years. Capitalized expenditures show up on the balance sheet.

Most ordinary business expenses are clearly either expendable or capitalizable, but some expenses could be treated either way, according to the preference of the company. Capitalized interest if applicable is also spread out over the life of the asset. The counterpart of capital expenditure is operational expenditure (OpEx).

Operating Expidenture (OpEx)

An operating expense, operating expenditure, operational expense, operational expenditure or OpEx is an ongoing cost for running a product, business, or system. Its counterpart, a capital expenditure (CapEx), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a software involves CapEx, and the annual maintenance fee, power, and maintenance costs and people running the software represent OpEx.

In business, an operating expense is a day-to-day expense such as sales and administration, or research & development, as opposed to production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput.
On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year.

Operating expenses include:

1. license fees
2. maintenance and repairs
3. people who operate the software
4. training
5. first, second and third level support

To summarize the key differences between CapEx and OpEx are:

Total Costs of Ownership (TCO)

Total Cost of Ownership (TCO) is an analysis meant to uncover all the lifetime costs that follow from owning certain kinds of assets. As a result, TCO is sometimes called life cycle cost analysis.

Asset ownership brings purchase costs, of course, but ownership also brings costs due to installing, deploying, using, upgrading, and maintaining the same assets. These after-purchase costs can be substantial. Consequently, for many kinds of assets, TCO analysis finds a very large difference between purchase price and total life cycle costs. And, the difference can be especially large when ownership covers a long time period. As a result, TCO analysis sends a very strong message to corporate buyers, capital review groups, and asset managers:

Those who purchase or manage IT systems have had a keen interest in TCO since the late 1980s. At that time, IT industry analysts began publishing studies showing a very large difference between IT systems prices and systems costs. And, not surprisingly, these soon got the attention of IT vendor sales teams and marketers.

Competitors of large companies, for instance, used their own TCO results to argue that the systems of these large companies were overly expensive to own and operate. This kind of argument is possible because the five-year total cost of ownership for major hardware and software systems—from any vendor—can be five to ten times the hardware and software purchase price. The same is currently happening with the move to the cloud.

TCO for large projects and purchases is very helpful in the following:

1. Budgeting and planning
2. Asset life cycle management
3. Prioritizing capital purchase proposals.
4. Evaluating capital project proposals
5. Vendor selection.
6. Lease vs. buy decisions.

Why does it matter?

In order to make a good decision about starting, continuing or ending a project you need a good overview of the costs of the project. Just using the direct costs of the project are usually only a small part of the truth.

Consider TCO instead of project costs when making decisions!



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