Reining in project risk: Predictive project analytics

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  • 1. Reining in project riskPredictive project analyticsHow organizations increase the success rate ofcomplex projects by predicting project performance
  • 2. Contents 3 Introduction 4 The evolution of project management 5 Foreseeing the future 6 Predictive project analytics: A methodology 8 Scenarios in success 9 Moving forward 10 References2
  • 3. Introduction The management of major capital investments, such as As the project progresses and risks surface, teams scramble reengineering business processes, building a new facility, or to build mitigation and remediation strategies and do not implementing new technology, is a major undertaking for consistently consider the impact to either the project phase any organization. Yet, despite their strategic importance, or the project as a whole. In addition, there are often these very projects frequently experience delays, cost project risks that are not readily visible, making it difficult overruns, or fail to meet operational expectations entirely. to develop mitigation strategies. With global, multi-thread Research shows that 63 percent of companies have projects, risk management can be even more difficult, experienced a recent project failure.1 The more complex due to the sheer number of tasks, resources, deliverables, the project, the greater the likelihood of failure. In fact, and stakeholders. Add to this conflicting objectives and projects between $1 million and $3 million have a 34 priorities among the stakeholders, as well as pressure to percent chance of success, while those that are $10+ deliver “quick and cheap,” and you have a scenario that, in million have just a 7 percent likelihood of success.2 Even all likelihood, will lead to a project with high expectations projects that reach completion experience challenges, with and little success — one that costs a great deal in time, nearly half failing to meet time, budget, and/or quality resources, and capital. When a complex project loses, the goals.3 business loses. There are many reasons for project failures, ranging from poorly defined requirements to a lack of specialty resources to in-house teams with competing priorities. The organizational effects of project failure can be severe, including significant unforeseen costs, operational failures, regulatory non-compliance with potential accompanying penalties, customer dissatisfaction, and loss of competitive advantage or market share. While research studies provide insight into the factors that contribute to success and failure, they do not instruct businesses on how to predict the outcome of a particular project in total or at different phases of the project. Traditional risk assessment offers opinions, but cannot pinpoint specific control gaps that cause projects to degrade. Despite the inherent complexity of large projects, insufficient time is devoted to risk management until risk becomes an issue. During the early stages of most projects, potential risks are identified but are “filed away” and typically are not actively referenced as part of the project management. Reining in project risk Predictive project analytics 3
  • 4. The evolution of projectmanagement Since the 1950s, project management (PM) has played By the early 1990s, the discipline of project management an integral role in steering organizations through the had become a core competency for many organizations. intricacies of getting work done. First-generation project PM manuals, procedures, tools, templates, and applications management approaches integrated project planning, were widely disseminated through corporate intranets. PM control, and management with time management practices were also used in change management, which approaches. The National Aeronautics and Space officially arrived in 1994 with the publication of the first Administration (NASA) was a pioneer in project “State of the Change Management Industry” report in management, driven by the organization’s pressing Consultants News.4 need for a framework to contain project risk and scope. In the mid-1980s, competitive pressures and a need to Over the past decade, third-generation, strategic project get products to market faster saw most manufacturers management has emerged to address the ongoing implement PM approaches and solutions for new product concern of value creation on the part of organizations. development. In this second generation of project Inconsistency between strategy and project management management, the Work Breakdown Structure (WBS) and the need to address complex social, economic, and helped project managers and systems engineers break business issues has propelled project management to a projects into smaller, discrete work elements. The use of new level of strategic importance and delivered a new WBSs allowed businesses to better organize and define the set of challenges. In trying economic times, businesses work and scope of the project. have further sharpened their focus on reining in cost and extracting value from projects. In the late 1980s, a need arose for project management in areas other than manufacturing and engineering. Global competition was heating up just as such project management organizations as the Project Management Body of Knowledge (PMBOK) and the Association for Project Management (APM) were emerging to put structure to the PM discipline. Project management processes became distinct and separate from product development processes, and PM methodologies underpinned the business management methods of the day, including business process reengineering and total quality management.4
  • 5. Foreseeing the future As businesses continue to experience pressure to grow • Focused on early value: The very early stages of a revenue and improve margins in a struggling economy, project benefit from the analysis of complexity and the many are looking for new ways to assess the health and level of control required for project success. viability of projects, programs, and business transformation • Able to prioritize results: PPA can tell which initiatives. Predictive Project Analytics (PPA) is a project characteristics, if improved, would be most closely risk assessment methodology that provides foresight on correlated with an increase in the likelihood of success. potential risks and where immediate fixes for in-flight • Cost-efficient: Using predictive project analytics, projects and programs (at any stage of the lifecycle) should organizations can realize efficiency gains by reducing or be implemented to mitigate risk. PPA can predict the likely eliminating unnecessary project controls in areas not at outcome of a project based on 28 common attributes. risk. Using a quantitative, data-driven approach, rather than an intuitive approach, PPA predicts the likelihood of project Through predictive project analytics, organizations can success through predictive analysis of key project and identify and avoid failure by better understanding project organizational characteristics. PPA can help to identify a complexity against the maturity of existing controls and floundering project and avoid the costs of a late or poorly governance models. As a result, financial, productivity, delivered project or outright failure. and reputation-based losses are minimized, while internal attributes that contribute to project success are PPA’s predictive analytics engine is built on the Navigator© strengthened. analytics database developed by the Helmsman Institute.5 This database contains over 2,000 projects across multiple industry sectors. One of the key outcomes of the Crunchy questions Helmsman work was the development of the Helmsman How can you determine if your company would benefit Complexity Scale, which measures the complexity of from using predictive project analytics? The answer is projects across multiple domains and industries in order to simple, ask yourself the following questions and answer predict potential risk throughout the project lifecycle. PPA them honestly: uses the Helmsman Complexity Scale as a key part of its 1. ow often do your key projects meet the H analytics engine. To realize the full value of PPA, additional expectations of the stakeholders? Cost, timing, and databases, methodologies, and benchmarking information performance are just three areas of expectations to are combined with business and analytics expertise to consider. uncover project complexity and risk. PPA represents the 2. hat has been the impact on your company from W next step in the evolution of project management because projects that have failed to meet expectations or it is: just plain failed? Impacts can be far-reaching across • Research-centric: Early PPA research was carried people, process, and technology. out over several years by the Helmsman Institute and 3. an you describe what your company would look C enhanced with databases and industry expertise that are like if your key projects were successfully completed? used when performing analysis. Would success attract the best talent, gain market • Project-agnostic: The PPA database includes a range of share, or transform operations? project types that have formed the basis of the attributes 4. ased on the answers to the questions above, can B and complexity scale. your company afford not to use predictive project • Low-cost/high-value: PPA delivers value by reducing analytics? What would stop you from using it? project risk and avoiding potential project failures and/or overruns. Reining in project risk Predictive project analytics 5
  • 6. Predictive project analytics:A methodology The practice of predictive project analytics requires a A five-stage approach methodology to help ensure the proper management of The goal of the PPA methodology is to predict a project’s risk and the highest value return from the project. The PPA potential pitfalls and clearly identify ways to manage methodology guides the organization through the project project risk and costs. This takes place across five stages, lifecycle. It also: which progress from risk and complexity assessment to • Provides an objective and independent assessment of reporting. (See Figure 1.) program or project issues and risks to management, 1. Inherent risk and complexity assessment: A detailed regulators, the board of directors, and other key assessment of the project’s risk and complexity to stakeholders. determine the level of controls and governance required • Employs industry-accepted frameworks and standards to deliver a successful project. — such as Institute of Electrical and Electronics 2. Interviews and structured document review: A Engineers (IEEE), Capability Maturity Model Integration series of interviews with key project team members (CMMI), Control Objectives for Information and related and stakeholders, further bolstered by a review of core Technology (COBIT), Projects In Controlled Environments project artifacts, such as plans, reports, and logs. (PRINCE2), and PMBOK. 3. Predictive analytic project review: The application • Protects investment by identifying gaps in governance of predictive analytics to key project attributes, which models and delivery risks and by validating that the produces a correlation between project complexity, project is aligned with business requirements. controls, and success. This stage relies on a database • Increases the probability of meeting quality goals and of over 2,000 projects and an effective assessment of business objectives. softer factors, such as leadership and decision making, • Identifies program and project risks and control gaps by analytics and business experts. early. 4. Analysis and synthesis: The aggregation of outputs • Provides ongoing cost control and management for from both the structured, experiential review and projects that are at risk of overrun. the application of predictive analytics, which delivers a broad, deep view of project risks. It also identifies Research shows that project success hinges on a range of specific control and governance improvements that can factors. Ensuring that they are addressed can help mitigate help improve project outcome. project risk, reduce the incidence of failure, and close gaps 5. Reporting: PPA findings, delivered in a format by accurately benchmarking the organization’s capabilities that makes sense for the project organization and against similar projects. management. Reports seek to provide practical recommendations and prioritized actions that help address or avert identified project risks.Figure 1: Five-stage approach for managing project risk and costs1 2 3 4 5 Inherent risk and Interviews and structured Predictive analytic complexity assessment document review project review Analysis and synthesis Reporting• Perform a project complexity • Develop a deep understanding • Analytic project review using • Analyze output from • Deliver findings of review assessment of the project and organization the predictive analytic tool interviews, document review • Identify prioritized • Interviews with core project and predictive analytic tool recommended actions team members • Develop broad and deep view • Interviews with key of the key unmitigated project stakeholders risks • Detailed review of core • Identify control improvements documents, such as plans, most correlated with a reports, and logs successful outcome6
  • 7. Predictive analytics technology People + controls = maturity Demonstrated quantitative methods leverage a database Recent research has identified a strong correlation between of completed projects to infer the required level of control project complexity and project outcome. Not surprisingly, to maximize the probability of your project’s success. more complex projects fail more often. However, research The database contains detailed information on over has shown that complexity itself was not the factor 2,000 completed projects, categorized by product type, influencing failure; having the right people and controls in complexity, management approach, and outcomes. By place was ultimately more important. Findings indicate that combining these quantitative methods and database a team succeeding on a low-complexity project may fail as of empirical project data, PPA can provide an objective project complexity rises. Research also revealed that better assessment of the inherent complexity and management management of project risks, supported by internal audits, characteristics of the project. By comparing current increases the likelihood of achieving project objectives. performance levels against required levels predicted, the Simply put, more complex projects require higher degrees PPA technology can help pinpoint specific gaps, hidden of project management expertise and controls in order to obstacles, and missing controls under such categories succeed. as budgeting, scheduling, risk management, and team capabilities. This allows the organization to determine the specific improvements or investments that can increase the likelihood of project success. It also identifies areas of over-investment, where less effort can be applied without affecting project results. Figure 2: Comparison of project control maturity against maturity needed for success Governance Accountability Expected level of controls given the Issue Management complexity of the Role Management project using Benefits Management benchmarks in the Budget Management predictive analytic tool Exec Support Direction Delivery Design Management PlanningStakeholder Management Actual level of controls assessed by Deloitte Resourcing using the predictive Risk Management analytic tool Contract Management Vendor Management Acceptance 0% 25% 50% 75% 100% Reining in project risk Predictive project analytics 7
  • 8. Scenarios in success The most telling display of PPA’s potential in reducing PPA streamlines consolidation and relocation project risk and increasing positive project outcome exists A large technology company undertook a complex project in real-world success stories. The following scenarios to consolidate its operations from two locations into demonstrate the power of predictive project analytics in one. The project consisted of two phases: the first to reducing failure in complex projects: develop a detailed plan and cost estimate; and the second to execute and complete project activities, including PPA scoring helps ensure ongoing project success technology, processes, construction, and relocation. Given A large health care organization’s multi-year, multi-phase the complexity, scale, and cost of the project, the business clinical information project had experienced significant sought the best way to plan for the efficient use of delays, using up a large portion of the overall contingency available resources. Executives understood the need for a budget. Consequently, the board and executive sponsor robust project management plan that fully considered and sought to answer a number of key questions through outlined approaches for the management of project and project governance and review before moving forward business risks. with the project. These included: • Is the project timeline reasonable for the project? PPA experts were engaged to review various components • Do the project structures, controls, and reporting reflect of the project and verify that project and business risks “leading practices”? were appropriately considered and mitigated. The team • Is the level of board and executive reporting appropriate? focused on ensuring compliance of project activities • Is the contingency reasonable for this type of project with key organizational policies. To ensure appropriate given its current stage? management of communication, risk, quality, cost, • Will the project, based on current execution strategy and resources, scope, governance, and leadership support, governance, be successful? the team reviewed the adequacy of project management controls. PPA capabilities allowed the team to assess PPA capabilities allowed for the comparison of the project complexity and benchmark it against successful project’s current practices against other successful projects projects of similar complexity. This helped identify areas to answer these key questions. Analytics practitioners of potential risks and issues across 17 aspects of the assessed the project’s complexity and compared the project, including governance, risk, planning, and vendor organization’s project practices against the predictive management. project analytics database. PPA tools quantified the degree of practices in use and helped identify areas As a result of applying PPA to the project, management for improvement across many aspects of the project. gained a strong understanding of the connection between An independent and practices-based assessment was project risk and key success factors and achieved a holistic performed to determine the reasonableness of the project view of the project and its complexity. Because PPA timeline. practitioners helped to identify risks and improvement areas, management was able to improve project practices By identifying gaps in the project structure, governance, and controls. For internal audit, PPA provided higher value and practices, the PPA team scored the project’s overall than simply focusing on past activities or compliance. success and recommended actions to improve project The organization now relies on PPA reports to establish outcome. As a result, the board and executives gained a clear risk mitigation strategies that are objective and greater awareness of project complexity and a measure controllable, and that offer a clear focus for project success of its probability for success. They now use the initial as a final outcome. PPA score as a baseline and can accurately monitor improvements.8
  • 9. Moving forward For every $1,000 spent on a project, roughly 1.5 decisions are required. How can organizations make confident Benefits of predictive project analytics decisions? Predictive project analytics can help protect Protects project investment ROI and avoid costly overruns on complex projects by • Project review – “eyes and ears” for management mitigating delivery risks and improving overall project • Independent assessment of project planning, performance. As a result, complex and risk-intensive execution, and protects project investment projects can be delivered in a timely, effective manner. • Independent monitoring of emerging project risks Regulatory and compliance challenges are reduced, while helps control operational and reputational risks cost efficiencies improve with ongoing cost management and better control. By identifying project risks and lifecycle Lowers and contains project costs control gaps early in the process, businesses are better able • Independent assessment of project budget adequacy to streamline the project lifecycle, meet quality goals, and • Independent assessment of ongoing budget needs achieve business objectives. and requests • Prioritizes project so the right level of project management can be applied Increases likelihood of project success • Projection of what could go wrong before it does go wrong • Adherence to project plan Gets projects back on track • Unbiased, project-agnostic expertise alerts the project organization when timelines or objectives are threatened • Interim audit recommendations focus on project remediation • Expertise to re-scope and re-plan as needed Improves the project organization and project practices • Employment of generally accepted practices and methodologies • Leverage project investment by not re-inventing the wheel Reining in project risk Predictive project analytics 9
  • 10. References 1 “Chaos Report,” Standish Group International, 2010. 2 Ibid. 3 “Making Change Work,” IBM Corporation, October 2008. 4 Scott Whelehan, “Capturing a Moving Target: Change Management,” Consultants News. Retrieved from: http://www. changemanagementresources.com/2011/10/04/the-beginning-of-change-management/ 5 “A Comparison of Project Complexity between Defence and Other Sectors,” The Helmsman Institute, Sidney, Australia. www.helmsman-institute.com.10
  • 11. Reining in project risk Predictive project analytics 11
  • 12. Contacts John Peirson Partner Deloitte & Touche LLP +1 612 397 4714 jpeirson@deloitte.com Neil White Principal Deloitte & Touche LLP +1 212 436 5822 nwhite@deloitte.com Vivek Katyal Principal Deloitte & Touche LLP +1 612 397 4772 vkatyal@deloitte.com Scott Wallace Director Deloitte & Touche LLP +1 612 659 2671 scwallace@deloitte.comThis publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial,investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor shouldit be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect yourbusiness, you should consult a qualified professional advisor.Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms,each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure ofDeloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure ofDeloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.Copyright © 2012 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited