STEP TWO
Prove Your Project Is Worth Your Time
OVERVIEW
How Projects Are Financed
Your Sponsors and Your Stakeholders
Business Objectives—Underlying Reasons for Your Project
I once worked with a company that had plans to create a “corporate portal.” It seemed like every time someone in the company asked for a new technical solution for a business issue or even a new report, the response was, “It will be in the portal.” It became a running joke. No matter what question arose in a meeting, some smart aleck would say, “It'll be in the portal.” When the technically quite sound portal actually materialized, it inevitably was met with disappointment from the business users because everyone had different expectations of it. You see, if people don't clearly understand what a project will deliver, they'll always be disappointed with what it does deliver.
Before a project can begin, it's critical to be as clear as possible on why you're doing the project. Whether in a business, a not-for-profit organization, or your personal life, many projects that change drastically in execution become troublesome because project sponsors
didn't know they were sponsors, or didn't know what it meant to be sponsors.
didn't agree at the start about how to measure the success of the project. In other words, they had different views about what the project would accomplish.
Catching
their breath, the three pigs slipped into a safe clearing behind a giant oak tree.
“Phew, that was close,” said Speedy, the smallest and fastest pig. He already was able to speak and breath.
“Seems like that wolf gets closer every time,” said his brother Demmy, carefully picking a grassy spot to sit down.
“Maybe I should have invested in a better pair of shoes,” said Goldy, the third brother, looking sadly at his torn-up hooves.
“Clearly, we need to do something. We can't keep getting surprised and barely escaping with our lives day in and day out,” said Speedy. “That wolf's out to get us, and he's making plans right now for our adventure tomorrow. We've got to do something, and fast.”
Goldy looked up and glared. “Well,” he said huffily, “we all agree we need a hiding place to protect us from him, but we waste time every day rehashing our differences on what kind of protection the house will get us. Here we are in this clearing, perfectly safe—and it's free. Seems to me that all your other fancy plans would spend useless dollars on building something that doesn't get us anything better than what we've discovered right here.”
After a pause, Demmy spoke quietly. “We are safe here for now, but it's only a matter of time before the wolf discovers this spot, just like he discovered all the rest. When he comes here, we need to be ready. We need to think carefully about building a structure here that will protect us. We need to work secretively and take our time. Otherwise, if we're impulsive, we'll invest wasted effort and still we'll be in danger.”
Each pig took a turn scowling at one another. They all bickered a bit more, and then each retreated to his own spot in the clearing. It was clear that each pig needed to build his own structure because they were never going to agree on just one.
Speedy gathered a pile of sticks and began hooking them together. Goldy picked up strands of straw and tied them together. Demmy, ever deliberate, set out on a walk into town to collect a load of bricks.
Clearly figuring out and recording why the entity is investing in a project is a critical first step. Building the “business case” for a project is not only answering the question, what will this project deliver? More important, it is answering the question, why do we need what this project will deliver?
The purpose of the project business case is to identify and write down (with the help or, at least, the review and agreement of the project's stakeholders) the reasons for the business to invest time and resources in the project. The business case includes the following components:
the financial benefits to be produced by the completed project
the expected costs entailed in completing the project
the amount of time it will take to begin realizing benefits
the requirements that must be met (revenue growth, service improvement, cost avoidance, regulatory compliance) to claim the desired benefits.
POINTER
Why Project Financials Matter
Clearly understanding the financials of a project helps the project manager
understand how time delays or budget overruns will affect the financial status of the entire business
prioritize different projects and identify which ones are most critical
know when it's time to cancel a project that no longer makes financial sense.
In this step you'll learn how project financials affect your project from beginning to end. You'll also learn how to ask the project sponsor the right questions to understand why the business is investing in this project.
Project Management Finances
Whether an organization is a for-profit or a nonprofit entity, its success requires a strategy. At least once a year, the leaders of a company should think about what changes to make during the next year to enlarge the success of their enterprise. They might think about new products or services to add, ways to lower costs, or changes needed to meet a regulatory requirement. A strategy is really an educated guess about how best to ensure survival and, ideally, growth.
When the leadership is in agreement, the strategy must be translated into action. At that point, projects are initiated. For example, if new products are to be added, then marketing plans have to be built, manufacturing has to be changed, and IT systems may need to be adapted. The success of these projects dictates how well the business is able to implement its strategy.
In a publicly traded company, business leaders publish projections about quarterly revenue. If those projections don't come true, the stock price usually falls. Ultimately, that makes it much more expensive for a company to do business. If a project's delay or failure is tied to a quarter's projected earnings, the firm's entire financial strength can be shaken by dropping stock prices. Few project managers understand this relationship.
Return-on-investment (ROI) is critical to a business. In our personal finances, too, we always want to make investments that return more than we started with. Here's the formula for calculating the ROI for a project:
Benefits generated by successful project completion
- Costs of doing the project
Return-on-investment
Formulating project ROI starts with identifying anticipated benefits. Here are some typical project benefits:
increased sales
enhanced productivity (lower cost of goods sold)
elevated quality (higher-end products)
better service (greater customer loyalty)
regulatory adherence and compliance (fewer fines and less litigation)
increased market share and stock value.
The investment is the cost to do the project—software; hardware; IT experts; and people skilled in marketing, training, project management, and manufacturing. In most businesses today, information technology is one of the largest costs of strategic projects, and there are very few projects that contain no technical parts. Be careful, however, that you don't focus entirely on this investment aspect to the exclusion of all other costs. There are lots of costs in every project, and you need to track them all.
To produce a positive ROI—and therefore to make a project worth doing—the realized benefits must be greater than the costs involved. For this reason, a project that runs longer than was planned or requires more people to complete may become a project that doesn't produce the benefit required to justify doing it. Many project managers don't understand this way of looking at their project.
Project sponsors have the business focus, and their participation is critical in helping the project manager understand the ROI and monitor the project to know if the ROI still makes sense. The difference between a successful company and a struggling one is success at implementing good strategy through good project management.
Time to Complete This Step
When the information on anticipated benefits and likely costs has been gathered, it should take less than one hour to decide if the project is worth doing. How long it takes to gather the information will depend on how many stakeholders you have to ask.
Stakeholders
Every stakeholder should be involved in the initial business case discussion that you, as the project manager, should facilitate. This is the first chance you have to identify the stakeholders, and it may be the first time some of your stakeholders hear that they are stakeholders! As you read in Step 1, stakeholders are any people who have a vested interest in your project. Tool 2.1 lists potential stakeholders; use it as a checklist. To help you see project management practically applied, I'll use an imaginary blog project as a case study throughout the steps of this book, and example 2.1 shows you who are the stakeholders in that project.
Now let's get some practice identifying stakeholders by thinking about our three pigs. Read the portion of their story at the beginning of this step, and then turn to example 2.2.
TOOL 2.1
Potential Project Stakeholders
People who provide you with information you need to do the project
People who will use what the project produces
People who have the authority to approve the project deliverables
People who are investing money in the project
People who have subject-matter expertise that you need
People who have reason to know how the project is going
People who will be on the project team
EXAMPLE 2.1
Blog Project Stakeholders
Scenario: A vice president of marketing for a software company has decided to fund the development of a blog where customers can exchange tips and get answers to frequently asked questions. He anticipates using Google Blog (free software) to create and host it. He's hoping to dedicate one person to building this blog (you) and one person to monitoring the blog for an hour a day when it's up and running.
In your role as project manager, you've developed this list of stakeholders:
VP of marketing
Google Blog help desk/tutorial
person who'll monitor the blog
customers
IT/Web subject-matter experts
EXAMPLE 2.2
The Three Pigs' Stakeholders
Each pig is working on his own project, so each may have different stakeholders. List who you think the stakeholders are for each pig:
Speedy:
Goldy:
Demmy:
Answer: At first glance, it seems that two of them don't have stakeholders. Both Speedy and Goldy have enough free materials that they don't need to ask anyone else for help. But when you're listing stakeholders, it's better to consider all possibilities and include potential stakeholders. It's likely that each of the pigs will need the other two when building his home—especially to lift the roof sections. So, each pig has the other two pigs as stakeholders.
Demmy is looking for bricks, so he'll have to interact with others. Clearly, his list of stakeholders should include ”people with bricks.”
Finally, BB Wolf is a stakeholder for all three. He's really the reason for all three projects. The measure of success will be taken when BB finds the pig sand gets his huff on. A successful building will with stand the blast and protect its owner. Notice how critical this stakeholder is? Ultimately, the wolf is the final judge of the project's success, and in planning their projects, the pigs will do well to think carefully about the wolf and how he operates.
Questions to Ask
At this step in a project, you want to know why the business will be better off when this project is complete. To learn the reason(s), ask the following questions of the sponsors:
How will completing this project increase the money (revenue) coming in?
How will completing this project reduce the costs?
How will completing this project improve the service provided to customers?
How will completing this project grab market share from our competitors?
How will completing this project meet the requirements of a new law or regulation?
The answers to these questions are called business objectives. Your project may be one of many that contribute to a specific business objective, but all projects need at least one business objective of their own.
POINTER
IRACIS
Use the Goddess of Business Objectives, IRACIS, to help you remember the objectives of every smart project:
Increase Revenue, Avoid Cost, Improve Service
Sometimes our personal projects really don't increase revenue, avoid cost, or improve service. Nonetheless, it's important to be specific about what amount of money and time you're willing to invest even for an aesthetic benefit. For example, if you're adding a deck on the back of your house, you'd ask yourself these questions:
What will this deck bring me that I don't have now (perhaps a retreat, less stress, more room to entertain)?
How much am I willing to pay to have these benefits?
How much time am I willing spend to have these benefits?
What other responsibilities do I have that I'm willing to put aside to add this deck?
Example 2.3 asks and answers the questions that fit our blog project.
Project Manager's Toolkit: Business Objectives
After you've collected the answers to your why-do-this questions, construct measurable business objectives and seek the agreement of your stakeholders about those objectives. You and the team will use the objectives to stay on track throughout the project.
EXAMPLE 2.3
Blog Project Business Objectives
Question: How will completing this project increase the revenue coming in?
Answer: The blog will be free to users and so will not directly affect our sales revenue. However, it will provide us with information about what features we need in our products to attract more customers and what product problems we need to address to keep the customers we have.
Question: How will completing this project reduce the costs?
Answer: Some of our Help Desk labor costs will be reduced when people are able to answer common questions themselves using the blog.
Question: How will completing this project improve the service provided for customers?
Answer: The blog will be a virtual discussion with our customers, enabling us to provide customized service quickly from our experts and from other customers who are experts.
Question: How will completing this project meet the requirements of a new law or regulation?
Answer: There is no regulatory need here. However, it is important that the identities of blog contributors be kept private and secure.
How will completing this project grab market share from our competitors?
Answer: A web-based relationship with our customers will give us a presence on the web that our competitors don't have and will make us appear more technically savvy and responsive to customer needs.
Any project may have many business objectives, and each of them should be measurable, achievable, and clear. Here are a few examples from an array of businesses:
Building this website will enable customers to place orders for our products from their offices and homes, which will increase our revenue 25 percent, according to recent market research.
Replacing all the office windows with energy-saving windows will lower the company's monthly energy bill by $5,000.
Training all of our people in more effective customer service techniques will make our stores more inviting to customers, and responses to our customer surveys will be 10 percent more positive.
We will be HIPAA compliant and will avoid fines if we create forms for our patients to sign when they come in for their dental appointments.
We will outmaneuver our fitness club competition by offering a monthly pay-as-you-go package because our plans will attract customers who feel the competitors require contracts that are too long and costly.
Notice that each of the business objectives clearly states what is going to happen when the project is done and how the business will benefit. In a sense, by stating the objectives you are beginning to build the contract for the project. It's much more likely that a project will be successful at the end if you know at the start how success will be measured.
Also notice how most of those objectives have assumptions within them. For example, the fitness club's objective assumes that customers think other fitness centers charge too much and force them to commit to contracts that are too long. If that turns out to be a faulty assumption, the objective won't be met and the project will fail. As the project progresses, the project manager is likely to be the first person who sees signs that an underlying assumption is faulty, and his or her ability to react and adapt to such a discovery depends on a knowledge of the assumptions.
POINTER
A project done for regulatory or compliance reasons generally will have only costs and no benefits (beyond avoiding financial penalties and jail time).
You can practice defining business objectives for the three pigs' projects in example 2.4.
Communication
It's not possible for the project manager alone to answer the questions in this step. And on any project it's critical to ask all the stakeholders to think about measurable, achievable, and clear business objectives—your customers, web developers, network analysts, marketing managers, and so forth. If you're building a deck on the back of your house, your partner, children, and friends will have thoughts that will prove very helpful early on. This step is the first opportunity you have to communicate with stakeholders, and communicating is a discipline that's crucial to project success.
EXAMPLE 2.4
The Three Pigs' Objectives
Here's how BB Wolf would answer your questions about the pigs' project objectives:
No way can those pigs build something to keep me from having ham for dinner! I'm three times their size, and I've got the strength to blow air so hard it can topple most things—except maybe rocks.
With the wolf's perspective in mind, construct project objectives for each of the three pigs here.
Speedy:
Goldy:
Demmy:
Answer: Speedy has set the following project objective: I'll build a house out of sticks so that I'm able to put it together very quickly. I'll hide inside it, and the wolf won't see me when he comes to eat me.
Goldy has set the following project objective: I'll build a house out of the straw in the clearing so that I'm able to construct it with very little cost. I'll hide inside the straw house, and the wolf will think it's just a pile tossed there by the farmers. He'll not find me when he comes to eat me.
Demmy has set the following project objective: I will search the area and get bricks so that I can build a strong house. The bricks will protect me from the wolf's big breath and he won't be able to eat me.
If you're geographically unable to meet face-to-face with the sponsor, you may want to use conference calls or web meetings to make sure you have her or his full attention. The business objective discussion will always go better if you have a draft for the sponsor and other stakeholders to critique. The sponsor and stakeholders whose opinions matter at this point usually are high-ranking leaders with little time and insufficient focus for brainstorming types of discussions.
What If I Skip This Step?
If you avoid stating the business objectives, clarifying them, and gaining your stakeholders' agreement, or documenting them for the record, your project will struggle and probably fail. You'll begin building the project that you think the stakeholders want, instead of the project they do want. Without the boundaries defined by your objectives, you'll be tempted by every interesting thing that comes along because there's nothing to constrain you. Getting stakeholders involved here begins a communication pattern that will save you when glitches happen later in the project.
If your stakeholders avoid answering questions about the business objectives, watch out. That's a very bad sign and usually indicates the project is some executive's pet plan. Not a great career move over the long term. Continue to push for clear and measurable business objectives, and if you can't get consensus, document that.
Remember, it's the stakeholders who will judge the success of the project. The more perspectives you have answering the why-do-it questions at the very beginning, the more likely you'll reach a successful conclusion. If you're the only stakeholder, be clear in your own mind about what you want to accomplish.
Lurking Landmines
Your stakeholders really aren't sure what success will look like. Stop the project, no matter how excited you are about it. There's no chance for success if the decision makers aren't clear about their reasons for investing in it.
Analysis paralysis sets in. Project work can be a little intimidating, and sometimes we use any and all excuses to avoid starting and finishing. Don't spend too much time on this—ask the questions, build the objectives, get feedback and buy-in from the stakeholders, and move on.
There are no business objectives, but the big boss wants you to do it anyway. Of course you'll do the project because the boss wants you to, but you'll start by clearly describing for the boss the risks involved. You'll also prepare for the rug to be pulled out from under you at a moment's notice, because this project eventually will be cancelled.
Step 2 Checklist
Identify the stakeholders for your project.
Create questions to find out why anyone/everyone wants to do this project.
Work with the stakeholders to clarify the project's anticipated ROI, based on realistic time and money investments.
Write all of this down and share the final list of business objectives with all stakeholders.
The Next Step
The next essential step will build on your list of stakeholders and the project objectives. You'll create a diagram to communicate the scope of the project to your stakeholders and team. When you've completed Step 2, everyone will know what project you're doing.
