Early Watch – Proactive Risk Management

Risk is often approached as a by product of project management, leading to unplanned delays and project overrun. The Risk Waterfall method enables proactive management of risk and define where the true focus of the team should be.

The principle is simple; it suggests a time based analysis of a quantitative risk index.

Most projects are today using tollgates to make decision focus on progress in reducing risk, from all sources. Major risk items must receive early program priority. The issue becomes the evaluation of a valid quantative risk index.

Risk is often considered as the product of probability of occurence and degree of impact. Also this definition is correct, it fails to address the natural complexity of projects such as interdependencies between risk and the time planned to resolve the risk.

The risk waterfall method is proposing to measure risk as

UNCERTAINTY * IMPACT * N° OF DEPENDENCIES * TIME CRITICALITY

Where :

• Uncertainty & Impact can be evaluated with the scale of 1 to 5 (Low to High)

• N° of dependencies is found with the N-Squared chart row by row (See graphic)

• Time Criticality is the penalty for late resolution of a risk and is calculated as 2 power N, where N is the closest tollgate review after the time that the risk is planned to be resolved (With 6 tollgates N=0, 1, 2, 3, 4 or 5)

If  now you represent this new quantitive risk index on a time scale (with tollgates), you can easily decide which risk the team should focus on and elaborate a mitigation plan based on its complexity and our ability to fix it.

Of course this evaluation should be a continuous process; exceeding planned tolerance should trigger an unscheduled interim review.

I used a lot this tools during my carreer, and found it a powerful mechanism to better integrate risk management in project.

CIOS – 2010 Predictions That Could Change Your Life…or Not

1 – With the raise of social media and the illimited access to people information, “CIO” will stand for Chief Investigation Officer.

Pete Cashmore in October 2009 made social media holding the smoking gun of Privacy and concluded his post by “Twitter, Facebook, Flickr, Foursquare, Fitbit and the SenseCam give us a simple choice: participate or fade into a lonely obscurity.” Not sure I fully agree with this. Internet memory is certainly the biggest danger of individual’s privacy and everybody has the right to oblivion. Don’t you think?

2 – Someone smart will say “Free is too Expensive” …. if it is not already done.

[add on] – We do not need to wait anymore, 6 hours after publishing this post we could find on Google “Newspaper publishers told “Free is too Expensive”“.

3 – The accronym D.I.Y. (Do It Yourself) will be a standard answer in corporate emails.

See the “2010 Consumer Trend Video“, you will find interresting insights that should be understood even by B2B Businesses.

4 – Jim Collins will publish his new book “From Fall to Greatness“

It might be followed by “From Fall to Greatness – For Public Sector”

5 – The first clinic program for Twitter’s Addicts will be proposed….

Not sure about the country yet. But Netherlands could be a good candidate as Dutch already opened a detox clinic for video game addicts in 2006.

6 – IBM will still be there.

7  – Steve Ballmer & Eric Schmidt will tweet on their personal iPhone

I recommend the article “The Great Iphone Death Watch” which gathers numerous statements about the predicted failure of the iPhone in 2007 by the big Guys.

8 – CIO inner Voice will still be around for you…

Let me finish by a video I particulary enjoyed.

more about “What might the world look like after …“, posted with vodpod

The Digital Competitive Advantage Of Organizations

Positioning strategically IT within the Enterprise is at the heart of many CIOs concerns. In these turbulent times, it is not uncommon to see  IT relegated to its sole cost element. Conversely, strong signals exist to prepare companies for growth. Here is the opportunity for CIOs to reap the benefits from the situation and identify the Digital Competitive Advantage for their organizations.

Making a board acknowledge the value of IT has always been a difficult exercise for CIOs. Current economic pressures and global uncertainty makes it even harder. The current cash flow focus challenges any investment with a short term view, potentially exposing  the company to future risks. Conversely, we need to admit that this systematic questioning of where we spend has value and lead to a critical Quest : “What are these Strategic/Core Resources we should be protecting?”

Time To Change

For many reasons, most of IT organizations elude this question and focus on the cost/quality service ratio. It is now time to challenge our approach and offer our business different perspectives. “What are our core IT resources that will provide a sustainable competitive advantage? ” – “What type of resources should we leverage: Organizational, Process, Technology” – “How do we define Core?” These issues should be fully integrated in the screening process of any IT related investment process and spend analysis.

Defining Core/Strategic Resources

It fits in with the “Resource Based View of the Firm” introduced by Wernerfelt B. in 1984 and how Valuable, Rare, Inimitable and Organized (VRIO) a resource can be. A core resource should meet all of these criteria.

A resource is Valuable if it helps the organization to address an external threat or exploit an opportunity. Rare if it is not widely owned by other competitors. Inimitable if it is difficult for another firm to acquire it or a substitute something else in its place. Organized if the firm is able to actually use it.

What is it about IT?

Most IT organizations have articulated their strategy (see “Is There Such Thing as IT Strategy Anymore?“)around the value of IT which fulfill the first criteria of (V)RIO, but let the others on the side. Value is driven at the pace of economics, and objectives like efficiency, quality, customer responsiveness, and innovation are inevitably calibrate on the expected Return on Investment. However criteria like Rare & Inimitable required a focus on long term.

The Digital Competitive Advantage (DCA)

DCA is the ability of organization to grow and exploit the IT resources that fulfill the CRIO criteria. Think about your next strategic workshop and identify what part of your IT culture, leadership, solution portfolio, reputation, organizational expertise make you deliver this Digital Competitive Advantage and make your business outperform the competition.

Enterprise Investment Portfolio (Part 1) – Improving Performance

Looking at  Internal Investments as a portfolio put in perspective the way Enterprises are internally investing in changes considering risk and opportunity at a global level rather than at project level.

The following classification of investment (introduced in  “How to fight “Business Urban Legends”) follows this approach: 1- Improving Performance 2- Sustaining the current Performance 3 – Survival & Adaptation to context

Improving Performance

THINK PORTFOLIO OF VALUES: Chris Potts, a well-known corporate strategist, suggested to approach the performance of portfolio as a set of values rather than the cumulative NPV (Net Present Value)generated by individual projects (I recommend his book “FruITion: Creating the Ultimate Corporate Strategy for Information Technology“) . Using this approach, arbitration of investments is appropriately Aligned With The Overall Company Strategy. Each organization can define its own strategic measurements dashboard and consider it as a validation point whilst investing in changes. Concepts such as “Balanced Scorecard” are perfectly adaptated to this.

THINK RISKS & OPPORTUNITIES : Back to the proposed classification, “Improving Performance” investments are specific in nature as they challenge the way an Enterprise is generating value. Processes, organizations and technologies will need to be overhauled to reach a better level of performance. These changes creates Risks, that need to be mitigated, & Opportunities, that need to be exploited in the future.

THINK UNCERTAINTY OF RETURN: Another uncertainty to consider is linked to reaching or not the level of performance expected by the investment at a specific time. This has to be managed according to the “risk profile” of the company. Two classes of variables are usually responsible for this situation: The Execution Alea (Initiative on time, on cost, performance expectation fullfilled etc…) and the Context Alea (Expected Market growth, variation of the competitive landscape, regulatory environment, Industry Economics etc…).

LET SEE HOW IT WORKS: Let’s have now a closer look at the footprint of this type of investment, and how other categories might be impacted. For example we could consider improving our market reach by investing in expanding international dealer/distributor agreements, restructuring a division by industry, implementing a Customer Analytic System, developing promotional materials in different languages. All of this make sense and priorities will have to be established.

Most of the time companies are looking at the amount to invest, when they can expect a return and what are the risk (Execution Risk) and make their decision. This is rather a limited view of economical decision as it push them to choose the shortest term return – hence minimizing the risk. In addition when designing the investment, it is common to only integrate the one time cost of the initiative and new recurring costs they might incurred.

By using the suggested approach, organizations should look at the Impact of such grow and :

- Understand the necessary adjustments to sustain, in the future, such level of performance. For instance, how our back-office is going to handle an increase level of orders, or talking with people that are not English native.

- Understand that new practice adjustment will need to take place; for instance doing business with dealer abroad might required specific regulatory and market expertise that an organization does not have today.

- Understand that implementing a quick IT package could generate redundancy of data which could further create inconsistency and negative productivity impact.

Conversely,

- understanding that dealers or industry associations might be interested by getting some analytics and paying for this could generate a future stream of revenues if we are investing in the right infrastructure.

- Understanding that investing in the comprehension of market network, and industry network work could lead to earlier leads and thrive the company branding.

SO WHAT? All of this is common sense, when a Disciplined Approach is used and we are looking the Value Created Globally not project by project; it becomes rather evident,  that analyzing investment thru the cumulative list of expected returns from individual initiatives could lead to an increased Risk and missed Opportunities.

I hope you enjoyed this first section.

How to fight “Business Urban Legends” – Integrate Investment Portfolio to BI

Business Urban Legends are everywhere and sit at the heart of each investment decision. Interestingly enough, companies claim their unique needs, culture and business models which make them different from the competition; yet they are prone to follow generic public statements (investment in central ERP has no ROI for instance) in the very heart of their strategy.

This could lead us to think that overall investments for a business are not managed properly, and companies prefer to apply others (the ones that are different from them) principles & lessons learned to overhaul their strategic assets.

If understanding what the competition is doing and what has been the result is always useful, it is different to a apply systematic process when it comes to understand the return on our own investments which goes beyond the usage of discounted cash flow methods.

It is not unusual to see businesses spending an incredible amount of time and energy to justify an investment; yet when it comes to control its final performance, no consistent effort is existing. There is here, at my opinion, two major flaws in the process: 1 – The lack of continuity in the investment discipline thru the entire life-cycle, and 2 – The focus on return project by project. (see “Integrate IT in the Company’s Portfolio“

This approach leads companies to rely on “Business Urban Legends” which could be existing within the company itself.

In this post, I suggest to use a disciplined approach which could allow company to optimize their investments based upon the capability of their strategic resources not on beliefs . The decision of “where to invest” should be dedicated by the strategy and is not part of this exercise.

If we are looking at the overall structure of business investments, we could consider investing in:

1- Improving Performance & Growth

2- Sustaining the current Performance & Protecting market share

3 – Survival & Adaptation to context

We can observe that these proposed categories are highly integrated. For instance “Improving Performance” will required to absorbe this new value in the “Sustaining”. Conversely not investing in “Sustaining” will at a point of time required to invest in “survival”.

The interest of this classification is that it pushes organizations to approach investment with a minimum discipline and develop awareness regarding their potential impact (Risk & Opportunity).

Optimizing an investment portfolio will become a matter of managing the risk & opportunity generated by investments and  external context (Market, Economics, Social), based on strategic priorities.  If it sounds simple, the execution of this principle is becoming extremely complex without having in place a living knowledge repository for investment. If the basic attributes could be tracked on a simple excel spreadsheet like: investment amount, expected return, break even; the understanding of risk & opportunity required a much broader set of attributes to answer questions such as:

- “What could be the premium cost to leverage an investment, and what is the cost of exercising this option?”

- “What is the overall profile of a past investment and what remaining potential value I can get from it, and at what price?” (See “CIOs, Manage your S-Curve“)

-”What is my exposition to risk?(See “The Dark Art of IT Investment“)

This is where BI solutions could help structure and extract relevant metrics to guide an organization toward the optimization of its investment portfolio. Today most of the companies are relying on market generic statements or beliefs for investments, but implementing a strong discipline and leveraging BI technologies, will enable them to lead their own destiny.

I will develop this model in future posts and elaborate a complete example on how it can be applied in a real case.

The Great Project Manager (Final Episode) – Building Momentum

Several years ago, I have the chance to read Jim Collins’ book – “Good to Great” (G2G), that has changed the way I was approaching performance in Project Management. I suggest to share with you my learnings in applying the different concepts raised in this book into the management of Strategic Projects.

The 5 key idea sets of G2G are: Level 5 Leadership – First Who, then What – Confront the brutal facts – Hedgehog Concept – The Flywheel and the Doom Loop.

The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good to great transformations never happen in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process – step by step, action by action, decision by decision, turn by turn of the flywheel – that adds up to sustained and spectacular results.

Here we are, this is the final episode of the serie “The Great Project Manager”. This flywheel’s  concept was for me certainly the most insightful of all and has truly changed the way I approach change in Project Management.

PM are often confronted with initiatives that truly challenge the established consensus, and impose an organization to change.  Most of the time, we call for change agents & dedicated program to help people transitioning to the target practices. But overall the experience of PM regarding changes are always challenging and you never seem to learn enough to have one flawless process that guaranty success.

According to Jim Collin’s study, good to great companies build momentum; step by step they are improving, and they do not seem to manage changes at all: it just happen. I understand how provocative this statement can be. However I personally discovered the power of such proposition whilst facing large strategic projects; and I have identified two principles that I try to enforce when dealing with such initiative.

1 – Building momentum starts with “Rules of engagement”. After having identify the right persons in the bus, it is important to set up some ground rules that will enable the team to work appropriately. Some example could be: “Meetings start and finish on time”, “Minutes are validated by the group, and always available”, “On a weekly basis an hour meeting is organized, seeking improvements to the way the team operates” etc… Although these measures will not deliver instant greatness, they are here to establish its foundation. Week after week the team will improve and deliver consistent results based on these principles.

2 – Rules of Engagement should enable targeted changes: You need to build inside your project the foundation for the changes you want to implement. If in the targeted model:

- People need to communicate virtually, use your project to infuse this type of change.

- Centralization of backoffice is required, embed progressively a similar approach in your project.

- Marketing need to be more proactive to customer expectation make them the champion of project improvements.

By applying these principles,  teams develop greatness overthe life of critical projects and adaptions to change are easier. Having said that we must recognize as professor George E. P. Box, “All models are wrong; some models are useful”. My proposal here is not to revolution the way we manage change in project, but rather to built on interesting findings to ease some of the pains we may be facing when dealing with changes.

That’s all folks. I really hope you enjoyed this serie of posts (The Great Project Manager”) as I did. I would like to thank you all for the encouragements, direct feedback and comments I received which helped me to finalize it in a reasonable time-frame.

Find the previous episodes here: Level 5 Leadership – First Who, then What – Confront the brutal facts – Hedgehog Concept – The Flywheel and the Doom Loop.

The Great Project Manager (Part2) – First Who Then What

Several years ago, I have the chance to read Jim Collins’ book – “Good to Great” (G2G), that has changed the way I was approaching performance in Project Management. I suggest to share with you my learnings in applying the different concepts raised in this book into the management of Strategic Projects.

TThe 5 key idea sets of G2G are: Level 5 Leadership – First Who, then What – Confront the brutal facts – Hedgehog Concept – The Flywheel and the Doom Loop.

This post is the second part of the Serie “The Great Project Manager”. Part 1 – Level 5 Leadership is available here.

First Who Then What. Get the right people on the bus, get the wrong people off the bus, get the right people in the right seat.

First Who is not the way most of the project teams are operating today. Usually the What is defined upfront with more or less details and the Who becomes a consequence of it. What Jim Collins is suggesting is to reverse this common sequence of events, and establish from the start who will be in and who will out. Of course a main purpose must be defined, such as project objectives, prior to the Who.

Projects are often under a lot of uncertainty. It might be the likelihood of the proposal, the people commitment, the market and the derived value proposition of the project, or external and unplanned events (political climate).  The best way to prepare for this uncertainty, and what you can not possibly predict is to focus first on the who.

This tenet is certainly the most challenging of all, as it requires the project manager to intervene in company politics. The first question that he or she must answer with the top management is “Am I the right person on this bus” – Do I share the same values -  do I feel holding a responsibility for what I’m going to do – am I or could I become the best person in the company to manage this project, is the top management team is expecting a Level 5 leadership.  If you feel comfortable with all these questions, you might be the right person. The importance here is that you keep your freedom of choice.

The second part will be to cascade these questions to the persons you will have on the project team. And this where internal politics can take place. However if you have gone thru the first step process (for yourself), this path should be facilitated.

Most of energy & time of Project Managers should be to identify the best people and get them in the bus. And most importantly get the wrong people off the bus. Whatever the time used to make this happen, the decision must be enforced as soon as you detect such person. As you have the right people on your project, they should be self-motivated and self-disciplined, which will considerably decrease the need to manage them. Trying to motivate or manage people is a waste of time, it should be automatically address if your are focusing first on the Who.

This question of Who applied as well to external parties such as services or product vendors. They should be selected based on the same principles. A deep discussion during the RFP or RFQ process should be engaged on the core values and purpose.

Along the way, you might find that a person well suited for a position in the project might be short, and the seat is becoming too big for him or her. It is again where great project managers dedicate themselves to identify the right path. Either reduce the size of the seat or reassign this person on an another seat.

Great project Managers know that the question of Who is on the bus (first) is what makes a project successful, and is a best way to manage uncertainty inherent to strategic projects.

The Great Project Manager Serie: Level 5 Leadership – First Who, then What – Confront the brutal facts – Hedgehog Concept – The Flywheel and the Doom Loop.

Balanced Scorecard & Strategy Map – What’s next?

I personnaly found very useful the utilization of the Strategy Map framework (Norton & Kaplan). It provides a solid foundation to articulate and promote a unified strategy and establish a rodmap for its execution thru explicit & meaningful measurements.

One thing that I struggle with, is the efficency of the execution and its related byproduct: “the optimization of the Investment Portfolio in changes”. I intend to write an article on this subject, and I am interrested by your feedback on the utilization of Strategy Maps and Balanced Scorecard and how your organization dealt with return & prioritization of  investments.

Looking forward to receiving your comments.

The Ultimate Guide: Strategy to Invest in IT Related Projects

How to ensure sustainable performance of your investments?

The suggested approach on how to evaluate an investment is steered toward its integration within an overall company investment portfolio. Most of the time organizations make their decision at project level, missing the big picture of strategy for resource allocation and are subsequently confronted with internal politics pressure.

I have created and used these guidelines in many situations to build a trusted relationship with senior management when deciding on where the company should invest.

Specific Assumptions Regarding this Guide: All project management matters should be treated separately. The focus in on the decision to invest, not on the organizational ability to execute. We focus here on investments that create new capability for the company by exploiting Information Technology; Investments sustaining the current capability could be dealt with a different approach, not describe here.

Expected Values for the Organization

What is the primary reason of this investment? Most of the time small investments are focused on delivering one key value segment for the organization. But when it comes to major changes like ERP, multiple values could be generated. Trying to allocate part of the investment to a specific value can become rapidly complex.

Focusing on the main reason of why we want to invest, force us into a two fold discussion: How do we define value, and can we structure (potentially phased) the project in a way that we are addressing key value segment? Value segments should be defined at the right level (Operational Efficiency versus Working Capital Improvement), measured with a key metric, and integrate the identification of the primary beneficiary of the value created (Shareholders, Customers, Employees, Partners, communities,). While other implicit values could be generated by the investment, identify them clearly as secondary.

Tip(s): Design your investment to focus on one critical value segment.

Suggested Reading(s): Potts

Underlying Variables and Risk Topology

Return on investment is usually based on critical assumptions, like market size, competition move, political climate, regulation framework etc…. Whilst investing, we need to identify clearly these parameters and their inherent level of uncertainty. In 80/20 Hugh Courtney suggests a framework to tackle with different profiles of uncertainty which could be used to improve our understanding of risk exposure. It is called the “4 levels of residual uncertainty”: “A clearenough future”, “Alternate Future”, “A range of futures”, “True ambiguity”.  A balance approach is recommended based on the appetite for risk of the organization (“Utility Curve”).

A company could define standard assumptions for the entire portfolio of investment and monitor their evolution over time. This will enable a more accurate picture of the value created and improve the confidence of senior management and shareholder in the way we invest in the company. It is all about managing expectations in an uncertain world.

It is important to notice here that topology of risk will drive the choice of the method used to calculate the return on investment (DCF, EVA, Decision tree, Real Options…).

Tip(s): Understand that you balance your portfolio on critical assumptions that you may not be in control of.

Suggested Reading(s): Trigeorgis, Courtney

Featured Video(s): Bernstein

Relationship between Effort & Performance

I have raised the importance of this relation, in one of my previous post (“The Dark Art of IT Investment”), and suggested to approach this paradigm thru the S-Curve model. When optimizing a portfolio of investment it is important to understand how far we are in the process in term of leveraging past investments. Further we should determine if we are reaching an inflection point when a more drastic change is required versus pursuing continuous improvements that might deliver less and less value.

It is interesting at this step to introduce some flexibility in your investment by incorporating “Options” that you could exercise later, or leverage past ones that you might have created. Several categorizations of these “Options” exist in the literature – Lenos Trigeorgis suggested: “Defer Investment”, “Time to Build”, “Expand”, “Contract”, “Shutdown & Restart”, “Abandon”, “Switch”.

Although theories and mathematical models are available on this subject, I strongly recommend keeping it simple and focusing on the big picture.

Tip(s): Calibrate your portfolio between leverage and future opportunities and optimize it by incorporating flexibility thru premiums.

Suggested Reading(s): Fibol

Tool(s): Working Capital Profiler

The True Recipient of Investment

This is where we bring the human side in the equation. We are all aware of the IT’s potential of disruption on process and organization. Even more, they impact People. A restrictive view is to consider the only change is related to the way people work. But we should consider an investment as a possible lever to change the way people are perceived, see others, and develop the organization as a whole.

Organization, Process, and Technology (OPT) are concepts that could potentially dehumanize the decision process. So rather than considering investing in OPT we are truly investing in People who will subsequently grow the organization. Having said that, it is critical to understand in which population we are investing, and how we intend to maximize the value from them.

Tip(s): Structure your portfolio around effective people and efficient processes.

Suggested Reading(s): Dupuy

Big Picture

To make a sound decision, leaders need to have a clear understanding of the commitment they are created for their organization. If establishing financial footprint of an investment for the next 3 to 5 years is common discipline nowadays, the operational impact of multiple investments is not generally not consider. One of the key advices that I offer when dealing with IT related Investment is to look at the big picture, and to use common sense whilst deciding on moving the entire organization.

Tip(s): Picture the organization after all investment decisions, and use common sense to ensure that this is where the organization should be according to its values and principles.

The Dark Art of IT Investment

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Companies have struggled during years with the allocation of their investments. Is 50% of them going to business infrastructure a good thing, should we not invest more in protecting our brand or increasing our operational efficiency? One of the underlying complexities is the relationship between level of investment and the expected value we get from it.

CIOs have learned to segregate their investment portfolio by type of value they are getting. But when it comes to validate the structure of their portfolio (% allocated to different value contributions), the discussion with senior management turns short, and often ends by “That’s sounds good, but investment pool will be under a lot of scrutiny this year, and projects will be approved on an individual basis”.

Most of the time businesses have set up clear strategic objectives and identified two to three strategic axis, such as developing market reach, improving the efficiency of our supply chain, accelerating the introduction of new product. Based on these critical assumptions, CIOs are ensuring that money invested goes to these strategic buckets. However depending on several factors, minor investments could bring incredible value with rapid return, and large investment might result in additional risk for the company but could eventually generate important future cash flow. It becomes obvious here that if we are trying to architect the overall investment structure of a company by working at projects level, it will un-doubtfully lead to a short term approach, and select initiatives with rapid return and low risks; two separate discussions need to take place to tackle with this issue.

One of my previous post “Integrate IT in the Company Investment Portfolio” highlighted the importance to separate the formulation of an investment strategy in changes from its relative optimization: 1- The formulation will enable the identification of value segments where the company should invest and the expected performance targets to achieve,  spread over a cycle of 3 to 5 years and the overall envelope of investment. The company should as well clearly state its appetite for risk. 2 – Optimization is a close loop cycle  developing alternate scenario on investment structure to satisfy targeted performances.

This second step is certainly the most challenging one as it can trigger important changes in the organization. Performance and Effort are linked and expressed by the S-Curve model.

It implies a limit to performance (whatever the effort provided) if we continue to operate under the same business model and lead organizations to define new working assumptions to eventually continue to improve their performance.

The chart depicts this process (X axis: Effort; Y axis: Performance).

As any important change the immediate performance will drop in the first step and grow progressively. This paradigm shift is disruptive but create opportunities to limit the size of future investments whilst growing rapidly the performance.

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CIOs are certainly one of the best resources in the Enterprise to understand impact of changes and their expected return. Using this approach they could feed a strategic discussion with senior management and enable long-term creation of value for their company.

If you are interested in S-Curve for IT, you can consult “CIOs Manage you S-Curve“.

The title picture is a John Gilbert’s Sculture representing “The symbol of Uncertainty”, 2001, Ceramic on Marble.