This article is a continuation of the series on why projects fail.
Poor Coordination Of Effort
Companies always try to save costs on projects by not going full bore on a project management group. They may have project managers but they are expected to work within a procurement and accounting system set up for buying toilet paper, selling widgets and delaying payments. When you, as a project manager, are in this type of system, your primary goal is to get the project up and running within budget and on schedule while the other players are interested in keeping the facility running. On one project, I was with a consulting firm and we had to use the Owners’ procurement group for all purchases. As I said, the purchasing groups main job was to keep the facility well stocked with toilet paper so we were a thorn in their side. We had purchased a large piece of equipment in Europe and it had to be transported by ship to the US. Three months before shipping we informed the Owners’ procurement that it would be on the dock in three months and they had better organize a ship. We did the same at two months and when we got to the one month warning they finally got their act together. Since they were busy doing other things and had ignored the warnings, it cost the project an extra $250,000 to hire a ship just to transport this one piece of equipment.
When management does not prioritize the work of the various groups, there is trouble ahead. Consulting firms have the dedicated people to manage projects but will run into trouble when the Owner wants to use their systems that are not set up for projects. If project management is important to them then they should do it properly. In my early days of project management I worked in Central Engineering for an industrial company. We had all the people we required dedicated to our project group, this included dedicated corporate procurement personnel. We had our own accounting, scheduling, engineering design and construction personnel. Everyone worked in a coordinated effort with common goals which resulted in successful projects. There are very few central engineering departments now as most companies have passed the work on to consulting firms, however, they still want to inject part of their systems into the mix.
Lack Of Methodology, Process
I have worked for companies that do projects but have no methodology or process. Everything was seat of the pants, mind you they were small projects with low liability. I was contracted by one company to build a new facility for them. They were a small project company and since they had no methodology, I had to develop the project processes for the them. It was a constant battle to convince them that what they wanted to do was not an acceptable project management technique. One example was a need for a construction manager. The project budget was $120 million and I was looking for an experienced construction manager who had done large construction projects. Well the Owner wanted me to use their plumbing foreman who was on light duty. That’s all he had ever done was plumbing work in sawmills. The Owner had no idea of what a construction manager’s duties were nor any process for managing a construction site. I found an experienced construction manager and hired him. The Owner wasn’t happy, but c’est la vie. We got the facility built in spite of the Owner.
What typically happens, is companies try the seat of the pants method of doing projects. That involves giving someone, not trained in project management, some money with the instructions to “Git-R-Done”. This leads to overruns and schedule delays on the projects. Management hear about this thing called project management and decide to give it a try. They have no methodology or processes in place, but we’ll give it a try. They still end up with overruns and schedule delays so they decide that project management is not worth the effort.
If a company wants their projects to work, they have to invest the time, money, and make a committed effort to develop the methodology and processes to use. If they don’t, the projects will be failures.
Lack Of Project Controls
My workshop attendees typically work for an industrial facility. In my workshops I cover project controls and always ask the attendees if they have a project controls person working for them. The majority of attendees do not and are left on their own to do this task. When I worked for a consultant we had project controls people which consisted of a cost engineer and a scheduler. These are time consuming tasks if you want them done right. When you have to do the project controls as well as manage the day to day activities, something is going to fall apart. You can either do one job well or 3 jobs poorly. The following planning guide applies to project management as well as other disciplines:
Project Planning Guide
I am always interested in how progress is measured. With the majority of workshop attendees, progress is an educated guess. Those that take project management seriously use Earned Value Analysis (EVA) which I cover in the workshop. EVA is the most common method of measuring progress and appears to be more popular in the US than Canada. EVA is not popular with all consultants.
Two things you have to determine and understand when you start a project are:
1) what is the process and how long does it take to purchase a piece of equipment and
2) what is the accounting process you plan on using.
Procurement will drive your schedule and accounting will drive your cost control.
As mentioned above most companies want to use their procurement and accounting systems for managing projects. These systems are usually unwieldy. The accounting systems are based on actual costs when you need to be managing your projects on committed costs. If you have the opportunity, you should have your engineering consultant do the project controls for you as they should have the processes in place. Accounting is extremely important as you need your committed costs. If you are using actuals, your project will fail since the actuals take to long to come through the system and you never know where you are money wise . By the time you get the numbers, your project has overrun. On projects I have set up, and others when working for a consultant, we have set up our own separate system using committed costs and fed the numbers back to the accounting group. If you do not have that luxury, then you may have to keep your own set of books to keep track of the committed costs. I have managed projects where we were up and running with the project closed out yet the actuals from the Owner’s accounting system were showing we were only 75% complete. We always had trouble reconciling with the Owner’s accounting system.
Impact Of Unexpected Risks
Your function as a project manager is to get rid of uncertainty and mitigate risk. Nothing more, nothing less. Companies do not like uncertainty (therefore the project life cycle) and risk (therefore risk management strategies of Avoidance, Transference, Mitigation, and Acceptance). When you look at all the project processes you have in place that is what they are there for. However, these processes can not prevent risk events from happening. Out of many risk events, a couple I have been involved with were death on a job site and currency swings.
Whenever there is a serious accident on a jobsite, the site will be shut down until the Department of Labour or others feel the site is safe. In our case, we were erecting structural steel. We were following the safety standards / rules, which allowed the erectors to walk the steel without being tied off. One of the erectors had a cold and, as the investigation revealed, took medication that made him drowsy. This event lead to the unfortunate accident. We were on a large site with about 1500 workers with a construction camp. The whole site was shut down for several days which was money out of the Owners pocket plus schedule delays. In this case the project survived, however if your project is schedule or cost sensitive this type of event has the potential to cause project failure.
If you purchase equipment outside of your country, you have to be aware of currency swings. If you don’t prepare yourself you could loose hundreds of thousands of dollars in a flash. Large swings could affect your project Rate of Return, making the project unprofitable, and therefore cancelled. So how do you protect your self? You buy currencies forward. When you purchase equipment there is usually a payment schedule. So if you know you have to convert $150,000 to another currency six months from now you can take a forward contract on the currency. This pegs what you will pay to convert $150,000 to the required currency. You can find the forward rates in the financial section of the daily business papers. With a forward contract you now have control of your costs. On one of our projects we saved ~$300,000 as the currencies changed in our favour.
I will finish off this series of reasons for failure next month.
Fundamentals Of Project Management
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February 26, 27, & 28 2014
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