Tag Archives: PPM

Book Available in Kindle Format

The publication Strategic Project Portfolio Management is also available on Amazon’s electronic book device, the Amazon Kindle:
http://www.amazon.com/Strategic-Project-Portfolio-Management-Organization/dp/B002SVQD9Q/ref=sr_1_3?ie=UTF8&s=books&qid=1257532789&sr=8-3

When Can Risk Management Be Counter-Productive?

In reading Macolm Gladwell’s compelling recent book What The Dog Saw and Other Adventures, there is an interesting chapter titled “Blowup”, which covers various topics including the provocative research of Gerald Wilde, a Psychology Professor at Queen’s University in Canada. Professor Wilde, in his book, available free online, Target Risk puts forward a counter-intuitive theory of how people adapt to risk, and it has implications for project portfolio management.

Most people believe that devices engineered to reduce the risk of being injured in a traffic accident, serve to make people safer – bicycle helmets, anti-lock brakes and seatbelts. For example, conventional wisdom assumes that if you have anti-lock brakes on your car, you are able to break more effectively and so the chance of you having an accident falls. However, Professor Wilde draws on a number of empirical studies to contradict this, here are some of them. They are biased towards traffic safety because that is Professor Wilde’s specialism:

Innovation Impact Research source
Anti-lock breaks (ABS) Likelihood of accidents unchanged with ABS Aschenbrenner, M. and Biehl, B. (1994).
1966 US legislation for safer passenger vehicles No decrease in accidents per KM driven Peltzman, S. (1975)
Increase road lane width 30cm Average speed increases 3.2km/h OECD (1990)

 

What this implies is that people adjust their behavior depending on the level of risk they face. If roads are wider, then people will drive faster. If a car has anti-lock brakes, then a driver is more likely to tailgate and brake more abruptly. If cars can better protect drivers in the event of an accident, people will drive faster. Professor Wilder, argues for risk homeostatis, meaning that people will assume the same level of risk that they desire independent of changes in technology such as safety improvements. Therefore, changes in behavior can entirely offset safety improvements. It is the level of risk that people want to assume that matters, improvements in technology will not necessarily change people’s risk preference.

In terms of project portfolio management, the implication is that systems in place to reduce risk may be offset by participants engaging in offsetting riskier behavior, so that their total risk remains unchanged, this can occur despite the best efforts of risk management strategies

Does this, admittedly rather extreme perspective mean that risk management is ineffective? The answer is no, for two reasons. Firstly, as Gladwell notes, even in these examples there is a benefit to the tools in place – people are able to drive faster and get to their destination quicker because of the technologies introduced. Their chance of being in an accident might be unchanged, but they are able to travel faster for the same level of safety.

Secondly, and perhaps more importantly, there is another implication deeper in the study concerning anti-lock breaks, even though during the 3 years of observation, drivers with anti-lock breaks took compensating risk and neutralized the safety benefit, in year 4, all the drivers (who were taxi drivers) were told that they would bear part of the cost of accidents and be terminated if they had a bad safety record. Even though technology did not improve safety, changing the incentives the drivers faced resulted in materially less accidents. When they knew they would bear more of the cost of accidents, the drivers took less risk.

The implication is that if you put in place risk management tools that compensate for peoples mistakes, they may ‘take advantage’ of them by taking more risk, offsetting the risk management benefit. However, the incentives you put in place to reward and punish people for taking risk will have an impact.

Book Launch in UK

The book, Strategic Project Portfolio Management has launched in the UK and can be ordered here.

Neutral Questions

It’s very easy to influence people’s answers based on the questions you ask. For example, if you ask a leading question such as… So you’ll have that report on South America finished by Friday, right? Then you’ll be much more likely to get a positive (and possibly misleading) response than if you ask something more balanced along the lines of… When will the report on South America be complete? Of course, there’s a big difference between getting the superficial answer you want and getting the true, underlying data you need to make an accurate estimate or decision.

The questions you ask determine whether you will get realistic information back or not. Be careful how you phrase them. Balanced questioning can be critical in spotting potential problems early.

If you want to take it to the next level, you could probe after the initial question. When’s the earliest you’d could ever produce the report, what would cause that to happen? When’s the latest you’d get the report, what would cause that to happen? That way you can move from a single point estimate to a range of outcomes, with the latter being more reflective of the real world.

Swine Flu Vaccines and Project Management

Earlier this year, the CDC committed to providing H1N1 vaccines on a broad scale as Time documented. However, the Wall Street Journal reported today, swine flu vaccine production has fallen far short of expectations. This is at a time when cases of swine flu are rising sharply (see graph below). It appears much of this shortfall will be recovered in the next several months. Still a shortfall remains, this post looks at why that’s happened from a project management perspective and what we can learn from it.

The government forecast 30 million doses of swine flu vaccine would be ready by the end of October 2009. With a week to go we are at 16 million, so 46% below target, and even that target was revised down last week weeks ago for 40 million doses, so really we are 60% below initial target, of course some of that deficit will be made back in the next 7 days, but not all of it.

This appears to be a classic example of project failing to deliver on time as expected, even in this case where resources are relatively abundent. That’s not surprising, a project failing to meet expectations is the most common outcome (see related post on project failure). The more interesting question is why, because over time our project management skills do not seem to be improving

The reasons for the delay are as follows:

  • Inaccurate estimates – yield lower than expected from seed virus at at least 2 producers
  • Regulatory risk – FDA approval for Glaxo SmithKlein’s vaccine taking longer than expected
  • Negative events not captured in plan – Some production lines experience ‘brief interruptions’ as larger scale production ramps up
  • Scope change – Government changed request to relatively more single dose syringes vs. multi-dose vials

Now of these the only one which is ‘legitimate’ in that it’s not under the producer’s control or ability to forecast, was the scope change from the government to single dose syringes, because that changed the scope of project. All the others events are forecastable. Of course, no estimate is perfect and things will deviate from it. But, crucially, if there are these reasons for things to be behind schedule, shouldn’t be there a similar number of factors driving things to be ahead of schedule? Basically, shouldn’t the ‘good luck’ and the ‘bad luck’ cancel out if the estimates used in the first place were fair guesses? 

Apparently, not

  • Medimmune could produce more vaccine (delivered via nasal spray), but are limited by the number of sprayers they have. So they remain on target, rather than ahead of it.

Net – the majorty of firms are behind and none are ahead. It appears there was too much optimism baked into estimates. A classic problem when formulating project plans.

US patients with flu-like symptoms

 Image source (Center for Disease Control Site)

Also, if the chart above worries you, note there’s a good chance, the swine flu infection numbers are somewhat overestimated based on historical data.

If these sort of project post-mortems interest you, see this related post on the delay and cost overruns of the Sydney Opera House.

Driving Continual Improvement

You need feedback. It doesn’t matter how good your process is to start off with. You need feedback on what’s working and what isn’t. With feedback you can continually improve. Without feedback you are either shooting in the dark, or sticking with a process that will, inevitably, become outdated. Collecting, and acting on feedback is more relevant than how effective your process is to start off with.

That’s why feedback is the single most important aspect of any project portfolio management system. Are you getting enough feedback, and what are you doing with it when you get it?

Why Are Only 32% of Projects Successful?

One of the classic reports on project failure is the CHAOS Report from the Standish Group. You can read the press release from their last report (April 2009) here.

Summary:

  • 24% of projects fail completely
  • 44% of project fail partially (i.e. fail to meet their defined criteria on at least one of time, budget and scope)
  • 32% succeed (i.e. deliver on time, on budget and on scope)

It is amazing that only 1 in 3 projects is truly successful. If project estimates were unbiased i.e. just as likely to be overly cautious as overly optimistic, then for every project that fails to deliver, one should overdeliver, and we’d see 1/3 outperform, 1/3 meet expectations and 1/3 underperform (fail). That clearly isn’t happening, as the majority (more than 2/3) of projects skew towards failure, so about twice the number of projects are failing than you would expect.

This does lead to a pretty compelling question. Why can’t we learn from this? Why can’t we get slightly better at every estimation after every failure and thereby slowly converge on effective estimates for projects? Of couse, this assumes that incorrect estimates are the only reason for failure, and, of course, there are many others such as project team coordination and stakeholder management that can easily derail a project with decent estimates.

But aren’t unreliable estimates a good place to start, since they are relatively easy to correct? If you were too low last time, increase your estimate for this time, and vice versa. Project are somewhat unique, but elements of the work in most projects has been done before and can be leveraged for effective estimates.

Further research in this area, published in 2002, and summarized here in the Seattle PI, shows that public works project costs typically exceed estimates by 28%, this is argued to be, in part, due to low-balling estimates to secure project funding. If true, this is very worrying, it’s not that we can’t estimate correctly, it’s that there is no incentive to do so. In an application of the Winner’s Curse, any project that has correct estimates will lose out to an alternative project that has purposefully low-balled its estimates and so appears cheaper, more attractive and hence will receive funding at the expense of the correctly estimated project.

There is an attempted rebuttal to these arguments around estimation  here from US Transit, though the rebuttal focuses on the problems and costs of the estimation process, as doesn’t sufficiently address the assersion by researchers such as Bent Flyvbjerg that cost estimates are far more likely to be too low than too high.

There is an interesting analysis of different types of project failure here from Michiko Dilby, drawing on the UK National Audit Office’s Perspective on Why IT Project Fail (PDF). There is also a more software development centric analysis here. There is an interesting analysis of methods to prevent IT project failure here referencing a lecture by Maurice Perks. Whilst project failure continues, there is no shortage of analysis and suggestions around the topic.

It is also interesting to note that IT and large scale engineering projects tend to receive the greatest analysis when it comes to project failure. hese are types of projects where conventional project management techniques are perhaps most applicable, however projects in other industries receive less attention.

Learn more about avoiding project failure, by reading my book on Strategic Project Portfolio Management.

AIG And Outsourcing Portfolio Strategy

The government bailout recipient AIG recently dismissed McKinsey, management consultants who were undertaking work called ‘Project Destiny’ to layout a roadmap for the business. Some details are here. The rationale was apparently to take the work in house in order to reduce costs.

It raises some interesting questions about to what extent strategy can be outsourced, and whether the cost of this outsouring outweigh the benefits. In this case, internal politics may also be at play as the new CEO looks to impose his own agenda.

An interesting principle behind this is the cost of information. For example, if I stood to win $5 on a coin flip, and had to call heads or tails. Then the expected value of that wager to me is $2.50 ([$5 x 50%] + [$0 x 50%]). But if I had a way of knowing exactly what the outcome of the coin flip would be with certainty I would be willing to pay up to an incremental $2.49 for that information (if accurate) because I would be certain to get $5, rather than the expected value of $2.50 if I had no knowledge on whether it would be heads or tails.

This is to some extent the situation AIG is in, they have tremendous uncertainty around their business, it is not clear how the value of their assets and liabilities might change over time.  Their market cap has been fluctating in approximately $1-5B range so far this year, suggesting the market isn’t sure either. How much should AIG pay to improve their knowledge? That question is itself a large consulting project.

They have clearly decided that the incremental gain from the information McKinsey could provide is too great. In reality, cashflow issues might have impeded, what could have been an otherwise financially desirable decision.

Topics such as portfolio outsourcing as discussed in more detail in my book on Strategic Project Portfolio Management.

The Environment and Your Portfolio

It’s hard to find a good book, let alone one that is free. Without Hot Air, written by a Cambridge University professor, is both. You can download the PDF here.

I would recommend it to just about anyone, because it explains the environment in quite a simple, but immensely analytical way. For example, what is more impactful, cutting down on air travel, or switching to wind energy? This book runs the numbers to explain the impact of different decisions. If you’re running a portfolio or a project, this is a good first step to understanding the environmental impact for both you and your stakeholders. It’s a long book, but you can easily skim to get the key points, and since you can download the PDF for free, you don’t feel compelled to read every single page.

Note the free delivery of the book is very much the author’s intention, he’s keen to contribute to the environmental debate, rather than make money, and I think you’ll find his perspective is well reasoned and objective.

Without Hot Air

The New York Times has a great blog devoted to environmental topics, which you can find here

PPM For The Individual

Nice post from Seth Godin, demonstrates how exactly the same processes used by businesses to optimize portfolios make sense for individuals too. John Estrella also echoes the topic here.