Decision Making Data That is Credible

Successful project managers have built a reputation for providing credible decision making data to decisions makers.  Building that kind of reputation takes two things. First the project manager must possess skill in creating and   project data and good techniques for forecasting with it. Decision MakingThe second is the courage and conviction do only high quality work.  The PM must be able to say to an high pressure executive, “At this point in the project planning, I do not have enough information to give you a project finish date you can rely on.”  This second item is the hardest.  But if you let people who outrank you intimidate into giving them information that is not reliable, your credibility will whither.

  • Status Reporting is the area where a project manager’s credibility is either enhanced or ruined.  If your status reports are overly optimistic and your forecasted results are better than what actually happens; you will  have no credibility with the executives. The better technique is to gather the data you need to make accurate projections of what’s going to happen. If the projection is bad news, you have the facts to communicate to the executives. If you’ve built a reputation for accuracy in your cost and time reporting, and deliver bad news when it is warranted, you will have higher credibility than the project manager who forecasts sunshine until it is too late to hide problems.
  • Change Requests  accurately assessing the impact of a requested change to the project schedule is a key moment of truth for project managers. If you gloss over the impact of a change request from a powerful person, your credibility is compromised when the change request damages the project.
  • Project Trade-offs  good project managers recognize that trade-offs are the best technique when dealing with the sponsor and stakeholders.  The project manager presents this analysis of a change request like this,” If we add the additional five day training class, the project finish date will be pushed out four days and the cost will be increased by $8,000.”  That is an example of a trade-off. The project manager described the “good stuff,” the training class the executive wanted as well as the “bad stuff,” the increased project duration and cost. There is no such thing as a “free lunch.” Every change has an impact the project manager must quantify. You must be able to use project software to model the impact of the change. Then you must be able to present information like this to the executive.
  • Cost-benefit Analysis  is typically used in the procurement process to compare purchasing the service with providing it internally. The project manager compares the benefits and costs mathematically to support a decision. This is another area where credibility is immensely effected by the accuracy of this data the project manager provide services
  • Project Plan Presentations is another opportunity for the project manager to establish his/her credibility. The data, projections and forecasts contained in the plan need to be accurately calculated.  Then  the PM needs to properly present the plan to give decision-makers the kind of data they need to determine whether or not to proceed with the project.
  • Project Charter this document gives an early summary of what the project will deliver, what it will cost and the resources it will consume.  The project manager needs to approach this document with the intention of surfacing any existing conflicts in the organization. He must not ignore or try to smooth over them.  Problems need to be solved early, when they’re small, rather than waiting until they explode later.
  • Critical Path Analysis is done with data from the project schedule after the longest path through the task network is identified. That path controls the duration of the project.  With is the PM can assess the impact of adding or removing resources from the project.  The project manager must use the scheduling software to assess the impact on the duration.

 

Project Methodology: Lean Project Processes

It’s very easy for projects to become bogged down in mounds of paperwork and endless, senseless meetings.  Our project methodology gives our  graduates a lean methodology for planning, gathering  requirements, project methodologybuilding a schedule, estimating, dealing with changes, closing a project and adding it to the archives.  Overly academic, ivory-tower approaches confuse people and waste valuable time.  That’s why we teach a lean project methodology that minimizes paperwork. A small project may have a plan that fills one side of one piece of paper.  This lean methodology also minimizes meetings. The project manager doesn’t use a “go around the room” staff meeting to find out how everyone is doing. He knows before going into the meeting.  His project plan contains data on the planned duration, cost and deliverables and the team members report their progress each week.  Everyone receives that data and the PM spends his time working with the team members who you are off track with their assignments. That is a key to the project methodology.

  • Project Initiation & Chartering  one of the key elements in our lean methodology is careful control over the initiation of projects. In this process, new project proposals must meet specific criteria for what they will deliver to be approved. Implementation of this process usually reduces the number of new projects started each year  by 30% or more. It definitely improves the business benefit yield from the portfolio of projects.
  • Defining Scope  in our lean project methodology, project scope is not a long windy narrative. Instead, we define the scope of the project with a measurable deliverable that the project must produce. An example project scope statement might be, “Reduce operating expenses by 17% per quarter.” The scope doesn’t tell us how to do this. It does define how the project’s success will be measured.
  • Project Planning  our project planning process is based on breaking down the scope into a network of measurable deliverables that support it. We continue to breakdown the deliverables until we reach the level of individual team member assignments. The result is series of “tasks” that specify what each team member must deliver and how it will be measured. As result, the team members know what’s expected of them before they start work on their tasks. Th planning process also includes risk analysis with specific strategies for mitigating the most significant risks.
  • Requirements gathering  this process often deteriorates into sessions that resemble people telling Santa what they want for Christmas. Our project methodology does not include what people want but what they must have to deliver what they are accountable for producing. It ensures there is a link between every requirement and its deliverable.
  • Work Breakdown Structure  our lean methodology produces very different work breakdown structures. They are not a monstrous “to do” list of tasks.  Instead our work breakdown structure is the basis for the whole schedule. It lays out business deliverables whose success is defined by a metric. The deliverable must be measurable. For example, a new payroll data entry screen might have a deliverable metric of “Payroll clerks can enter 70 payroll adjustments per hour.” That’s the deliverable the IT department must produce with the new payroll data entry screen. The entire work breakdown structure is based on measurable deliverables so there is never any question what has to be delivered. There also is no question about its success or failure.
  • Procurement and Bids  in many projects, human or material resources must be acquired from outside the organization. Establishing the selection criteria and the process for weighting each vender’s proposal is key. Our lean methodology reduces the paperwork without allowing organizational politics to affect the selection of vendors.
  • Project Management Office  our lean project methodology includes a project management office function. We offer a number of different project office models that organizations may use when their portfolio of projects reaches a certain size. Each is tailored to a different organizational culture and competitive industry environment.
  • Lessons learned this process gives the organization valuable information on how to do projects better and achieve results more efficiently. Unfortunately, lessons learned meetings often deteriorate into finger-pointing and turf wars between departments. Our lean methodology produces information about what went well and what did not. It also provides the project archives with data on how much work each task actually took and what it cost. This is the foundation for project managers to do analogous estimating on future projects that are similar.

 

Decision Making Data

Good project managers provide credible data on things like when the project will finish and what it will cost. The project sponsor and other stakeholders also need credible and quickly available data about:

  1. Impact of project variances in the project
  2. Changes to the budget
  3. Changes to the schedule
  4. And the impact of alterations to the project team

Data to support these decisions can only come from a project manager scheduling and budgeting software. For

Estimation: Which Technique To Use

In our white papers and courses we teach a variety of estimation techniques for use in project management.  There are many people managing projects who do their estimation “on a wing and a prayer.” In other words, they make their best guess without any supporting data. None of the best practice estimation techniques is perfect. But at least they let you show the client, the project sponsor or your boss where the duration and cost estimates come from.

Our articles cover a wide range of estimation techniques including
analogous, parametric, order of magnitude, bottom-up and three-point estimating.  Once you have learned these techniques, you must decide which one to use on your next project.  Each of theses techniques requires specific data and specific mathematical and statistical procedures. Let’s go through each of them. Keep in mind that you can use different estimation techniques on different sections of your project.

Estimation

 

Analogous Estimation Using Comparables

Analogous estimation has many advantages. It is based on historical data from previous projects your organization has done. The best organizations make money on their projects and meet their client’s expectations. And they keep historical data so they can use analogous estimation on future projects. Here’s an example. I was a partner with the fourth largest professional firm in the world.  One day I got a phone call from a new client who wanted an information system developed for his multi-state business.  The business was a sod farm that grew grass which landscapers installed for new homes and offices.  The only thing I knew about sod was that you planted the green side facing up.  Fortunately, our worldwide organization had an enormous archive of project plans, schedules and budgets for every project we’d done for the last several decades. Despite my ignorance of the industry, I searched the archives and found five comparable information systems projects the firm had done for sod farms.

After a few hours of study, I was able to have an intelligent conversation with the client. Several weeks later, I produced a proposal with cost and duration estimates that were based on the five comparable projects we had done. There is no excuse for any organization not to have project archives.   As long as the PMs are doing a professional job of managing the planned and actual project work, the data for analogous estimation exists They just need to save it at the end of every project.  If your organization has no archives, you need to start it now. Your estimates on similar projects will be better and more accurate in just a few months.

Parametric Estimation from Published Rates

Certain types of projects have published rates for specific tasks that project managers can purchase.  As an example, there are a number of companies in the construction industry who publish massive volumes on how many hours of work it takes to paint a 10 x 12 foot wall with one coat of latex paint.  These rates are widely used by smaller residential and commercial construction companies and subcontractors. Smaller companies can use these tables to calculate estimates based on the average data regarding how long specific tasks take.  By factoring in local hourly rates, they can estimate the cost of painting a 10 x 12 foot wall. People have tried to develop rates for information systems programming. However, they’re not as widely accepted as the construction industry rates.

Order of Magnitude Estimation to Reflect Risks

The most difficult estimate the project manager has to produce comes at the very beginning of the project during the initiation phase.  Executives want to know how much this new project will cost and how long it will take. However, the project manager may not have an approved scope statement. They may not even have much information about the project when they’re first asked these questions.  But if the project manager makes a wild guess about cost and duration at this point, the executives will carve it in stone. They’ll hold the project manager accountable no matter how many hedges the PM gives.  This is when and why the project manager should use order of magnitude estimation. Here is what they should say: “I’m 90% certain that the project can be completed between 50 and 95 days. I’m also 90% certain that the project will cost between $75,000 and $100,000.”

Executives don’t like order of magnitude estimation because they want two numbers; the cost and duration. They don’t want probabilities or ranges.  At this point in time, however, the project manager knows very little about what the project will entail.  So giving executives anything more specific than ranges and percentages is suicidal.  Some executives are surprised when they receive order of magnitude estimates. They unrealistically assume the project manager could consult a reference book somewhere and come up with specific numbers for their project.

The best that a project manager can do at this point in the project is to explain that the level of certainty will improve as planning proceeds  That kind of statement usually doesn’t do much good with executives but it’s the truth.

Bottom-up Estimation by the Project Team Members

Bottom-up estimation is done when the sponsor and project manager’s planning process has produced a work breakdown structure and assigned a project team. Letting team members make the estimates sounds very good. Also, it is a good idea to use the expertise of your team members in creating estimates. Enthusiasm in bottom-up estimating is usually high because team members enjoy being part of the process. Unfortunately, bottom-up estimating often leads to team members padding their estimates. They want to protect themselves from being blamed if the project is late and/or over-budget. Unfortunately, morale-building is lost and team members feel betrayed if the project manager slashes their bottom-up estimates to reduce the cost and duration to meet the project sponsor’s goals.

3-Point Estimation with Project Team Member Input

3-point estimation was developed by NASA for the space program. It’s a good choice when a project manager has unique, “never done before” project tasks.  In situations like those NASA faced on the moon landing, the other estimation methods wouldn’t work because there was no data from previous projects. In those circumstances, the project manager asks the team members for multiple estimates for each task. This allows them to consider the impact of good breaks and bad breaks.  Because the team members have a chance to assess the impact of good and bad breaks on their work, they aren’t as likely to pad their estimates.  3-point estimates also give the project manager statistical data on the probability of different durations and costs. Some sponsors are able to make good use of that data. Others think it is horse hockey.

Conclusion

There are lots of estimation choices and skilled project managers may make use of several techniques to develop the best estimation data for their projects.

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Dick Billows, PMP, GCA

Dick Billows, PMP, GCA

Dick has over 25 years of experience as a project manager and regional partner with the fourth largest international professional firm and a VP of a Fortune 500 company managing a portfolio of project across 14 states. He has managed projects and programs in all 50 states and a dozen foreign countries. Since starting 4PM.com, he has assisted over 300 organizations in improving their project results and trained hundreds of project managers.

Dick began his career in project management with an international consulting firm starting as a technical consultant and move up to project and then program management. He successfully managed performance improvement, cost reduction and systems development projects for clients across the United States and overseas for 12 years. He directed projects in the following industries: computer chips, aluminum extrusion, insurance, local and state government, food manufacturing, restaurant chains, international reservation systems, K-12 education, oil refining, law firms, hospitals, medical practices and construction contracting and sub-contracting in commercial, industrial and residential construction.  Dick’s system development projects include accounting systems, ERP, financial reporting, inventory control, scheduling, personnel management and claims processing.

He made partner at Grant Thornton International (the world’s fifth largest accounting and consulting firm) and later assumed responsibility for the entire regional portfolio of client consulting projects in the western United States. Im that role he was responsible for training and developing dozens of project managers who managed thousands of projects each year.

 

A Fortune 100 client hired me to manage a 14 state region with responsibility for a portfolio of new products, including new locations, advertising, marketing, research and development. MY division achieved over 40% growth in five consecutive years.

A team of project managers and I formed 4PM.com to provide project management training and consulting for PMs and clients around the world.

My current duties are implementing project methodologies for clients, training project managers and consulting with project sponsors and executives.

Dick teaches in-person seminars for corporate clients and also directs the 4PM.com project consulting practice, helping organizations manage strategic projects and implement 4PM’s Achievement-driven Project Management™ methodology in their organizations.

I hold an undergraduate degree in economics and statistics from Johns Hopkins University, an MBA from the University of Colorado and has done doctoral work in organizational behavior at the University of Colorado.

Dick is the author of 14 books and over 225 articles on project management. He has also written and directed over 50 short project management videos. In 1986, Dick formed 4PM.com where he and his fellow project managers assist organizations in improving their project management processes. They include: Siemens, Intel, Baker-Robbins, Citicorp, TCI, Kaiser Permanente, Sentry Safe, Reader’s Digest, Jones Intercable, US WEST, Norwest Bank and First Data Corporation as well as smaller organizations like Candy’s Tortilla Factory and Colorado Mountain Development. Dick has a BA in Economics and Statistics from Johns Hopkins University, an MBA from the University of Colorado and did three years of doctoral work in Organizational Behavior at the University of Colorado.

I have been managing projects for over 25 years and have assisted over 300 organizations in improving their project results. Along the way, I have written 14 books, over 325 articles and directed 36 short videos on project management. I’ve managed projects all over the world as well as managing portfolios of projects and trained 1000’s of project managers. I am president of 4PM.com and directs the firm’s consulting, in-person seminars and web-based individual training programs for professionals.

 

Dick’s books include:

  • Project Manager’s KnowledgeBase, 10th edition 2012
  • Managing Information Technology Projects, 6th edition, 2010
  • Advanced Project Management Techniques, 4th edition, 2011
  • Construction Project Management, 5th edition, 2012
  • Essentials of Project Management, 11th edition, 2011
  • Managing Healthcare Projects, 3rd edition, 2009
  • Program and Portfolio Management, 9th edition, 2011