Week01 slides spring_2013

MGT 610 Strategic Project Management

© Thomas Lechler 2013 1


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Session 1

The Core Conflict of Classic and Value

Project Management

Classic Perspective of Project Management



Session 1: Agenda

1. Motivation of the course

2. Teaching Goals of this Course

3. Paradigms and Paradigm Shifts

4. TOC Basic Concepts

5. Classic PM vs. Value PM

6. Classic PM

7. Value PM: The Next Generation



1. Motivation of the Course

A Wide Use of Projects in all Industries

The Problem: Low Project Performance

– Many projects overrun - schedule, budget

– Many projects achieve disappointing business results

No Significant Improvement in Project Success Rates Since 1996!

Over 1 mio.

Software projects

in US companies




Why do projects not achieve the planned performance?

The Current Perception - Operational Activity is sufficient

But

Projects are Undertaken for Business Results

– Creating New Products and New Markets

– Process Improvement

=> To Gain or sustain Competitive Advantage




The Need:

– A better conceptual Understanding of the nature of projects

– An enhanced model to manage projects – to maximize a project’s value

=> Manage Projects Strategically



2. Strategic PM: Course Goals

Create a new paradigm for project management

• Understanding the limitations of Classic Project

Management and assess the Value Project Management

Introduce innovative frameworks, concepts and tools for

Project Management

Deliverables and Objectives:

• Understand the new paradigm and apply it

• Develop a project strategy to maximize project value

• Choose a set of tools to manage projects strategically

• Analyze projects quantitatively and make quantitatively-

based strategic decisions



2. Strategic PM: Course Pedagogy

in thinking in beliefs.

in beliefs in expectations.

in expectations in attitude.

in attitude in performance.

in performance in status quo.

Adapted from John Maxwell’s book, “Thinking For a Change”

A change in the status quo requires

a change in thinking


© Thomas Lechler 2013

2. Strategic PM: Conceptual Course Framework

Risk Uncertainty

Planning

Projects

•Define Robust Baseline

•Mitigate Risk

•Define Value Proposition

•Maximize Value

Changing

Projects

•Analyze Variation

•Avoid Change

•Seek value opportunities

•Embrace Change

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3. Paradigms: Level of Change

Einstein said, “It is not possible to solve a

problem at the same level of thinking that

created the problem.”



3. Paradigms: Definitions

A Paradigm is a framework of thought, a scheme for understanding and

explaining certain aspects of reality. It is a set of rules how to be

successful within its boundaries.

A Paradigm Shift is a revolutionary new way of thinking about old

problems – a dramatic, collective change in our perception. When a

Paradigm shifts, everyone goes back to zero.

Paradigm Paralysis:

• Swiss watch industry with quartz drive

• Mainframe computer makers with PC’s

• Tablet computing

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4. TOC: Basic Assumptions

Theory of Constraints (TOC) systemic approach adopted by Goldratt

for management problems to focus on global optima.

Assumptions:

All systems have at least one constraint;

otherwise they would be capable of infinite throughput.

A real-world system with more than three constraints is extremely

unlikely, because:

Linear programming problems show that the more constraints

the less stable the solution.

Practitioners claim that three constraints is a realistic maximum

Goal: Focus on those few areas (constraints) which maximize the

output. 11



4. TOC: Implementation

Goal of TOC: How to maximize an organization’s goal

achievement, by deciding:

What to change?

What to change to?

How to cause the change?

Goldratt’s five focusing steps as basic implementation of TOC:

Identify the constraint.

Exploit the constraint.

Subordinate to the constraint.

Elevate the constraint, and

Do not let INERTIA prevent you from doing it

again.



4. TOC: Problem Definition

A precise problem description is half way of the solution.

A problem exists whenever there is something that prevents or limits

us, from reaching a desired objective.

Problems which involve a compromise must satisfy at least two

requirements.

Precisely define a problem by defining the requirements that must be

fulfilled.

Whenever a compromise exists, there must be at least one thing

that is shared by the requirements and it is in this sharing that the

problem between the requirements exists.

To satisfy the requirements a prerequisite exists and it is here that

the conflict arises Goldratt, Theory of Constraints, 1990



4. Evaporating Cloud Model: 2 Conflict Types

A

Prerequisite

(Want)

B

C

Requirement

(Need)

Objective

Conflict

A

B

C

Conflict

Limited availability

of D

Goldratt, Theory of Constraints, 1990

D

Not D

D

D’



4. TOC: Evaporating Cloud Model Definition

The Evaporating Cloud (Conflict cloud, dilemma cloud,

conflict resolution diagram), provides a verbalization of a

conflicted situation and is read:

• In order to have objective A, we must have

necessary condition B.

• In order to have necessary condition B, we must

take action D.

• In order to have objective A, we must have

necessary condition C.

• In order to have necessary condition C, we must

take action D'.

• But actions D and D' are in conflict.



4. TOC: Evaporating Cloud Model – Example

Happiness

Prerequisite

We must be

satisfied

Requirement Objective

We must be

secure Don’t try new

things

Try new

things

Efrat’s cloud of organizational change processes:

Without taking care of peoples’ security:

• they will not try new things,

• they will not change,

• and there will be no improvement.

Satisfaction is

necessary

For contentment

Actions are

Mutually

exclusive

Security is

necessary

For contentment

I must be able to

predict what will

happen in my future

Real satisfaction comes

from accomplishing

things that at first I didn’t

think I could do



4. TOC: Evaporating Cloud Model Process

The cloud lets us identify a way to satisfy both needs and

the common objective without a conflict, and with a

win/win injection.

We construct a cloud out of 5 entities:

Define the common objective which should be

satisfied.

In order to satisfy the common objective it is

necessary to fulfill two needs.

In order to satisfy the needs it is necessary to fulfill

two wants.

The two needs or wants could be in conflict with

each other.



4. TOC: Evaporating Cloud Model Process

Conflict Clouds should be annotated:

• The assumption(s) behind the linkages should be

explicitly stated on the diagram

• And then further supported by a paragraph

explanation for each item and link, explaining the

underlying assumptions

• Because these assumptions reflect the fundamental

beliefs of the paradigm represented

• It is important to carefully articulate each part of the

cloud, because different clouds lead to different

solutions



5. Classic PM vs. Value PM

1. Classic PM Focus: Risk Management

- Project goals and objectives are defined

- Sources of variation and their impact are identified

2. Value PM Focus: Uncertainty Management

- Differentiate uncertainty from risk

- Identify and exploit project value opportunities



6. Classic PM

Principles and Core Conflict of Classic PM

Classic PM: Optimization under constraints



Classic PM: Defining Project Risk & Risk Mgmt.

Project Risk (PMBoK, pp 273) .. is an uncertain event or condition that, if it occurs, has an effect on at least one project objective.

Management of Risks (PMBoK)

Known risks are those that have been identified and analyzed, making it possible to plan responses for those risks. Specific unknown risks cannot be managed proactively, which suggests that the project team should create a contingency plans.

Triple Constraint as the basis of Risk Management

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Classic PM: Principles of Risk Management

• Objectives are determined and baseline defined.

• Events that could cause variations from baseline are known.

• Probabilities of events that could cause variations are known.

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Classic PM: Management Objective

Project success can be achieved:

• by meeting predefined objectives

Fundamental Assumptions:

• Triple constraints define success for stakeholders

• All stakeholders have compatible perspectives about and

congruent priorities for success

Practical Experience:

• The value of a project may be nearly independent from meeting

triple constraints

• It is often not possible to precisely predefine objectives

Consequence:

• Projects are implemented to achieve business value



Classic PM: Triple Constraint

Meet

Predetermined

Objectives

Prerequisite Requirement Objective

Only project risks are addressed to achieve predetermined

objectives!

How is value created and how is uncertainty addressed?

Don’t Change

Baseline

Change

Baseline

Project Risks

Managed

Baseline

Met

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7. Value PM

Principles and Core Conflict of Value PM

Value PM: Maximization under constraints

Need for a project management paradigm that explicitly addresses:

• Project uncertainty,

• Project value opportunities,

• Project value maximization



Value PM: Objective



Value PM: Objective

Managing Project Value

Pre-project Start

Project

Stop Post-project

W

e

a

l

t

h

Total Cost

of Ownership

Latent

Liabilities

85% of TCOO will

be determined early

in project’s

lifecycle.

Gain?

Loss?

Revenue < TCOO

Revenue > TCOO



Value PM: Defining Uncertainty & Management

Project Uncertainty

• Is related to unpredictability of the environment,

• inability to predict the impact of environmental

change,

• and the inability to predict the consequence of a

response choice.

• Not defined by PMBoK (4th ed.).

Management of Uncertainty differs from Management of Risk

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Value PM: Basic Assumptions

Uncertainty Friend or Foe?

1. Project objectives cannot be precisely predefined.

2. Project objectives do not remain stable over the

implementation of a project.

3. Project success can be achieved by maximizing project

value.

4. Project uncertainty can be managed by seeking and

exploiting project value opportunities.

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Value PM: Paradigm Core Conflict

Maximize

Project

Value

Prerequisite Requirement Objective

The management core problem:

Opportunity discovery and exploitation.

Exploit

Opportunities

Not Exploit

Opportunities

Initial

Requirements

Met

Stakeholder

Expectations

Met PM’s

Value

Mindset

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Value PM: Uncertainty Focused PM Perspective

1. Project uncertainty can be managed by seeking,

discovering and exploiting project value opportunities

during project implementation.

2. The project manager is instrumental in discovering and

exploiting project value opportunities.

3. The project manager needs to have a project value

mindset (PVM) to discover and exploit opportunities.

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Value PM: New Challenges

Projects are initiated to achieve Value for the company.

The role of the Project Manager is changing from the coordinator and

implementer to:

• The Leader and Mentor, who is responsible for the best possible

performance of human resources

• The Strategist, who is responsible to coordinate and focus decisions

with a project strategy

• The Manager who is responsible for maximizing Project Value

Project Value Management is a Mindset:

It is not sufficient to achieve pre-determined project value.

It is to maximize project value and to adapt to variation.



Risk

Perspective

Uncertainty

Perspective

Management

Focus

Variation Drivers Value Drivers

Responsibilities Meet Baseline Maximize Project

Value

Project Definition Statement of Work Stakeholder Needs

Project Planning Baseline Value Proposition

Project Execution Avoid Variation Identify Opportunities

PM’s Role Project

Administrator

Project Leader

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Value PM: New PM Role