Decision oriented Project Development
How the project management triangle can safeguard your benefits.
Facing the large number of failed projects, the well-proven planning triangle of scope, time and costs seems to be abused. What a pity! With a few added elements, it allows to perfectly navigate through the project development process, and also clearly shows the responsibilities for the project owner and the project team.
Many elements from project management are taken for granted in our everyday working life. Fortunately, this also includes the paradigm of the stable triangle of scope, time and costs. Even if the high proportion of failed projects suggest that there are still fundamental misinterpretations and a lack of translation into change or claim management, most work packages and projects are planned based on this fundamental principle.
In order to determine the direction and purpose of the project, project goals are defined beforehand, which then will be achieved by executing the project scope. These goals are usually defined as specified, measurable, attractive, realizable and time-bound – very probably to make these requirements easier to recognize with the acronym SMART. In many cases this tradition has led to the fact that we find all kinds of concrete results in most of the project goals. Thus, in these projects, it is already clear at the beginning what results must be delivered. We will see that valuable opportunities and plenty of time might be lost that way.
Creating promising alternatives
As an example, let’s take a replacement project in a production plant of a company with several production sites. The plant manager in whose location the investment is due asks a project manager to plan the project. The priority objective is to maintain the production capacity in the plant, as it competes with other locations in terms of production costs per piece. The focus on replacing the machine is understandable, but only if the decision frame is restricted to the individual plant.
When the investment application is evaluated at group level, the business case of the project will be challenged. The question will be, WHY this project should be started with the proposed scope and results right now. Since the plant manager in our example is only responsible for the costs, the consideration at plant level lacks essential components, such as forecasted sales volumes or synergy effects with other plants. In comparison with other locations, further criteria such as supply chain integration, proximity to sales markets and production flexibility can be taken into account. Depending on how the business case of the project is defined at group level, alternatives to the simple replacement might become promising alternatives.
Optimizing the overall benefit
For efficient project development it is necessary to break down the envisaged benefit, in profit-oriented organizations this is the business case, into measurable criteria. Most companies use profitability indicators (such as ROI or ROACE) for this purpose. The translation of the project benefit into measurement criteria is also the perfect opportunity to integrate sustainability criteria into the project evaluation. In particular, the triple bottom line of people, planet & profit can be used to develop sustainable projects.
In any case, the central importance of the decision criteria lies in the evaluation and prioritization of options that lead to different results and thus contribute differently to the project’s benefits:
The frame conditions – the description of the initial project reason and the intended benefit – are the same for all options. If, in our example, a reduction of internal logistics costs was specified as a desired benefit of the project, a consolidation of production steps at a single location could be an option that would not be considered at plant level, but preferred at group level.
The triangle of scope, time and costs is planned for each of the options and provides information that is required to assess the decision criteria. If these planning cycles take place in a few loops with an increasing level of detail and a rapidly decreasing number of options, valuable time and unnecessary planning effort for junk options are saved!
The perfect organizational split
One of the most common causes of unclear project definitions is the inadequate split of responsibilities for defining the frame conditions. Since the definition of the benefits cannot be delegated to the project team and the project owners usually lack the time and expertise for detailed planning and evaluation of the options, the image above leads to the following split which represents best-practice in project development:
It is the responsibility of the project owner to define the reason and the desired benefits of the project, as well as the decision criteria.
It is the task of the project team to develop, plan and evaluate options within this frame.
Project governance must implement a project development process, e.g. a decision dialogue, that is suitable for the company and must ensure that the best option is selected and implemented within available funds.
If projects are developed without established structures, for example in start-ups, one-off initiatives or in organizations that have not implemented the required processes, the separation of tasks between the project owner and the project team stays as described above. In these cases, the selection of the best option is usually the responsibility of the project owner, the project steering committee or a specially established decision-making body (Project Decision Board).
The article reflects the experience of the experts of the Decision Advisory Group from numerous projects in the energy sector and industry clients. If you are interested in further articles, register for our newsletter and follow our blog on www.decision-advisory.com .
Author: Heinz Nusser
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