WHAT IS THE TYPE OF PROJECT THAT YOU ARE GOING TO RUN?


Advanced projects fall into several categories: mixed projects, in-house projects and outsourced projects. Each of these has its own characteristics and benefits. Often you will find that one type of project dominates the way that a particular organization does business. For example, some organizations only believe in using internal staff to work on new software releases. They believe the work is too sensitive to be run by external organizations. To achieve success with your project you need to understand the different project types and work out which dominates within your organization's culture. You then need to adjust your method of working to fit with that culture.

Mixed projects

Advanced projects often require organizations to work in areas that are new and unknown to them. A good example is an organization building a new headquarters. Although the organization may have a facilities management capability, it is unlikely to have experience of building buildings . To overcome this difficulty the organization would probably hire external help, for example in this illustration it might hire architects . Mixed projects work primarily because they allow effective risk management. They allow organizations to use external resources to supply the skills that they do not have in-house.

It is not only external resources that organizations need to contract to enable them to complete advanced projects. Frequently organizations need to hire a new project manager to run the advanced project they want to complete. Project managers of advanced projects rarely remain with one organization for their whole career. This is because organizations do not commonly undertake several advanced projects in a row. Instead advanced projects tend to happen infrequently in response to strategic business model changes. As a result, project managers tackling these projects tend to move to other organizations at the end of the project.

If the organization has an advanced project manager in place for the project then it normally falls to him or her to decide what type of project should be undertaken. The decision is always likely to remain a matter of judgement. However, there are some influences that should be accounted for and some factors that should be considered before a judgement call is made. The influences to consider are relatively simple to understand. They are simply the opinions of the key stakeholders of the project. If substantial external resource is to be used then the key stakeholders need to agree that this is the right way forward. It is a judgement that needs to be made in alliance with the stakeholders of the organization. The factors to consider are slightly more complex. You should consider:

  • the macro plan;

  • the skills profile of the team;

  • the volume of available resources.

The macro plan is a good place for you to start considering the benefits of a mixed project. The plan sets out all the known work tasks and associated schedules. This provides you with an easy reference for the main tasks that the project might need to undertake. You simply need to assess each of the activities in order to determine whether these activities are in sympathy with the organization's core business. If they are not similar then you would need to create a new team to be able to complete them in-house. Unless there is good reason for this it is probably more sensible to use an outsource solution.

The macro plan will also provide a good source of information to allow you to assess the skills profile required for the project team. You need to examine this skills profile to determine the skills needed to complete the project. You need to exercise caution when doing this work. Although the team may seem at first glance to have the required skill set, they may be inexperienced. Often one of the trickier jobs for you is to explain to your team that they are not sufficiently experienced and that external people will need to be brought in. This is especially difficult with advanced projects since by and large it is these projects that the people within an organization want to work on. After all, these are the projects that are leading the future of the organization.

The macro plan is also the source that allows you to determine the volume of staff required for the project. Normally advanced projects need substantially more people than the sponsoring organization has. This volume is driven by simply having enough people to run the existing organization's business plus enough people to complete the advanced project. If the organization needs to double in size to make the project a reality then it is likely that outsourcing will be needed. There is little point in doubling the size of the organization for one project. The organization would need to be able to find jobs for all of the new people. If it could not find employment for the new people then it might have to make them redundant - a cost it will want to avoid.

Once all of these factors have been considered with the stakeholders you should be in a good position to decide whether this project type is suitable. However before finally deciding you should consider the other types of project: in-house and outsourced.

In-house

This project type is normally undertaken when the work concerned is central to the business of the organization. An example might be the production of a new software product. In this example it is likely that the organization will have sufficient developers in-house. These developers may be ideal to build a new product.

One of the most persuasive aspects of an in-house project is the level of control available to the organization. Since there are no contract penalties involved, the organization is free to change its mind on an ongoing basis. This is attractive to organizations, particularly when they remain unsure of the final outcome of an advanced project.

Many organizations view an in-house resourced project as the best type of project. Often they do not fully understand the risks. Advanced projects that are undertaken in-house face two major risk areas. Firstly, the high levels of control generally result in the organization changing its mind frequently. This constant change results in the organization and you facing costs that may be substantially increased. Secondly, with this type of project there is a significant risk of process protection.

An advanced project is very likely to require an organization to work in a way that is new. Existing processes need to be reinvented and new ones added. Unfortunately, people in an in-house project often don't share this view. The in-house project staff do not understand the need to change their existing methods of working. In many cases this goes further and they believe that they are being criticized when change is suggested. They don't understand that larger, more difficult projects generally need to do things differently.

Advanced project managers need to exercise a significant degree of patience with an in-house project. They must be sensitive to the staff and they need to take time to build consensus on the need for new processes. For processes, a simple way to achieve this consensus is to set up a project quality steering group. The purpose of a project quality steering group is to manage the new processes being used within the project. The group also manages the relationship between the project and the sponsoring organization. This helps to ensure that best practice is picked up by the organization. Some suggested terms of reference might be:

  • The quality steering group maintains an awareness of the process initiatives within the organization.

  • The quality steering group will act as the project function to ensure the success of all process- related initiatives.

  • The quality steering group will own all process-associated activities.

  • The members of the quality steering group will act as the change catalysts within the project.

  • Members of the quality steering group will evangelize process improvements. They will do this by generating motivation and enthusiasm for process improvement within the project.

  • The quality steering group members are: [add here the names of the members of the steering group].

Outsourced

The third project type is the outsourced project. This could be more accurately described as a fully outsourced project. With this project type all of the work is given to an external company for completion and delivery. This company then assumes the risk and also reaps a substantial reward if it delivers successfully. A large number of government projects are undertaken as fully outsourced projects. This happens because of the diversity of the work that a government is required to undertake. It is unrealistic to expect a government to employ everyone needed for every type of advanced project.

Outsourced projects carry substantial financial risk for the sponsoring organization. All of the detail of the project work is controlled and run by others outside of the organization. These people have their own organizations to satisfy as well as the commissioning organization. Sometimes this results in a conflict of interest. A very simple example might be when an outsourced supplier may need to choose whether to paint a building with paint that will last 10 years or 2 years. Both might be acceptable within the contract framework. However, the maintenance cost could obviously be reduced by using the 10-year paint. If the people making the decision worked for the commissioning organization they would probably pick the 10-year paint. However if they worked for the supplying organization they might pick the 2-year paint. It is likely that the 2-year paint is cheaper and that their organization will benefit from a higher maintenance cost (that is, their company will be painting the building every 2 years instead of every 10 years ). In outsourced projects it is therefore extremely important that you are well versed in the contract structure. Knowing the structure and the likely pitfalls is likely to save the sponsoring organization substantial funds.

The key to success for this type of project is in understanding how to gain control effectively over the actions of the outsourced company. This is achieved by introducing the concept of various levels of control. Introducing levels will help you more effectively manage the risks of the project. The levels that should be used are: high-risk items, medium-risk items and low-risk items. All of the activities within the project should be split into one of these three groups.

The low-risk items in general can be handed over to the outsource company. Control can probably be freely given. You can be confident that the items concerned will not substantially affect the project outcome. It is likely that these items will form over 50 per cent of the project activities. This leaves you free to concentrate on the medium- and high-risk items.

Medium- and high-risk items require a reasonable level of control. The simplest way of exercising control is by requiring the supplier to gain acceptance for all plans. For project managers not used to running outsourced contracts this may seem a drastic suggestion. Inexperienced project managers often worry that the outsourced company will be upset and the relationship difficult. However, it is an accepted method of working, and generally outsourced companies will be happy to work in this way. The outsource company will put restrictions on the turnaround time for approval of the plans submitted. Often this turnaround time is set at 10 days. The approval method should be set out in the contract.

The advanced project scenario

It is unlikely that all of an advanced project will be outsourced or that all of the project will be run in-house. Mixed projects are almost always the dominant project type. This means that a project manager has to be skilled at handling both internal and external resources.

Handling external resources

The key to working with external organizations is to pick one that will work in sympathy with your organization. To do this efficiently and effectively some form of rating scheme or system is desirable. Rating systems are often already in place within organizations, many of which have some form of approved vendors list. This list is the starting point for a rating system. Approved vendors lists are set up by large organizations to enable them to deal consistently with suppliers. To get on to an approved vendors list, suppliers normally have to undergo some form of assessment. The assessment will often include a questionnaire and in some cases will include an on-site audit. The objective from the buying organization's viewpoint is to ensure consistency across all suppliers used. The assessment is frequently known as ˜due diligence'.

An approved vendors list is not however a rating system. Some organizations are very diligent in keeping their vendors lists up to date. Unfortunately most are not. The rigour that is applied in assessing whether a company should be allowed on to the list is often not applied in assessing whether it should remain on the list.

Project managers for advanced projects must first understand the status of any list. If the list includes some form of continuous upgrade and rating they should consider using it without doing any further work. If the list doesn't include any form of upgrade then some form of work will need to be undertaken to revamp the list to an acceptable level of quality. Turning an existing approved vendors list into an approved supplier rating system is reasonably simple.

The first activity is to decide the criteria with which to assess the proposed vendors. Some companies will already have criteria that they particularly care about. However, these are unlikely to be centred on the needs of the advanced project. Suitable criteria for a project have to centre on the four underlying principles for advanced project management: scope, quality, timescale and resource. For each of these you should define criteria you feel match the project's needs. For example, a building project might have the criteria shown in Table 5.1.

Table 5.1: Supplier assessment criteria

Area

Criteria ID

Criteria description

Scope

1

Well versed in cladding systems

Scope

2

Able to build in remote locations

Quality

3

Has strong quality plan

Quality

4

Can provide excellent testimonials

Timescale

5

Has proven track record of delivering on time

Timescale

6

Has proven track record of accurate estimation

Resource

7

Always comes in on budget

Resource

8

Is good value in cost terms

These criteria can then be scored and the results cross-matched against suppliers. The marking should be carried out by people within the organization and should be arranged by the project manager. A sample results table is shown in Table 5.2.

Table 5.2: Supplier assessment results

Supplier name

Criteria ID

1

2

3

4

5

6

7

8

Total

S Tools

7

6

2

6

2

3

4

4

34

J Web

2

6

2

1

3

3

3

6

26

M Work

1

8

6

3

10

4

3

5

40

Total possible score

10

20

10

10

15

10

10

15

100

The table shows a score for each of the suppliers and that score is allocated against each of the criteria from the table in Table 5.1. The scoring system sets a fixed number of points for any given criterion and this is shown at the bottom of the first column. These points are distributed across the various companies being assessed. This scoring system forces you to make choices over which company is top for each of the given criteria. You can weight the importance of any given criterion by simply allocating a larger number of points. In Table 5.2, criterion 2, criterion 5 and criterion 8 all have a larger point allocation.

This method of appraisal isn't always suitable for assessing suppliers. If the list of suppliers is large it can be difficult to distribute the points in this way. Each of the suppliers can end up with only one point each, making the enforced distribution worthless. When the list of potential suppliers is long it is more effective to use a maximum score system. A maximum score system assigns a maximum value to each of the criteria. However, each company is marked individually and there is no distribution of points between companies. This means that if 10 points are available it is possible for each company to gain 10 points. With this scheme you do not have to worry about keeping within an overall allocation. The obvious difficulty with this scheme is that it does not force you to choose between the companies. This in turn means that there might be little differentiation between the top three or four companies. When this happens you should rescore the companies using the original method.

Handling the chosen outsource company

Once you have decided which external company you would like to use you need to decide on the contract type you want to employ. There are five main contract types that might be employed: fixed price, time and materials, royalty based, partnership or cost plus fixed rewards. Each has a place within the project. Often a combination of contract vehicles will be used.

  • Fixed price

    Fixed price is one of the most common contract types in projects. A vendor supplies goods or services to the project for a fixed sum of money. In principle this sounds an ideal contract type. The buying organization states the requirement and then the supplier delivers.

    Sadly, few fixed price contracts work as well as the theory suggests they should. To gain an understanding of fixed price contracts you must consider the risks involved in this contract type. Generally in a fixed price contract the supplier shoulders most of the risk. However, the customer (the project in this case) pays for this in the contract price. The supplier charges a premium to the project for the work undertaken. The size of the premium is related to the risk involved. Smart suppliers manage the risks well; they tie down the scope and they deliver according to that scope. This is great for the project as long as the scope doesn't change. However, scope almost always changes, especially with advanced projects. Smart suppliers bid for the work knowing this. They work out what they would like to charge and then they reduce that cost to a minimum in order to win the business. The suppliers do this assuming that they can use the changes that will be required to enable them to make a profit on the project. Thinking of this as an equation helps (see Figure 5.1).

    click to expand
    Figure 5.1: Fixed price contract equation

    A and B and C will often be very reasonable; D will not be. For example, imagine that the project did not specify a cooker switch for the kitchen. The project remembered the wiring, the hole in the wall and all of the associated work. They simply forgot to specify the switch. The contractor could charge anything it wanted for that cooker switch. This could be very difficult for you if the project was the completion of a new office headquarters. It would be difficult because the project would be unable to complete until the cooker switch was installed. The building would not be fully functional since the cooker would not be working. This would be particularly difficult if it was a building where the kitchen concerned was the staff canteen, especially if the canteen had to serve three meals a day. There are, of course, approaches to dealing with this. For example, you could wait until the end of the project and have the cooker switch put in by another contractor. However, it is likely that there will be many such instances and so it won't be practical always to adopt this approach. A simple way to avoid it is to encourage bidding contractors to limit or cap the price that they will charge. This cap should include a limit on any profit for additional requirements. In this way you gain some level of protection from excessive profiteering.

  • Time and materials

    Time and materials is possibly the second most commonly used contract vehicle. With this contract type, the project pays a day rate or an hourly rate for resources. In addition to the resource cost the project also pays for the materials used. The materials are charged at cost. This contract vehicle is useful since it allows the organization to change its mind on an ongoing basis. It is generally not excessively expensive to add new requirements to this contract type. This is especially true when compared to fixed price where any change tends to be very expensive.

    Unfortunately organizations often fail with this type of contract to keep the costs under control. Members of the organization often change the requirements. The constant change in requirements drives up the project cost. Care needs to be taken to avoid this.

  • Royalty

    Unlike the first two contract mechanisms, royalty is the first mechanism where organizations jointly accept the risk involved. Royalty is a method where a supplier organization supplies goods that are paid for on a royalty basis. Royalty-based work normally relies on a volume business proposition. This is shown in Figure 5.2.

    click to expand
    Figure 5.2: Royalty equation

    The company supplying goods or services on a royalty basis is normally the one taking the majority of the risk. A graph of the risk helps to explain the situation more clearly (see Figure 5.3).

    click to expand
    Figure 5.3: Royalty equation graph

    Until the breakeven point, the supplying organization is assuming the risk for the work. However, after the breakeven point the supplying organization will continue to make profit on an ongoing basis. In negotiating the contract clearly the position of the breakeven point is very important. It needs to end up in a position that both companies are happy with. One method often used to help supplying organizations with this type of contract is the setting of a minimum volume. This minimum volume is normally before the breakeven point but nevertheless it does remove some of the risk for the supplying organization (see Figure 5.4).

    click to expand
    Figure 5.4: Supplier risk

  • Partnership

    Partnership is used to mean the sharing of risk. Both parties agree on a business model and then they try jointly to make the model successful. The use of the partnership model depends on the economic climate within which the project has been undertaken. The economic climate is important since it normally dictates the amount of risk that an organization is prepared to take. In poor economic conditions, shared risk is always attractive and as a result organizations are keener to follow the partnership model.

    A partnership is generally a combination of two or more contract models. One organization might be willing to undertake some of the work on a fixed price basis and another on a time and materials basis. These two contracts are then joined by the agreement of a business model. This model sets out the profit that each organization expects to make. In general all work on the project is transparent to the partners and is auditable. The partnership almost always includes a section explaining how the contract will be terminated .

  • Cost plus fixed reward

    The cost plus fixed reward model is when a contracting company supplies everything at cost. In return it gains fixed bonuses, which are paid on the basis of results achieved. Unlike the time and materials contract type, the costs in this contract model are auditable. This means that any costs are the actual costs and it's only these costs that can be sought. This model works by offering suppliers large bonuses for delivering on time. Contracts structured in this manner normally allow bonuses to be paid on delivery or early delivery of goods. Unfortunately when it goes wrong the whole bonus is normally forfeited. When this happens it can be difficult to motivate a supplier. The supplier would prefer to put its staff on other contracts where bonuses are still available.

Common issues with outsource contracts

Before leaving outsource models and considering internal resources there are four other areas that must be considered when dealing with external suppliers. These are change control, schedules, IPR and copyright and trade mark:

  • Change control

    One of the most important aspects of control in an advanced project is change control. It is important since any change, no matter how small, has some impact on the project. This is particularly true of advanced projects, which generally are trying to deliver something that is not understood . This lack of understanding means that change is inevitable, which results in the need for change control.

    When undertaken properly the change control process can be extremely helpful to the project manager. It ensures that the work being undertaken is understood and controlled. The two most likely sources for initiating change are the commissioning organization and the supplying organization. The commissioning organization, at the start of the project, generally knows the direction it wants to travel in but often it does not know the final destination. The supplying organization wants to supply a good result to its customer. It wants to do this because it would like to be recommended to others to do similar work and also because it would like to be used again by the original commissioning organization. This results in the supplying organization suggesting ways that the project and its result can be improved. It would be easy to believe that the supplying organization only suggests new ideas to enable it to generate more income. However, this is not always the case; frequently, supplying organizations will suggest undertaking additional work at cost or for free. One of the reasons they do this is to generate goodwill and to demonstrate that they are not simply there for the money.

    The supplying organization and the sponsoring organization generally have two reasons for change requests . Firstly, there are good ideas that occur to team members. Good ideas tend to happen as the project progresses because the team discover new and different ways of considering tasks. This might involve being able to do something in a cheaper manner or perhaps undertaking work early to reduce risks. A simple illustration might be building an extra room on to a building. Obviously it would be cheaper to do this when the building contractors are still on site rather than to bring building contractors back on site just to build a single room.

    Good ideas tend to be more obvious as the project progresses because people start to understand what is going on. It is often very difficult to comprehend the whole picture of an advanced project until it has progressed. Often it's not until the detailed pictures have been developed that ideas start to be generated. Good ideas can be very motivational for team members, especially if they are implemented.

    The second reason for change is when the organizations want to sort out poor ideas that have been implemented by the project. Projects always have areas that team members wish were redone. Sometimes they don't get tackled during the project and afterwards people wonder why. Generally it's cheaper to sort out a poor idea when it is first recognized rather than waiting until the end of the project. An argument often used for delaying putting right poorly completed ideas is that it is not motivating for the project team. However, the project team generally are quite perceptive and they recognize poor ideas, and often it is actually motivational for them to see poor ideas being sorted out. You should be conscious of this when considering whether to tackle poorly implemented ideas.

  • Schedules

    One of the key control mechanisms for external consultants or suppliers is the schedule. The schedule is therefore important and so it is often included as part of the contract. Since it forms part of the contract you should have made yourself fully aware of the details of it. An experienced project manager will have ensured that the schedule in the contract is flexible. A flexible schedule is one that does not prescribe everything in detail. To achieve this it should be a milestone-based schedule with checkpoints. This would be similar to the macro plan.

    You should ensure that the schedule, like all baseline documents, is included in the project's change control system. This means that any proposed change to it will need to be ratified prior to the change being made. This will help to protect the project from suppliers simply undertaking work that they have discussed at meetings but that has not been formally agreed.

  • IPR

    Intellectual property rights are the rights that an organization asserts over its ideas. These ideas are often the subject of a patent. The patent explains in broad terms the idea that the organization wishes to protect. Project managers and other senior managers often think of patents as things to be protected. They believe that companies will use them to stop others using the organization's ideas. However, the opposite is often true. Companies are happy and encourage others to exploit their ideas. They use patents as the vehicle to ensure that they are paid for their use.

  • Copyright and trade mark

    Copyright and trade mark are ways of protecting the visual images that an organization feels define its worth. They are often applied to organization logos. Project managers can and often do fail to consider their implications. For an organization, the copyright and trade mark issues are normally very important. Project managers therefore need to have a good awareness at all times of the use of protected material. For example, they may want to display a British Standards logo to show quality approval.

The issues with IPR and copyright and trade mark are very complex and vary widely from project to project. They need careful consideration and normally they need legal advice. You simply need to be aware that there is a potential problem and then need to be sure that the problem is addressed in any outsource contract.

Handling the internal resources

In parallel to deciding about the external resources you need to consider how you will handle the internal resources in a mixed project. Internal resources require you to undertake either a development strategy or a monitoring strategy.

Development

A development strategy simply means that the resources within an organization do not have the skills level required to meet the needs of the project. In extreme cases there may be no suitable resources within the organization. Despite the lack of skills the organization may still decide that internal resources must be used. If this happens then you will need to find a method to develop the required resources inside of the organization. In most cases this will mean you relying on your work package managers for help.

Developing the resources in-house normally involves building a training programme. This programme should be centred on the work required to complete the advanced project. In some large organizations the personnel or human resources departments can help. Whoever sets up the training for the project personnel should focus first on understanding the skills required and secondly on having suitable courses. You must remember that if you are building the resources inside the organization it is likely that there will be a long-term requirement for the resource. So you must make sure that whatever training programme is developed it accounts for the organization's long- term need.

Monitoring

A monitoring strategy for internal resources is simply continuously checking that project team members are performing the necessary skills at an appropriate level. Much of this is achieved through the mechanisms explained in Chapter 6, which describes project control. These almost always relate to finding suitable metrics that can be used to monitor the work involved, for example the number of work hours spent. If you discover a problem then you will need to adopt the development approach.




Advanced Project Management. A Complete Guide to the Key Processes, Models and Techniques
Advanced Project Management: A Complete Guide to the Key Processes, Models and Techniques
ISBN: 0749449837
EAN: 2147483647
Year: 2007
Pages: 69
Authors: Alan D. Orr

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