TOP Ideas

Happy new year to all our VDM readers.

We start this year with a series on “10 Critical Models for Governance Teams” – 10 key project dimensions you need to understand to be effective.

We start with “The Infernal Triangle” – the key levers you may need to adjust to deliver your project and the ramifications of each.

The Project triangle is actually four dimensional – scope, cost, time and quality.

QUALITY is a critical component because, as Gerry Weinberg observes, “If quality is an option all else is possible!” (You may just need to think about that one.)

So, as a member of the Governance team you must always be focused on the project’s quality – is this solution and its outcomes fit for purpose and to the agreed quality standards?

Make sure you personally look at the quality of some of the project’s physical outputs and review the effectiveness of the quality management steps – testing, user evaluation, etc.

So quality is the given. What about the other three?

SCOPE controls the value. Increases in scope must be assessed in terms of their impact on the project’s value. No increase in value, no scope increase should be the rule.

Scope reductions must also be assessed in terms of their impact on value. Any scope reductions that reduce the project’s value attack the very raison d’etre of the project – the delivery of the business outcomes, benefits and value.

On one recent project, the Steering Committee had agreed to drop a component that was seen as peripheral to the main focus of the project. But then our value engineering process showed this component delivered 80% of the business value. It was restored.

So, scope is a critical governance lever to control and protect the project’s value. No proposed scope changes should escape a rigorous value-impact challenge.

COST is a dimension that has high visibility outside the project. You’re allocated a certain amount of funds and if you go ‘over budget’ you have to go, cap in hand, to a management body and ask for (and justify) more funds. Very visible and very embarrassing. Few executives want to do this.

In the 1990s budget overruns were the norm. “We did well,” said one Sponsor in 1999, “we came in only 70% over budget.”

In the 2000s most organizations have clamped down on budget overruns. But in doing so, they have often ensured that their projects’ long term value is foregone to meet short-term budget constraints.

The problem is often that the ‘budget’ is set too early when there are too many unknowns. So the budget is, too often, by definition wrong.

(Where projects are over-estimated they rarely come in under budget. Instead they tend to finesse the project to consume the funds available.)

However, if you’re faced with a decision to, say, forego $2m in ongoing benefits for the want of $1m in additional one-time expenditure, you’re not doing your organization any favours in cutting scope to ‘make budget’.

Always remember Tom Peter’s comment, “The worst thing a manager can have on his tombstone is ‘made budget’.”

To realize the value you may have to go over budget; it’s a value trade-off. (Sounds of CFOs fainting in horror.)

TIME drives more than costs, it also reduces value through delaying the realization of benefits and, therefore, their lifetime value.

So time has a double impact – on both costs and value. You need to know your project’s cash ‘burn rate’ to understand the cost impact of any time increase.

You also need to know your value realization rate to understand the value impact of any project delivery delay (often this is greater in the long run than the cost impact because it is ongoing).

Each of the “infernal project pyramid’s” dimensions has an impact on the project value. So, if you, as the governance team, have to compromise, the rule of thumb is to go over budget before you go over time (which you’d do before you change scope or, lastly, compromise quality).

Ideally, of course, you’ll deliver all of the value on time, budget and to specification.

But no one said it was easy.