The five reasons why organisations choose the wrong projects

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Why orgnaisations choose the wrong projects

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The five reasons why organisations choose the wrong projects

  1. 1. The 5 Reasons why Organisations choose the Wrong ProjectsDarren CookPrimavera Australia17 Aug 2010<br />The most comprehensive Oracle applications & technology content under one roof<br />
  2. 2. The Five Reasons why Organisations choose the Wrong Projects<br />Capturing the wrong information<br />Decision making Bias<br />Not knowing what metrics to use<br />Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />
  3. 3. Why is this important?<br />Leads to..<br />Situation<br />Results in..<br />No Capacity View<br />Reluctance to say no to projects<br />Too many projects<br />Over budget<br />Capturing the Wrong Information<br />Projects Late<br />Can’t kill projects<br />Poor execution<br />Business needs not met <br />Projects sold on an emotional basis – not selected<br />Under-estimation of effort and cost<br />Benefits not received<br />No effective review process<br />Overemphasis on ROI<br />Projects not aligned to strategy<br />Lack of confidence in Delivery Process<br />No clear criteria for selection<br />
  4. 4. The Five Reasons why Organisations choose the Wrong Projects<br />Capturing the wrong information<br />Decision Making Bias<br />Not knowing what metrics to use<br />Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />
  5. 5. Reason 1: Capturing the right information<br />What is the right information to capture?<br /><ul><li>It depends on the information you require to make the funding decision.
  6. 6. Value to the Organisation should be paramount
  7. 7. Data for Data capture sake
  8. 8. Benefits, Cost, Value, Alignment, Risk.
  9. 9. What other information will you need to review this investment?</li></li></ul><li>Reason 1: Capturing the right information<br /><ul><li>Information split between</li></ul>Concept Information<br />Business Case Information<br />Descriptive<br />Alignment<br />Financial Contribution<br />Risk<br />Should we Invest in this Investment?<br /><ul><li>Supply vs Demand
  10. 10. Cost Restraints
  11. 11. Capabilities of the Business to absorb change</li></ul>Can we do this Investment?<br />How is this investment going?<br /><ul><li>Tracking Information
  12. 12. Health
  13. 13. Project Mgmt Information</li></li></ul><li>The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information</li></ul>Decision making Bias<br />Not knowing what metrics to use<br />Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />Capture the information your organisation requires to make Funding decisions<br />
  14. 14. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information</li></ul>Decision making Bias<br />Not knowing what metrics to use<br />Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />
  15. 15. Reason 2 – Decision Making Bias<br />* SDG eBriefing: Garbage In, Garbage Out: Reducing Biases in Decision Making. January 15, 2003 <br />
  16. 16. Countering Bias<br />Documenting Judgements and Assumptions<br />Use Experts when Required<br />Assess New Initiates<br />Require Probability or Confidence indications<br />As well as existing Investments<br />Look at Future Costs not Sunk Funds<br />
  17. 17. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  18. 18. Decision making Bias</li></ul>Not knowing what metrics to use<br />Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />
  19. 19. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  20. 20. Decision making Bias</li></ul>Not knowing what metrics to use<br />Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />
  21. 21. Reason 3: Not knowing what metrics to use<br /><ul><li>Are all initiatives created equally?
  22. 22. Mandatory Initiatives
  23. 23. You may need to fund them but do they need to be done now?
  24. 24. Limit Scope, Cost, Risk
  25. 25. Discretionary Initiatives
  26. 26. Alignment, Financial Contributions, Risk, Value, Priority</li></li></ul><li>Reason 3: Not knowing what metrics to use<br /><ul><li>What are we trying to achieve?
  27. 27. Which Investments should the Organisation invest in?
  28. 28. What initiatives are going to provide the most value to the Organisation?
  29. 29. Why you wouldn’t just use Financial Metrics?</li></ul>Companies that rely mostly on financial metrics obtain "unbalanced portfolios" that are not well matched to the strategy of the firm<br />R. Foti, "Priority Decisions," PM Network, 16 April, pp. 24-29<br />
  30. 30. Alignment to Objectives<br /><ul><li>In 2004, Pricewaterhouse Coopers found that only a handful of projects ever achieve project success.
  31. 31. Its survey focused on a broad range of industries, large and small, in 30 different countries, which represented 10,640 projects, for a total value of $7.2 billion.
  32. 32. The firm found that only 2.5 percent of global businesses achieve 100 percent project success. </li></li></ul><li>Alignment to Objectives<br /><ul><li>Business Improvement Architects’ research with more than 750 organizations worldwide found…
  33. 33. A major reason for project failure is that most organizations do not ensure that all projects they implement align with their organization's core strategies.
  34. 34. 80 percent of organizations in the research study had no formal business case for the development of their Project Management Offices </li></li></ul><li>Alignment to Objectives<br /><ul><li>What contributes to the Corporate Objective outcome?
  35. 35. How does this initiative effect the future state?
  36. 36. It is not enough to say that this Investment contributes to Operational Excellence
  37. 37. Organisations must verbalise their Corporate objectives into current and future state.</li></ul>Example:<br />Call centre performance level >80% (calls answered within 30 seconds)<br />Current State: Current performance is 65%<br />Future State: >80%<br />
  38. 38. Alignment to Objectives<br />If you have projects that have already started and are contributing to an objective then any new project must use these future states in the evaluation<br />Proposed<br />Improvement<br />Current<br />Improvement<br />Current State<br />Approved Projects<br />Now<br />End of Cycle<br />New Candidate<br />
  39. 39. Financial Contribution<br />Looking at contribution to a target future state<br />
  40. 40. Financial Contribution<br />Future State of the Business<br />Current State of the Business<br />Go Decision<br />Value Added<br />by Project<br />No Decision<br />
  41. 41. Risk<br /><ul><li>What is Risk?</li></ul>“Risk is the cumulative effect of the chances of uncertain occurrences, which will adversely affect project objectives. It is the degree of exposure to negative events and their probable consequences” Ohio State University<br />"Risk in itself is not bad. What is bad is risk that is mismanaged, misunderstood, mis-priced, or unintended“ S. Labarge, "Valuing the Risk Management Function," Presentation at the Risk Management Association's Capital Management Conference, Washington DC. April 10, 2003.<br />
  42. 42. Risk<br /><ul><li>How Risk tolerant is the Organisation?
  43. 43. Hurdle Rates
  44. 44. Probabilities
  45. 45. Portfolio Risk</li></ul>A diversified portfolio of high and low risk investments yield a higher return than a portfolio comprised of solely high risk or low risk investmentsDr Harry Markowitz – Pioneer of Portfolio Management<br />
  46. 46. Scoring<br />Value = Alignment * Financial Contribution / Risk<br />Prioritisation = Value + Timing Considerations + Dependencies<br />
  47. 47. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  48. 48. Decision making Bias
  49. 49. Not knowing what metrics to use</li></ul>Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />Mandatory Initiatives<br /><ul><li> Limit Scope
  50. 50. Limit Cost
  51. 51. Limit Risk</li></ul>Discretionary Initiatives<br /><ul><li> Alignment, Financial Contributions, Risk, Value, Priority</li></ul>Metrics should be observable<br />
  52. 52. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  53. 53. Decision making Bias
  54. 54. Not knowing what metrics to use</li></ul>Focus only on “Should we do this?” not “Can we?” as well<br />Not looking at project selection with a Portfolio focus<br />
  55. 55. Reason 4: Focus only on “Should we do this?” and not “Can we?” as well<br /><ul><li>Wouldn’t it be nice…..
  56. 56. If the only projects you are asked to manage were the ones your organisation really required?
  57. 57. If you were not asked to manage more than you have the capacity to handle.
  58. 58. If the company had an understanding of it’s capacity before saying “Yes, we will do this!”</li></li></ul><li>Resources - Can we do this?<br />Supply vs Demand in Hours, FTE’s etc<br />Critical Resources<br />
  59. 59. Budgets – Can we afford to do this?<br />What is the variance between Budget and requested funds?<br />
  60. 60. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  61. 61. Decision making Bias
  62. 62. Not knowing what metrics to use
  63. 63. Focus only on “Should we do this?” not “Can we?” as well</li></ul>Not looking at project selection with a Portfolio focus<br />Resources<br /><ul><li>Critical Resources, Supply vs Demand </li></ul>Budget<br /><ul><li>Budget vs Requested Funds
  64. 64. Capabilities of the Business to absorb change</li></li></ul><li>The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  65. 65. Decision making Bias
  66. 66. Not knowing what metrics to use
  67. 67. Focus only on “Should we do this?” not “Can we?” as well</li></ul>Not looking at project selection with a Portfolio focus<br />
  68. 68. Reason 5: Not looking at project selection with a Portfolio focus<br /><ul><li>Just because an organisation may have a portfolio of mostly on-time, on budget projects does not mean it has the best possible project portfolio
  69. 69. What happens when you select projects individually?
  70. 70. Early project approvals get the resources
  71. 71. Portfolio is biased towards small, low value, low risk, short duration projects
  72. 72. Benefits can be double counted
  73. 73. Little regard to the possible impact of one project to the next</li></ul>Portfolio Management Approach key to answering the questions above<br />
  74. 74. Portfolio Management = PROCESS for evaluation, selection, execution and benefits realization<br />Portfolio - A collection of investments that aims to maximize value while constraining risk. <br />Portfolio Management - The processes, practices and specific activities to perform continuous and consistent evaluation, prioritization, budgeting, and finally selection of investments that provide the greatest value and contribution to the strategic interest of the organization. Through portfolio management, the organization can explicitly assess the tradeoffs among competing investment opportunities in terms of their benefit, costs, and risks. <br />Source: US Army Business Transformation Knowledge Center http://www.army.mil/ArmyBTKC/rc/glossary.htm#p<br />What is Portfolio Management?<br />
  75. 75. Portfolio Management Process<br />Objective: manage investments like a portfolio, enabling the leadership team to choose and execute activities that increase the value to the organization. <br />Key Portfolio Management Processes<br />3.Prioritize & Select <br /> investments<br />6.Adjust course<br /><ul><li>Corrective Actions
  76. 76. Project Termination
  77. 77. Reprioritization
  78. 78. Resource Allocation
  79. 79. Value
  80. 80. Risk
  81. 81. Strategic Alignment
  82. 82. Portfolio Balance</li></ul>2.Propose initiatives<br />5.Review<br />portfolio<br />Planning<br />Control<br /><ul><li>Define programmes
  83. 83. Develop Business Case
  84. 84. Evaluate Key Metrics (cost, benefit, risk)
  85. 85. Individual Projects
  86. 86. Current and Trended Performance
  87. 87. Overall Portfolio Results
  88. 88. Health
  89. 89. Risk
  90. 90. Performance
  91. 91. Value
  92. 92. Balanced Portfolio?
  93. 93. Growth?
  94. 94. Organizational Performance?</li></ul>1.Clarifyobjectives<br />4.Track <br />performance<br />Frequency of Review<br /><ul><li>Choosing – Annually, Quarterly, Ad Hoc opportunities
  95. 95. Executing – Weekly or Monthly operations reviews</li></li></ul><li>Managing Investments in Portfolios Answers Key Business Questions<br />Where’s the money going?<br />What value is being returned to the business?<br />Can we rationalize our current investments to ourselves? <br />Is this the best mix of investments?<br />If we had 2% more, or 2% less to spend, what would we fund?<br />At the Department Level<br />At the Business Unit Level<br />At the Enterprise level<br />
  96. 96. The Five Reasons why Organisations choose the Wrong Projects<br /><ul><li>Capturing the wrong information
  97. 97. Decision making Bias
  98. 98. Not knowing what metrics to use
  99. 99. Focus only on “Should we do this?” not “Can we?” as well
  100. 100. Not looking at project selection with a Portfolio focus</li></ul>THANK - YOU<br />
  101. 101. Questions<br />
  102. 102. Tell us what you think…<br />http://feedback.insync10.com.au<br />

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