Project Risk Management – how reliable is old data

One of the key underpinnings of risk management is reliable data to base probabilistic estimates of what may happen in the future.  The importance of understanding the reliability of the data being used is emphasised in PMBOK® Guide 11.3.2.3 Risk Data Quality Assessment and virtually every other risk standard.

One of the tenets underpinning risk management in all of its forms from gambling to insurance is the assumption that reliable data about the past is a good indicator of what will happen in the future – there’s no certainty in this processes but there is degree of probability that future outcomes will be similar to past outcomes if the circumstances are similar. ‘Punters’ know this from their ‘form guides’, insurance companies rely on this to calculate premiums and almost every prediction of some future outcome relies on an analogous interpretation of similar past events. Project estimating and risk management is no different.

Every time or cost estimate is based on an understanding of past events of a similar nature; in fact the element that differentiates an estimate from a guess is having a basis for the estimate! See:

–  Duration Estimating

–  Cost Estimating

The skill in estimating both normal activities and risk events is understanding the available data, and being able to adapt the historical information to the current circumstances. This adaptation requires understanding the differences in the work between the old and the current and the reliability and the stability of the information being used. Range estimates (three point estimates) can be used to frame this information and allow a probabilistic assessment of the event; alternatively a simple ‘allowance’ can be made. For example, in my home state we ‘know’ three weeks a year is lost to inclement weather if the work is exposed to the elements.  Similarly office based projects in the city ‘know’ they can largely ignore the risk of power outages – they are extremely rare occurrences. But how reliable is this ‘knowledge’ gained over decades and based on weather records dating back 180 years?

Last year was the hottest year on record (by a significant margin) as was 2014 – increasing global temperatures increase the number of extreme weather events of all types and exceptionally hot days place major strains on the electrical distribution grids increasing the likelihood of blackouts.  What we don’t know because there is no reliable data is the consequences.  The risk of people not being able to get to work, blackouts and inclement weather events are different – but we don’t know how different.

Dealing with this uncertainty requires a different approach to risk management and a careful assessment of your stakeholders. Ideally some additional contingencies will be added to projects and additional mitigation action taken such as backing up during the day as well as at night – electrical storms tend to be a late afternoon / evening event. But these cost time and money…..

Getting stakeholder by-in is more difficult:

• A small but significant number of people (including some in senior roles) flatly refuse to accept there is a problem. Despite the science they believe based on ‘personal observations’ the climate is not changing…….
• A much larger number will not sanction any action that costs money without a cast iron assessment based on valid data. But there is no valid data, the consequences can be predicted based on modelling but there are no ‘facts’ based on historical events……..
• Most of the rest will agree some action is needed but require an expert assessment of the likely effect and the value proposition for creating contingencies and implementing mitigation activities.

 

If it ain’t broke, don’t fix it???? 

The challenge facing everyone in management is deciding what to do:

• Do nothing and respond heroically if needed?
• Think through the risks and potential responses to be prepared (but wait to see what actually occurs)??
• Take proactive action and incur the costs, but never being sure if they are needed???

There is no ‘right answer’ to this conundrum, we certainly cannot provide a recommendation because we ‘don’t know’ either.  But at least we know we don’t know!

I would suggest discussing what you don’t know about the consequences of climate change on your organisation is a serious conversation that needs to be started within your team and your wider stakeholder community.

Doing nothing may feel like a good options – wait and see (ie, procrastination) can be very attractive to a whole range of innate biases. But can you afford to do nothing?  Hoping for the best is not a viable strategy, even if inertia in your stakeholder community is intense. This challenge is a real opportunity to display leadership, communication and negotiation skills to facilitate a useful conversation.

Fine Tune your detectors

The quality of any decision you make is determined by the quality of the information and advice you receive. Good information does not necessarily mean a good decision, but bad information will almost certainly lead to a bad decision.

The decision making process and the types of decision a project manager, and almost anybody else, has to make are discussed in WP1053 Decision Making.  The closely aligned process of problem solving in WP1013. Good information and advice is an essential input to both of these processes.

The right information has the potential to reduce or remove the uncertainty at the centre of every decision. If you are lucky and the information or advice removes all of the uncertainty, then there is nothing left to decide! Usually even with good advice, there is still some uncertainty and you still have to make the decision.

In reality, we rarely if ever have enough information; the challenge is to get as much information as is sensible in the circumstances and then make a timely decision accepting there will inevitably be gaps in your knowledge potentially leading to suboptimal outcomes.

However, simply collecting vast quantities of information does not help (unless you are using data mining). Generally information has no value, unless it has the potential to change your decision! The critical thing in decision making is having the key elements of information available when needed, in a useful form, which improves your awareness of the situation and your ability to decide.

But no information or advice is perfect. Before making use of any information, the decision maker has to evaluate the reliability and accuracy of the information or advice and look for any vested interests or bias on the part of the people developing the information or proposing the advice. Good decision makers usually have very finely tuned ‘bull s**t’ detectors.  And whilst this skill often seems to be innate to an individual many of the skills can be learned.

Some of the elements to consider when weighing up information are:

1. As a starting point, everyone is biased and most people have vested interests. The antidote to bias and vested interests are to consider what effect these influences may have. The more effort someone has committed to developing a set of information, the greater their vested stake in the work. See more on Biases.
2. Beware of factoids!
   You will be pleased to know, you are one of the 1635 people who have read this post, and as a consequence are now aware of factoids.How do we know this? We don’t. I just made it up; but you can’t call me wrong, because you don’t know, either. A factoid is something that looks like a very precise fact. The antidote to factoids is source information. Good source information in the statement above would be ‘our web counter shows that you are visitor 1635 to this page’. Start worrying if the source is nebulous ‘our webmaster advises’ or ‘based on a sophisticated time related algorithm…’.
3. Beware of false precision.
   Almost everything that affects project decisions is a guess, assessment or estimate (the terms are largely synonymous) about something that may occur in the future But no one has precise information about the future! False precision damages credibility (see: Is what you heard what I meant?) and is generally less than useful.  The antidote to false precision is to ask for ranges and the basis of the range statement.
4. Lies, dam lies and statistics 1.
   Some statistics result from the counting of real things. If you trust the people who do the counting, the math and the reporting, the data is as good as you are going to get. However, most statistics are estimates for a large population, derived from the extrapolation of the results from a small sample. Professional statisticians and pollsters attach a calculated margin of error to their work – this margin is important!  The antidote to false statistics is to ignore any that do not come with a statement of the margin for error and how this was derived.
5. Lies, dam lies and statistics 2.
   Understand the basis for comparison – it is very easy to distort information. Project A will increase the profit on the sale of widgets by 50% whereas project B will only increase the profit on our training business by 10%, if both projects involve a similar cost outlay which one is best??? You need to know the basis for comparison to answer the question: a 50% increase in profits from a base of $100,000 = $50,000 which is half the value of a 10% increase in profits from a base of $1 million.  The antidote to statistical distortion is to largely ignore percent changes and statements such as ‘fastest growing’, ‘biggest increase’, etc.  It is always easier to be the ‘biggest’ if your starting point is the smallest.
6. The ‘one-in-a-million’ problem
   Discussed in The role of ‘sentinels’ many ‘one-off’ problems are symptoms of a much deeper issue. Our entire working life is less than 20,000 days so the chances of you encountering a genuine ‘one-in-a-million’ event, just once in your working life, is about 2%. Other phrases that should trigger concern include; ‘she’ll be right’, ‘no-problems’, ‘it’s easy’, etc…The antidote to these type of expression is to simply reverse the statement:
   – one-off / one-in-a-million = there’s probably a structural cause to be discovered;
   – she’ll be right = I have no idea how to fix it (and its definitely not OK);
   – no-problems = this is a major problem for me;
   – it’s easy = this will be very difficult (unless the ‘easy’ is followed by an explanation of how it is easy).
7. The false prophet
   False prophecies are allegations and unsubstantiated statements made with the expectation that the ‘expertise’ of the person the statement is attributed to will cover the statement with absolute credibility. If the statement is improbable, it is improbable regardless of the alleged source.  The antidote to false profits being quoted in the ‘third party’; eg, “Einstein said controlled nuclear fusion was easy”; is simply to seek authentication from the source. If the ‘prophet’ is present, ask them for more information.  Real experts know both the upside and the down side of any course of action they are proposing – they understand the uncertainty. Wannabe experts pretend there is no downside or uncertainty.

8. Well known facts
   Remember, most ‘well known facts’ are in fact commonly held misconceptions (this statement is a factoid but also useful).  The antidote to ‘well know facts’ is to dig deeper and gather actual facts.

These are just a few ways bad advice and information can be introduced into a decision making process. Taking a few minutes to verify the quality of the advice you are being given, ditch the unsound advice and information, and then use what’s left to inform the decision will enhance the probability of making the best decision in the circumstances.  This is not easy to do (but good decisions are rarely ‘easy’); the consolation is once you develop a reputation for having a good ‘bull s**t’ detector, most sensible people will stop trying to use it on you. Then all you need to do is make the right decision.

Stakeholders in complexity

The new CPM is ‘Complex Project Management’ and whilst most of the current project management tools and practices including risk management, scheduling and EVM remain important, they are not sufficient to successfully manage a complex project according to Stephen Hayes, from the Canberra based International Centre for Complex Project Management ICCPM.

ICCPM Ltd was established by Australian, UK and US government bodies and major defence industry corporations, and is now a substantial network of global corporate, government, academic and professional organisations committed to the better management of complex projects across all industry and government sectors focused on improving the success of complex projects.

Whilst all projects have a degree of complexity (see: Project Size and Categorisation) CPM is focused on the major projects undertaken in response to ill-defined and often mutually-incompatible stakeholder requirements and are subject to uncontrollable external influences and almost continuous change.

Successfully managing this type of project needs outcome focused leadership that is capable of developing context specific innovative approaches to issues backed by the tenacity to deliver ‘no matter what’!

The latest report facilitated by ICCPM in conjunction with Global Access Partners and a range of leading public and private sector organisations is entitled “Complex Project Management: Global Perspectives and the Strategic Agenda to 2025” (available from https://iccpm.com/).

This report has developed a framework for on-going research into CPM under six broad themes:

• Delivery leadership – the ability to navigate through uncertainty and ambiguity to achieve the desired outcome.
• Collaboration – working as one team to a mutually agreed goal and equitable reward (including operating the entire supply chain as a single entity).
• Benefits realisation – understanding and delivering through-life product value.
• Risk, opportunity and resilience – taking good risk, seizing emergent opportunity, and successfully responding to the unexpected.
• Culture communication and relationships – maximising the effectiveness of the human asset by understanding and responding to human behavioural need.
• Sustainability and education – continuous learning, maintaining currency in leadership capability and knowledge transfer across generational boundaries in order to sustain through-life capability.

Against each of these a basic set of policies and actions have been developed to define the future work and research agenda of ICCPM, its partners and academia.  To this end ICCPM is working to develop a permanent, co-ordinated global specialist research agenda for CPM.

With support from the UK Cabinet Office, the Australian Government, universities including QUT and DAU, professional associations including IPMA and APM, and companies such as BAE Systems and Thales (to name but a few) this initiative may prove successful.  Two glaring omissions from the list of supporters though are the AIPM and PMI – maybe this blog will trigger some action.

Certainly the emergence of stakeholders at the centre of complexity means stakeholder management and engagement will be a topic of increasing importance which is only to be encouraged.

Note: The contents of this post are based on the executive summary of the ICCPM – GAP CPM Task Force report: www.iccpm.com

Communicating in a Rapidly Changing World

The challenge faced by everyone is the ever increasing rate of change, driven by new knowledge, new ideas, new management fads and of course new technologies.

As individuals and organisations we need to continually accelerate our rate of learning, and according to Eddie Obeng in his TED presentation ‘Smart failure for a fast-changing world’  the world is now changing at a rate faster than we can assimilate the new information, making errors and mistakes inevitable.

In the old world, a competent person could keep up with ‘all’ of the relevant changes in their area of expertise and be expected to get the ‘right answers’ – in the new world we simply cannot. What was ‘right’ based on the old paradigms is unlikely to be the best answer now or in the future and there’s no way of knowing if your innovative solution to a problem is right or wrong until later. Timely decisions based on assumptions and partial information are essential (see more on decision making). And adaptation and rapid learning from your mistakes is the new normal.

Obviously this is helped by access to useful information. The challenge is sorting ‘useful’ information from the ever expanding ‘noise’ in every aspect of life, within the ever shortening timeframes needed for effective decisions.

One of the clearest depictions of this problem is the ever increasing number of business fads sweeping management:

This ‘fad-o-gram’ is from ‘The Ebbs, Flows and Residual Impact of Business Fads 1950 – 1995’ by R. Pascale. The chart was developed from a statistical analysis of the indexes of the influence of business ideas, calculated by Richard Pascale, using an importance-weighted citation count, admittedly with a significant subjective component.

Looking at an updated version of the chart from 2000 in more detail is interesting:

The first surprise is the number of ‘defunct’ management theories that are still included in the PMP course requirements such as ‘decision trees’, ‘theory x – theory y’, ‘brainstorming’ and ‘management by objectives’. I have a feeling this is more likely to be a factor of the interest in the concept by author’s looking for a new idea to have their academic papers published, or sell their books, than the actual usefulness of the concepts but equally there are literally dozens of fads and fashions that have arrived, been championed as the solution to all known problems and then died.

The second surprise is the omission of ‘project management’ including ‘program management’ and ‘project portfolio management’. Presumably projects were seen by Pascale as planning processes rather then management theory.

From the perspective of management theories and fads, the most telling insight can be ascribed to Peter Drucker who, in 1993 said ‘The most probable assumption is that no currently working ‘business theory’ will be valid ten years hence — at least not without major modifications’.

So where does this leave us as working managers trying to make good decisions in a rapidly changing world? I would suggest decisions based on common sense and pragmatism, founded on experience, are likely to be far more effective than leaping onto the latest management fad both at the project level and higher management levels. Not worrying too much about the latest fad also helps reduce the learning load. And whilst not included in the diagram, there are plenty of project management fads and ‘silver bullet’ techniques being touted on a regular basis.

But we all need access to useful, relevant and current information to develop our knowledge and ground our experience – competency is founded on knowledge!! One of our overriding considerations in developing these blogs, our published papers and our White Papers is to take new concepts and make the ideas both practical and usable. The other which is still a work-in-progress is to develop an indexed structure that makes the information easily accessible and findable (see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html).

See also our article: Reducing complexity in management communication

Project Governance

Corporate governance is defined as aligning as nearly as possible the interests of individuals, the organisation and society. Good governance is good business!

Project governance is a sub-set of corporate governance, focused on systems that ensure the right projects and programs are selected by the organisation, and the selected ‘few’ are accomplished as efficiently as possible. Projects that no longer contribute value to an organisation should be terminated in a way that conserves the maximum value and the resources reallocated through the portfolio management process to more valuable endeavours.

The framework for effective project governance is laid out above, and is an executive management responsibility. Sponsors and the Portfolio Selection/Management processes provide the key link between the executive and the working project and programs (for more, see our Governance White Paper).

The focus of this post is to look at the pre-selection activities that inform the portfolio selection processes. One of the key conclusions to be drawn from the Ombudsman’s Report discussed in my earlier post Cobb’s Paradox is alive and well was that many of the projects that contributed to the $1 billion in failures were set up to fail – the projects had absolutely no chance of delivering within the announced parameters: the inputs to the portfolio selection process were grossly flawed (or non-existent).

This appears to be a wide spread issue. Most project management standards such as ISO21500 and the PMBOK® Guide start with an approved project and a business case or similar that defines what has to be accomplished; this is the end of the portfolio selection process outlined above, and the standards assume the project’s objectives are realistic and achievable.

What is missing, are the steps leading up to this point; the life of a ‘project’ starts with an idea, need, opportunity, requirement or threat (the ‘concept’). The organisation assesses and studies the ‘concept’ hypothesises options and solutions and frames a proposal that becomes the foundation of a future project. These key investigative elements of a project generally sit under the portfolio umbrella, developing information to allow a proper decision to be made. In mining this can represent exploration, feasibility studies, ‘bankability’ studies and concept designs which between them can cost $millions, leading to project funding. Importantly, this ‘Front End Loading’ (FEL) is seen as the key to a successful mine in most major mining corporations.

Similar problems exist in major infrastructure projects, defining a solution to prison overcrowding can involve building a new major prison, building several smaller prisons, extending current prisons, changing the way criminal justice system works to reduce the need for prison places, or a combination of the foregoing options (substitute University/hospital/school, into the previous sentence to see just one dimension of the challenge). However, unlike mining, most government and many corporate organisations see effective ‘front end loading’ as unnecessary.

Other organisations use the process to formulate definitive solutions to problems they have no real understanding of (typical in ICT) and then pretend the defined solution has no associated risk (because it is defined) despite the fact the full dimensions of the problem the project is supposed to solve are still unknown, and are frequently changing over time.

The challenge, requiring informed judgement and effective governance is recognising which development processes suits what type of ‘concept’:

• Sometimes, the ‘investigation’ requires a significant amount of work (eg, a bankability or feasibility study) and the work may be treated as a project in its own right, they are time, cost and resource constrained with a defined deliverable (the report).
• If the work is expected to flow forward and will only be stopped in exceptional circumstances, project phases work best, with some form of ‘gateway’ or transition review.
• In other circumstances, studies are undertaken as part of the portfolio by corporate or PMO professionals with no dedicated budgets; multiple reviews are handled as an ongoing process, but once a concept gets the go ahead a project is created and a budget and resources allocated.
• Other concepts (particularly problems) cannot be defined and an ‘agile’ approach is needed where elements of a partial solution are developed and put into use developing new learning that allows the next module to be developed in a progressive sequence. However, whilst this may be the most suitable and cost effective way of developing an effective solution, budgeting in a traditional ‘iron triangle’ concept of fixed cost, time and scope is impossible.

The challenge is recognising which type of project is being proposed (based on Project Typology), and then deciding which type of process will develop the best input to the portfolio selection process and what level of uncertainty (risk) is associated with the proposal once developed. Certainty is not important, what matters is appreciating the extent of the risks and the likely benefits so an informed investment decision can be made. Most ‘game changing’ initiatives involve high risk, high reward projects that create a totally new future!

OGC Gateway™

The OGC ‘Gateway Reviews’ is a flexible process that addresses this part of major projects from the client’s perspective:
Gateway 1 = Business Justification, options identified and appraised, affordability, achievability and value for money established.
Gateway 2 = Procurement strategy, will the proposed strategy achieve the project objectives?
Gateway 3 = Investment decision, based on realistic project cost information (eg, tenders or bids) can the business case be confirmed from both the cost and the benefit perspective?
Gateway 4 = Readiness for service. The completion of the project work and a reassessment/confirmation of the expected benefits as the deliverable is put into ‘service’.
Gateway 5 = Benefits evaluation. Did we get what was expected now the project’s outputs are being used?

Summary

Most of the risks and rewards associated with a project or program are determined long before the project manager is appointed; if these decisions are wrong (or non-existent) project and program management cannot resolve the problem.

The role of effective project management is to deliver a realistic and achievable outcome efficiently; if the parameters for the project are unrealistic in the first place, the best project management can do is stop the situation deteriorating further! As far as I know, none of the various BoKs and methodologies, including the PMBOK® Guide has a ‘miracle’ process that will magically transform an impossible set of objectives into achievable set of objectives. Wishful thinking is not an effective substitute for effective project governance!

Cobb’s Paradox is alive and well

In 1995, Martin Cobb worked for the Secretariat of the Treasury Board of Canada. He attended The Standish Group’s CHAOS University, where the year’s 10 most complex information technology (IT) projects are analysed. The high level of failure led Cobb to state his now famous paradox: “We know why projects fail; we know how to prevent their failure—so why do they still fail?”

In 2011, another report into the management of IT projects asks the same question! This time the report was prepared by the Victorian Government Ombudsman, in consultation with the Victorian Auditor-General, it documents another series of failures largely created by executive management decisions. The report entitled Own Motion Investigation into ICT – Enabled Projects, examines 10 major Victorian Government ICT projects that experienced difficulties such as budget and timeframe blowouts or failure to meet requirements.

Portfolio Management
Problems identified by the Ombudsman in the area of Portfolio management and governance include a lack of effective leadership, accountability and governance. He was particularly concerned about poor project governance, the lack of accountability of project stakeholders and a lack of leadership — a reluctance to take tough decisions.

These failures contributed to poor decision making, and an inability or reluctance to make difficult, but necessary decisions. Leaders lead and determine governance practices; the resources needed to implement these facets of effective Portfolio management are readily available including:

•  PMI’s The Standard for Portfolio Management – 2nd Edition, available in Australia from http://www.mosaicprojects.com.au/Book_Sales.html#PMI, elsewhere from http://marketplace.pmi.org
   
• The Association for Project Management’s Directing Change, a guide to the governance of project management: http://www.mosaicprojects.com.au/PDF/APM%20GoPM%20booklet.pdf

Project Definition
It is impossible to deliver a project successfully if the decision to proceed is based on inaccurate assessments in the business case. The Ombudsman commented on the inadequacy of business cases, the failure to fully define requirements for new systems, a general reluctance to change business processes to better fit with off the shelf products (to reduce cost and risk) and a ‘tick the box’ approach to risk management (ie, avoiding any real assessment of risks and opportunities).

Linked to this lack of definition major project funding decisions were announced publicly before the business case was fully developed (representing either wishful thinking or a wild guess?), and high risk decisions being made to only partially fund some projects.

The solution to these issues is a robust and independent PMO that has the skills and knowledge needed to validate business cased before they go forward to management for decisions. Many years ago, KPMG released a series of reports that highlighted the fact that organisations that failed to invest in effective PMOs were simply burning money! The Ombudsman’s report shows that ‘burning public money’ is still a popular pass time.
– For more on PMOs and to download the KPMG reports see: http://www.mosaicprojects.com.au/Resources_Papers.html#Proj_Off

Risk Management
Many of the factors identified above and in my view the primary cause of most bad decisions is the abject failure of senior management to insist on a rigorous risk management process. Risk management is not about ‘ticking boxes’, it is about having the ethical courage to objectively explore the risks and then take appropriate actions to either mitigate the risk or provide adequate contingencies within the project budget. This failure was manifest by an inconsistent approach to contingency funding. There are many examples of high risk decisions being made without any contingency provisions:

• The Myki ticketing system was let to an organisation that had never delivered a ticketing system before. No contingencies were made for this high risk decision and the project is years late, $millions over budget and will only deliver a small part of the original scope.
   
• Agencies preferred to be on the leading edge rather than leveraging what had been done by others elsewhere. This may be justified but not without proper risk assessment, mitigation and contingency.

Government agencies are not alone in failing to effectively manage risk in ICT procurements. The same problem has been identified in major infrastructure projects, in a series of reports by Blake Dawson; see: Scope for improvement.

There are always difficulties in transferring project risks to vendors, and dealing with large vendors who may be more experienced in contract negotiation than their agency counterparts. Whilst modern forms of contract provide opportunities to adopt innovative procurement processes that could significantly reduce project risks for vendors and customers these were not used.

As our paper, The Meaning of Risk in an Uncertain World and the Blake Dawson reports clearly demonstrate, not only is it impossible to transfer all of the project risk to a vendor, it is totally counterproductive to try! Organisations that try to transfer ‘all of the risk’ end up with a much poorer outcome than those organisations that actively manager the risks in conjunction with their vendors.

Large ICT projects are inherently complex and necessarily involve some significant risks. But these can be mitigated to some degree by taking heed of the Ombudsman’s observations, lessons learnt in other projects and the implementation of robust and independent systems.

The PMI Practice Standard for Risk Management provides  good starting point.

Recommendations
The Ombudsman’s recommendations on how to address these issues can be applied to ICT and other projects undertaken by other state, local and Commonwealth government agencies, and in the private sector: Download the report.

In my opinion, the primary cause of these failings, referenced but not highlighted by the Ombudsman, is cultural. Executives and senior managers overtly preferring the status quo and the current power structures they have succeeded within over leading the implementation of change that will deliver improved outcomes for their organisations but make people more accountable and redistribute organisational power. This was the focus of my last posting; Culture eats strategy for breakfast 2!

As Martin Cobb observed in 1995, “We know why projects fail, we know how to prevent their failure — so why do they still fail?”  Unfortunately this is still a valid question more that 15 years later and, without leadership from the very top, I expect the effect of this report will be little different to the dozens of similar reports generated over the years and we will still be asking the same question in 2020.

The answer is culture and leadership – to change the culture within senior management ranks, the owners of organisations need to take actions similar to the Australian Federal Government and mandate effective processes and then measure performance in their implementation and use. The implementation of the Gershon Report that is being forced through the federal government departments is a Cabinet level initiative. It is still too soon to judge wether the initiative will be successful, effective culture change takes years to embed in major organisations, but at least the push has started at the right level. My feeling is that if the pressure is maintained for another 3 or 4 years (the original report was released in 2008) there may be some real benefits. To avoid similar reports to this one in the future, the leaders of other organisations need to take similar robust, strategic action tailored to the needs of their organisation.

Project professionals can help by effectively communicating to your top-level executives the real benefits of effective project governance. For many ICT and other technical/engineering professionals this represents is a whole new set of skills to learn, my book Advising Upwards may help!

The implication of bias

Every decision is influenced by a range of preferences and biases. I touched on this subject last month in my ‘Voices on Project Management’ post for PMI (see the post) but the effect extends to every cost and time estimate, the way every communication is received and understood and every decision.

As part of our work to upgrade Mosaic’s PMP materials to align with the new PMP Role Delineation Study, we have developed a White Paper focused on the causes of bias including our innate cognitive biases, learned biases and emotional affective factors.

It is impossible to remove many of these biases; but being aware of them allows their effects to be mitigated. Download the White Paper from: http://www.mosaicprojects.com.au/WhitePapers/WP1069_Bias.pdf

Using a Risk Management approach for Assessing Claims

One of the more difficult management decisions is how hard to pursue a contract claim. The claim will inevitably have a deleterious impact on a key stakeholder relationship and any significant claim will have proportionally high costs associated with legal and other expenses. Balancing the inevitable costs against the possible gains is a difficult but necessary decision before moving forward. Usually, the potential yield of a claim is given as a subjective assessment based on experience.

Dr. John Lancaster of Hill International has recently published a paper that seeks to remove the subjectivity from the assessment of which claims are worth pursuing (see 1 below). Lancaster proposes using a risk assessment approach to determine the likely range of outcomes and which claims contribute the most to the likely settlement. He suggests using the following factors:

• Entitlement confidence:
  • The strength of the contractual argument for entitlement; and
  • Contractually compliant notices.
• Magnitude confidence:
  • The quality and quantity of supporting records;
  • The quality of the project schedules (and any necessary corrections and/or repairs), cost records, etc; and
  • The certainty with which the effect/s of each event is known.

Applying a percentage weighting to these factors and using Monte Carlo analysis the likely range of cost and time outcomes can be assessed and the key claims identified.

It is important that the right people complete this assessment: the entitlement confidence categories should be assessed by counsel and the magnitude confidence categories assessed by the domain experts with input from the project staff.

The results of this analysis will identify:

• The likely outcomes under the prevailing entitlement and magnitude confidence ratings;
• The probabilities of securing different outcomes; and
• Identifying the claims that are the most important to the overall claim and which ones require more work.

Based on this assessment and after factoring in the costs and consequences of making the claim, pragmatic decisions can be made on:

• whether or not to pursue a claim;
• where to set negotiation limits (see 2 below); and
• which of the claims, with more work on establishing entitlement and/or substantiation, could contribute the most to a robust claim.

In an ideal world effective stakeholder relationship management would remove the need for contractual claims. When they become necessary, Dr. Lancaster’s ideas will help remove much of the unnecessary ‘heat’ from the assessment process and provide a pragmatic baseline for managing any claim in a professional and business like way.

1. Lancaster, John, “The use of risk analysis techniques to evaluate potential delay claim outcomes,” Project Control Professional: The Journal of the Association of Cost Engineers, February 2010. The full article is available on request from johnlancaster@hillintl.com.
2. For more on dispute management and negotiating see: http://www.mosaicprojects.com.au/WhitePapers/WP1049_Dispute_Management.pdf

Australia’s new Prime Minister – Julia Gillard

It has been a fascinating 24 hours in Australian politics. The former Prime Minister Kevin Rudd was dumped and we now have our first female Prime Minister Julia Gillard. The unfolding drama was a mixture of ruthless efficiency in the coup to oust the previous Prime Minister, immediately followed by the start of a process of inclusion and healing.

Managers faced with difficult decisions can learn a lot from today’s events. My thoughts on several key issues are:

1. Ethical dilemmas are always difficult and need decisions. As Henry Kissinger said: “Competing pressures tempt one to believe that an issue deferred is a problem avoided, more often it is a crisis invented”. There is no right answer to a dilemma, every option has a downside. Leaders choose a way forward and live with the consequences.
   [See: Ethics and Leadership]
2. When you do decide on a course of action, don’t hide the issues that created the dilemma in the first place, explain your reasoning and acknowledge both the greater good and the consequential harm. When a Deputy takes over from her leader there are inevitable questions of loyalty and trust, honest reasoning lets observers understand the reasons for the decision.
3. Conversations and transformational negotiations lead to better outcomes than win-lose transactional negotiations but often you need to make the first concession to start down this path [see: Win-Win Negotiations]. The Government and the mining industry were locked in a head to head battle over a new tax. In the space of 5 hours the new Prime Minister had unilaterally cancelled government advertising over the issue and offered open negotiations. The mining industry had reciprocated and suspended their advertising campaign. The negotiations may or may not reach a consensus (no one like having their taxes increased) but both sides are likely to end up with a better outcome if the transformational negotiations work.
   [See: Negotiating and Mediating]
4. In a disagreement over principles, you only need to achieve your objective; you don’t need to destroy the other party. The former Prime Minister has been offered a position of his choosing in the new government. If accepted, this means his talents and knowledge are still available to the team. Reluctant allies are better than committed opponents.

It’s certainly been an interesting day watching a really effective communicator in action in action; I feel as though I have learned a lot.

Developing Competency

Knowledge alone is not enough! To be effective in any sphere of life you need to be capable of applying knowledge effectively to achieve an outcome; this is competency. However, to be really effective you not only need to be capable of being competent, you need to be willing to act, to use your capability effectively. Effective (ie, competent) managers need to know what should be done, have the skills to do the work and be willing to actually do the work.

Putting this into context, project managers agree that having an effective schedule is important and also know they need knowledge of CPM theory (summarised in Chapter 3 of the PMI Practice Standard for Scheduling) and their scheduling software to produce a realistic and achievable schedule. But simply creating a schedule is not sufficient – the project manager needs to make effective use of the schedule if it is going to add value to the project delivery process.

This makes measuring and assessing management competence difficult. Observing an artefact is not sufficient, it is the way the competent manger behaves that make the real difference. Fortunately, the definition and assessment of competency is based on a defined structure:

First, there are three basic elements within the project management competency framework,
        –   technical competencies – what you do or produce,
        –   contextual competencies – how you work within the organisation / environment, and
        –   behavioural competencies – how you operate in the workspace and interact with people.

Then each element of competence is assessed in terms of:
        –   knowledge (what you know – tested by CAPM and PMP exams),
        –   skills (the capability to effectively apply the knowledge in the workplace and the artefacts produced) and
        –   attitude (how willing or effective you are in applying the skills).

This is normative competence and is the structure of PMI’s Project Manager Competency Development Framework and virtually every other professional competency framework including those developed by the AIPM, IPMA and GAPPS. However, the framework dates back to the industrial age where task repetition was common and one could learn the best-in-class approaches and emulate these to deliver new tasks.

In the ‘age of knowledge’ this is probably not sufficient, competent project managers in the 21st Century need to grow beyond normative thinking and embrace transformative practice. Project management competence is shifting from a process view towards autonomy; self reference and group self organisation. These qualities empower professional project managers to perform well despite prevalence of complexity and rapid change. They develop customised solutions for each new, unique, occasion; implementing the new solution requires the use of existing knowledge but will also generate new knowledge.

This constructivism theory has a basic assumption that each time you perform a new activity you build on your existing knowledge to acquire new insight and competence, and consequently engage in continuous learning. To be really effective, the organic ‘on-the-job’ learning should also be reinforced with the acquisition new information from journals, innovative courses, discussions with colleagues and participating in communities of practice.

Consolidating the new learning into tangible and useful knowledge needs reflection (to understand what has been learned) and possibly the assistance of a mentor to help unlock the complex factors needed to grow within yourself, develop creative solutions, and find new ways to succeed.

Yesterday’s competence is the foundation on which you can build tomorrows, but relying solely on yesterday’s skills is insufficient! Competent project managers know they need to keep learning and developing.