Week01 slides spring_2013

MGT 610 Strategic Project Management
© Thomas Lechler 2013 1
1
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
RequirementObjective
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
21

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.
22

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
PrerequisiteRequirementObjective
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
24

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
28

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.
29

Value PM: Paradigm Core Conflict
Maximize
Project
Value
PrerequisiteRequirementObjective
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.
31

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
33
Value PM: New PM Role

Week01 slides spring_2013

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