the five reasons why organisations choose the wrong projects
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Why orgnaisations choose the wrong projectsTRANSCRIPT
The 5 Reasons why Organisations choose the Wrong Projects
Darren CookPrimavera Australia
17 Aug 2010
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The Five Reasons why Organisations choose the Wrong Projects
1. Capturing the wrong information
2. Decision making Bias
3. Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Leads to..Leads to..
Can’t kill projects
SituationSituation
Over budget
Projects Late
Business needs not met
Lack of confidence in Delivery Process
Reluctance to say no to projects
Results in..Results in..
Too many projects
Benefits not received
Why is this important?
Poor execution
Under-estimation of effort and cost
Projects not aligned to strategy
Capturing the Wrong
InformationProjects sold on
an emotional basis – not
selectedNo effective
review process Overemphasis on ROI
No clear criteria for selection
No Capacity View
The Five Reasons why Organisations choose the Wrong Projects
1. Capturing the wrong information
2. Decision Making Bias
3. Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Reason 1: Capturing the right information
What is the right information to capture?• It depends on the information you require to make the
funding decision.o Value to the Organisation should be paramounto Data for Data capture sakeo Benefits, Cost, Value, Alignment, Risk.
• What other information will you need to review this investment?
Reason 1: Capturing the right information
• Information split between– Concept Information– Business Case Information
• Descriptive• Alignment• Financial Contribution• Risk
• Supply vs Demand• Cost Restraints• Capabilities of the Business to absorb
change
Should we Invest in this Investment?
Can we do this Investment?
How is this investment going?
– Tracking Information• Health• Project Mgmt Information
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information
2. Decision making Bias
3. Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Capture the information your organisation requires to make Funding decisions
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information
2. Decision making Bias
3. Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Reason 2 – Decision Making Bias
Comfort Zone Bias
Perception Biases
Motivation Biases
Errors in Reasoning
Group Think
People tend to do feel comfortable continuing the status quo
People's beliefs are distorted by faulty perceptions.
People's motivations and incentives tend to bias their judgments.
People use flawed reasoning to reach incorrect conclusions
Group dynamics add additional distortions.
* SDG eBriefing: Garbage In, Garbage Out: Reducing Biases in Decision Making. January 15, 2003
Countering Bias
Documenting Judgements and
Assumptions
Assess New Initiates
As well as existing Investments
Look at Future Costs not Sunk Funds
Use Experts when Required
Require Probability or Confidence indications
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias
3. Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias
3. Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Reason 3: Not knowing what metrics to use
• Are all initiatives created equally?• Mandatory Initiatives
o You may need to fund them but do they need to be done now?
o Limit Scope, Cost, Risk• Discretionary Initiatives
o Alignment, Financial Contributions, Risk, Value, Priority
Reason 3: Not knowing what metrics to use
• What are we trying to achieve?o Which Investments should the Organisation invest in?o What initiatives are going to provide the most value to
the Organisation?
• Why you wouldn’t just use Financial Metrics?Companies that rely mostly on financial metrics obtain "unbalanced portfolios" that are not well matched to the strategy of the firm R. Foti, "Priority Decisions," PM Network, 16 April, pp. 24-29
Alignment to Objectives
• In 2004, Pricewaterhouse Coopers found that only a handful of projects ever achieve project success. o Its survey focused on a broad range of industries, large and small, in 30
different countries, which represented 10,640 projects, for a total value of $7.2 billion.
o The firm found that only 2.5 percent of global businesses achieve 100 percent project success.
Alignment to Objectives
• Business Improvement Architects’ research with more than 750 organizations worldwide found…o A major reason for project failure is that most organizations do not
ensure that all projects they implement align with their organization's core strategies.
o 80 percent of organizations in the research study had no formal business case for the development of their Project Management Offices
Alignment to Objectives
• What contributes to the Corporate Objective outcome?• How does this initiative effect the future state?• It is not enough to say that this Investment contributes to
Operational Excellenceo Organisations must verbalise their Corporate objectives into current and
future state.– Example:
• Call centre performance level >80% (calls answered within 30 seconds)
• Current State: Current performance is 65%• Future State: >80%
Alignment to Objectives
• If you have projects that have already started and are contributing to an objective then any new project must use these future states in the evaluation
Approved Projects
Current State
Now End of Cycle
CurrentImprovement
New Candidate
ProposedImprovement
Financial Contribution
Looking at contribution to a
target future state
Financial ContributionCurrent State of the Business
Future State of the Business
Go Decision
No Decision
Value Addedby Project
Risk
• "Risk in itself is not bad. What is bad is risk that is mismanaged, misunderstood, mis-priced, or unintended“
S. Labarge, "Valuing the Risk Management Function," Presentation at the Risk
Management Association's Capital Management Conference, Washington DC. April 10,
2003.
“Risk is the cumulative effect of the chances of uncertain occurrences, which will adversely affect project objectives. It is the degree of exposure to negative events and their probable consequences” Ohio State University
• What is Risk?
Risk
• How Risk tolerant is the Organisation?• Hurdle Rates • Probabilities • Portfolio Risk
– A diversified portfolio of high and low risk investments yield a higher return than a portfolio comprised of solely high risk or low risk investmentsDr Harry Markowitz – Pioneer of Portfolio Management
Scoring
Value = Alignment * Financial Contribution / Risk
Prioritisation = Value + Timing Considerations + Dependencies
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Mandatory Initiatives• Limit Scope• Limit Cost• Limit Risk
Discretionary Initiatives• Alignment, Financial Contributions, Risk, Value, Priority
Metrics should be observable
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias Not knowing what metrics to use
4. Focus only on “Should we do this?” not “Can we?” as well
5. Not looking at project selection with a Portfolio focus
Reason 4: Focus only on “Should we do this?” and not “Can we?” as well
• Wouldn’t it be nice…..o If the only projects you are asked to manage were the ones your
organisation really required?
o If you were not asked to manage more than you have the capacity to handle.
o If the company had an understanding of it’s capacity before saying “Yes, we will do this!”
Resources - Can we do this?
Supply vs Demand in Hours, FTE’s etc
Critical Resources
Budgets – Can we afford to do this?
What is the variance between
Budget and requested funds?
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias Not knowing what metrics to use Focus only on “Should we do this?” not “Can we?” as
well
5. Not looking at project selection with a Portfolio focus
Resources• Critical Resources, Supply vs Demand
Budget• Budget vs Requested Funds • Capabilities of the Business to absorb change
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias Not knowing what metrics to use Focus only on “Should we do this?” not “Can we?” as
well
5. Not looking at project selection with a Portfolio focus
Reason 5: Not looking at project selection with a Portfolio focus
• Just because an organisation may have a portfolio of mostly on-time, on budget projects does not mean it has the best possible project portfolio
• What happens when you select projects individually?o Early project approvals get the resourceso Portfolio is biased towards small, low value, low risk, short duration
projectso Benefits can be double countedo Little regard to the possible impact of one project to the next
Portfolio Management Approach key to answering the questions above
Portfolio - A collection of investments that aims to maximize value while constraining risk.
Portfolio Management - The processes, practices and specific activities to perform continuous and consistent evaluation, prioritization, budgeting, and finally selection of investments that provide the greatest value and contribution to the strategic interest of the organization. Through portfolio management, the organization can explicitly assess the tradeoffs among competing investment opportunities in terms of their benefit, costs, and risks. Source: US Army Business Transformation Knowledge Center http://www.army.mil/ArmyBTKC/rc/glossary.htm#p
Portfolio Management = PROCESS for evaluation, selection, execution and benefits realization
What is Portfolio Management?
Portfolio Management ProcessObjective: manage investments like a portfolio, enabling the leadership team to choose and execute activities that increase the value to the organization.
Key Portfolio Management Processes
Frequency of Review
3.Prioritize & Select investments
2.Propose initiatives
1.Clarifyobjectives
4.Track performance
Planning Control
6.Adjust course
5.Reviewportfolio
•Corrective Actions•Project Termination•Reprioritization•Resource Allocation
• Individual Projects•Current and Trended
Performance•Overall Portfolio Results
•Health•Risk•Performance•Value
• Balanced Portfolio?• Growth?• Organizational
Performance?
•Define programmes•Develop Business
Case•Evaluate Key Metrics
(cost, benefit, risk)
•Choosing – Annually, Quarterly, Ad Hoc opportunities•Executing – Weekly or Monthly operations reviews
•Value•Risk•Strategic Alignment•Portfolio Balance
Managing Investments in Portfolios Answers Key Business Questions
• Where’s the money going?• What value is being returned to the business?• Can we rationalize our current investments to ourselves? • Is this the best mix of investments?• If we had 2% more, or 2% less to spend, what would we
fund?
At the Department LevelAt the Business Unit LevelAt the Enterprise level
The Five Reasons why Organisations choose the Wrong Projects
Capturing the wrong information Decision making Bias Not knowing what metrics to use Focus only on “Should we do this?” not “Can we?” as
well Not looking at project selection with a Portfolio focus
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