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Paradigm shift in Project Success Criteria

“Projects fail at the beginning, not at the end. The fate of the project is decided on day#1 and gets revealed as the project progress.”

The paradigm shift within PMBOK Version 6

So far, if a project got over on time, within budget and met it’s scope, then it was considered as successful. As per the PMBOK Version 6 on wards, projects are considered as successful only when they got completed on time, within budget, met their scope and satisfied the purpose for which it was initiated which includes the payback period. Proper understanding of the business case of the project from day 1 of the project is the most crucial critical success factor based on the revised definition of ‘Project success’ by PMI, USA.

How do we select the right projects for execution? 

Projects must have a solid business case to support it. A set of ratios comes in handy while picking up the right projects for execution. They are;

  • Net present value (NPV)
  • Payback period
  • Benefit cost ratio (BCR)
  • Internal rate of return (IRR)
  • The time value for money

The time value for money

Money has a time value. A rupee today is more valuable than a rupee year later. Why? There are several reasons. Capital can be employed productively to generate positive returns. In an inflationary period a rupee or any currency today represents a greater real purchasing power than the corresponding currency a year later

Time lines and notations

When cash flows occur at different points in time, it is easier to deal with them using a time line. A time line shows the timing and the amount of each cash flow in a cash flow stream.  Cash flows can be positive or negative. A positive cash flow is called as cash inflow and a negative cash flow is called a s cash outflow.

Future value

Suppose you invest Rs.1000 for three years in a savings account that pays 10 percent interest / year. If you let your interest income be reinvested, your investment will grow as follows;

First yearPrincipal at the beginning1,000
Interest for the year  (1000×0.10)100
Principal at the end1,100
Second yearPrincipal at the beginning1,100
Interest for the year (1100*0.10)110
Principal at the end1,210
Third yearPrincipal at the beginning1,210
Interest for the year (1210*0.10)121
Principal at the end1,331

The process of investing money as well as re-investing the interest earned thereon is called compounding.  The future value, or compounded value of an investment after ‘n’ years, when the interest rate is ‘r’ percent is;

FV n = PV (1+r) ˆ n

In this equation, (1+r) ^ n is called future value factor

If we apply this formula;

FV n = 1000 (1+. 1)^3 = 1000 x 1.1 x 1.1 x 1.1 = 1331

Net present value

The net present value (NPV) of a project is the sum of the present values of all the cash flows , positive as well as negative , that are expected to occur over the life of the project. To illustrate the calculation of net present value, consider a project, which has the following cash flow stream;

YearCash flow
0Rs (1,000,000)
1200,000
2200,000
3300,000
4300,000
5350,000

The cost of capital, ‘r’ for the firm is 10 percent.

The net present value of the proposal is;

NPV =  (200000/1.10^1)  + (200000/1.10^2)  +  (300000/1.10^3)  +  (300000/1.10^4)  + (350000/1.10^5)  – 1000000 =  – 5,273

The net present value represents the net benefit over and above the compensation for time and risk. Hence the decision rule associated with the net present value criterion is, accept the project if the net present value of the project is positive and reject the project if the net present value is negative.

The benefit cost ratio

Benefit cost ratio BCR = PVB / I where

PVB = present value of benefits and I = initial investment

To illustrate the calculation of these measures, let us consider a project, which is being evaluated by a firm that has a cost of capital of 12 percent.

Initial investment100000
Benefits Year 125000
Benefits Year 240000
Benefits Year 340000
Benefits Year 450000

The benefit cost ratio measures for this project is;

BCR =  ((25000/1.12) + 40000/1.12^2) + (40000/1.12^3)  +  (50000/1/12^4)) / 100000 = 1.145

Decision rules

When BCR > 1 accept the project

When BCR < 1 reject the project

IRR – internal rate of return

The internal rate of return (IRR) of a project is the discount rate, which makes its NPV equal to zero. To illustrate the calculation of IRR, consider the cash flows of a project being considered;

Year01234
Cash flow(100,000)30000300004000045000

The IRR is the value of ‘r’, which satisfies the following equation;

100,000 = 30000/(1+r)^1 + 30000/(1+r)^2  + 40000/(1+r)^3 + 45000/(1+r)^4

The calculation ‘r’ involves a process of trial and error. We try different values of ‘r’ till we find that the right hand side of the above equation is equal to 100,000. In this case, the value lies between 15 and 16 percent.

The decision rule for IRR is as follows;

Accept, if the IRR is greater than the cost of capital

Reject, if the IRR is less than the cost of capital

Payback period

The payback period is the length of time required to recover the initial cash outlay on the project. For example, if a project involves a cash outlay of RS. 600000 and generates cash inflows of Rs. 100000, 150000, 150000 and 200000 in the first, second, third and fourth years respectively, its pay back period is 4 years because the sum of cash flows during the four years is equal to the initial outlay. According to the payback criterion, the shorter the payback period, the more desirable the project.

Opportunity cost

Opportunity cost (opportunity lost) is the NPV of the next best project, you are not doing, because you have decided to invest in a project.

Let us assume that you have 100,000 rupees and you are investing this money in project ‘A’, whose NPV=200,000 and because of this you are unable to do project ‘B’, whose NPV=150,000 or project ‘C’, whose NPV = 120,000, then the opportunity cost is 150,000, which is the NPV of project ‘B’, which is the next best option after ‘A’.

In personal life, these concepts of NPV, payback period, BCR, IRR and opportunity cost are really helpful, to protect yourself from unwanted expenses like buying a new flat, car or even mobile phone. Before committing to buy, just think about these ratios, and most probably you will restrain from your impulse to buy unwanted stuff.

The project management body of knowledge says that ‘Projects fail at the beginning and not at the end’. A project which does not have a good business case is a bubble, which can burst at any time. So, before starting a project, please ensure that the project has a solid business case, and if the business case is not clear, please document it as a risk.

Related links

The 7 week PMP plan

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Agile digital marketing using Scrum

Is scrum only for software projects?. The answer is ‘No’. Scrum works well with any project where either the requirements are changing or technology is new or both. Here are the lessons learned by a digital marketing team using scrum to accelerate their digital marketing program.

Did I say Digital Marketing Program instead of Digital Marketing Project?. Yes, I did, and that is intentional because most of the digital marketing initiatives meets all the criteria of programs than projects. Programs are a collection of inter-related projects, which when done together gives us more value than doing them one after the other. Majority of the digital marketing initiatives are programs comprising of multiple projects like;

  • Revamping the company web site
  • Creating good content
  • SEO optimization
  • Blogs
  • Case studies
  • Success stories
  • Voice of the customers
  • Training component
  • Webinars
  • Benchmarking
  • Research & Development etc

If these are not synchronized well, the entire initiative can turn out to be transaction oriented than result oriented. The team with which I was working very closely was no different, till we decided to follow a ‘light scrum’ based on the scrum elements like;

  • Weekly sprint planning meetings
  • Weekly reviews and retrospectives
  • Daily reviews
  • Tracking board

One may call it as a tailored version of Scrum. Any way, I call it as ‘Light Scrum’, a kind of loosely implemented most essential aspects of scrum framework envisaged by Ken Schwaber and Jeff Sutherland in their Scrum Guide.

Weekly sprint planning meetings

Quick 1 hour planning meetings, conducted immediately after the weekly review and retrospective. It was more of a pending from the previous week and new work. Was created using a tool (Microsoft Teams), so that all the stakeholders (many of them very senior) were aware of what is being planned, and their specific actions towards meeting the weekly sprint goals.

Weekly reviews and retrospectives

Even though the marketing team was working very hard, there was not any specific way to evaluate their progress. With the introduction of the weekly sprints, plan based review and retrospectives became possible. This in turn brought in lot of visibility into the marketing teams functioning to the key stakeholders.

Daily reviews

We never had those typical stand up meetings. We sat down together for 15 minutes every day to see where we are with respect to the weekly plan and for constraint removal.

Tracking board

First we created a dump of all the goals to be achieved and the activities required to achieve those goals. This resembled the classical product backlog. From this we created the weekly sprint backlogs. The weekly sprint backlogs were classified into;

  • To be done
  • Being done
  • Done

Resources were associated with tasks with a mix of volunteering and allocation. Based on the progress made, tasks were moved from “To be done’ to ‘Being done’ and then “done’. Tracking board was shared with all the relevant stakeholders so that everyone could see what was happening in the project at any point in time.

We do not maintain burn down charts to track progress. No task level estimates. There is no actual effort capture. There is no velocity calculations yet. Just by having a product backlog, sprint backlog, sprint planning meeting, sprint reviews and retrospectives the benefits are many.

Key Benefits

  • Change in mindset from transaction orientation to result orientation
  • Higher motivation levels and job satisfaction
  • Better quality and effectiveness of the deliverables
  • Better stakeholder involvement / satisfaction
  • Increase in tangible business benefits from the digital marketing effort

Featured

Key benefits of Integrated Agile Project delivery from a 1.6 billion Oil and Gas project

Introduction

Key benefits of Integrated Agile Project delivery from a 1.6 billion Oil and Gas project;

  • Project completion ahead of 36 months schedule
  • 90% on time delivery of deliverables
  • 80% deliverables completed within budget
  • 100% quality assurance across all team’s output
  • 80% reduction in errors and rework

Key enablers

  • Integrated planning
  • Multiple levels of planning
    • Master plan
    • Phase wise plan
    • Look ahead plan
    • Weekly plan
  • Availability of project information on time
    • Exception based management resulting in reduced meetings
  • Collaborative team work supported by collaboration system
    • Weekly corrective / preventive action meetings

Basic Building blocks of Agile  

  • The master plan – The master plan of the project from the start to finish. Very often at the milestone level.  
  • Phase plan – Subset of the master plan which culminates in a major deliverable / deliverable.
  • Make ready plans / Look ahead plans – Subset of the phase plan with six weeks window
  • Formation of self-organizing teams – Teams are selected based on the skills required to deliver the output of the make ready plan. The team decides how they are going to perform the work. They collectively sequence the tasks, identify the constraints and dependencies upfront, eliminate them and sees the work progress together during the daily review meeting, and make the adjustments required to deliver on time.  This results in smoother work flows, motivation and positive peer pressure to deliver.
  • Weekly plan
  • Weekly and monthly reviews  
  • Daily stand up meetings
  • Retrospective meetings
  • Information radiators
  • Constant constraint removal
  • Forecasting (Daily, Weekly, Monthly, Phase, Master plan level)
  • Key metrics

Do you want to know more?

Our agile experts will explain the basic building blocks for improving agility in engineering projects. They will also explain how these basic building blocks work together to improve productivity and predictability of engineering projects with the help case studies.

Request for more information from our agile experts

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Transforming EDMS into Integrated EVMS

As generally understood, Electronic Data Management System (EDMS),  is an automated system to store and retrieve documents digitally to avoid piles of manual documents and the complexity  involved in manually managing them. The key benefits from the EDMS are;

  1. Providing the right document to the right person at the right time with ease
  2. Better document change management, version control
  3. Improving collaboration of different stakeholders operating from single or multiple locations through better document sharing
  4. Comments and change management
  5. Improved security through permissioned access
  6. Maintaining audit trails

If your work involve projects of any nature (big, small, internal, external, multi location, single location),  by integrating the EDMS to a scheduling tool and a workflow engine, EDMS can be transformed into a very powerful Integrated Earned Value Management System (EVMS).

The key benefits from a well implemented integrated EVMS are;

  1. Progress reporting – Planned work Vs Earned work within a given time frame within minutes, with accuracy.
  2. Trends analysis – Schedule Performance Index (SPI), Cost Performance Index (CPI), within minutes, with accuracy.
  3. Ability forecast with ease (Moving from reactive management to proactive management)
    1. Estimate to Complete (ETC), “When we complete the project, how much it is going to cost?”
    2. Estimated date of completion, “When are we likely to complete the project?”

All these are possible, without any additional data entry, and can happen at the press of a button, because the progress of work can be assessed based on predefined rules of credit attached to the workflow.

For example let us consider the workflow of an engineering drawing;

StageTrigger Rule of credit for Earned Value   Planned date Actual date
1Completion of the engineering drawing 50%20/05/201920/05/2019
2Engineering review completion 20%22/05/201922/05/2019
3Review comments incorporation 20%23/05/2019
4Final review 10%25/05/2019

On 26/05/2019;

Planned value of this engineering drawing = 100%

Earned value = 70%

Schedule variance = EV-PV = 70-100 = -30

As you can see, the progress reporting happens automatically as and when the work progresses. The additional step of manually entering percentage completion is eliminated. This enforces process compliance, eliminates wrong reporting and considerably reduces waiting time for project progress information. This concept can be scaled from a document level to work package, project, program, portfolio level. It can be within engineering or it can be extended to procurement and construction. It can be single location or multi-location.

Data from the field from a very large  project which implemented EDMS based Integrated EVMS

Project details : USD 1.6 billion project, with 120+ vendors, engineering done in five locations, tight schedule (25 months) with incentives and penalties

Key Benefits reported

  • 70% reduction in overall time taken to generate reports
  • Improved accuracy of the real time reports
  • Access to EPC contractors / vendors, automated approval processes, quick access to drawings and docs with latest revisions has increased productivity by 20-25%.
  • Direct access to multiple EPC contractors and vendors has reduced data exchange time
  • Ability to manage by exceptions than getting buried in information overload
  • 90% on time completion of deliverables
  • 80% deliverables completed within budget
  • 80% reduction in errors and rework

To understand how these things really work in a technology platform, request for a demo / discussion.  

About the blogger

Abrachan Pudussery is a Project management domain expert at Wrench Solutions. He is also the founder member of Project Management Research Institute, a non-profit organization committed to the promotion of professional project management best practices.


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Top challenges of EPC Project Owners, Project Managers & Engineering teams

Owners

  • I do not have visibility into the project.
  • It takes almost 3-5 days time to get the progress updates. By the time I receive it, it is too late to take any effective corrective / preventive action.
  • Information overload. Very often we are bombarded with information and it takes lot of effort and time to understand the exceptions.
  • We are not sure about the project end date and the anticipated cost.
  • Lot of time spent in investigations / claims.

Project Managers

  • I am unable to make timely decisions because of the delay in receiving information. I wish to get the relevant information on time at the click of a button.
  • I do not have much visibility into sub contracted work. I am forced to believe what they tell me. They give me a very positive picture till the last minute and then fail at the last minute, creating last minute plan changes.
  • Since there is no traceability, lot of time is spent for investigations and claims.
  • Quality related issues, arising out of improper communication of engineering specifications and the associated changes.
  • No visibility into the long lead items, which often results in delays and re-planning.
  • Actual work is not in alignment to schedule. Schedule is not really used for project management, it is used more as a status update and communication tool. Even that fails because the actual work execution is different from what is shown in the schedule.
  • Project managers spend lot of time in administrative work, than in managing work.

Engineering

  • Progress tracking of the engineering work, especially engineering drawings is a big challenge.
  • Change management of the engineering drawings is an area where engineering teams spend lot of their time.
  • Errors and omissions in consolidation, validation, incorporation and traceability of the changes / comments on the engineering documents results in time consuming reworks.
  • Lack of alignment of the engineering plan to the overall project plan creates lot of last minute schedule pressures on the engineering teams.

Work front

  • Because all the inputs are not available, teams spend lot of time waiting for the inputs to be ready.
  • Construct ability constraints are revealed at the work front, leading to wastage of time and money.

These are the common project management challenges faced by our clients and partners. These culminate in serious project slippages and cost overruns.

The solution to these problems lies in the culmination of ;

  1. Integrated project management information systems (IPMIS) – Without the support of Integrated Project Management Information Systems, projects are more like an army unit on the war front with a broken communication system.
  2. Integrated project delivery using Agile principles – One may have all the information on time, and if the teams lack the capability to act on the information quickly, again the project fails.

Establishing the Integrated Project Management Information System (IPMIS) is the predecessor to implementing Integrated Project Delivery (IPD) with Agility. IPMIS can be accomplished within a very short span of time with the right tools and implementation strategy. Integrated Project Delivery (IPD) with Agile principles involve cultural changes and will take longer time to institutionalize. Start with Integrated Project Management Information System (IPMIS) and then IPD with Agile.

Are you facing similar challenges in your projects?.

Let us start a discussion.

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10 tips to ease your PMP preparation



Reading the 750 pages of PMBOK as part of PMP preparation is the biggest hurdle most of the PMP aspirants face. These tips are to reduce the pain of PMP preparation. For our PMP prep online, instructor led course details contact us

PMRI's PMP prep program at Kochi on Jan 3rd and 4th – 2020

Start the New Year with a bang. Enroll for this PMP preparatory intensive classroom training program comprising of;

  • PM-Essentials – Project Management Essentials Online – Covering the basic definitions of Project management which all participants are required to complete before coming to the classroom training. Approx time required – 2 hours
  • PM face2face – 2 days intensive classroom training covering the key and complex topics of project management like;
    • Project initiation
    • Scope definition
    • Work breakdown structures
    • Estimation of time and cost
    • Schedule development
    • Quality management
    • Resource management
    • Communications management
    • Risk management
    • Procurement management
    • Stakeholder management
    • Monitoring and controlling using Earned Value Management
    • Closing the project
    • Professional ethics of project managers
  • PM Exam readiness
    • Exam simulator with 400 questions
    • Instructor support while answering the questions
    • Instructor support while applying for PMP exam
  • 35 contact hours certificate issued by the Project Management Research Institute which can be used while applying for PMP examination
  • Highly experienced faculty

Course fee Indian Rupees – 8500/- all inclusive. Only six seats available.

Some of our PMP success stories

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Related links

Value of PMP certificate in the year 2020

PMP frequently asked questions

Ten tips to ease your PMP preparation

Basic definitions of Project Management #1

The PMP certification is all about answering questions based on the Project management body of Knowledge. Not based on what we do in our office. That is where the true value is. So, set your mind to understand things as defined in PMBOK without any mental blocks. The objective is to learn first without any judgment. The following are the basic definitions of project management covered in Chapter 1 of PMBOK.

Projects, Programs and Operations

What is a Project?

  • Temporary endeavor, undertaken to produce a unique product, service or result.
  • Projects have definite start and end dates
  • After the completion of the project, the team is dismantled
  • Projects drive change. Projects support organizational initiatives which drive organizational change. You are constructing a new plant in the factory, which will in turn increase production and profits. By constructing a new metro rail, you are changing the way citizens travel. So, is the case with every project.
  • Projects enable business value creation. The previous examples holds good for this as well. We have a digital marketing program, which creates value to the business.
  • Projects are managed by Project managers
  • For better efficiency, projects may be sub-divided into sub-projects

Programs

Programs are collections of inter-related projects, which when done together gives us more value than doing them one after the other. Integrated rapid transport system is a program comprising of water transport, metro rail, roads, cycling tracks, taxi services, car-pooling etc. If these projects are done together, then the end result will be better than doing them one after the other. Programs are managed by Program managers. Project managers of the projects which are part of the program reports to the program manager.

Portfolio

Is a collection of Projects, Programs, Subsidiary portfolios and Operations and other work carefully selected and executed to meet the strategic business goals of the organization. Anything that is linked to achievement of the strategic business goals can be easily classified as a portfolio.

Managers of the constituent programs, projects and other work report to the portfolio managers.

Operations

  • Operations are ongoing in nature
  • Operations produces standard output (Designing a new car is a project where as manufacturing a particular model of a car, shift after shift is operation. Most of the manufacturing comes under operations)
  • Operations are also constrained by the limited resources of time, cost and quantity.

Portfolio management

  • Choose the best projects, programs and other work that supports the organization’s strategy to meet their business goals
  • Organizational strategies and goals can change due to changes in the business environment. When such things happen, the portfolio also must be re-aligned to the changing business environment.
  • Ensure that the components of the portfolio delivers the benefits for which they were initiated.
  • Portfolio management is performed by portfolio managers

Project life cycle

Projects progress through a series of phases like;

  • Kick starting the project
  • Organizing and preparing for the project
  • Execution of work
  • Formal closure of the project / phases

These phases are collectively known as project life cycle.

Development life cycle

The phases within the project life cycle, which are associated with building the product (design, construction, testing) are called development life cycles. Development life cycles can be Adaptive or Predictive.

  • In adaptive life cycles project’s master plan is delivered through iterations of shorter duration. They are also known as rolling wave planning or moving window planning. The projects have high level milestones and road maps which are divided into smaller iterations which are planned in detail and executed. Agile frameworks are classic examples of adaptive life cycles. Adaptive life cycles are very useful for projects where requirements do change rapidly (Software, Engineering design, Research and development projects, new technology product development etc)
  • In predictive life cycles, projects are planned in detail from start to finish and executed. Projects where the engineering discipline does not allow for change are good candidates for such projects. Civil construction projects is a good example.

Project phases

For effective management, projects can be sub divided into different phases like Phase#1, Phase#2 etc.

Phase gates

Projects are never funded in one go. At the end of every phase, senior management reviews are conducted to evaluate the progress made. If found satisfactory, projects get the green signal to proceed to the subsequent phases. If not satisfactory, projects will not be allowed to move to the subsequent phases. These senior management reviews are known as stage gates, phase gates or kill points.

Project management process groups

The Project Management Body of Knowledge comprises of 49 processes grouped into five process groups and ten knowledge areas. The mind map below depicts the five process groups.

  • Initiation
  • Planning
  • Execution
  • Monitoring & Controlling
  • Closing

Project management knowledge areas

The ten knowledge areas comprises of;

  • Project integration management
  • Project scope management
  • Project schedule management
  • Project cost management
  • Project quality management
  • Project resource management
  • Project communications management
  • Project risk management
  • Project procurement management
  • Project stakeholder management

It is not mandatory to follow every process in every project. Based on the need of the project the project manager can tailor the processes he wants to use in the project.

Project management business documents

  • Project business case – Documented economic feasibility study of the project , generally owned by the project sponsor
    • Why are we doing this project?
    • Key stakeholders affected
    • High level scope of the project
    • Analysis of the situation
    • Recommended solutions / alternatives analysis
    • Milestone list
  • Project benefits management plan – Processes for creating, maximizing and sustaining the benefits provided by a project. Project manager provides inputs for maintaining these.
    • Benefit milestones and dates , Benefit owner
    • Alignment of the benefits to the organizational business strategy
    • Benefit measuring logic, systems
    • Assumptions and risks

Project success measures

  • Establishing the project success criteria with the involvement of all the key stakeholders upfront in a project increases the probability of success.
  • Must be documented and can include;
    • Definition of success for the project
    • Success measuring parameters
    • Critical success factors
    • Adherence to the project business management plan
    • Meeting the agreed upon financial ratios used while justifying the project selection;
      • Net Present Value (NPV) = (Sum of the present value of all future cash flows – initial investment)
      • Return On Investment (ROI)
      • Internal Rate of Return (IRR)
      • Pay Back Period (PBP) – The year in which we can take recover the initial investment from the project
      • Benefit Cost Ratio (BCR) = (Sum of the present value of all future cash flows) / Initial investment

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