What Value?

"Price is what you pay. Value is what you get."
-Warren Buffet

"You seek a great fortune, you…who are now in chains. You will find a fortune, though it will not be the one you seek. But first... first you must travel a long and difficult road, a road fraught with peril. Mmm-hmmm. You shall see thangs, wonderful to tell... And, oh, so many startlements."
-From the picture “O Brother, Where Art Thou?”, Coen, 2001

When PMI requested proposals for research designed to quantify the value of project management in the summer of 2004, they hoped for simple, quantitative answers – “Project Management is worth n% of your project budget”, or "saves $n", or "adds $n in value".

Most previous studies in this area , and especially the ones that proposed a numeric return on investment (ROI), had limited the definition both of “value” and “project management” and ignored the broader context of project management being applied in the public and private sectors, product development and construction, the first world and the third world.

Other studies had listed the many potential benefits that organizations associate with project management, but made no effort to quantify them or look at them in their individual contexts (e.g., a government agency may not realize an increase in sales revenue - because it doesn’t have any).

Past the conclusion that “project management is good”, these studies offer little.

Setting Out

So, In May of 2005, the international, multi-disciplinary academic team that would eventually igrow to 48 researchers was selected and began a journey that would last until June of 2008.

If the research could just create a simple, linear graph, plotted against the x-axis of “Project Management” and the y-axis of “Value”, it would provide a treasure map that any organization could use to achieve value thru project management. - It would be perfect.

However, as the researchers went into the field, they found that the numbers of different “Project Managements” that they found were only exceeded by the number of types of “Values”. Paradoxically, the more that they clearly tried to define the concept of “Value”, the more obviously insufficient it became.

Rather than providing a simple x/y plot of value, the study had only begun and it was already obvious that was heading for uncharted (or unchartable) territory.

And, even among organizations that deliver project directly for customers, few were actually interested enough to expend the time and effort to formally define their ROI.

Never mind a treasure map; if the organizations that could reach out and grab the treasure did not, was it a treasure at all?

Unexpected Destination
So, what are organization's reasons for spending money to establish project management competencies? - When the 65 diverse organizations were asked to identify what this value was, they identified not economic gains or even improved project success statistics, but values that clustered around:

• alignment,
• decision making,
• communication and
• general business outcomes

Conventionally, you undertake projects to produce defined outcomes within defined cost and time parameters; "on time and on budget". Yet, the studied organizations identified broader organizational benefits that often had little to do with the results of the individual projects!

Aren't these the sort of benefits that you expect from Strategy, not from the dull tactical world of Project Management?

Clearly, the value of project management has always been understood as the hands of strategy, but is it also the eyes? Strategy may tell project management what to execute, but project management must also advise strategy of what is working and what is not. Otherwise, how could a function only focused on the execution of discrete projects yield the these benefits?

So, does project management exist both execute and inform strategy? Does it provide a dynamic feedback loop between executing new things and the strategies that promote them? Is project management like an organizational nervous system that carries instructions from the brain to the hands and vision back from the eyes to the brain?

It would seem so.

Arriving at Value

If this was the sort of value that was being reported by the 65 studied organizations, then the next step was to understand the specifics of how that value was being created. So, the team collected extensive survey data from the study group to understand which factors of Project Management were most effectively driving value.

Once this data was collected, regression analysis was done to explore what Project Management practices, motivations, attitudes and organizational contexts were most correlated with the value creation that the studied organizations identified.

Again, the results were both interesting and unexpected.

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“I was told that there would be no math” - Chevy Chase

I’m sorry - I’ll keep it as simple as I can. Besides, if you are not already familiar with this sort of analysis, it’s not that difficult to understand. - If you are familiar with regression analysis, please feel free to skip this sidebar.

When you do a “regression analysis”, you are just looking to determine a mathematical model (equation) that best describes the observed data.

For example, if your data were the values [1, 2, 3, 5, 6], you could use an equation of n+1 to describe it (i.e., each value is 1 greater than the previous value). This equation would describe 4 out of the 5 values, since the difference between the 3rd and 4th value is 2 (3+2=5), rather than 1. So, n+1 could be said to explain 80% (4/5) of the variation in the data – a pretty good predictor that would give you the right value 4 out of 5 times for this set of data.

Now, to understand how the variables are determined in regression analysis, imagine that you are making sugar cookies and are interested in determining the amount of fat that comes from each ingredient. The recipe for these (bland) cookies are: 1 cup of sugar, 2 cups of flour and 1 cup of butter – or - (one cup of sugar) + (two cups of flour) + (one cup of butter) = (four cups of cookie dough).

If you had a lot of data using different amounts of each ingredient and the resulting cookie’s fat content, you would pretty quickly come to the conclusion that the butter has a very high positive correlation with the fat percentage in the cookies. Since sugar and flour contain almost no fat and butter basically –is- fat, the more butter you put in the cookie dough, the higher the cookie fat content. Makes sense?

To convert this into an equation (or model) to predict the % fat content of these cookies, you would write something like (.01 * flour) + (.99 * butter) = % cookie fat content. In other words, assuming that flour is 1% fat, the amount of fat in these cookies is 99% able to be predicted if you already know the amount of butter going into them.

Finally, since we know exactly where the fat in the cookie is coming from, we could say that this equation explains 100% of the variation in cookie fat content.

Hope that wasn’t too rough.
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First, the researchers were able to most fully explain the factors driving the following types of reported value in the sample data:

• Better Project Results (68% of the causes of variation identified)
• Better Aligned Organization (69% variation identified)
• Better Business Process Results (77% variation identified)
• Better Business Outcomes (80% of the causes of variation identified)

This was unexpected – the value best predicted by project management practice was not the better execution of projects! Instead, the reported value most statistically attributable to what was studied was at the organizational and strategic level, including decision making, entrepreneurship, innovation, knowledge management and effective communication.

The factors contributing most to this organizational and strategic value were (in order of the strength of the correlation):

• Strategic focus in project management
• Long-term project management training
• A positive organizational attitude towards project management.

In other words, organizations that (1) understood the strategic function of project management, (2) took it seriously and (3) invested in it reported better organizational and strategic results!

Of the identified factors that reduced the frequency of better business outcomes, the following are the most damaging (in order of the strength of correlation):

• A culture of conflict avoidance
• The use of outside consultants to implement project management
• A project management focus on cost containment

So, in organizations where (1) conflict avoidance hampered communication, (2) project management was left to the consultants and (3) project management was viewed as cost control - crucial business value was destroyed.

Wow.

Critical Insight

Perhaps, we should not be so surprised with these results. Really, its common sense that the people setting strategy need to be serious about execution and the feedback that it can provide.

However, upon looking at the results of the analysis, another critical insight can be recognized.

That is, that the value that organizations realize is determined by how well the organization’s implementation of project management "fits" the context and goals of the organization. Statistically, this can be seen in the number of factors that are involved in describing the variation seen in the sample data.

For example, for the identified value of “Better Business Results”, there are no fewer than 19 types of different training, project management focus, motivations, project management structures, economic environments, staff experience levels, organizational cultural aspects, focus and ownership factors that together explain the full 80% of the variance in the sample data. The points earlier are only the most powerful positive and negative influences.

So, it is not the organizational context alone or the type of project management alone that delivers value – it is the combination of practice and organizational context that must “fit” together to create value.

That means that there is no one universal right way of “doing project management”. Instead, value is produced when project management approach is relevant to the organization’s specific context and objectives.

What? How about project management “best practice”? How about benchmarking? How about project management standards?

Although similarities, standards and “best practices” exist, you must know the individual organization’s culture, context and goals well enough to recognize them. Project management standards need to be descriptive rather than prescriptive – they are the notes, not the song.

To be proficient in their profession, project managers need to know these standards. But, that’s just the starting point. They also need the insight and experience to know what they should and (more importantly) shouldn’t apply in a specific context.

But, of course, that’s common sense, too.

Next

So, this study that began looking for a simple, quantifiable value for project management found something different, and arguably more valuable, than what they originally sought.

Now comes the work to interpret the findings and understand their practical implications.

Instead of simply quantifying an existing understanding of Project Management, the study expanded the definition. Rather than a just simple and reliable custodian of the execution of strategy, project management’s role seems to be much more of a partner with strategy than was imagined.

We need to understand the continuous feedback loop between execution and strategy. This crucial feedback loop that improves the organization’s ability to make decisions, stay informed and aligned with the situation on the ground and intelligently change course.

Based on the findings of this study, I would argue that when this feedback loop is healthy, value (but not the type that you might have expected) is created. And, when it is unhealthy - thru a poor-fitting project management practice that disrupts this vital communication- value is destroyed.

In the end, this study delivered an answer that is both more nuanced and more powerful than the simple ROI initially expected. And, it's going to take some time and effort to understand this answer fully and put it to work.

But, that's what this blog is about.