In this 6-minute read, Robin presents a top-down view of the poorly-recognized differences commercial ‘for-profit’ projects impose on project management; the implication is an increasingly urgent need for new standards, skills, techniques and methods.
In Commercial Project Management I argued that outsourced projects are poorly aligned with normal practice and existing project management (PM) literature. Exploring solutions, I took a middle-ground approach, working with important practice areas such as risk, quality, estimating, and so forth. The purpose of today’s post is to gain a more comprehensive bird’s-eye view of the commercial impact by attempting a top-down analysis.
The Venn diagram helps us contemplate the nature of a commercial project as a shared undertaking by two organizations. What organizational features necessarily overlap in the project domain and where can differences be found? Vendors are informally aware because internal discussions during the proposal phase usually touch on joint issues such as processes, management structure, management roles, and business objectives. And PMs quickly develop an acute awareness of the pressures and conflicts that arise while working in this overlapped world. Typically, their only support derives from the mutual contract governing the engagement. Missing are relevant methodologies, industry standards, PM training, and generally accepted guidelines that might provide real working assistance in a contractual setting.
Based on observations and experience, I propose a top-down model with five categories to shape the development of the needed guidance and support. These categories embrace: organizational non-homogeneity and stakeholder expansion, governance by contract, multiple and potentially conflicting business requirements, inconsistent and non-integrated processes, and the intrusion of a personal dimension.
There may be arguments for more, or different categories – an obvious candidate being ‘culture’, omitted on the grounds that culture primarily conditions the other categories and is dealt with by awareness and adjustment at the personal level. Regardless, let’s start with the five categories and explore the unique problems that arise and hopefully create a base and rationale for further work.
1. Multiple Organization Management
The involvement of more than one organization (client, vendor, possible subcontractors and other 3rdparties) and an expansion of influential and at-risk stakeholders is a distinguishing characteristic. This tends to amplify usual project problems, and create new ones. Frequently encountered are: poor communications, formation of project ‘silos’ and lack of project integration, disconnected resource management, conflicting objectives, unclear roles and responsibilities, and an imbalance in vendor/client commitments.
2. Contract Management
A legal contract governs the project work and, inevitably, influences the working environment.This curtails PM flexibility and can impede responses when the project encounters unexpected situations. Terms and conditions are often imposed without regard to productivity impact and unintended consequences. Frequently encountered are the need for staffing approvals, unreasonable penalties/incentives, conflicting quality and schedule demands, and imposition of fixed price payments incompatible with the nature of the work.
PMs are generally uneducated on contract law and often unfamiliar with the contract they are supposed to be managing. The adversarial nature of contract negotiation also tends to carry over into project operations and can weigh against collaborative methods and compromise.
3. Business requirements
This is the elephant in the room – the project must deliver client benefits andprofit for the vendor. I have often been amazed by the reticence, almost embarrassment, displayed by PMs in acknowledging that they work for a profit-making firm. (I have even heard it said that using project management to make a profit is immoral!) It’s unreasonable to expect clients to make allowance for vendor profitability in their negotiations and project behaviours, but someone must. After the contract is signed, that ‘someone’ is the vendor PM.
Because the prevalent impression is of objectives in conflict, discussion of the business reality tends to be avoided, leaving both vendor and client PMs ill-equipped to understand and properly resolve the secondary issues that arise. They are unclear on business objectives and benefits, don’t acknowledge the project as profit centre, and have little knowledge of standard and alternative project compensation models. In particular, vendor PMs communicate poorly with their financial managers and project accountants. They rarely enjoy adequate cost delegation, ignore margin, cash flow and revenue recognition requirements, and misunderstand rate-setting, billable and non-billable time.
Nonetheless, if the parties avoid certain negative behaviour, clearly understand business and project objectives, and educate PMs on how to approach project initiatives from the perspective of mutual benefit, then the source of much potential conflict can be eliminated.
4. Process requirements
PMs are notorious for obsession with procedure, so fortunately the need for process is established. Obvious mutual processes such as issue and change management, approvals, and system transition are commonly specified.
Despite this, vendor and client PMs can be surprisingly disinterested in broadening the scope of shared project processes, and may even make misguided attempts to improve efficiency by narrowing process engagement leading to silo ‘protection’.
At a broader level, procurement is dominated by client processes, and the risk transference paradigm positions procurement as ‘complete’ after contract signing, leaving delivery as a vendor process. This is ill-advised as delivery should always be regarded as a joint venture. Also, vendor processes are often superficial; delivery risks are rarely reviewed, estimates are subjected to sales pressure, and PM influence on proposal approvals is weak. (In fairness, many vendors are reacting to this concern by implementing a senior delivery management function.)
There is need and opportunity for a complete re-analysis of client and vendor processes. In some cases, they should be integrated and in other cases re-developed with a collaborative intent (e.g. procurement, delivery, financial management). In the project world, this is called methodology.
Vendor PMs are not just managing a project, but managing business relationships with one or several stakeholders in organization(s) they are not familiar with. A key stakeholder relationship is with the sponsor who must be held to contractual commitments and occasionally asked for money. Another is with the vendor sales executive, who generally consider they are senior to the PM and can stress the PM on project matters. PMs new to the vendor position are unprepared for this and some have difficulty handling the demands of these relationships. Project management can be a lonely unsupported job, but much more so in the role of vendor PM, who will need more than average self-confidence, assertiveness, and leadership ability.
Projects are increasingly being run by professional services firms on contract to the project owner. This trend shows no sign of reversing and it is therefore inevitable that vendor PMs will be in increasing demand and that their skills and knowledge must go beyond current standards and methods. What are these requirements? They must first be identified by formal definition of the scope of the new knowledge for commercial practice. This will enable development of the project techniques and methods designed to deploy it. This in turn will provide an agenda for training of PMs.
My observation is that the knowledge lies broadly in five categories: (1) Multiple Organization Management, (2) Contract Management, (3) Business Requirements, (4) Process Requirements, and (5) Personal.
Although methodology is traditionally viewed as procedural and project-focussed, I believe that expanding the concept to a higher level is central to the solution. I am pleased to note that PMBOK(R) has been hugely successful in bringing knowledge standards into traditional PM, but it falls short in the commercial context. Efforts are needed from three entities to fix this – project management, procurement, and professional services.
An implicit requirement of the new approach will be to introduce the concept of collaboration and so reduce much avoidable loss associated with current methods. In fact, a creative integration of vendor delivery and the client procurement practices could eliminate many inefficiencies but still permit a fair and competitive environment.
Team, PM, and client dynamics make the personal dimension significant. This raises a familiar debating point as to whether PMs are born and not made. That’s a subject for another day, but I will say this: commercial projects are hard, and may not be for all of us.
The decision to outsource a project is influential and usually viewed as securing project success (or at least a mitigation against failure). But contrary to expectation, projects bid in the free market and executed by specialty firms have not banished never-ending ‘black-hole’ projects. Lesser failures are still commonplace. Something must be done to shake up the disconnect between common project management lore and the realities of the commercial world; the status-quo just means continuing with unnecessary contract costs and unacceptable failure rates.