Filling the gap between projects and corporate strategy
Project is a temporary undertaking within a limited time and budget. This definition has a general character, as the most part of the work that is done within an enterprise could be described by it. For instance, any contract work with specified scope, time and budget is a project. In case when executive commissions for an accomplishment of a particular task, and when the goal, term and budget are also set (or if the number of employees capable of fulfilling this task is restricted), it can be called a project as well. Another example of a project is when a group of employees accomplishes a task given by the head of their department.
Thus there are plenty of projects which have worked out simultaneously in one company. The question, however, is the reason why the given projects were chosen to be fulfilled and the reason why they are being developed.
As a rule, every company strives for success which means it wishes to turn its present state into something better. The achievement of a better state is the main strategic goal of the company at the current stage of its development. The strategic goals may vary from ‘becoming the main distributor of the products produced by a company X’ for a trading company, or ‘becoming plastic card operator’ for a bank, up to ‘increasing the number of the corporate clients to 50% of the total volume’ for a catering company, etc. To achieve its goals a company adheres to a particular strategy, and with accordance to this strategy it undertakes different projects.
For instance, if a company wants to become the main distributor of the products by the company X, it can choose one of the following strategies: develop its own regional chain, or buy the competitive chain, or sign a contact with a company X for the right of the exclusive distribution.
If the company decides to develop its own chain, it undertakes a project of opening branches, a project for regional advertising campaign, etc. If a company chooses to buy the competitive chain, the following projects will be undertaken: a search for a suitable company to purchase, the purchase itself, internal restructuring, promotion of the merge, etc.
By fulfilling the projects, the company operates within the frames of the chosen strategy and achieves its strategic goals, and consequently develops. The faster a company accomplishes its projects the faster it develops. The less money a company spends for the projects, the less will be the costs of the company’s growth.
Thus, the more successful the project management operates, the faster and the cheaper a company achieves its goals. In other words, the successful project management plays an important role in achieving success for the company among its competitors.
What is successful management?
As it follows from the definition, all the projects are undertaken for the sake of achieving particular result or a product of a project (in this case ‘product’ is understood as a product, service, or any other kind of result of the activity). In project management it is necessary to distinguish between a project scope and product scope. Under the concept of ‘product scope’ we understand the features of the product of the project, and under the concept of ‘project scope’ we mean the amount of work which is to be fulfilled to achieve a required result.
Thus, one needs to distinguish between the success of a product and the success of a project to estimate how effective a project is.
A product may be considered successfully fulfilled if the problem which initiated the given project has been solved, and if this product has helped the company in achieving its strategic goals. The project is successful if the work on this product has been effectively done and if the received product meets customer’s requirements.
Sometimes the success of a product doesn’t presuppose the success of the project. For instance, a world-wide famous opera house in Sydney is a masterpiece of the modern architecture that is a successful product. However, the construction project was a failure: the schedule date and the costs exceeded the initial in several times, and the architect (the project manager) was dismissed. There are also examples of the opposite situations, when the budget and the time constraints are maintained, but the ultimate product doesn’t solve the problems which have initiated the project.
Consequently the success of a project is both the success of the product’s project and the success of the project management.
A project is successful if the achieved result answers the initial goal and the work has been done according to the plan with minimal time and budget extension.
A product of the project can be considered successful if it has helped with solving the problems which set the beginning of the project, and if it has contributed to the achievement of the company’s strategic goals.
In other words, the successful project management in a company is not only in charge of the right management, but the choice of the ‘right’ projects to fulfill.
Choosing ‘right’ projects
Many executives often rely on their intuition when choosing an investment project. In some situations, of course, it seems to be the optimal way, especially for small companies. Nevertheless, in most of the cases the intuitive approach can cause numerous problems.
Intuition is based on a specific market view which varies from person to person and if a project is being chosen by business partners or by several investors the intuitive approach will complicate this process. Sometimes projects are chosen by the top managers and some projects are appointed by the heads of the departments and it may lead to simultaneous fulfillment of similar projects on the different levels of the company. Not corresponding to each other such projects can hinder the fulfillment of other projects.
One needs systematic approach uniting the basic principles of choosing projects for the whole company in order to invest company’s funds profitably. The optimal approach would be the project ranking according to certain formal criteria and the further selection based on ranking’s results.
The example of ABN Amro Bank seems to be the most revealing in this case: at the 17th Project Management World Congress in Moscow the representatives of ABN Amro Bank said that before they introduced the system of project ranking they had spent more than a month for choosing the project because the members of the board of directors could not come to agreement concerning the choice. After the introduction of this system the choice has been taking about a week’s time.
The implementation of the project ranking system
The implementation of the project ranking system can be based on various criteria. As a rule, projects are valued according to the financial activities (project costs, possible profit, and the investment repayment), according to the degree of influence on business (possible increase in productivity, profit, and in investment interest to this company). It can also be based on the degree of risk, on the compliance with the company’s strategy and other criteria (the increase in personnel’s loyalty, the raise in influence on the market, etc.) It is the ‘other criteria’ group that is the most interesting for consultants because these criteria reflect the peculiarities of the company which is being introduced to project ranking.
After the development of the criteria system, the project rating scale is worked out with accordance to these criteria (where one defines the number of points on the given scale), and the principle of project evaluation according to this scale is discussed as well. The evaluation principle determines the formal features which gain a project a particular point on a particular rating scale.
In conclusion follows the development of the system of weighting coefficient which distinguishes between more important and less important criteria for the company. This gives a company the opportunity to get consolidated assessment of a project according the ranking system. In other words, the coefficient reveals the connection between the criteria and the company’s strategy – hence more important criteria have a higher coefficient.
After the project ranking system has been developed, a new procedure which provides the evaluation of every project is being introduced. It guarantees a consistent choice of projects according to one system of criteria for the whole company, and it also provides the launch of those projects which closely follow the company’s strategy.
The developed project ranking system provides the connection between the strategic management and project management, and guarantees the funds being distributed to those projects which contribute to the achievement of the company’s strategic goals.
Project ranking system based on Microsoft Project Server 2002/2003: a real-life example
In a given company the budget of IT development is $65,000, and IT department managers have offered 3 projects the cost of which amounts to $69,780. The executives of the company were faced with the necessity to choose the optimal projects: which projects should they fulfill, and which should they turn down?
The company in question had been introduced to the project ranking system. Within the frames of this system projects were also evaluated according to their correspondence to the corporate strategy and the degree of ROI.
Since the managers had specified these two parameters when entering the projects into the system, the executives were able to compare the projects according to these criteria.
The results of the analysis clearly showed that one of the projects in question had the minimal correspondence to the company’s strategy and the minimal level of ROI along with considerably high costs (the size of the ‘bubble’ on the graph shows the costs). Thus, it is exactly this project one would decline, had there been the necessity to do it.
To start the project ranking based on Microsoft Project Server 2002/2003 you will need to install “Portfolio Analyzer Extension” by Bogdanov and Associates.