Posted by George Huhn on Mon, May 17, 2010 @ 02:27 PM
What does it mean when a meteorologist says "the chance of rain today is 60%?"
Each day in the United States, a massive amount of data is collected from weather stations, satellites, and weather balloons from around the world and sent to the National Meteorological Center near Washington, D.C. The data is processed to give a multi-dimensional picture of global atmospheric conditions, and then it is analyzed using various algorithms to develop local weather forecasts and predictions.
But this isn't how they make the "percent chance of precipitation" predictions. Even with the massive amount of data and super computer speed, their predictive algorithms alone just aren't good enough. So they use comparisons to historical data.
Basically, they take the current atmospheric conditions and compare them with days in the past that had very similar conditions. So when they say that "the chance of rain today is 60%," it means that it rained on 60% of the days in the comparison set.
And guess what? Assuming the data was entered properly, these predictions are 100% reliable all the time. Why? Because they are only predictions of probability – they aren't "wrong" on a particular day, whether it rains or not. But whether they are accurate or not in the long term is an entirely different question.
The only way to determine if the predictions are accurate is to collect the data and plot the actual versus the predicted conditions over time to learn the margin of error. If it only rained on 30% of the days that the prediction was 60%, then there is a problem with the data or the data processing.
You can do the same type of probability prediction and testing with your business projects, too. The more accurate your estimates, the more confidence you will have in your overall project-value ranking in your project portfolios.
Developing more accurate project risk estimates requires 4 basic activities:
1) Identifying the key drivers of cost, time, and resource risks in completing project tasks.
2) Preparing a database of these tasks that includes the corresponding cost, time, and resource estimates assigned to each project and the basis for those estimates at the beginning of the project.
3) Tracking the actual costs, times, and resources used performing the task as each task is completed.
4) Comparing the actual costs, times, and resources with the starting estimates.
After you have maintained this database for a period of time, you will be able to plot the actual versus the predicted results. This plot will show you the accuracy of your cost, time, and resource estimates as well as revealing the distribution of the actual results. (You will probably learn that your cost estimates were too low, your time estimates were too short, and your resource estimates were for too few. And that is a good thing to learn.) Eventually, you will be able to use the actual results data as a basis for future probability predictions, including understanding the uncertainty in those estimates.
I saw the data of one major pharmaceutical company who did this for their project "percent probability of success" estimates. The data between 20 and 85% was surprisingly linear; for example, about 50% of the projects that had "percent probability of success estimates" of 50% were ultimately successful. It also showed that all projects that had an estimated "percent probability of success" of 85% or greater succeeded and all that had an estimate of 20% or less failed.
If you’re involved in project portfolio management and you're looking for ways to improve your project planning, compiling and analyzing your historical data is a great way to test and improve your future estimates.
Does your company track and analyze historical project management data? Why do you think that most businesses don't?
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.
Posted by George Huhn on Mon, Apr 26, 2010 @ 09:55 AM
Looking for new and better ideas from your project team? Thinking about having a typical "
brainstorming" session? Don't bother. New research shows there's a better way.
"Brainstorming" usually consists of people meeting specifically for the purpose of coming up with new ideas around a specific topic. Any and all ideas are recorded, and evaluation of individual ideas is postponed so as not to inhibit idea generation or discard ideas prematurely. Brainstorming is proposed to work on the basis that ideas from each person in the group will stimulate new and different ideas from others, therefore, more ideas will lead to better ideas. That's the theory, anyway.
However, in a recent article published in the
INFORMS journal
Management Science entitled
"Idea Generation and the Quality of the Best Idea," researchers found that most of the literature on brainstorming focused on the number of ideas generated, but not the quality or the selection of the best ideas. Furthermore, they found that the literature showed the opposite of what brainstorming promised: "research has unequivocally found that the number of ideas generated (i.e., productivity) is significantly higher when individuals work by themselves, and the average quality of ideas is no different between individual and team processes."
In other words, brainstorming produces fewer ideas than individual efforts, but about the same quality of ideas.
1) the average quality of ideas generated,
2) the number of ideas generated,
3) the variance in the quality of ideas generated, and
4) the ability of the group to discern the quality of the
ideas.
In their study, they compared two processes: a typical brainstorming structure and a "hybrid" structure. In the brainstorming structure, each team of 4 was given 30 minutes to complete an idea generation challenge. At the end of the 30 minutes, each team was given 5 minutes to develop a consensus-based selection and ranking of the team's five best ideas. In the hybrid structure, individuals were asked to work separately on an idea generation challenge for 10 minutes and then asked to rank their own ideas at the end of the 10 minutes. These individuals were then randomly placed in teams of 4 to share and discuss their ideas and generate new ideas for 20 minutes. At the end of this phase, each team was given 5 minutes to develop a consensus-based selection and ranking of the team's five best ideas.
The ideas were then evaluated by a panel of 41 MBA students who had received formal training in the valuation of new products.
Their conclusion? They found the "hybrid structure" produced 3 times as many ideas per unit of time compared to brainstorming, and the average quality of the ideas was significantly higher.
So, the next time you're trying to generate some breakthrough ideas on your project team, be sure to let your project team members generate some new ideas on their own before you try to do it together as a team. This research shows you'll get much better results doing it that way.
And if you're involved in
project portfolio management, be sure to share this information with your project managers. Sometimes it only takes one breakthrough idea to make the difference between a project that is delivered on-time and on-budget and one that fails to meet its goals.
Follow-up: Two of the researchers who wrote this brainstorming article were interviewed to discuss their work in developing systems to help teams find great ideas.
Read more about it here.
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.
Posted by George Huhn on Mon, Jan 25, 2010 @ 12:54 PM
The Gantt chart was introduced to the world by Henry Laurence Gantt between 1910 and 1915. He described his invention quite simply in his book Organizing for Work published in 1919:
"…the following principles upon which this chart system is founded are easily comprehended:
First: The fact that all activities can be measured by the amount of time needed to perform them.
Second: The space representing the time unit on the chart can be made to represent the amount of activity which should have taken place in that time."
In addition to inventing this staple of project management, Organizing for Work shows that Gantt was a strong proponent of social responsibility for engineers and industry and the idea of an honest and democratic workplace:
"Industrial control is too often based on favoritism or privilege, rather than on ability. This hampers the healthy, normal development of industrialism, which can reach its highest development only when equal opportunity is secured to all, and when all reward is equitably proportioned to service rendered. In other words, when industry becomes democratic." (Organizing for Work, 1919)
"The business system must accept its social responsibility and devote itself primarily to service, or the community will ultimately make the attempt to take it over in order to operate it in its own interest. (Organizing for Work, 1919)
Doesn't that last quote sound a little bit like it came from the current healthcare reform debate?
I also thought that it would be great if these words from Gantt were hung in a prominent place in every project and project portfolio management office:
"First: We have no right morally to decide as a matter of opinion that which can be determined as a matter of fact.
Second: If we allow ourselves to be governed by opinion where it is possible to obtain facts, we shall lose in our competition with those who base their actions on facts.
The substitution of fact for opinion is the basis of modern industrial progress, and the rate of this progress is controlled by the extent to which the methods of scientific investigation supplant the debating society methods in determining a basis for action." (Organizing for Work, 1919)
The Henry Laurence Gantt Medal was established in 1929 by the American Society Of Mechanical Engineers is given for "distinguished achievement in management and for service to the community."
Mr. Gantt is one of those people that I like to imagine what more he might have done had computers been around when he was!
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.
Posted by George Huhn on Wed, Jan 13, 2010 @ 02:56 PM
If you're trying to sell a big cost-saving project to senior managers, then you are likely to be competing against a lot of other big projects, including sales and marketing and new product development projects. Chances are that you're going to need to sell your project to people who don't necessarily have the background to understand the technical details and the benefits of your project. And if they don't understand it then you are going to have a difficult time selling it.
So it can help to present your project's cost-saving numbers in terms of the equivalent increase in sales that your company would need to achieve the same bottom-line result.
Why?
Because increasing sales is hard and expensive – and every manager knows it. Framing your cost-saving project in terms of sales numbers that everybody understands can help you sell it across technical and non-technical departments and get it included in the
project portfolio.
There are three basic strategies to increase profits in a company: increasing the number of units sold, increasing the marginal profit from each unit sold, or cutting costs. Allocating resources to maximize profits from these three often-competing strategies is one of a manager's greatest challenges. By stating your cost-savings in terms of sales numbers, you're helping your management make a direct comparison between investing in your cost-saving project and investing in projects for increasing sales.
Therefore, you'll want to know both the equivalent increase in the number of units and the percentage that increase represents. For example, instead of just saying "this project will save us $5 - $7 million over the next five years," you should say "this project will save us $5 – 7 million over the next 5 years, which is equivalent to a 5 - 7% increase in sales above forecast or 1 million additional units of our best selling widget."
If investing in your cost-cutting project can add more cash to your company's bottom-line than investing the same amount to increase sales, then you have a very strong case for your project. If it doesn't add more cash, all other things being equal, then the money would probably be better invested in increasing sales.
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.
Posted by George Huhn on Mon, Jan 04, 2010 @ 02:08 PM
If you don't know the values and costs of not executing your projects then you're probably not maximizing the value of your project portfolio and you may be working on the wrong projects.
When project portfolio managers meet to decide which projects that their businesses are going to execute and which they are going to reject, they often have a summary business case for each project that includes the business value and attributes. Business attributes can include selection criteria such as
net present value (NPV),
return on investment (ROI), costs, resource requirements, and risks.
Thus, when the managers select a project to execute, the value and associated costs of the project are added to the total portfolio value and costs, respectively. When they reject a project, usually the identical "if-executed" values and costs are subtracted from the total portfolio because there is no separate evaluation of the value and costs of not executing the project. Therefore, the value of a rejected project is essentially set to zero by default and the total portfolio loses value.
When they reject a project in this way, any intrinsic positive or negative values and costs derived from not executing the project are not factored-in to the final portfolio. And when these values and costs are not factored-in, the total portfolio value and cost can be dramatically over- or under- estimated.
There are many ways a project can add or subtract value from a portfolio. Even projects that have negative individual ROIs can add value, such as a project that adds revenue to a product line because of its strategic fit. Analogously, there are many ways that not executing a project can add or subtract value from a portfolio. For example, positive value can come from increased revenue streams if the rejected project would have cannibalized revenues from other products; and negative value can come from a loss of revenue from a product line that could have been enhanced by the executing the project. Costs that can be incurred from not executing a project might include costs associated with contract terminations, closing facilities, and reassigning resources.
So, perhaps counter-intuitively, you can see that rejecting (not executing) a particular project may actually add more real value to a project portfolio than selecting another project!
How can you ensure that you're capturing the value and costs of not executing a project?
For each potential project in your portfolio, you could create an associated "Not" project that includes the overall value for not executing the project calculated using the identical attribute categories (rewards, costs, risk, etc.). Then, before
optimizing the portfolio against constraints, you could set up a mandatory dependency between these two projects such that either the actual project is selected
or its corresponding "Not" project is selected. In this way, either the value and costs of executing the project OR the value and costs of not executing the project are included in the portfolio totals.
Of course, if the value and costs of not executing a project are truly "0" and do not impact the total portfolio value and costs, then you don't need to create an associated "Not" project.
In our
project portfolio management tool Optsee®, you can perform rigorous
project portfolio optimizations against multiple constraints (such as limited money and resources) while maintaining four different types of project dependency relationships, including an "Or" relationship. When you select the "Or" dependency relationship between two projects, either one project or the other (but not both) are included in the optimized portfolio. This way it is easy to set up and accurately analyze the real value and costs of your portfolios under different constraint combinations because you're factoring-in the values and attributes of both selected and rejected projects.
Do you currently assign values and costs to not executing projects in your project portfolios? What other suggestions do you have for capturing these values?
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.
Posted by George Huhn on Thu, Dec 10, 2009 @ 02:02 PM
Good project execution is essential to achieving the strategic goals of a company, but most companies either don't measure it or don't measure it well.
In companies where the quality of project management execution is assessed at all, it is usually measured against meeting budget, timing, and resource objectives that were often ill-conceived to start with. So when projects go over budget or are under resourced or when timelines are missed, it is too often blamed on "execution," and rarely on the poor quality of the initial budget, timing, resource, and risk assessments (or lack thereof).
How often have you seen managers record a quantitative basis for their planning estimates at the beginning of a project and then assess them at the end of a project?
Too often managers look at Gantt charts as if they are THE PROJECT PLAN carved in stone. They aren't. Most of the time, Gantt charts represent the best guesses of well-intentioned people who tend to underestimate risks, resources, and timing (because that is what human beings tend to do). Most of the time, the "data" used to support the project planning either doesn't exist, hasn't been checked, or hasn't been derived empirically. Task start and end dates are fixed with virtually no meaningful or quantitative discussion about the probabilities of meeting those dates or modeling the dramatic cumulative effects of small amounts of slippage on project value.
A big contributor to those results may not be just poor project execution, but how and where the project finish lines were drawn at the start of the project. So it is past the time for managers to be measuring the quality of project execution based on chiseled-in-stone Gantt charts.
Instead, today's managers need to start using quantitative risk analyses, databases of empirical data from previous experiences, and statistical tools for probabilistic project planning so they can truly assess and improve the quality of project execution.
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.