The Project Management Institute reports that organizations in the U.S. spent $2.3 trillion on projects -- those non-routine, temporary endeavors resulting in a product or service -- in 2003. Projects that disappointed, however, gobbled up a big percentage of that sum. PMI added that roughly $1 trillion was spent that year on projects that performed poorly or were considered financial failures.
How to explain that $1 trillion?
Good projects, it turns out, frequently fail -- even when experienced managers are at the helm. The impact of complexity and rapid cycles of change are part of the reason, according to Dwight Smith-Daniels, a former professor of supply chain management at the W. P. Carey School. The solution is a new approach to project management that builds in the adaptability business conditions now require.
Smith-Daniels explains that projects are increasingly complex, reflecting a global business environment in a constant state of flux. The average project today, he explains, will change the very nature of its organization in the process of fulfilling its objective. With globalization, many projects now involve entities outside the company, outside the country. And projects are presenting unprecedented levels of uncertainty. Often it's difficult at the outset to define the desired outcomes, or the necessary resources and skills needed.
As a result, it's not enough anymore to operate on a straight line, setting a goal, making a plan and executing it. Project teams that succeed are skilled at learning along the way and adapting to changing conditions and evolving goals through revised project plans.
What's a project?
Fifty years ago, Smith-Daniels says, the projects that organizations tackled could be built around specifications and a well-defined project plan that could be utilized throughout the project as a blueprint for execution. Growing out of the construction industries, project management drew on engineering competencies, focusing on the planning and execution necessary to achieve a defined goal such as construction of a highway. Success was finishing on time, on budget, and meeting performance standards. In practice, projects often finished over-budget and behind schedule, but results were usually viewed as acceptable if most of the projects deliverables performed as specified.
But times -- and the business environment -- have changed. While the projects in some industries can still be managed by specifications defined up front in detail, most call for another approach.
"Business projects today roll out in a different environment," Smith-Daniels says. Project stakeholders and customers have increased expectations induced by technology, improved methods for collective customer requirements, shortened product and process lifecycles, and global competition. As a result, while a team may be able to define rough value targets and specifications at the outset, if the team attempts to define the project outcomes in detail at the outset they will often find themselves wedded to a project concept that doesn't meet the true requirements.
Smith-Daniels says that most strategic projects fall into one of three categories: product and/or service development, business process development (many IT projects fit in this category), and continuous improvement.
Project managers face significant challenges -- some inherent to close-horizon work, and some that grow out of the environment. For example, by their nature projects are temporary. The leader must figure out how to get others to commit to it when they may have no reporting relationship to her, or when the project appears to be tangential to their careers. But complicating the process is the environment. Many projects do not have clearly articulated goals at the beginning. For example, the company may want to develop a software solution to a problem. The precise outcomes may be hard to predict as people and ideas intersect to create new ideas and opportunities.
The resulting complex combination of objectives and specifications yields a rough, difficult to analyze response surface of project financial and technical outcomes. That means specifications, project deliverables and budgets interact in complex and changing ways, often leading to unexpected problems in executing the project: unknown-unknowns, or "unk-unks." Smith-Daniels points out that the challenge is to develop and utilize flexible project management processes to attempt to anticipate the risks found in projects, so that the team can devote their efforts during the project to developing solutions to the unanticipated unk-unks.
The stakes can be high. "The survival of the enterprise may be on the line," says Smith-Daniels, "since the future of organizations relies the outcomes of strategic projects. Most of the projects that previous participants in our MBA project management courses and executive education programs are involved with represent a significant portion of their organizations' futures."
For example, in a recent Harvard Business Review article, Rueben Slone, vice president of global supply chain at Whirlpool Corp., highlighted the crucial role of project management skills in transforming his organization's competitive supply chain capabilities. "Projects of similar strategic importance challenge our students," comments Smith-Daniels, "and they are called upon to lead these change projects."
Yet researchers have discovered that project teams often do not understand the significance of the work. Smith-Daniels says he asks student teams to write a charter for their projects, describing the problem, the objective and the strategic importance.
"Only 20 percent of project team members, including the team leader, can state the strategic importance of their project," he reports. That makes it difficult to advocate across the organization for resources. "However," he points out, "this provides our graduates with outstanding opportunities to exceed as project managers, if they can reduce roadblocks to their projects by making a superior case for their project and its strategic impact on the organization."
Building in adaptability
Smith-Daniels explains that the project management profession so far has frequently been defined by the Project Management Institute's "Guide to the Body of Knowledge," which stresses more traditional project management methods. Using those techniques, managers can plan for the foreseeable uncertainties like weather, Smith-Daniels explained, but not the "unforeseen uncertainties" present in the dynamic projects of today's companies. Adaptive teams learn continuously throughout the project, and they utilize the new knowledge to make course adjustments. But he has found in his research, that only about 30 percent of project teams use formal risk management methods to identify and manage foreseeable risks, let alone the unforeseen risks.
Adaptive project management allows a project team to navigate successfully though these projects. The features of adaptive planning include:
Frequent reviews of the plan and the project, as well as revision of the project plan to reflect the teams' learning as well as changes in the project environment. Rather than settle on a course of action which is carved in stone at the outset of the project, adaptive managers continuously assess how the team operates and whether the project is still on course to meet its objective.
Willingness to adapt the plan using what the team has learned. The creative interplay of individuals and ideas can result in new insights. Adaptive managers immediately apply that knowledge to the project.
Willingness to change the project -- even to the point of canceling it. This requires constant attention to performance toward project value objectives, performance to date, and new risks that may prevent achievement of those objectives.
Flexible project lifecycle planning, characterized by a strategy of "planning to replan." A number of recent studies have found that the most successful and mature projects outperform budget, schedule and outcome targets due to changes made during the project that are based on knowledge that the team has developed during the project. This requires that a project team incorporate a flexibility plan into their project, which involves planned reconsideration of the project plan.
Smith-Daniels says that organizations capable of launching adaptive teams see early signs of the eventual success or failure or their projects, and can correct in time to respond to changes in the market -- an invaluable capability. Typically these companies do lots of prototypes and experimentation, garnering the benefits of learning. They are willing to mix the structure and flexibility of their teams, depending on the complexity of the project. Most important, they are externally focused, and seek to learn from customers, stakeholders and strategic partners, while they constantly scan the environment for risks as well as potential knowledge to be incorporated into the project.
These characteristics are common to organizations that have achieved a higher level of maturity in project management. Where firms at the lower end of maturity apply a structured approach to all projects, mature firms use adaptive techniques to factor in and to manage complexity and ambiguity. They use a mix of traditional and adaptive methods, depending upon a project's characteristics. Both a PMI sponsored study from the late 1990s as well as a PricewaterhouseCoopers survey published in 2004 found that there is a correlation between the level of project management maturity and the rate of successful projects in organizations.
The payoff is broad and deep.
"An organization that excels at project management becomes an agile organization that knows how to deal with and drive change," the PricewaterhouseCoopers study reports. "As we see from the survey results, these leading organizations use project management to consistently position themselves 'ahead of the wave' of change."
Smith-Daniels points out that managing projects this way is essential. "If you can't, it is unlikely that your organization will be able to change and adapt to meet the requirements of customers and stakeholders in the near future, let alone 20 years from now."
Dwight Smith-Daniels is now chairman of the department of information systems and operations management at the Raj Soin College of Business, Wright State University.