Managing Project Success

Managing Project Success
Vladimir Liberzon
Spider Management
Technologies
spider@mail.cnt.ru

Part 1
Project Success
Criteria

Project Success Criteria
 Setting project targets is a key task that
defines the process of project decision
making and project performance analysis.
 The usual approach of triple constraints is
very complicated, yet it does not include all
the necessary considerations for determining
if a project is successful.

 Is Sydney Opera
construction an
example of successful
project?
 No, because actual
expenses exceeded the
planned budget by
several times.
 Yes, because it became
one of the most famous
Sydney attractions,
bringing many tourists
and a lot of money.

 The Motorola Iridium Project was finished
on time and within budget. Can it be
considered a successful project?
 No!
 Iridium, backed by Motorola Inc. (MOT), sought
bankruptcy-court protection in 1999 after its $5
billion low-Earth orbit satellite (LEOS) fleet failed to
attract customers or provide the quality service its
backers had hoped for.

 If project success criteria are set as finishing
project on time and under budget then
proper decision making will be complicated.
 It does not allow us to interpret the
significance if the project exceeds the
planned budget but is finished earlier than
expected or if it is finished late but saves
some money.
 It fails to evaluate the consequences if the
project was on time and within planned
budget but expected revenues were not
achieved.

 We suggest to set one single project success
criterion that integrates project schedule,
cost and business goals.
 Establishing this single criterion is complex
since it must include project scheduling,
project budgeting, estimating of the future
business benefits from the project product
delivery, and risk analysis and simulation.

 If a project is business oriented then this
project must have business targets and
criteria of its success or failure.
 The natural choice – setting target Internal
Rate of Return (IRR).
 Con:
 The Product Life Cycle may be too long for
reliable IRR estimation,
 Uncertainties may be too great for proper IRR
management.

 One of the potential alternative options – to
set a target profit that should be achieved at
some point in time based on the forecast of
the revenues to be realized after the project
results are delivered.
 If the project profit meets or exceeds the
target profit then performance is successful.
 Such success criterion will permit weighting
and balancing of time and money to make
reasonable managerial decisions.

 On the next slide we will see the project
schedule that is calculated without allowing
for project financing and supply restrictions.
 There are periods when the project has no
money to proceed.

 But, if project
manager can
find enough
money and
materials then
the project total
profit on the
imposed date
will be close to
$219,000.

 If we calculate
the project
schedule that
accounts for
financing, supply,
and resource
constraints then
the total profit
will be more than
$25,000 lower.

 Maybe it is reasonable to borrow money
or to find some other solution?
 To be able to weight options and to
choose the best it is necessary to look
beyond the project results delivery date.
It is necessary to simulate not only
expenses but also revenues and resource
constraints. This approach is especially
important for portfolio management.

 For setting project success criterion it is necessary
to incorporate the following data:
 Target finish that may be achieved with reasonable
probability,
 Target budget that may be achieved with reasonable
probability,
 Forecast of the probable future benefits (for an
example – future profit or revenue curve).
 The target finish and target budget shall be
calculated, taking into account all project
constraints (including resource, financing and
supply constraints) and using risk simulation.

 The next step is to define a specific point in
time for measuring project success.
 Let’s suppose that probable project NPV at
this moment is a defined number of dollars.
This date and amount can then be used as
the project target defining the single project
success criterion for the project
management team.
 It will, therefore, influence the project
manager’s decision making processes.
Project Success Target

 Now management decisions will be made by
estimating their full business consequences.
Project managers may decide to spend
additional money to accelerate project
performance if the NPV at the targeted date
will rise as a result of this action.
 At any time project performance may be
measured by the forecasted NPV – if it
exceeds the target then total project
performance is successful. The current
value of the forecasted NPV defines project
status.

 NPV forecast depends not only on project
performance results but also on the
market conditions and other project
environmental parameters. So project
managers will analyze not only project
performance but also revenue/profit
forecasts. Their objective will be trying to
improve everything.

 But this target value is not a single value.
 We recommend setting the following
success targets:
 optimistic project target that is set for the
project team,
 project management team target that
includes contingency reserve,
 management target that includes contingency
and management reserves,
 failure target that defines conditions under
which project execution will be terminated.
Project Success Targets

Project Success Targets
 Project Team Target
 Project Management Team Target
 Management Target
 Failure
Target Date
Contingency
Reserve
Management
Reserve
Still
Profitable
Project
Failure

Part 2 Setting Project
Targets
(deterministic
approach)

 1) Develop corporate databases
 2) Develop typical fragnet library,
 3) Create project model,
 4) Define constraints,
 5) Create project schedule,
 6) Forecast future benefits,
 7) Define project targets.
Necessary Steps

 Corporate project management has to be
based on corporate standards. These
standards must include not only processes
and document templates but also estimates
of the typical activity and assignment
parameters.
 Activities, resources and assignments belong
to the same type if they share the same
characteristics like unit costs, material
consumption per work volume (quantity)
unit, resource productivity, etc.
Step 1. Develop corporate
databases

 Corporate databases (Reference-books)
should include at least:
 Activity cost and material requirements
per activity type volume unit,
 Resource assignment cost and material
requirements per assignment type
volume unit,
 Resource assignment productivity,
 Assignment work load.
Step 1. Develop corporate databases

 Project fragnets usually describe typical
processes and technologies that are used
more than once.
 Creating project computer models using the
corporate library of typical fragnets will help
to avoid inconsistencies and assures that the
project model follows corporate standards.
 A library of typical fragnets is a very
important tool for the development of
corporate culture and management
standards.
Step 2. Develop typical fragnet
library

 Project model will be developed using
typical fragnet library with project parameter
estimations based on the corporate
reference-books.
 This approach helps to create reliable project
models that correspond with the corporate
standards for technologies to be used and
parameter (activity duration, costs, resource
productivities, etc.) values.
Step 3. Create project model

 Project constraints include
 time constraints,
 resource constraints,
 financing constraints (financing schedule),
 supply constraints (supply schedule),
 calendar constraints.
Step 4. Define constraints

 The problem of project schedule
development without allowing for resource
constraints has a correct mathematical
solution (Critical Path Method), which would
be the same for all PM packages, provided
that the initial data are identical. All other
problems are solved using different
approaches and yielding different results.
Step 5. Create project schedule

 Traditional notion of Critical Path works
only in case of unlimited resources
availability.
 Let us consider a simple project consisting
of five activities, presented at the next
slide.

 Activities 2 and 5 are performed by the
same resource.

 Please pay attention to activities that
became critical. Now delaying each of the
activities 1, 2 and 5 will delay the project
finish date. We call these activities
Resource Critical and their sequence
comprises Resource Critical Path.

 In many projects it is necessary to simulate
financing and production, and calculate
project schedules taking into account all
limitations (including availability of
renewable resources, material supply and
financing schedules). True critical path
should account for all schedule constraints
including resource and financial limitations.

 We call it Resource Critical Path (RCP) to
distinguish it from the traditional
interpretation of the critical path definition.
 The calculation of RCP is similar to the
calculation of the traditional critical path
with the exception that both early and late
dates (and corresponding activity floats) are
calculated during forward and backward
resource (and material, and cost) leveling.

 This technique permits us to identify
resource constrained floats.
 Activity resource constrained float shows
the period for which activity execution may
be postponed within the current schedule
with the set of resources available in this
project.
 It appears that by adding financial and
supply constraints to the Critical Chain
definition as well as the method of the
Critical Chain calculation, we will obtain
something very similar to RCP.

 Usually a project is considered to be
finished when the project result is delivered
and starts to bring benefits.
 Without forecast of these benefits it is
impossible to evaluate the consequences of
management decisions made during project
execution.
 That is why the forecast of the future
benefits must be included in the project
model.
Step 6. Forecast future benefits

 Future benefits depend on time.
 By defining the target date we restrict the
horizon of benefit forecasting and will be
able to calculate the cash flow value to that
moment.
 This value can be set as the project success
criterion – if the cash flow forecast meets or
exceeds this value then project performance
may be considered to be successful.
Step 7. Define project target

 Separate management target cash flow
values may be defined for the same project.
This target includes management reserve
set for unknown unknowns. In deterministic
approach to project planning this
management reserve can be estimated
based on past experience and expert
judgements.
 The probabilistic approach allows us to
calculate necessary contingency and
management reserves.
Step 7. Define project target

Part 3
Setting
Project
Targets
(probabilistic
approach)

 8) Analyze risks,
 9) Define target success probability for
project management team,
 10) Define target success probability for the
organization (management),
 11) Calculate target values for PM team and
top management,
 12) Define failure value.
Necessary Steps

Risk Simulation
 Risk simulation may be based on:
 Monte Carlo simulation
 Three scenarios approach

Risk Simulation –
three scenarios approach
 A project planner obtains three estimates
(optimistic, most probable and pessimistic) for
all initial project data (duration, volumes,
productivity, calendars, costs, etc.).
 Risk events are selected and ranked using the
usual approach to risk qualitative analysis.
Usually we recommend including negative risk
events with probability
 exceeding 90% in the optimistic scenario,
 exceeding 50% in the most probable scenario,
 all selected risks in the pessimistic scenario.
 Selection of positive risk events is opposite.

 The most probable and pessimistic project
scenarios may contain additional activities and
costs due to corresponding risk events and
may employ additional resources and different
calendars than the optimistic project scenario.
 As a result the project planner obtains three
expected finish dates, costs and material
consumptions for all major milestones.
Risk Simulation –
three scenarios approach

Recommended Parameters
 They are used to rebuild probability curves
for the dates, costs and material
requirements.
 Defining desired probabilities of meeting
project targets a project planner obtains
recommended finish dates, costs and
material requirements for any project
deliverable.

Success Probabilities
 If different targets were approved then it
is necessary to calculate the probabilities
of meeting these targets. If they are
reasonable then they may be accepted.
 Probabilities to meet approved project
targets we call Success Probabilities.
 These targets may be set for all project
parameters that will be controlled (profit,
expenses, duration, material
consumption).

Baseline
 Target dates do not belong to any
schedule. Usually they are between most
probable and pessimistic dates. A set of
target dates and costs (analogue of
milestone schedule) is the real project
baseline.
But, the baseline schedule does
not exist!

Buffers
 We recommend using the optimistic
scenario for setting task objectives for
project implementers and managing
project reserves at the management level.
 The difference between scheduled and
target finish dates shows current schedule
contingency reserve (buffer),
 Cost buffer is the difference between
targeted and calculated cost.

Buffers
 As we discussed earlier there are several
targets for each parameter and
corresponding buffers (PM team targets,
top management targets, contract
targets, failure targets).
 Each target has its own initial probability
of successful achievement.
 Example:
 Project team target profit can be achieved
with 65% probability,
 Management target profit has 80% probability
of success,
 Failure profit will be exceeded with 95% initial
probability.

Risk Analysis Sample
 There are time,
cost and material
buffers that show
contingency
reserves not only
for a project as a
whole (analogue of
Critical Chain
project buffer) but
also for any
activity in the
optimistic project
schedule.

Trend Analysis
 Project Performance Management will be
based on trend analysis.
 It is necessary to discover problems as soon
as possible and, by analyzing trends of the
major project parameters, the project
manager can quickly understand if there are
problems with project performance.

Trend Analysis (Deterministic
approach)
 If risks were not analyzed and simulated it
is reasonable to analyze trends of the
forecasts for data that were used in
success criteria definition.
 If we defined that the project performance
will be considered as successful if NPV
forecast for the specified date exceeds the
target value then we will analyze if this
forecast is growing or not.
 Negative trend shows problems in project
performance and requires consideration of
corrective actions.

Success Probability Trends
 The best way to measure project
performance is to analyze what is going on
with the project success probabilities. If
they are increasing it means that
contingency reserves were spent slower
than expected, if they dropped it means
that project performance is not as good as
planned and corrective actions are needed.

 Success probabilities may change due
to:
 Performance results
 Scope changes
 Cost changes
 Risk changes
 Resource changes
 Market conditions changes

 Thus, success probability trends reflect not
only project performance results but also
what is going on around the project.
 We consider success probability trends
to be the really integrated project
performance measurement tool.

 Success probability trends may be used as
the only information about project
performance at the top management level
because this information is sufficient for
project performance estimation and for
appropriate decision making.
 We call the described methodology Success
Driven Project Management.

Part 5
Managing
Project
Success

Success Management Steps
 Project Success Management includes
following steps:
 1) Define integrated project success criterion
that is based on the project business goal.
Usually this criterion is the project cash flow
(profit) value at some specific date in the future.
 2) Set reasonable and achievable target values
of project success criterion for project stuff, for
project management team, for organization
management.
 3) Define what business results mean that
project termination shall be considered.

Project Success Management
Steps
 4) Basing on performance management results
calculate current value of success criterion, and
current probabilities to meet project targets.
 5) Analyze success probability trends. If this
trends are negative consider corrective actions.
 6) Determine, analyze and implement corrective
actions. Corrective action should raise success
criterion value.

Benefits
 One single integrated success criterion
makes management and project
performance analysis easier and more
reliable.
 Risk simulation helps to determine
necessary contingency and management
reserves and to set reasonable targets.
 Success Probability Trends integrate
project performance results and show
performance problems immediately.

Benefits
 Success Probability Trends integrate
project scope, time, cost, risk, and
procurement performance information.
They may be used at the top
management level as the only and
sufficient tool for reliable project
performance analysis and decision
making.

THANK YOU!
I will appreciate your feedback
and future discussions.
Vladimir Liberzon
spider@mail.cnt.ru
www.spiderproject.ru

Managing Project Success

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