The Value of
Project Management
Presented February 25, 2004
by
Kathy Schwalbe, Ph.D, PMP
Presentation Outline
 Background information on project
management
 Ways to measure the value of project
management
 Examples of project management in
health care organizations
 Question and answer session
What is a Project?
 A project is “a temporary endeavor
undertaken to accomplish a unique
product or service” (PMBOK® Guide
2000, p. 4)
 Attributes of projects
–
–
–
–
–
unique purpose
temporary
require resources, often from various areas
should have a primary sponsor and/or customer
involve uncertainty
Recent Project Statistics
 The U.S. spends $2.3 trillion on projects every
year, an amount equal to one-quarter of the
nation’s gross domestic product*
 More than sixteen million people regard project
management as their profession; on average, a
project manager earns more than $82,000 per year*
 IT Project Managers are still in great demand and
earn over $95,000/year on average (Ziv, 2002)
*PMI, The PMI Project Management Fact Book, Second Edition, 2001
What is Project Management?
 Project management is “the application of
knowledge, skills, tools, and techniques to
project activities in order to meet project
requirements” (PMI*, Project Management Body
of Knowledge (PMBOK® Guide), 2000, p. 6)
 In addition to meeting project requirements, it’s
also important to satisfy key stakeholders and
make sure the results of the project benefit the
organization
 Project management should be a strategic as well
as a tactical tool
Project Management Framework*
*Schwalbe, Kathy. Information Technology Project Management, Third Edition, 2004
Project Management Tools and
Techniques
 Project management tools and techniques assist
project managers and their teams in various
aspects of project management
 Some specific ones include
– Business cases, project charters, scope statements, and
work breakdown structures (scope management)
– Gantt charts, network diagrams, critical path analysis,
critical chain scheduling (time management)
– Cost estimates, project portfolio management, and
earned value management (cost management)
– See following charts for many more examples (all from
Schwalbe text, 2004)
Sample Gantt Chart
Work Breakdown Structure (WBS)
The WBS is on the left, and each task’s start and finish date
are shown on the right using a calendar timescale. Early
Gantt charts, first used in 1917, were drawn by hand.
Sample Network Diagram
Each box is a project task from the WBS. Arrows show
dependencies between tasks. The bolded tasks are on the
critical path. If any tasks on the critical path take longer than
planned, the whole project will slip unless something is done.
Network diagrams were first used in 1958.
Sample Earned Value Chart
Many PM experts recommend using earned value management
to help track and manage projects. Assumes a good WBS,
schedule, and cost information as well as entering actuals.
Sample Enterprise PM Tool
In recent years, organizations are taking advantage of software
to help manage their projects throughout the enterprise.
BUT…
PMs Can’t Neglect Business and
Leadership Skills
• In addition to using appropriate PM tools
and techniques, PMs must use
– Business skills: financial analysis, problemsolving, decision-making
– Leadership skills: negotiation, teambuilding
– Communication skills: listening, speaking,
writing, presenting
Don’t Overemphasize
Using PM Software
• You can’t use PM software well if you
don’t understand fundamental PM
concepts
• “A fool with a tool is still just a fool”
Common PM Tools and
Techniques by Knowledge Area
Knowledge Area/Category
Integration management
Scope management
Time management
Cost management
Tools and Techniques
Stakeholder analysis
Project plans
Project management software
Change control boards
Configuration management
Project review meetings
Work authorization systems
Project leadership
Executive sponsorship
Net present value, return on investment,
payback
Weighted scoring models
Business cases
Project charters
Scope statements
Work breakdown structures
Statements of work
Requirements analysis
Scope change control
Gantt charts
Project network diagrams
Critical path analysis
Program evaluation review technique
Critical chain scheduling
Crashing
Fast tracking
Milestone reviews
Earned value management
Project portfolio management
Cost estimates
Cost management plan
Financial software
Common PM Tools and
Techniques by Knowledge Area
Knowledge Area/Category
Quality management
Human resource management
Communications management
Procurement management
Risk management
Tools and Techniques
Six sigma
Quality control charts
Pareto diagrams
Fishbone or Ishikawa diagrams
Quality audits
Maturity models
Statistical methods
Motivation techniques
Empathic listening
Team contracts
Responsibility assignment matrices
Resource histograms
Resource loading
Resource leveling
Team building exercises
Communications management plan
Conflict management
Communications media selection
Communications infrastructure
Status reports
Meetings
Virtual communications
Templates
Project Web sites
Make-or-buy analysis
Contracts
Requests for Proposals or Quotes
Source selection
Negotiating
E-procurement
Risk management plan
Probability/impact matrix
Risk ranking
Monte Carlo simulation
Top-Ten Risk Item Tracking
Hard Part About PM…
 “Because every project is unique, project
managers and their teams must have a good
understanding of what tools and techniques
are available before they can make the
more difficult decisions of which ones to
use on their projects and how to implement
them.”
Schwalbe, Kathy, “Project Management Techniques”, The Internet
Encyclopedia, Volume 3 (2004), p. 108
Ways to Measure Value
 Agreement on general benefits
 Improved project performance/results
 ROI of project management
 PM maturity levels
 Competitive advantage
“Price is what you pay. Value is what you get.”
Warren Buffet
General Benefits of Project
Management
 Better control of financial, physical, and
human resources
 Improved customer relations
 Shorter development times
 Lower costs
 Higher quality and increased reliability
 Improved productivity
 Better internal coordination
 Higher worker morale (less stress)
Improved Project Performance
 Project success is often based on meeting
project scope, time, and cost goals
 The Standish Group’s CHAOS studies are
well known for documenting IT project
success rates and cost of failures*
Measure
Successful projects
Failed projects
Money wasted on
challenged and
failed projects
1994 Data
16%
31%
$140 B out
of $250 B
*PM Network, July 2003, p. 16
2002 Data
34%
15%
$55 B out of
$255 B
Result
Doubled
Halved
More than
halved
Why the Improvements?
"The reasons for the increase in successful
projects vary. First, the average cost of a
project has been more than cut in half. Better
tools have been created to monitor and
control progress and better skilled project
managers with better management
processes are being used. The fact that
there are processes is significant in
itself.“*
*The Standish Group, "CHAOS 2001: A Recipe for Success"
(2001)
Improvements to Key IT Project
Metrics Due to Project Management*
Sc
he
St Cu du
le
ra
s
te tom es
gi
er tim
c
a
bu
s
sin atis ting
f
C
os ess act
t/h
al ion
or ign
s
es me
T
nt
S c im
ti
he e a ma
du
nd ting
le
bu
p
dg
e
La
r
f
et
or
bo
m
rh
an
ou
ce
rs
Q
C per ual
os fo
it
t p rm y
er an
f
R orm ce
es
a
St pon nce
af
f p se t
ro im
Ti du e
m
ct
e
i
to vity
m
ar
ke
t
% Improvement
45
38.6 37.6 37
40
32.8 32.5 32.1 31.9
35
30
25.6 23.8
23 22.8 21.7
25
20
15
10
5
0
*Value of Project Management in IT Organizations survey,Center for Business
Practices, 2002, cited in PM Network, July 2003, p. 16
“What the Winners Do”*
• Recent research findings show that
companies that excel in project delivery
capability:
– Build an integrated project management
toolbox (use standard/advanced PM tools, lots
of templates)
– Grow competent project leaders, emphasizing
business and soft skills
– Develop streamlined, consistent project
delivery processes
– Install a sound but comprehensive set of project
performance metrics
*Milosevic, Dragan, Portland State University, “Delivering Projects:
What the Winners Do,” PMI Conference Proceedings, November 2001
Using a Standardized Project
Management Approach*
 Research found that a consistent (one-size-
fits-all) managerial approach may be
essential to the successful standardization of
certain aspects of project management, and
a contingency approach is needed for
certain aspects, too
 Low standardization with a sufficient
amount of variation is the more appropriate
approach
*Milosevic and Pantanakul, “The Impact of Standardized Project
Management: New Product Development Projects versus Software
Development Projects,” Proceedings of PMI Research Conference 2002
Findings From 5-Year Study on
Quantifying the Value of PM*
1.
2.
3.
Companies with more mature project
management practices have better project
performance (on time and budget vs. 40% over
time and 20% over cost targets)
Project management maturity is strongly
correlated with more predictable project
schedule and cost performance (i.e. .08 schedule
performance index variation vs. .16)
Good project management companies have
lower direct costs than poor project management
companies (6-7% vs. 11-20%)
*Ibbs, William and Justin Reginato, Quantifying the Value of Project
Management (2002)
Project Management ROI*
 Over 94% of senior project management
professionals say that implementing PM
added value to their organizations
 Formula to predict increased company ROI
based on increased PMM level
– Determine cost to improve PMM level,
improvement in cost performance index (CPI),
then calculate PM ROI using profit margins and
projected annual revenues
*Ibbs, William, “The $$$ Value of Project Management: Continuing the Search for PM’s
ROI,” PDS ’02 Conference Proceedings, PMI-ISSIG
http://www.ce.berkeley.edu/pmroi/PMROI%20PMI%20Presentation%20Feb2001.pdf
PM ROI Example*
 Company initially has PMM of 2.3, CPI of
.71, profit margin of 5% , $10 M projected
annual revenues
 Company improves PMM to 3.1, CPI to .94,
profit margin to 6.6% at a cost of $400,000
 PM ROI = (6.6%-5.0%)X$10,000,000 = 40%
$400,000
*Ibbs, William, “Managing Chaotic Projects: Improving your PM/ROI”
http://www.ce.berkeley.edu/pmroi/PMROI%20PMI%20Presentation%20Feb2001.pdf
Project Management Maturity
Models
 Similar to maturity models for improving software
like the Capability Maturity Model (CMM)
 Several PM firms have their own maturity models,
most using levels 1-5
– The International Institute for Learning, Inc. calls the
five levels common language, common processes,
singular methodology, benchmarking, and continuous
improvement
– ESI’s five levels are called ad hoc, consistent,
integrated, comprehensive, and optimizing
– PMI’s Organizational Project Management Maturity
Model (OPM3) released their model in 2004
Berkeley Project Management
Process Maturity Model
Sample PMM Assessment Questions*
Project Management Maturity by
Knowledge Area and Industry
Feedback from Bill Ibbs*
 We've benchmarked a couple healthcare
organizations…what I can say is that the IT PM
capability of those organizations was poor,
especially in terms of initiating projects. We
helped one of those companies save several
million dollars over a 2 year period by helping
them focus better on the projects they launched.”
 Wall Street reports that the healthcare industry in
general is gearing up to spend even more $$$ on
IT in the next couple years than they have in the
past. So there's a lot at stake.”
* From e-mail correspondence Feb. 2, 2004
Other Research Suggests That PM Maturity
Models Only Measure Explicit Knowledge*
 Explicit knowledge: “know what,” can be
put into IT, a digital or discrete process that
can be codified and transmitted in formal,
systematic language (Nonaka 1994)
 Tacit knowledge: “know how”, in one’s
experience; hard to replicate and can be
transferred indirectly though time consuming
socialization processes (Kaplan et al 2001)
*Jugdev and Thomas, “Blueprint for Value Creation: Developing and
Sustaining a Project Management Competitive Advantage Through the
Resource Based View,” Proceedings of PMI Research Conference, 2002
Need to Make PM a Strategic Asset
(Just Like IT)
 Many executives view project management as
having worth at the operational and tactical
rather than strategic level
 Resource Based View (RBV) frameworks
emphasize how firms create value and profits
from their internal resources and focus on
strategic assets
 RBV is relevant to project management
because it emphasizes intellectual capital
Research Based View Model*
high
Social
Capital
Strategic
Assets
Know How
PM
Maturity
low
Know What
low
high
Need to combine know what with know how
to make PM a strategic asset!
*Jugdev, Kam, presented at PMI Research Conference, July 2002
Successful Examples of Applying
PM in Healthcare Organizations
 Theory of Constraints aids in scheduling
 Focusing on meeting goals with good PM
helps organizations meet demands under
budget constraints
 Good project managers are critical to
successful drug launches
Applying the Theory of Constraints
(TOC) in Health Care*
 TOC is a form of systems thinking that suggests that
any complex system at any point in time often has
only one aspect or constraint that limits its ability to
achieve more of its goal. Need to exploit constraint
and adjust scheduling and resource usage
– A USAF base decreased waiting time for primary care
appointments from 17 days to 4.5 at no additional cost
– Radcliff Infirmary in Oxford, England used TOC to
improve waiting times for neurosurgery and
ophthalmology (noted a 100% reduction in elective
cancellations and increases in throughput of over 16%
at no additional cost
*Breen,
Anne, Tracey Burton-Houle, and David C. Aron, “Applying the Theory of Constraints in HealthCare: Part 1 – The Philosophy,” Quality Management in Health Care,
(Vol 10, Number 3), Spring 2002, www.goldratt.com/for-cause/applyingtocinhcpt1fco.htm
Meeting Goals With Good
Project Management*
 St. Mary’s National Health Service (NHS)
in London was facing a huge deficit,
problems in staffing, and long outpatient
waiting times
 They focused on meeting specific goals by
getting the right resources in the right places
at the right times (basic PM concepts) and
went from a one star to a three star rating by
their trust
* Williams, Monica, “Healthy Returns,” PM Network, February 2002
Pharmaceutical Project Managers
Are a Breed Apart*
 Significant investments in drug development
projects (12 years and $800M on average), the
magnitude of risks in the development cycle, and
extensive involvement of senor management
makes it especially tough being a PM in this
industry
 “I know of no pharmaceutical company today
attempting drug development without a project
manager to oversee it” (Luis Cabassa, PMP,
Genetech Inc.)
Pappas, Lorna, “The Right Prescription,” PM Network, October 2002
Examples of How Good Project
Management Adds Value at Your
Organization?
Question & Answer Session
Feel free to contact me at schwalbe@augsburg.edu
Visit my Web site at www.kathyschwalbe.com