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Learning Objectives
1. Describe a content theory of motivation.
The theories presented in this section focus on the importance of human needs. A common thread through all of them is that people have a variety of needs. A need is a human condition that becomes “energized” when people feel deficient in some respect. When we are hungry, for example, our need for food has been energized. Two features of needs are key to understanding motivation. First, when a need has been energized, we are motivated to satisfy it. We strive to make the need disappear. Hedonism, one of the first motivation theories, assumes that people are motivated to satisfy mainly their own needs (seek pleasure, avoid pain). Long since displaced by more refined theories, hedonism clarifies the idea that needs provide direction for motivation. Second, once we have satisfied a need, it ceases to motivate us. When we’ve eaten to satiation, we are no longer motivated to eat. Other needs take over and we endeavor to satisfy them. A manifest need is whatever need is motivating us at a given time. Manifest needs dominate our other needs.
Instincts are our natural, fundamental needs, basic to our survival. Our needs for food and water are instinctive. Many needs are learned. We are not born with a high (or low) need for achievement—we learn to need success (or failure). The distinction between instinctive and learned needs sometimes blurs; for example, is our need to socialize with other people instinctive or learned?
Manifest Needs Theory
One major problem with the need approach to motivation is that we can make up a need for every human behavior. Do we “need” to talk or be silent? The possibilities are endless. In fact, around the 1920s, some 6,000 human needs had been identified by behavioral scientists!
Henry A. Murray recognized this problem and condensed the list into a few instinctive and learned needs.3 Instincts, which Murray called primary needs, include physiological needs for food, water, sex (procreation), urination, and so on. Learned needs, which Murray called secondary needs, are learned throughout one’s life and are basically psychological in nature. They include such needs as the need for achievement, for love, and for affiliation (see Table 14.1).4
Sample Items from Murray’s List of Needs
Social Motive Brief Definition
Source: Adapted from C. S. Hall and G. Lindzey, Theories of Personality. Sample items from Murray’s List of Needs. Copyright 1957 by John Wiley & Sons, New York.
Abasement To submit passively to external force. To accept injury, blame, criticism, punishment. To surrender.
Achievement To accomplish something difficult. To master, manipulate, or organize physical objects, human beings, or ideas.
Affiliation To draw near and enjoyably cooperate or reciprocate with an allied other (an other who resembles the subject or who likes the subject). To please and win affection of a coveted object. To adhere and remain loyal to a friend.
Aggression To overcome opposition forcefully. To fight. To revenge an injury. To attack, injure, or kill another. To oppose forcefully or punish another.
Autonomy To get free, shake off restraint, break out of confinement.
Counteraction To master or make up for a failure by restriving.
Defendance To defend the self against assault, criticism, and blame. To conceal or justify a misdeed, failure, or humiliation. To vindicate the ego.
Deference To admire and support a superior. To praise, honor, or eulogize.
Dominance To control one’s human environment. To influence or direct the behavior of others by suggestion, seduction, persuasion, or command.
Exhibition To make an impression. To be seen and heard. To excite, amaze, fascinate, entertain, shock, intrigue, amuse, or entice others.
Harm avoidance To avoid pain, physical injury, illness, and death. To escape from a dangerous situation. To take precautionary measures.
Infavoidance To avoid humiliation. To quit embarrassing situations or to avoid conditions that may lead to belittlement or the scorn or indifference of others.
Nurturance To give sympathy and gratify the needs of a helpless object: an infant or any object that is weak, disabled, tired, inexperienced, infirm, defeated, humiliated, lonely, dejected, sick, or mentally confused. To assist an object in danger. To feed, help, support, console, protect, comfort, nurse, heal.
Order To put things in order. To achieve cleanliness, arrangement, organization, balance, neatness, tidiness, and precision.
Play To act for “fun” without further purpose. To like to laugh and make jokes. To seek enjoyable relaxation from stress.
Rejection To separate oneself from a negatively valued object. To exclude, abandon, expel, or remain indifferent to an inferior object. To snub or jilt an object.
Sentience To seek and enjoy sensuous impressions.
Sex To form and further an erotic relationship. To have sexual intercourse.
Succorance To have one’s needs gratified by the sympathetic aid of an allied object.
Understanding To ask or answer general questions. To be interested in theory. To speculate, formulate, analyze, and generalize.
Table 14.1
Murray’s main premise was that people have a variety of needs, but only a few are expressed at a given time. When a person is behaving in a way that satisfies some need, Murray called the need manifest. Manifest needs theory assumes that human behavior is driven by the desire to satisfy needs. Lucretia’s chattiness probably indicates her need for affiliation. This is a manifest need. But what if Lucretia also has a need to dominate others? Could we detect that need from her current behavior? If not, Murray calls this a latent need. A latent need cannot be inferred from a person’s behavior at a given time, yet the person may still possess that need. The person may not have had the opportunity to express the need. Or she may not be in the proper environment to solicit behaviors to satisfy the need. Lucretia’s need to dominate may not be motivating her current behavior because she is with friends instead of coworkers.
Manifest needs theory laid the groundwork for later theories, most notably McClelland’s learned needs theory, that have greatly influenced the study of organizational behavior. The major implication for management is that some employee needs are latent. Managers often assume that employees do not have certain needs because the employees never try to satisfy them at work. Such needs may exist (latent needs); the work environment is simply not conducive to their manifestation (manifest needs). A reclusive accountant may not have been given the opportunity to demonstrate his need for achievement because he never received challenging assignments.
Learned Needs Theory
David C. McClelland and his associates (especially John W. Atkinson) built on the work of Murray for over 50 years. Murray studied many different needs, but very few in any detail. McClelland’s research differs from Murray’s in that McClelland studied three needs in-depth: the need for achievement, the need for affiliation, and the need for power (often abbreviated, in turn, as nAch, nAff, and nPow).5 McClelland believes that these three needs are learned, primarily in childhood. But he also believes that each need can be taught, especially nAch. McClelland’s research is important because much of current thinking about organizational behavior is based on it.
Need for Achievement
The need for achievement (nAch) is how much people are motivated to excel at the tasks they are performing, especially tasks that are difficult. Of the three needs studied by McClelland, nAch has the greatest impact. The need for achievement varies in intensity across individuals. This makes nAch a personality trait as well as a statement about motivation. When nAch is being expressed, making it a manifest need, people try hard to succeed at whatever task they’re doing. We say these people have a high achievement motive. A motive is a source of motivation; it is the need that a person is attempting to satisfy. Achievement needs become manifest when individuals experience certain types of situations.
To better understand the nAch motive, it’s helpful to describe high-nAch people. You probably know a few of them. They’re constantly trying to accomplish something. One of your authors has a father-in-law who would much rather spend his weekends digging holes (for various home projects) than going fishing. Why? Because when he digs a hole, he gets results. In contrast, he can exert a lot of effort and still not catch a fish. A lot of fishing, no fish, and no results equal failure!
McClelland describes three major characteristics of high-nAch people:
1. They feel personally responsible for completing whatever tasks they are assigned. They accept credit for success and blame for failure.
2. They like situations where the probability of success is moderate. High-nAch people are not motivated by tasks that are too easy or extremely difficult. Instead, they prefer situations where the outcome is uncertain, but in which they believe they can succeed if they exert enough effort. They avoid both simple and impossible situations.
3. They have very strong desires for feedback about how well they are doing. They actively seek out performance feedback. It doesn’t matter whether the information implies success or failure. They want to know whether they have achieved or not. They constantly ask how they are doing, sometimes to the point of being a nuisance.
Why is nAch important to organizational behavior? The answer is, the success of many organizations is dependent on the nAch levels of their employees.6 This is especially true for jobs that require self-motivation and managing others. Employees who continuously have to be told how to do their jobs require an overly large management team, and too many layers of management spell trouble in the current marketplace. Today’s flexible, cost-conscious organizations have no room for top-heavy structures; their high-nAch employees perform their jobs well with minimal supervision.
Many organizations manage the achievement needs of their employees poorly. A common perception about people who perform unskilled jobs is that they are unmotivated and content doing what they are doing. But, if they have achievement needs, the job itself creates little motivation to perform. It is too easy. There are not enough workers who feel personal satisfaction for having the cleanest floors in a building. Designing jobs that are neither too challenging nor too boring is key to managing motivation. Job enrichment is one effective strategy; this frequently entails training and rotating employees through different jobs, or adding new challenges.
Need for Affiliation
This need is the second of McClelland’s learned needs. The need for affiliation (nAff) reflects a desire to establish and maintain warm and friendly relationships with other people. As with nAch, nAff varies in intensity across individuals. As you would expect, high-nAff people are very sociable. They’re more likely to go bowling with friends after work than to go home and watch television. Other people have lower affiliation needs. This doesn’t mean that they avoid other people, or that they dislike others. They simply don’t exert as much effort in this area as high-nAff people do.
The nAff has important implications for organizational behavior. High-nAff people like to be around other people, including other people at work. As a result, they perform better in jobs that require teamwork. Maintaining good relationships with their coworkers is important to them, so they go to great lengths to make the work group succeed because they fear rejection. So, high-nAff employees will be especially motivated to perform well if others depend on them. In contrast, if high-nAff people perform jobs in isolation from other people, they will be less motivated to perform well. Performing well on this job won’t satisfy their need to be around other people.
Effective managers carefully assess the degree to which people have high or low nAff. Employees high in nAff should be placed in jobs that require or allow interactions with other employees. Jobs that are best performed alone are more appropriate for low-nAff employees, who are less likely to be frustrated.
Need for Power
The third of McClelland’s learned needs, the need for power (nPow), is the need to control things, especially other people. It reflects a motivation to influence and be responsible for other people. An employee who is often talkative, gives orders, and argues a lot is motivated by the need for power over others.
Employees with high nPow can be beneficial to organizations. High-nPow people do have effective employee behaviors, but at times they’re disruptive. A high-nPow person may try to convince others to do things that are detrimental to the organization. So, when is this need good, and when is it bad? Again, there are no easy answers. McClelland calls this the “two faces of power.”7 A personal power seeker endeavors to control others mostly for the sake of dominating them. They want others to respond to their wishes whether or not it is good for the organization. They “build empires,” and they protect them.
McClelland’s other power seeker is the social power seeker. A high social power seeker satisfies needs for power by influencing others, like the personal power seeker. They differ in that they feel best when they have influenced a work group to achieve the group’s goals, and not some personal agenda. High social power seekers are concerned with goals that a work group has set for itself, and they are motivated to influence others to achieve the goal. This need is oriented toward fulfilling responsibilities to the employer, not to the self.
McClelland has argued that the high need for social power is the most important motivator for successful managers. Successful managers tend to be high in this type of nPow. High need for achievement can also be important, but it sometimes results in too much concern for personal success and not enough for the employer’s success. The need for affiliation contributes to managerial success only in those situations where the maintenance of warm group relations is as important as getting others to work toward group goals.
The implication of McClelland’s research is that organizations should try to place people with high needs for social power in managerial jobs. It is critical, however, that those managerial jobs allow the employee to satisfy the nPow through social power acquisition. Otherwise, a manager high in nPow may satisfy this need through acquisition of personal power, to the detriment of the organization.
ETHICS IN PRACTICE
Corporate Social Responsibility as a Motivating Force
Whatever their perspective, most people have a cause that they are passionate about. Bitcoin or net neutrality, sea levels or factory farming—social causes bind us to a larger context or assume a higher purpose for living better.
So what motivates employees to give their all, work creatively, and be fully engaged? According to CB Bhattacharya, the Pietro Ferrero Chair in Sustainability at ESMT European School of Management and Technology in Berlin, Germany, employment engagement, or how positive employees feel about their current job, was at an all-time low globally in 2016: 13 percent. But not all companies battle such low engagement rates. Unilever employees more than 170,000 workers globally and has an employ engagement level around 80 percent. How? Bhattacharya credits the success of Unilever, and other companies with similar engagement levels, to an emphasis on a “sustainable business model.” He outlines eight steps that companies take to move sustainability and social responsibility from buzzwords to a company mission capable of motivating employees (Knowledge @ Wharton 2016).
According to Bhattacharya, a company needs to first define what it does and its long-term purpose, and then reconcile its sustainability goals with its economic goals. With its purpose and goals defined, it can then educate the workforce on sustainable methods to create knowledge and competence. Champions for the effort must be found throughout the organization, not just at the top. Competition should be encouraged among employees to find and embrace new goals. Sustainability should be visible both within and outside the company. Sustainability should be tied to a higher purpose and foster a sense of unity not simply among employees, but even with competition at a societal level (Knowledge @ Wharton 2016).
Other companies have made social responsibility an everyday part of what they do. Launched in 2013, Bombas is the brain child of Randy Goldberg and David Heath. Goldberg and Heath discovered that socks are the most-requested clothing at homeless shelters. In response, the two entrepreneurs launched a line of socks that not only “reinvents” the sock (they claim), but also helps those in need. For each pair of socks purchased, the company donates a pair of socks to someone in need (Mulvey 2017). According to the company website, “Bombas exists to help solve this problem, to support the homeless community, and to bring awareness to an under-publicized problem in the United States” (n.p.). Although the New York–based company is still growing, as of October 2017 Bombas had donated more than four million pairs of socks (Bombas 2017).
In 2016, the Royal Bank of Scotland (RBS) launched a pilot program called Jump in which employees participated in challenges on ways to save water and electricity, as well as other sustainability issues. At the end of the pilot, 95 percent of the employees reported that they felt the program had contributed to employee engagement, team building, and environmental stability. Given the success of the program, in 2017 it was expanded to all RBS sites and a smartphone app was added to help employees participate in the challenges (Barton 2017).
Placing a company in a larger context and adding a second, higher purpose than the established company goals motivates employees to police the company itself to be a better global citizen. Companies benefit from reduced waste and increased employee engagement. Many companies are successfully motivating their staff, and working toward more sustainable practices, while improving lives directly.
sources
Barton, Tynan. 2017. “RBS boosts employee motivation and engagement through its CSR approach.” employee benefits. https://www.employeebenefits.co.uk/i...-csr-approach/
Bombas. 2017. “Giving Back.” https://bombas.com/pages/giving-back
Knowledge @ Wharton. 2016. “How Companies Can Tap Sustainability to Motivate Staff.” http://knowledge.wharton.upenn.edu/a...otivate-staff/
Mulvey, Kelsey. 2017. “This company spent two years perfecting gym socks, and it paid off.” Business Insider. http://www.businessinsider.com/bomba...-review-2017-1
questions
1. Do you think social responsibility to promote sustainable practices? Why or why not?
2. Do you think most companies’ CSR programs are essentially PR gimmicks? Why or why not? Give examples.
Maslow’s Hierarchy of Needs
Any discussion of needs that motivate performance would be incomplete without considering Abraham Maslow.8 Thousands of managers in the 1960s were exposed to Maslow’s theory through the popular writings of Douglas McGregor.9 Today, many of them still talk about employee motivation in terms of Maslow’s theory.
Maslow was a psychologist who, based on his early research with primates (monkeys), observations of patients, and discussions with employees in organizations, theorized that human needs are arranged hierarchically. That is, before one type of need can manifest itself, other needs must be satisfied. For example, our need for water takes precedence over our need for social interaction (this is also called prepotency). We will always satisfy our need for water before we satisfy our social needs; water needs have prepotency over social needs. Maslow’s theory differs from others that preceded it because of this hierarchical, prepotency concept.
Maslow went on to propose five basic types of human needs. This is in contrast to the thousands of needs that earlier researchers had identified, and also fewer than Murray identified in his theory. Maslow condensed human needs into a manageable set. Those five human needs, in the order of prepotency in which they direct human behavior, are:
1. Physiological and survival needs. These are the most basic of human needs, and include the needs for water, food, sex, sleep, activity, stimulation, and oxygen.
2. Safety and security needs. These needs invoke behaviors that assure freedom from danger. This set of needs involves meeting threats to our existence, including extremes in environmental conditions (heat, dust, and so on), assault from other humans, tyranny, and murder. In other words, satisfaction of these needs prevents fear and anxiety while adding stability and predictability to life.
3. Social needs. These needs reflect human desires to be the target of affection and love from others. They are especially satisfied by the presence of spouses, children, parents, friends, relatives, and others to whom we feel close. Feelings of loneliness and rejection are symptoms that this need has not been satisfied.
4. Ego and esteem. Esteem needs go beyond social needs. They reflect our need to be respected by others, and to have esteem for ourselves. It is one thing to be liked by others. It is another thing to be respected for our talents and abilities. Ego and esteem needs have internal (self) and external (others) focuses. An internal focus includes desires for achievement, strength, competence, confidence, and independence. An external focus includes desires to have prestige, recognition, appreciation, attention, and respect from others. Satisfaction of external esteem needs can lead to satisfaction of internal esteem needs.
5. Self-actualization. Self-actualization needs are the most difficult to describe. Unlike the other needs, the need for self-actualization is never completely satisfied. Self-actualization involves a desire for self-fulfillment, “to become more and more what one is, to become everything that one is capable of becoming.”10 Because people are so different in their strengths and weaknesses, in capacities and limitations, the meaning of self-actualization varies greatly. Satisfying self-actualization needs means developing all of our special abilities to their fullest degree.
Figure 14.2.2: A protester at an anti-war demonstration in Seattle held up this sign. Where would you place that on Maslow’s hierarchy of needs?
Figure 14.2.3 illustrates Maslow’s proposed hierarchy of needs. According to his theory, people first direct their attention to satisfying their lower-order needs. Those are the needs at the bottom of the pyramid (physiological, safety, and security). Once those needs have been satisfied, the next level, social needs, become energized. Once satisfied, we focus on our ego and esteem needs. Maslow believed that most people become fixated at this level. That is, most people spend much of their lives developing self-esteem and the esteem of others. But, once those esteem needs are satisfied, Maslow predicted that self-actualization needs would dominate. There are no higher levels in the pyramid, because self-actualization needs can never be fully satisfied. They represent a continuing process of self-development and self-improvement that, once satisfied on one dimension (painting), create motivation to continue on other dimensions (sculpting). One wonders if athletes like Tim Tebow are self-actualizing when they participate in multiple sporting endeavors at the professional level.
An overriding principle in this theory is that a person’s attention (direction) and energy (intensity) will focus on satisfying the lowest-level need that is not currently satisfied. Needs can also be satisfied at some point but become active (dissatisfied) again. Needs must be “maintained” (we must continue to eat occasionally). According to Maslow, when lower-level needs are reactivated, we once again concentrate on that need. That is, we lose interest in the higher-level needs when lower-order needs are energized.
The implications of Maslow’s theory for organizational behavior are as much conceptual as they are practical. The theory posits that to maximize employee motivation, employers must try to guide workers to the upper parts of the hierarchy. That means that the employer should help employees satisfy lower-order needs like safety and security and social needs. Once satisfied, employees will be motivated to build esteem and respect through their work achievements. Figure 14.2.3 shows how Maslow’s theory relates to factors that organizations can influence. For example, by providing adequate pay, safe working conditions, and cohesive workgroups, employers help employees satisfy their lower-order needs. Once satisfied, challenging jobs, additional responsibilities, and prestigious job titles can help employees satisfy higher-order esteem needs.
Maslow’s theory is still popular among practicing managers. Organizational behavior researchers, however, are not as enamored with it because research results don’t support Maslow’s hierarchical notion. Apparently, people don’t go through the five levels in a fixed fashion. On the other hand, there is some evidence that people satisfy the lower-order needs before they attempt to satisfy higher-order needs. Refinements of Maslow’s theory in recent years reflect this more limited hierarchy.11 The self-assessment below will allow you to evaluate the strength of your five needs.
Alderfer’s ERG Theory
Clayton Alderfer observed that very few attempts had been made to test Maslow’s full theory. Further, the evidence accumulated provided only partial support. During the process of refining and extending Maslow’s theory, Alderfer provided another need-based theory and a somewhat more useful perspective on motivation.12 Alderfer’s ERG theory compresses Maslow’s five need categories into three: existence, relatedness, and growth.13 In addition, ERG theory details the dynamics of an individual’s movement between the need categories in a somewhat more detailed fashion than typically characterizes interpretations of Maslow’s work.
As shown in Figure 14.2.4, the ERG model addresses the same needs as those identified in Maslow’s work:
• Existence needs include physiological and material safety needs. These needs are satisfied by material conditions and not through interpersonal relations or personal involvement in the work setting.
• Relatedness needs include all of Maslow’s social needs, plus social safety and social esteem needs. These needs are satisfied through the exchange of thoughts and feelings with other people.
• Growth needs include self-esteem and self-actualization needs. These needs tend to be satisfied through one’s full involvement in work and the work setting.
Figure 14.2.5 identifies a number of ways in which organizations can help their members satisfy these three needs.
Four components—satisfaction progression, frustration, frustration regression, and aspiration—are key to understanding Alderfer’s ERG theory. The first of these, satisfaction progression, is in basic agreement with Maslow’s process of moving through the needs. As we increasingly satisfy our existence needs, we direct energy toward relatedness needs. As these needs are satisfied, our growth needs become more active. The second component, frustration, occurs when we attempt but fail to satisfy a particular need. The resulting frustration may make satisfying the unmet need even more important to us—unless we repeatedly fail to satisfy that need. In this case, Alderfer’s third component, frustration regression, can cause us to shift our attention to a previously satisfied, more concrete, and verifiable need. Lastly, the aspiration component of the ERG model notes that, by its very nature, growth is intrinsically satisfying. The more we grow, the more we want to grow. Therefore, the more we satisfy our growth need, the more important it becomes and the more strongly we are motivated to satisfy it.
Alderfer’s model is potentially more useful than Maslow’s in that it doesn’t create false motivational categories. For example, it is difficult for researchers to ascertain when interaction with others satisfies our need for acceptance and when it satisfies our need for recognition. ERG also focuses attention explicitly on movement through the set of needs in both directions. Further, evidence in support of the three need categories and their order tends to be stronger than evidence for Maslow’s five need categories and their relative order.
Herzberg’s Motivator-Hygiene Theory
Clearly one of the most influential motivation theories throughout the 1950s and 1960s was Frederick Herzberg’s motivator-hygiene theory.14 This theory is a further refinement of Maslow’s theory. Herzberg argued that there are two sets of needs, instead of the five sets theorized by Maslow. He called the first set “motivators” (or growth needs). Motivators, which relate to the jobs we perform and our ability to feel a sense of achievement as a result of performing them, are rooted in our need to experience growth and self-actualization. The second set of needs he termed “hygienes.” Hygienes relate to the work environment and are based in the basic human need to “avoid pain.” According to Herzberg, growth needs motivate us to perform well and, when these needs are met, lead to the experience of satisfaction. Hygiene needs, on the other hand, must be met to avoid dissatisfaction (but do not necessarily provide satisfaction or motivation).15
Hygiene factors are not directly related to the work itself (job content). Rather, hygienes refer to job context factors (pay, working conditions, supervision, and security). Herzberg also refers to these factors as “dissatisfiers” because they are frequently associated with dissatisfied employees. These factors are so frequently associated with dissatisfaction that Herzberg claims they never really provide satisfaction. When they’re present in sufficient quantities, we avoid dissatisfaction, but they do not contribute to satisfaction. Furthermore, since meeting these needs does not provide satisfaction, Herzberg concludes that they do not motivate workers.
Motivator factors involve our long-term need to pursue psychological growth (much like Maslow’s esteem and self-actualization needs). Motivators relate to job content. Job content is what we actually do when we perform our job duties. Herzberg considered job duties that lead to feelings of achievement and recognition to be motivators. He refers to these factors as “satisfiers” to reflect their ability to provide satisfying experiences. When these needs are met, we experience satisfaction. Because meeting these needs provides satisfaction, they motivate workers. More specifically, Herzberg believes these motivators lead to high performance (achievement), and the high performance itself leads to satisfaction.
The unique feature of Herzberg’s theory is that job conditions that prevent dissatisfaction do not cause satisfaction. Satisfaction and dissatisfaction are on different “scales” in his view. Hygienes can cause dissatisfaction if they are not present in sufficient levels. Thus, an employee can be dissatisfied with low pay. But paying him more will not cause long-term satisfaction unless motivators are present. Good pay by itself will only make the employee neutral toward work; to attain satisfaction, employees need challenging job duties that result in a sense of achievement. Employees can be dissatisfied, neutral, or satisfied with their jobs, depending on their levels of hygienes and motivators. Herzberg’s theory even allows for the possibility that an employee can be satisfied and dissatisfied at the same time—the “I love my job but I hate the pay” situation!
Herzberg’s theory has made lasting contributions to organizational research and managerial practice. Researchers have used it to identify the wide range of factors that influence worker reactions. Previously, most organizations attended primarily to hygiene factors. Because of Herzberg’s work, organizations today realize the potential of motivators. Job enrichment programs are among the many direct results of his research.
Herzberg’s work suggests a two-stage process for managing employee motivation and satisfaction. First, managers should address the hygiene factors. Intense forms of dissatisfaction distract employees from important work-related activities and tend to be demotivating.16 Thus, managers should make sure that such basic needs as adequate pay, safe and clean working conditions, and opportunities for social interaction are met. They should then address the much more powerful motivator needs, in which workers experience recognition, responsibility, achievement, and growth. If motivator needs are ignored, neither long-term satisfaction nor high motivation is likely. When motivator needs are met, however, employees feel satisfied and are motivated to perform well.
Self-Determination Theory
One major implication of Herzberg’s motivator-hygiene theory is the somewhat counterintuitive idea that managers should focus more on motivators than on hygienes. (After all, doesn’t everyone want to be paid well? Organizations have held this out as a chief motivator for decades!) Why might concentrating on motivators give better results? To answer this question, we must examine types of motivation. Organizational behavior researchers often classify motivation in terms of what stimulates it. In the case of extrinsic motivation, we endeavor to acquire something that satisfies a lower-order need. Jobs that pay well and that are performed in safe, clean working conditions with adequate supervision and resources directly or indirectly satisfy these lower-order needs. These “outside the person” factors are extrinsic rewards.
Factors “inside” the person that cause people to perform tasks, intrinsic motivation, arise out of performing a task in and of itself, because it is interesting or “fun” to do. The task is enjoyable, so we continue to do it even in the absence of extrinsic rewards. That is, we are motivated by intrinsic rewards, rewards that we more or less give ourselves. Intrinsic rewards satisfy higher-order needs like relatedness and growth in ERG theory. When we sense that we are valuable contributors, are achieving something important, or are getting better at some skill, we like this feeling and strive to maintain it.
Self-determination theory (SDT) seeks to explain not only what causes motivation, but also how extrinsic rewards affect intrinsic motivation.17 In SDT, extrinsic motivation refers to the performance of an activity in order to attain some valued outcome, while intrinsic motivation refers to performing an activity for the inherent satisfaction of the activity itself. SDT specifies when an activity will be intrinsically motivating and when it will not. Considerable numbers of studies have demonstrated that tasks are intrinsically motivating when they satisfy at least one of three higher-order needs: competence, autonomy, and relatedness. These precepts from SDT are entirely consistent with earlier discussions of theories by McClelland, Maslow, Alderfer, and Herzberg.
SDT takes the concepts of extrinsic rewards and intrinsic motivation further than the other need theories. SDT researchers have consistently found that as the level of extrinsic rewards increases, the amount of intrinsic motivation decreases. That is, SDT posits that extrinsic rewards not only do not provide intrinsic motivation, they diminish it. Think of this in terms of hobbies. Some people like to knit, others like to carve wood. They do it because it is intrinsically motivating; the hobby satisfies needs for competence, autonomy, and relatedness. But what happens if these hobbyists start getting paid well for their sweaters and carvings? Over time the hobby becomes less fun and is done in order to receive extrinsic rewards (money). Extrinsic motivation increases as intrinsic motivation decreases! When extrinsic rewards are present, people do not feel like what they do builds competence, is self-determined, or enhances relationships with others.
SDT theory has interesting implications for the management of organizational behavior. Some jobs are by their very nature uninteresting and unlikely to be made interesting. Automation has eliminated many such jobs, but they are still numerous. SDT would suggest that the primary way to motivate high performance for such jobs is to make performance contingent on extrinsic rewards. Relatively high pay is necessary to sustain performance on certain low-skill jobs. On the other hand, SDT would suggest that to enhance intrinsic motivation on jobs that are interesting, don’t focus only on increasing extrinsic rewards (like large pay bonuses). Instead, create even more opportunities for employees to satisfy their needs for competence, autonomy, and relatedness. That means giving them opportunities to learn new skills, to perform their jobs without interference, and to develop meaningful relationships with other customers and employees in other departments. Such actions enhance intrinsic rewards.
You may have noticed that content theories are somewhat quiet about what determines the intensity of motivation. For example, some people steal to satisfy their lower-order needs (they have high intensity). But most of us don’t steal. Why is this? Process theories of motivation attempt to explain this aspect of motivation by focusing on the intensity of motivation as well as its direction. According to self-determination theory, skilled workers who are given a chance to hone their skills and the freedom to practice their craft will be intrinsically motivated.
concept check
1. Understand the content theories of motivation.
2. Understand the contributions that Murray, McClelland, Maslow, Alderfer, and Herzberg made toward an understanding of human motivation. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/14%3A_Work_Motivation_for_Performance/14.02%3A_Content_Theories_of_Motivation.txt |
Learning Objectives
1. Describe the process theories of motivation, and compare and contrast the main process theories of motivation: operant conditioning theory, equity theory, goal theory, and expectancy theory.
Process theories of motivation try to explain why behaviors are initiated. These theories focus on the mechanism by which we choose a target, and the effort that we exert to “hit” the target. There are four major process theories: (1) operant conditioning, (2) equity, (3) goal, and (4) expectancy.
Operant Conditioning Theory
Operant conditioning theory is the simplest of the motivation theories. It basically states that people will do those things for which they are rewarded and will avoid doing things for which they are punished. This premise is sometimes called the “law of effect.” However, if this were the sum total of conditioning theory, we would not be discussing it here. Operant conditioning theory does offer greater insights than “reward what you want and punish what you don’t,” and knowledge of its principles can lead to effective management practices.
Operant conditioning focuses on the learning of voluntary behaviors.18 The term operant conditioning indicates that learning results from our “operating on” the environment. After we “operate on the environment” (that is, behave in a certain fashion), consequences result. These consequences determine the likelihood of similar behavior in the future. Learning occurs because we do something to the environment. The environment then reacts to our action, and our subsequent behavior is influenced by this reaction.
The Basic Operant Model
According to operant conditioning theory, we learn to behave in a particular fashion because of consequences that resulted from our past behaviors.19 The learning process involves three distinct steps (see Table 14.2). The first step involves a stimulus (S). The stimulus is any situation or event we perceive that we then respond to. A homework assignment is a stimulus. The second step involves a response (R), that is, any behavior or action we take in reaction to the stimulus. Staying up late to get your homework assignment in on time is a response. (We use the words response and behavior interchangeably here.) Finally, a consequence (C) is any event that follows our response and that makes the response more or less likely to occur in the future. If Colleen Sullivan receives praise from her superior for working hard, and if getting that praise is a pleasurable event, then it is likely that Colleen will work hard again in the future. If, on the other hand, the superior ignores or criticizes Colleen’s response (working hard), this consequence is likely to make Colleen avoid working hard in the future. It is the experienced consequence (positive or negative) that influences whether a response will be repeated the next time the stimulus is presented.
Process Theories of Motivation
General Operant Model: S → R → C
Ways to Strengthen the S → R Link
1. S → R → C+ (Positive Reinforcement)
2. S → R → C– (Negative Reinforcement)
3. S → R → (no C–) (Avoidance Learning)
Ways to Weaken the S → R Link
1. S → R → (no C) (Nonreinforcement)
2. S → R → C– (Punishment)
Table 14.2 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Reinforcement occurs when a consequence makes it more likely the response/behavior will be repeated in the future. In the previous example, praise from Colleen’s superior is a reinforcer. Extinction occurs when a consequence makes it less likely the response/behavior will be repeated in the future. Criticism from Colleen’s supervisor could cause her to stop working hard on any assignment.
There are three ways to make a response more likely to recur: positive reinforcement, negative reinforcement, and avoidance learning. In addition, there are two ways to make the response less likely to recur: nonreinforcement and punishment.
Making a Response More Likely
According to reinforcement theorists, managers can encourage employees to repeat a behavior if they provide a desirable consequence, or reward, after the behavior is performed. Positive reinforcement is a desirable consequence that satisfies an active need or that removes a barrier to need satisfaction. It can be as simple as a kind word or as major as a promotion. Companies that provide “dinners for two” as awards to those employees who go the extra mile are utilizing positive reinforcement. It is important to note that there are wide variations in what people consider to be a positive reinforcer. Praise from a supervisor may be a powerful reinforcer for some workers (like high-nAch individuals) but not others.
Another technique for making a desired response more likely to be repeated is known as negative reinforcement. When a behavior causes something undesirable to be taken away, the behavior is more likely to be repeated in the future. Managers use negative reinforcement when they remove something unpleasant from an employee’s work environment in the hope that this will encourage the desired behavior. Ted doesn’t like being continually reminded by Philip to work faster (Ted thinks Philip is nagging him), so he works faster at stocking shelves to avoid being criticized. Philip’s reminders are a negative reinforcement for Ted.
Approach using negative reinforcement with extreme caution. Negative reinforcement is often confused with punishment. Punishment, unlike reinforcement (negative or positive), is intended to make a particular behavior go away (not be repeated). Negative reinforcement, like positive reinforcement, is intended to make a behavior more likely to be repeated in the future. In the previous example, Philip’s reminders simultaneously punished one behavior (slow stocking) and reinforced another (faster stocking). The difference is often a fine one, but it becomes clearer when we identify the behaviors we are trying to encourage (reinforcement) or discourage (punishment).
A third method of making a response more likely to occur involves a process known as avoidance learning. Avoidance learning occurs when we learn to behave in a certain way to avoid encountering an undesired or unpleasant consequence. We may learn to wake up a minute or so before our alarm clock rings so we can turn it off and not hear the irritating buzzer. Some workers learn to get to work on time to avoid the harsh words or punitive actions of their supervisors. Many organizational discipline systems rely heavily on avoidance learning by using the threat of negative consequences to encourage desired behavior. When managers warn an employee not to be late again, when they threaten to fire a careless worker, or when they transfer someone to an undesirable position, they are relying on the power of avoidance learning.
Making a Response Less Likely
At times it is necessary to discourage a worker from repeating an undesirable behavior. The techniques managers use to make a behavior less likely to occur involve doing something that frustrates the individual’s need satisfaction or that removes a currently satisfying circumstance. Punishment is an aversive consequence that follows a behavior and makes it less likely to reoccur.
Note that managers have another alternative, known as nonreinforcement, in which they provide no consequence at all following a worker’s response. Nonreinforcement eventually reduces the likelihood of that response reoccurring, which means that managers who fail to reinforce a worker’s desirable behavior are also likely to see that desirable behavior less often. If Philip never rewards Ted when he finishes stocking on time, for instance, Ted will probably stop trying to beat the clock. Nonreinforcement can also reduce the likelihood that employees will repeat undesirable behaviors, although it doesn’t produce results as quickly as punishment does. Furthermore, if other reinforcing consequences are present, nonreinforcement is unlikely to be effective.
While punishment clearly works more quickly than does nonreinforcement, it has some potentially undesirable side effects. Although punishment effectively tells a person what not to do and stops the undesired behavior, it does not tell them what they should do. In addition, even when punishment works as intended, the worker being punished often develops negative feelings toward the person who does the punishing. Although sometimes it is very difficult for managers to avoid using punishment, it works best when reinforcement is also used. An experiment conducted by two researchers at the University of Kansas found that using nonmonetary reinforcement in addition to punitive disciplinary measures was an effective way to decrease absenteeism in an industrial setting.20
Schedules of Reinforcement
When a person is learning a new behavior, like how to perform a new job, it is desirable to reinforce effective behaviors every time they are demonstrated (this is called shaping). But in organizations, it is not usually possible to reinforce desired behaviors every time they are performed, for obvious reasons. Moreover, research indicates that constantly reinforcing desired behaviors, termed continuous reinforcement, can be detrimental in the long run. Behaviors that are learned under continuous reinforcement are quickly extinguished (cease to be demonstrated). This is because people will expect a reward (the reinforcement) every time they display the behavior. When they don’t receive it after just a few times, they quickly presume that the behavior will no longer be rewarded, and they quit doing it. Any employer can change employees’ behavior by simply not paying them!
If behaviors cannot (and should not) be reinforced every time they are exhibited, how often should they be reinforced? This is a question about schedules of reinforcement, or the frequency at which effective employee behaviors should be reinforced. Much of the early research on operant conditioning focused on the best way to maintain the performance of desired behaviors. That is, it attempted to determine how frequently behaviors need to be rewarded so that they are not extinguished. Research zeroed in on four types of reinforcement schedules:
Fixed Ratio: With this schedule, a fixed number of responses (let’s say five) must be exhibited before any of the responses are reinforced. If the desired response is coming to work on time, then giving employees a \$25 bonus for being punctual every day from Monday through Friday would be a fixed ratio of reinforcement.
Variable Ratio: A variable-ratio schedule reinforces behaviors, on average, a fixed number of times (again let’s say five). Sometimes the tenth behavior is reinforced, other times the first, but on average every fifth response is reinforced. People who perform under such variable-ratio schedules like this don’t know when they will be rewarded, but they do know that they will be rewarded.
Fixed Interval: In a fixed-interval schedule, a certain amount of time must pass before a behavior is reinforced. With a one-hour fixed-interval schedule, for example, a supervisor visits an employee’s workstation and reinforces the first desired behavior she sees. She returns one hour later and reinforces the next desirable behavior. This schedule doesn’t imply that reinforcement will be received automatically after the passage of the time period. The time must pass and an appropriate response must be made.
Variable Interval: The variable interval differs from fixed-interval schedules in that the specified time interval passes on average before another appropriate response is reinforced. Sometimes the time period is shorter than the average; sometimes it is longer.
Which type of reinforcement schedule is best? In general, continuous reinforcement is best while employees are learning their jobs or new duties. After that, variable-ratio reinforcement schedules are superior. In most situations, the fixed-interval schedule produces the least effective results, with fixed ratio and variable interval falling in between the two extremes. But remember that effective behaviors must be reinforced with some type of schedule, or they may become extinguished.
Equity Theory
Suppose you have worked for a company for several years. Your performance has been excellent, you have received regular pay increases, and you get along with your boss and coworkers. One day you come to work to find that a new person has been hired to work at the same job that you do. You are pleased to have the extra help. Then, you find out the new person is making \$100 more per week than you, despite your longer service and greater experience. How do you feel? If you’re like most of us, you’re quite unhappy. Your satisfaction has just evaporated. Nothing about your job has changed—you receive the same pay, do the same job, and work for the same supervisor. Yet, the addition of one new employee has transformed you from a happy to an unhappy employee. This feeling of unfairness is the basis for equity theory.
Equity theory states that motivation is affected by the outcomes we receive for our inputs compared to the outcomes and inputs of other people.21 This theory is concerned with the reactions people have to outcomes they receive as part of a “social exchange.” According to equity theory, our reactions to the outcomes we receive from others (an employer) depend both on how we value those outcomes in an absolute sense and on the circumstances surrounding their receipt. Equity theory suggests that our reactions will be influenced by our perceptions of the “inputs” provided in order to receive these outcomes (“Did I get as much out of this as I put into it?”). Even more important is our comparison of our inputs to what we believe others received for their inputs (“Did I get as much for my inputs as my coworkers got for theirs?”).
The Basic Equity Model
The fundamental premise of equity theory is that we continuously monitor the degree to which our work environment is “fair.” In determining the degree of fairness, we consider two sets of factors, inputs and outcomes (see Figure 14.3.2). Inputs are any factors we contribute to the organization that we feel have value and are relevant to the organization. Note that the value attached to an input is based on our perception of its relevance and value. Whether or not anyone else agrees that the input is relevant or valuable is unimportant to us. Common inputs in organizations include time, effort, performance level, education level, skill levels, and bypassed opportunities. Since any factor we consider relevant is included in our evaluation of equity, it is not uncommon for factors to be included that the organization (or even the law) might argue are inappropriate (such as age, sex, ethnic background, or social status).
Outcomes are anything we perceive as getting back from the organization in exchange for our inputs. Again, the value attached to an outcome is based on our perceptions and not necessarily on objective reality. Common outcomes from organizations include pay, working conditions, job status, feelings of achievement, and friendship opportunities. Both positive and negative outcomes influence our evaluation of equity. Stress, headaches, and fatigue are also potential outcomes. Since any outcome we consider relevant to the exchange influences our equity perception, we frequently include unintended factors (peer disapproval, family reactions).
Equity theory predicts that we will compare our outcomes to our inputs in the form of a ratio. On the basis of this ratio we make an initial determination of whether or not the situation is equitable. If we perceive that the outcomes we receive are commensurate with our inputs, we are satisfied. If we believe that the outcomes are not commensurate with our inputs, we are dissatisfied. This dissatisfaction can lead to ineffective behaviors for the organization if they continue. The key feature of equity theory is that it predicts that we will compare our ratios to the ratios of other people. It is this comparison of the two ratios that has the strongest effect on our equity perceptions. These other people are called referent others because we “refer to” them when we judge equity. Usually, referent others are people we work with who perform work of a similar nature. That is, referent others perform jobs that are similar in difficulty and complexity to the employee making the equity determination (see Figure 14.3.2).
Three conditions can result from this comparison. Our outcome-to-input ratio could equal the referent other’s. This is a state of equity. A second result could be that our ratio is greater than the referent other’s. This is a state of overreward inequity. The third result could be that we perceive our ratio to be less than that of the referent other. This is a state of underreward inequity.
Equity theory has a lot to say about basic human tendencies. The motivation to compare our situation to that of others is strong. For example, what is the first thing you do when you get an exam back in class? Probably look at your score and make an initial judgment as to its fairness. For a lot of people, the very next thing they do is look at the scores received by fellow students who sit close to them. A 75 percent score doesn’t look so bad if everyone else scored lower! This is equity theory in action.
Most workers in the United States are at least partially dissatisfied with their pay.22 Equity theory helps explain this. Two human tendencies create feelings of inequity that are not based in reality. One is that we tend to overrate our performance levels. For example, one study conducted by your authors asked more than 600 employees to anonymously rate their performance on a 7-point scale (1 = poor, 7 = excellent). The average was 6.2, meaning the average employee rated his or her performance as very good to excellent. This implies that the average employee also expects excellent pay increases, a policy most employers cannot afford if they are to remain competitive. Another study found that the average employee (one whose performance is better than half of the other employees and worse than the other half) rated her performance at the 80th percentile (better than 80 percent of the other employees, worse than 20 percent).23 Again it would be impossible for most organizations to reward the average employee at the 80th percentile. In other words, most employees inaccurately overrate the inputs they provide to an organization. This leads to perceptions of inequity that are not justified.
The second human tendency that leads to unwarranted perceptions of inequity is our tendency to overrate the outcomes of others.24 Many employers keep the pay levels of employees a “secret.” Still other employers actually forbid employees to talk about their pay. This means that many employees don’t know for certain how much their colleagues are paid. And, because most of us overestimate the pay of others, we tend to think that they’re paid more than they actually are, and the unjustified perceptions of inequity are perpetuated.
The bottom line for employers is that they need to be sensitive to employees’ need for equity. Employers need to do everything they can to prevent feelings of inequity because employees engage in effective behaviors when they perceive equity and ineffective behaviors when they perceive inequity.
Perceived Overreward Inequity
When we perceive that overreward inequity exists (that is, we unfairly make more than others), it is rare that we are so dissatisfied, guilty, or sufficiently motivated that we make changes to produce a state of perceived equity (or we leave the situation). Indeed, feelings of overreward, when they occur, are quite transient. Very few of us go to our employers and complain that we’re overpaid! Most people are less sensitive to overreward inequities than they are to underreward inequities.25 However infrequently they are used for overreward, the same types of actions are available for dealing with both types of inequity.
Perceived Underreward Inequity
When we perceive that underreward inequity exists (that is, others unfairly make more than we do), we will likely be dissatisfied, angered, and motivated to change the situation (or escape the situation) in order to produce a state of perceived equity. As we discuss shortly, people can take many actions to deal with underreward inequity.
Reducing Underreward Inequity
A simple situation helps explain the consequences of inequity. Two automobile workers in Detroit, John and Mary, fasten lug nuts to wheels on cars as they come down the assembly line, John on the left side and Mary on the right. Their inputs are equal (both fasten the same number of lug nuts at the same pace), but John makes \$500 per week and Mary makes \$600. Their equity ratios are thus:
\$500 \$600
John: <Mary:
10 lug nuts/car 10 lug nuts/car
As you can see, their ratios are not equal; that is, Mary receives greater outcome for equal input. Who is experiencing inequity? According to equity theory, both John and Mary—underreward inequity for John, and overreward inequity for Mary. Mary’s inequity won’t last long (in real organizations), but in our hypothetical example, what might John do to resolve this?
Adams identified a number of things people do to reduce the tension produced by a perceived state of inequity. They change their own outcomes or inputs, or they change those of the referent other. They distort their own perceptions of the outcomes or inputs of either party by using a different referent other, or they leave the situation in which the inequity is occurring.
1. Alter inputs of the person. The perceived state of equity can be altered by changing our own inputs, that is, by decreasing the quantity or quality of our performance. John can effect his own mini slowdown and install only nine lug nuts on each car as it comes down the production line. This, of course, might cause him to lose his job, so he probably won’t choose this alternative.
2. Alter outcomes of the person. We could attempt to increase outcomes to achieve a state of equity, like ask for a raise, a nicer office, a promotion, or other positively valued outcomes. So John will likely ask for a raise. Unfortunately, many people enhance their outcomes by stealing from their employers.
3. Alter inputs of the referent other. When underrewarded, we may try to achieve a state of perceived equity by encouraging the referent other to increase their inputs. We may demand, for example, that the referent other “start pulling their weight,” or perhaps help the referent other to become a better performer. It doesn’t matter that the referent other is already pulling their weight—remember, this is all about perception. In our example, John could ask Mary to put on two of his ten lug nuts as each car comes down the assembly line. This would not likely happen, however, so John would be motivated to try another alternative to reduce his inequity.
4. Alter outcomes of the referent other. We can “correct” a state of underreward by directly or indirectly reducing the value of the other’s outcomes. In our example, John could try to get Mary’s pay lowered to reduce his inequity. This too would probably not occur in the situation described.
5. Distort perceptions of inputs or outcomes. It is possible to reduce a perceived state of inequity without changing input or outcome. We simply distort our own perceptions of our inputs or outcomes, or we distort our perception of those of the referent other. Thus, John may tell himself that “Mary does better work than I thought” or “she enjoys her work much less than I do” or “she gets paid less than I realized.”
6. Choose a different referent other. We can also deal with both over- and underreward inequities by changing the referent other (“my situation is really more like Ahmed’s”). This is the simplest and most powerful way to deal with perceived inequity: it requires neither actual nor perceptual changes in anybody’s input or outcome, and it causes us to look around and assess our situation more carefully. For example, John might choose as a referent other Bill, who installs dashboards but makes less money than John.
7. Leave the situation. A final technique for dealing with a perceived state of inequity involves removing ourselves from the situation. We can choose to accomplish this through absenteeism, transfer, or termination. This approach is usually not selected unless the perceived inequity is quite high or other attempts at achieving equity are not readily available. Most automobile workers are paid quite well for their work. John is unlikely to find an equivalent job, so it is also unlikely that he will choose this option.
Implications of Equity Theory
Equity theory is widely used, and its implications are clear. In the vast majority of cases, employees experience (or perceive) underreward inequity rather than overreward. As discussed above, few of the behaviors that result from underreward inequity are good for employers. Thus, employers try to prevent unnecessary perceptions of inequity. They do this in a number of ways. They try to be as fair as possible in allocating pay. That is, they measure performance levels as accurately as possible, then give the highest performers the highest pay increases. Second, most employers are no longer secretive about their pay schedules. People are naturally curious about how much they are paid relative to others in the organization. This doesn’t mean that employers don’t practice discretion—they usually don’t reveal specific employees’ exact pay. But they do tell employees the minimum and maximum pay levels for their jobs and the pay scales for the jobs of others in the organization. Such practices give employees a factual basis for judging equity.
Supervisors play a key role in creating perceptions of equity. “Playing favorites” ensures perceptions of inequity. Employees want to be rewarded on their merits, not the whims of their supervisors. In addition, supervisors need to recognize differences in employees in their reactions to inequity. Some employees are highly sensitive to inequity, and a supervisor needs to be especially cautious around them.26 Everyone is sensitive to reward allocation.27 But “equity sensitives” are even more sensitive. A major principle for supervisors, then, is simply to implement fairness. Never base punishment or reward on whether or not you like an employee. Reward behaviors that contribute to the organization, and discipline those that do not. Make sure employees understand what is expected of them, and praise them when they do it. These practices make everyone happier and your job easier.
Goal Theory
No theory is perfect. If it was, it wouldn’t be a theory. It would be a set of facts. Theories are sets of propositions that are right more often than they are wrong, but they are not infallible. However, the basic propositions of goal theory* come close to being infallible. Indeed, it is one of the strongest theories in organizational behavior.
The Basic Goal-Setting Model
Goal theory states that people will perform better if they have difficult, specific, accepted performance goals or objectives.28,29 The first and most basic premise of goal theory is that people will attempt to achieve those goals that they intend to achieve. Thus, if we intend to do something (like get an A on an exam), we will exert effort to accomplish it. Without such goals, our effort at the task (studying) required to achieve the goal is less. Students whose goals are to get As study harder than students who don’t have this goal—we all know this. This doesn’t mean that people without goals are unmotivated. It simply means that people with goals are more motivated. The intensity of their motivation is greater, and they are more directed.
The second basic premise is that difficult goals result in better performance than easy goals. This does not mean that difficult goals are always achieved, but our performance will usually be better when we intend to achieve harder goals. Your goal of an A in Classical Mechanics at Cal Tech may not get you your A, but it may earn you a B+, which you wouldn’t have gotten otherwise. Difficult goals cause us to exert more effort, and this almost always results in better performance.
Another premise of goal theory is that specific goals are better than vague goals. We often wonder what we need to do to be successful. Have you ever asked a professor “What do I need to do to get an A in this course?” If she responded “Do well on the exams,” you weren’t much better off for having asked. This is a vague response. Goal theory says that we perform better when we have specific goals. Had your professor told you the key thrust of the course, to turn in all the problem sets, to pay close attention to the essay questions on exams, and to aim for scores in the 90s, you would have something concrete on which to build a strategy.
A key premise of goal theory is that people must accept the goal. Usually, we set our own goals. But sometimes others set goals for us. Your professor telling you your goal is to “score at least a 90 percent on your exams” doesn’t mean that you’ll accept this goal. Maybe you don’t feel you can achieve scores in the 90s. Or, you’ve heard that 90 isn’t good enough for an A in this class. This happens in work organizations quite often. Supervisors give orders that something must be done by a certain time. The employees may fully understand what is wanted, yet if they feel the order is unreasonable or impossible, they may not exert much effort to accomplish it. Thus, it is important for people to accept the goal. They need to feel that it is also their goal. If they do not, goal theory predicts that they won’t try as hard to achieve it.
Goal theory also states that people need to commit to a goal in addition to accepting it. Goal commitment is the degree to which we dedicate ourselves to achieving a goal. Goal commitment is about setting priorities. We can accept many goals (go to all classes, stay awake during classes, take lecture notes), but we often end up doing only some of them. In other words, some goals are more important than others. And we exert more effort for certain goals. This also happens frequently at work. A software analyst’s major goal may be to write a new program. Her minor goal may be to maintain previously written programs. It is minor because maintaining old programs is boring, while writing new ones is fun. Goal theory predicts that her commitment, and thus her intensity, to the major goal will be greater.
Allowing people to participate in the goal-setting process often results in higher goal commitment. This has to do with ownership. And when people participate in the process, they tend to incorporate factors they think will make the goal more interesting, challenging, and attainable. Thus, it is advisable to allow people some input into the goal-setting process. Imposing goals on them from the outside usually results in less commitment (and acceptance).
The basic goal-setting model is shown in Figure 14.3.3. The process starts with our values. Values are our beliefs about how the world should be or act, and often include words like “should” or “ought.” We compare our present conditions against these values. For example, Randi holds the value that everyone should be a hard worker. After measuring her current work against this value, Randi concludes that she doesn’t measure up to her own value. Following this, her goal-setting process begins. Randi will set a goal that affirms her status as a hard worker. Figure 14.3.3 lists the four types of goals. Some goals are self-set. (Randi decides to word process at least 70 pages per day.) Participative goals are jointly set. (Randi goes to her supervisor, and together they set some appropriate goals for her.) In still other cases, goals are assigned. (Her boss tells her that she must word process at least 60 pages per day.) The fourth type of goal, which can be self-set, jointly determined, or assigned, is a “do your best” goal. But note this goal is vague, so it usually doesn’t result in the best performance.
Depending on the characteristics of Randi’s goals, she may or may not exert a lot of effort. For maximum effort to result, her goals should be difficult, specific, accepted, and committed to. Then, if she has sufficient ability and lack of constraints, maximum performance should occur. Examples of constraints could be that her old computer frequently breaks down or her supervisor constantly interferes.
The consequence of endeavoring to reach her goal will be that Randi will be satisfied with herself. Her behavior is consistent with her values. She’ll be even more satisfied if her supervisor praises her performance and gives her a pay increase!
In Randi’s case, her goal achievement resulted in several benefits. However, this doesn’t always happen. If goals are not achieved, people may be unhappy with themselves, and their employer may be dissatisfied as well. Such an experience can make a person reluctant to accept goals in the future. Thus, setting difficult yet attainable goals cannot be stressed enough.
Goal theory can be a tremendous motivational tool. In fact, many organizations practice effective management by using a technique called “management by objectives” (MBO). MBO is based on goal theory and is quite effective when implemented consistently with goal theory’s basic premises.
Despite its many strengths, several cautions about goal theory are appropriate. Locke has identified most of them.30 First, setting goals in one area can lead people to neglect other areas. (Randi may word process 70 pages per day, but neglect her proofreading responsibilities.) It is important that goals be set for most major duties. Second, goal setting sometimes has unintended consequences. For example, employees set easy goals so that they look good when they achieve them. Or it causes unhealthy competition between employees. Or an employee sabotages the work of others so that only she has goal achievement.
Some managers use goal-setting in unethical ways. They may manipulate employees by setting impossible goals. This enables them to criticize employees even when the employees are doing superior work and, of course, causes much stress. Goal setting should never be abused. Perhaps the key caution about goal setting is that it often results in too much focus on quantified measures of performance. Qualitative aspects of a job or task may be neglected because they aren’t easily measured. Managers must keep employees focused on the qualitative aspects of their jobs as well as the quantitative ones. Finally, setting individual goals in a teamwork environment can be counterproductive.31 Where possible, it is preferable to have group goals in situations where employees depend on one another in the performance of their jobs.
The cautions noted here are not intended to deter you from using goal theory. We note them so that you can avoid the pitfalls. Remember, employees have a right to reasonable performance expectations and the rewards that result from performance, and organizations have a right to expect high performance levels from employees. Goal theory should be used to optimize the employment relationship. Goal theory holds that people will exert effort to accomplish goals if those goals are difficult to achieve, accepted by the individual, and specific in nature.
Expectancy Theory
Expectancy theory posits that we will exert much effort to perform at high levels so that we can obtain valued outcomes. It is the motivation theory that many organizational behavior researchers find most intriguing, in no small part because it is currently also the most comprehensive theory. Expectancy theory ties together many of the concepts and hypotheses from the theories discussed earlier in this chapter. In addition, it points to factors that other theories miss. Expectancy theory has much to offer the student of management and organizational behavior.
Expectancy theory is sufficiently general that it is useful in a wide variety of situations. Choices between job offers, between working hard or not so hard, between going to work or not—virtually any set of possibilities can be addressed by expectancy theory. Basically, the theory focuses on two related issues:
1. When faced with two or more alternatives, which will we select?
2. Once an alternative is chosen, how motivated will we be to pursue that choice?
Expectancy theory thus focuses on the two major aspects of motivation, direction (which alternative?) and intensity (how much effort to implement the alternative?). The attractiveness of an alternative is determined by our “expectations” of what is likely to happen if we choose it. The more we believe that the alternative chosen will lead to positively valued outcomes, the greater its attractiveness to us.
Expectancy theory states that, when faced with two or more alternatives, we will select the most attractive one. And, the greater the attractiveness of the chosen alternative, the more motivated we will be to pursue it. Our natural hedonism, discussed earlier in this chapter, plays a role in this process. We are motivated to maximize desirable outcomes (a pay raise) and minimize undesirable ones (discipline). Expectancy theory goes on to state that we are also logical in our decisions about alternatives. It considers people to be rational. People evaluate alternatives in terms of their “pros and cons,” and then choose the one with the most “pros” and fewest “cons.”
The Basic Expectancy Model
The three major components of expectancy theory reflect its assumptions of hedonism and rationality: effort-performance expectancy, performance-outcome expectancy, and valences.
The effort-performance expectancy, abbreviated E1, is the perceived probability that effort will lead to performance (or E ➨ P). Performance here means anything from doing well on an exam to assembling 100 toasters a day at work. Sometimes people believe that no matter how much effort they exert, they won’t perform at a high level. They have weak E1s. Other people have strong E1s and believe the opposite—that is, that they can perform at a high level if they exert high effort. You all know students with different E1s—those who believe that if they study hard they’ll do well, and those who believe that no matter how much they study they’ll do poorly. People develop these perceptions from prior experiences with the task at hand, and from self-perceptions of their abilities. The core of the E1 concept is that people don’t always perceive a direct relationship between effort level and performance level.
The performance-outcome expectancy, E2, is the perceived relationship between performance and outcomes (or P ➨ O).1 Many things in life happen as a function of how well we perform various tasks. E2 addresses the question “What will happen if I perform well?” Let’s say you get an A in your Classical Mechanics course at Cal Tech. You’ll be elated, your classmates may envy you, and you are now assured of that plum job at NASA. But let’s say you got a D. Whoops, that was the last straw for the dean. Now you’ve flunked out, and you’re reduced to going home to live with your parents (perish the thought!). Likewise, E2 perceptions develop in organizations, although hopefully not as drastically as your beleaguered career at Cal Tech. People with strong E2s believe that if they perform their jobs well, they’ll receive desirable outcomes—good pay increases, praise from their supervisor, and a feeling that they’re really contributing. In the same situation, people with weak E2s will have the opposite perceptions—that high performance levels don’t result in desirable outcomes and that it doesn’t really matter how well they perform their jobs as long as they don’t get fired.
Valences are the easiest of the expectancy theory concepts to describe. Valences are simply the degree to which we perceive an outcome as desirable, neutral, or undesirable. Highly desirable outcomes (a 25 percent pay increase) are positively valent. Undesirable outcomes (being disciplined) are negatively valent. Outcomes that we’re indifferent to (where you must park your car) have neutral valences. Positively and negatively valent outcomes abound in the workplace—pay increases and freezes, praise and criticism, recognition and rejection, promotions and demotions. And as you would expect, people differ dramatically in how they value these outcomes. Our needs, values, goals, and life situations affect what valence we give an outcome. Equity is another consideration we use in assigning valences. We may consider a 10 percent pay increase desirable until we find out that it was the lowest raise given in our workgroup.
Figure 14.3.4 summarizes the three core concepts of expectancy theory. The theory states that our perceptions about our surroundings are essentially predictions about “what leads to what.” We perceive that certain effort levels result in certain performance levels. We perceive that certain performance levels result in certain outcomes. Outcomes can be extrinsic, in that others (our supervisor) determine whether we receive them, or intrinsic, in that we determine if they are received (our sense of achievement). Each outcome has an associated valence (outcome A’s valence is VaVa). Expectancy theory predicts that we will exert effort that results in the maximum amount of positive-valence outcomes.2 If our E1 or E2 is weak, or if the outcomes are not sufficiently desirable, our motivation to exert effort will be low. Stated differently, an individual will be motivated to try to achieve the level of performance that results in the most rewards.
Vo is the valence of the outcome. The effort level with the greatest force associated with it will be chosen by the individual.
Implications of Expectancy Theory
Expectancy theory has major implications for the workplace. Basically, expectancy theory predicts that employees will be motivated to perform well on their jobs under two conditions. The first is when employees believe that a reasonable amount of effort will result in good performance. The second is when good performance is associated with positive outcomes and low performance is associated with negative outcomes. If neither of these conditions exists in the perceptions of employees, their motivation to perform will be low.
Why might an employee perceive that positive outcomes are not associated with high performance? Or that negative outcomes are not associated with low performance? That is, why would employees develop weak E2s? This happens for a number of reasons. The main one is that many organizations subscribe too strongly to a principle of equality (not to be confused with equity). They give all of their employees equal salaries for equal work, equal pay increases every year (these are known as across-the-board pay raises), and equal treatment wherever possible. Equality-focused organizations reason that some employees “getting more” than others leads to disruptive competition and feelings of inequity.
In time employees in equality-focused organizations develop weak E2s because no distinctions are made for differential outcomes. If the best and the worst salespeople are paid the same, in time they will both decide that it isn’t worth the extra effort to be a high performer. Needless to say, this is not the goal of competitive organizations and can cause the demise of the organization as it competes with other firms in today’s global marketplace.
Expectancy theory states that to maximize motivation, organizations must make outcomes contingent on performance. This is the main contribution of expectancy theory: it makes us think about how organizations should distribute outcomes. If an organization, or a supervisor, believes that treating everyone “the same” will result in satisfied and motivated employees, they will be wrong more times than not. From equity theory, we know that some employees, usually the better-performing ones, will experience underreward inequity. From expectancy theory we know that employees will see no difference in outcomes for good and poor performance, so they will not have as much incentive to be good performers. Effective organizations need to actively encourage the perception that good performance leads to positive outcomes (bonuses, promotions) and that poor performance leads to negative ones (discipline, termination). Remember, there is a big difference between treating employees equally and treating them equitably.
What if an organization ties positive outcomes to high performance and negative outcomes to low performance? Employees will develop strong E2s. But will this result in highly motivated employees? The answer is maybe. We have yet to address employees’ E1s. If employees have weak E1s, they will perceive that high (or low) effort does not result in high performance and thus will not exert much effort. It is important for managers to understand that this can happen despite rewards for high performance.
Task-related abilities are probably the single biggest reason why some employees have weak E1s. Self-efficacy is our belief about whether we can successfully execute some future action or task, or achieve some result. High self-efficacy employees believe that they are likely to succeed at most or all of their job duties and responsibilities. And as you would expect, low self-efficacy employees believe the opposite. Specific self-efficacy reflects our belief in our capability to perform a specific task at a specific level of performance. If we believe that the probability of our selling \$30,000 of jackrabbit slippers in one month is .90, our self-efficacy for this task is high. Specific self-efficacy is our judgment about the likelihood of successful task performance measured immediately before we expend effort on the task. As a result, specific self-efficacy is much more variable than more enduring notions of personality. Still, there is little doubt that our state-based beliefs are some of the most powerful motivators of behavior. Our efficacy expectations at a given point in time determine not only our initial decision to perform (or not) a task, but also the amount of effort we will expend and whether we will persist in the face of adversity.32 Self-efficacy has a strong impact on the E1 factor. As a result, self-efficacy is one of the strongest determinants of performance in any particular task situation.33
Employees develop weak E1s for two reasons. First, they don’t have sufficient resources to perform their jobs. Resources can be internal or external. Internal resources include what employees bring to the job (such as prior training, work experience, education, ability, and aptitude) and their understanding of what they need to do to be considered good performers. The second resource is called role perceptions—how employees believe their jobs are done and how they fit into the broader organization. If employees don’t know how to become good performers, they will have weak E1s. External resources include the tools, equipment, and labor necessary to perform a job. The lack of good external resources can also cause E1s to be weak.
The second reason for weak E1s is an organization’s failure to measure performance accurately. That is, performance ratings don’t correlate well with actual performance levels. How does this happen? Have you ever gotten a grade that you felt didn’t reflect how much you learned? This also happens in organizations. Why are ratings sometimes inaccurate? Supervisors, who typically give out ratings, well, they’re human. Perhaps they’re operating under the mistaken notion that similar ratings for everyone will keep the team happy. Perhaps they’re unconsciously playing favorites. Perhaps they don’t know what good and poor performance levels are. Perhaps the measurements they’re expected to use don’t fit their product/team/people. Choose one or all of these. Rating people is rarely easy.
Whatever the cause of rating errors, some employees may come to believe that no matter what they do they will never receive a high performance rating. They may in fact believe that they are excellent performers but that the performance rating system is flawed. Expectancy theory differs from most motivation theories because it highlights the need for accurate performance measurement. Organizations cannot motivate employees to perform at a high level if they cannot identify high performers.
Organizations exert tremendous influence over employee choices in their performance levels and how much effort to exert on their jobs. That is, organizations can have a major impact on the direction and intensity of employees’ motivation levels. Practical applications of expectancy theory include:
1. Strengthening the effort ➨ performance expectancy by selecting employees who have the necessary abilities, providing proper training, providing experiences of success, clarifying job responsibilities, etc.
2. Strengthening the performance ➨ outcome expectancy with policies that specify that desirable behavior leads to desirable outcomes and undesirable behavior leads to neutral or undesirable outcomes. Consistent enforcement of these policies is key—workers must believe in the contingencies.
3. Systematically evaluating which outcomes employees value. The greater the valence of outcomes offered for a behavior, the more likely employees will commit to that alternative. By recognizing that different employees have different values and that values change over time, organizations can provide the most highly valued outcomes.
4. Ensuring that effort actually translates into performance by clarifying what actions lead to performance and by appropriate training.
5. Ensuring appropriate worker outcomes for performance through reward schedules (extrinsic outcomes) and appropriate job design (so the work experience itself provides intrinsic outcomes).
6. Examining the level of outcomes provided to workers. Are they equitable, given the worker’s inputs? Are they equitable in comparison to the way other workers are treated?
7. Measuring performance levels as accurately as possible, making sure that workers are capable of being high performers.
MANAGING CHANGE
Differences in Motivation across Cultures
The disgruntled employee is hardly a culturally isolated feature of business, and quitting before leaving takes the same forms, regardless of country. Cross-cultural signaling, social norms, and simple language barriers can make the task of motivation for the global manager confusing and counterintuitive. Communicating a passion for a common vision, coaching employees to see themselves as accountable and as owning their work, or attempting to create a “motivational ecosystem” can all fall flat with simple missed cues, bad translations, or tone-deaf approaches to a thousand-year-old culture.
Keeping employees motivated by making them feel valued and appreciated is not just a “Western” idea. The Ghanaian blog site Starrfmonline emphasizes that employee motivation and associated work quality improve when employees feel “valued, trusted, challenged, and supported in their work.” Conversely, when employees feel like a tool rather than a person, or feel unengaged with their work, then productivity suffers. A vicious cycle can then begin when the manager treats an employee as unmotivated and incapable, which then demotivates the employee and elicits the predicted response. The blogger cites an example from Eastern Europe where a manager sidelined an employee as inefficient and incompetent. After management coaching, the manager revisited his assessment and began working with the employee. As he worked to facilitate the employee’s efficiency and motivation, the employee went from being the lowest performer to a valuable team player. In the end, the blog says, “The very phrase ‘human resources’ frames employees as material to be deployed for organizational objectives. While the essential nature of employment contracts involves trading labour for remuneration, if we fail to see and appreciate our employees as whole people, efforts to motivate them will meet with limited success” (Starrfmonline 2017 n.p.)
Pavel Vosk, a business and management consultant based in Puyallup, Washington, says that too often, overachieving employees turn into unmotivated ones. In looking for the answer, he found that the most common source was a lack of recognition for the employee’s effort or exceptional performance. In fact, Vosk found that most employees go the extra mile only three times before they give up. Vosk’s advice is to show gratitude for employees’ effort, especially when it goes above and beyond. He says the recognition doesn’t have to be over the top, just anything that the employees will perceive as gratitude, from a catered lunch for a team working extra hours to fulfill a deadline to a simple face-to-face thank you (Huhman 2017).
Richard Frazao, president of Quaketek, based in Montreal, Quebec, stresses talking to the employees and making certain they are engaged in their jobs, citing boredom with one’s job as a major demotivating factor (Huhman 2017).
But motivating employees is not “one size fits all” globally. Rewarding and recognizing individuals and their achievements works fine in Western cultures but is undesirable in Asian cultures, which value teamwork and the collective over the individual. Whether to reward effort with a pay raise or with a job title or larger office is influenced by culture. Demoting an employee for poor performance is an effective motivator in Asian countries but is likely to result in losing an employee altogether in Western cultures. According to Matthew MacLachlan at Communicaid, “Making the assumption that your international workforce will be motivated by the same incentives can be dangerous and have a real impact on talent retention” (2016 n.p.).
sources
Huhman, Heather R. 2017. “Employee Motivation Has to Be More Than 'a Pat on the Back.’” Entrepreneur. https://www.entrepreneur.com/article/287770
MacLachlan, Matthew. 2016. “Management Tips: How To Motivate Your International Workforce.” Communicaid. https://www.communicaid.com/cross-cu...nal-workforce/
Starrfmonline. 2017. “HR Today: Motivating People Starts With Right Attitude.”
starrfmonline.com/2017/03/30/...ght-attitude/#
questions
1. As a Western manager working in the Middle East or sub-Saharan Africa, what motivational issues might you face?
2. What problems would you expect a manager from a Confucian culture to encounter managing employees in America? In Europe?
3. What regional, cultural, or ethnic issues do you think managers have to navigate within the United States?
Expectancy Theory: An Integrative Theory of Motivation
More so than any other motivation theory, expectancy theory can be tied into most concepts of what and how people become motivated. Consider the following examples.
1. Need theories state that we are motivated to satisfy our needs. We positively value outcomes that satisfy unmet needs, negatively value outcomes that thwart the satisfaction of unmet needs, and assign neutral values to outcomes that do neither. In effect, the need theories explain how valences are formed.
2. Operant conditioning theories state that we will probably repeat a response (behavior) in the future that was reinforced in the past (that is, followed by a positively valued consequence or the removal of a negatively valued consequence). This is the basic process involved in forming performance ➨ outcome expectancies. Both operant theories and expectancy theory argue that our interactions with our environment influence our future behavior. The primary difference is that expectancy theory explains this process in cognitive (rational) terms.
3. Equity theories state that our satisfaction with a set of outcomes depends not only on how we value them but also on the circumstances surrounding their receipt. Equity theory, therefore, explains part of the process shown in Figure 14.3.2. If we don’t feel that the outcomes we receive are equitable compared to a referent other, we will associate a lower or even negative valence with those outcomes.
4. Goal theory can be integrated with the expanded expectancy model in several ways. Locke has noted that expectancy theory explains how we go about choosing a particular goal.34 A reexamination of Figure 14.3.2 reveals other similarities between goal theory and expectancy theory. Locke’s use of the term “goal acceptance” to identify the personal adoption of a goal is similar to the “choice of an alternative” in the expectancy model. Locke’s “goal commitment,” the degree to which we commit to reaching our accepted (chosen) goal, is very much like the expectancy description of choice of effort level. Locke argues that the difficulty and specificity of a goal are major determinants of the level of performance attempted (goal-directed effort), and expectancy theory appears to be consistent with this argument (even though expectancy theory is not as explicit on this point). We can reasonably conclude that the major underlying processes explored by the two models are very similar and will seldom lead to inconsistent recommendations.
concept check
1. Understand the process theories of motivation: operant conditioning, equity, goal, and expectancy theories.
2. Describe the managerial factors managers must consider when applying motivational approaches.
footNotes
• 1 Sometimes E2s are called instrumentalities because they are the perception that performance is instrumental in getting some desired outcome.
• It can also be expressed as an equation:
Force toChooseA level of Effort=E1×∑(E2o×Vo)Force toChoose=E1×∑ (E2o×Vo)A level of Effort
Where VoVo is the valence of a given outcome (o), and E2oE2o is the perceived probability that a certain level of performance (e.g., Excellent, average, poor) will result in that outcome. So, for multiple outcomes, and different performance levels, the valence of the outcome and its associated performance➔outcome expectancy (E2) are multiplied and added to the analogous value for the other outcomes. Combined with the E1 (the amount of effort required to produce a level of performance), the effort level with the greatest force associated with it will be chosen by the individual. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/14%3A_Work_Motivation_for_Performance/14.03%3A_Process_Theories_of_Motivation.txt |
Learning Objectives
1. Describe the modern advancements in the study of human motivation.
Employee motivation continues to be a major focus in organizational behavior.35 We briefly summarize current motivation research here.
Content Theories
There is some interest in testing content theories (including Herzberg’s two-factor theory), especially in international research. Need theories are still generally supported, with most people identifying such workplace factors as recognition, advancement, and opportunities to learn as the chief motivators for them. This is consistent with need satisfaction theories. However, most of this research does not include actual measures of employee performance. Thus, questions remain about whether the factors that employees say motivate them to perform actually do.
Operant Conditioning Theory
There is considerable interest in operant conditioning theory, especially within the context of what has been called organizational behavior modification. Oddly enough, there has not been much research using operant conditioning theory in designing reward systems, even though there are obvious applications. Instead, much of the recent research on operant conditioning focuses on punishment and extinction. These studies seek to determine how to use punishment appropriately. Recent results still confirm that punishment should be used sparingly, should be used only after extinction does not work, and should not be excessive or destructive.
Equity Theory
Equity theory continues to receive strong research support. The major criticism of equity theory, that the inputs and outcomes people use to evaluate equity are ill-defined, still holds. Because each person defines inputs and outcomes, researchers are not in a position to know them all. Nevertheless, for the major inputs (performance) and outcomes (pay), the theory is a strong one. Major applications of equity theory in recent years incorporate and extend the theory into the area called organizational justice. When employees receive rewards (or punishments), they evaluate them in terms of their fairness (as discussed earlier). This is distributive justice. Employees also assess rewards in terms of how fair the processes used to distribute them are. This is procedural justice. Thus during organizational downsizing, when employees lose their jobs, people ask whether the loss of work is fair (distributive justice). But they also assess the fairness of the process used to decide who is laid off (procedural justice). For example, layoffs based on seniority may be perceived as more fair than layoffs based on supervisors’ opinions.
Goal Theory
It remains true that difficult, specific goals result in better performance than easy and vague goals, assuming they are accepted. Recent research highlights the positive effects of performance feedback and goal commitment in the goal-setting process. Monetary incentives enhance motivation when they are tied to goal achievement, by increasing the level of goal commitment. There are negative sides to goal theory as well. If goals conflict, employees may sacrifice performance on important job duties. For example, if both quantitative and qualitative goals are set for performance, employees may emphasize quantity because this goal achievement is more visible.
Expectancy Theory
The original formulation of expectancy theory specifies that the motivational force for choosing a level of effort is a function of the multiplication of expectancies and valences. Recent research demonstrates that the individual components predict performance just as well, without being multiplied. This does not diminish the value of expectancy theory. Recent research also suggests that high performance results not only when the valence is high, but also when employees set difficult goals for themselves.
One last comment on motivation: As the world of work changes, so will the methods organizations use to motivate employees. New rewards—time off instead of bonuses; stock options; on-site gyms, cleaners, and dental services; opportunities to telecommute; and others—will need to be created in order to motivate employees in the future. One useful path that modern researchers can undertake is to analyze the previous studies and aggregate the findings into more conclusive understanding of the topic through meta-analysis studies.36
CATCHING THE ENTREPRENEURIAL SPIRIT
Entrepreneurs and Motivation
Motivation can be difficult to elicit in employees. So what drives entrepreneurs, who by definition have to motivate themselves as well as others? While everyone from Greek philosophers to football coaches warn about undirected passion, a lack of passion will likely kill any start-up. An argument could be made that motivation is simply part of the discipline, or the outcome of remaining fixed on a purpose to mentally remind yourself of why you get up in the morning.
Working from her home in Egypt, at age 30 Yasmine El-Mehairy launched Supermama.me, a start-up aimed at providing information to mothers throughout the Arab world. When the company began, El-Mehairy worked full time at her day job and 60 hours a week after that getting the site established. She left her full-time job to manage the site full time in January 2011, and the site went live that October. El-Mehairy is motivated to keep moving forward, saying that if she stops, she might not get going again (Knowledge @ Wharton 2012).
For El-Mehairy, the motivation didn’t come from a desire to work for a big company or travel the world and secure a master’s degree from abroad. She had already done that. Rather, she said she was motivated to “do something that is useful and I want to do something on my own” (Knowledge @ Wharton 2012 n.p.).
Lauren Lipcon, who founded a company called Injury Funds Now, attributes her ability to stay motivated to three factors: purpose, giving back, and having fun outside of work. Lipcon believes that most entrepreneurs are not motivated by money, but by a sense of purpose. Personally, she left a job with Arthur Andersen to begin her own firm out of a desire to help people. She also thinks it is important for people to give back to their communities because the change the entrepreneur sees in the community loops back, increasing motivation and making the business more successful. Lipcon believes that having a life outside of work helps keep the entrepreneur motivated. She particularly advocates for physical activity, which not only helps the body physically, but also helps keep the mind sharp and able to focus (Rashid 2017).
But do all entrepreneurs agree on what motivates them? A July 17, 2017 survey on the hearpreneur blog site asked 23 different entrepreneurs what motivated them. Seven of the 23 referred to some sense of purpose in what they were doing as a motivating factor, with one response stressing the importance of discovering one’s “personal why.” Of the remaining entrepreneurs, answers varied from keeping a positive attitude (three responses) and finding external sources (three responses) to meditation and prayer (two responses). One entrepreneur said his greatest motivator was fear: the fear of being in the same place financially one year in the future “causes me to take action and also alleviates my fear of risk” (Hear from Entrepreneurs 2017 n.p.). Only one of the 23 actually cited money and material success as a motivating factor to keep working.
However it is described, entrepreneurs seem to agree that passion and determination are key factors that carry them through the grind of the day-to-day.
sources
Hear from Entrepreneurs. 2017. “23 Entrepreneurs Explain Their Motivation or if ‘Motivation is Garbage.’” https://hear.ceoblognation.com/2017/...ation-garbage/
Knowledge @ Wharton. 2012. “The Super-motivated Entrepreneur Behind Egypt’s SuperMama.” http://knowledge.wharton.upenn.edu/a...pts-supermama/
Rashid, Brian. 2017. “How This Entrepreneur Sustains High Levels of Energy and Motivation.” Forbes. https://www.forbes.com/sites/brianra.../#2a8ec5591111
questions
1. In the article from Hear from Entrepreneurs, one respondent called motivation “garbage”? Would you agree or disagree, and why?
2. How is staying motivated as an entrepreneur similar to being motivated to pursue a college degree? Do you think the two are related? How?
3. How would you expect motivation to vary across cultures?[/BOX]
concept check
1. Understand the modern approaches to motivation theory. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/14%3A_Work_Motivation_for_Performance/14.04%3A_Recent_Research_on_Motivation_Theories.txt |
key terms
ability
The knowledge, skills, and receptiveness to learning that an individual brings to a task or job.
content motivation theories
Theories that focus on what motivates people.
direction
What a person is motivated to achieve.
intensity
(1) The degree to which people try to achieve their targets; (2) the forcefulness that enhances the likelihood that a stimulus will be selected for perceptual processing.
motivation
A force within or outside of the body that energizes, directs, and sustains human behavior. Within the body, examples might be needs, personal values, and goals, while an incentive might be seen as a force outside of the body. The word stems from its Latin root movere, which means “to move.”
performance environment
Refers to those factors that impact employees’ performance but are essentially out of their control.
process motivation theories
Theories that focus on the how and why of motivation.
role perceptions
The set of behaviors employees think they are expected to perform as members of an organization.
work motivation
The amount of effort a person exerts to achieve a level of job performance
ERG theory
Compresses Maslow’s five need categories into three: existence, relatedness, and growth.
extrinsic motivation
Occurs when a person performs a given behavior to acquire something that will satisfy a lower-order need.
hedonism
Assumes that people are motivated to satisfy mainly their own needs (seek pleasure, avoid pain).
hygienes
Factors in the work environment that are based on the basic human need to “avoid pain.”
instincts
Our natural, fundamental needs, basic to our survival.
intrinsic motivation
Arises out of performing a behavior in and of itself, because it is interesting or “fun” to do.
latent needs
Cannot be inferred from a person’s behavior at a given time, yet the person may still possess those needs.
manifest needs
Are needs motivating a person at a given time.
manifest needs theory
Assumes that human behavior is driven by the desire to satisfy needs.
motivators
Relate to the jobs that people perform and people’s ability to feel a sense of achievement as a result of performing them.
motive
A source of motivation; the need that a person is attempting to satisfy.
need for achievement (nAch)
The need to excel at tasks, especially tasks that are difficult.
need for affiliation (nAff)
The need to establish and maintain warm and friendly relationships with other people.
need for power (nPow)
The need to control things, especially other people; reflects a motivation to influence and be responsible for other people.
need
A human condition that becomes energized when people feel deficient in some respect.
primary needs
Are instinctual in nature and include physiological needs for food, water, and sex (procreation).
secondary needs
Are learned throughout one’s life span and are psychological in nature.
self-determination theory (SDT)
Seeks to explain not only what causes motivation, but also the effects of extrinsic rewards on intrinsic motivation.
avoidance learning
Occurs when people learn to behave in a certain way to avoid encountering an undesired or unpleasant consequence.
effort-performance expectancy
E1, the perceived probability that effort will lead to performance (or E ➨ P).
equity theory
States that human motivation is affected by the outcomes people receive for their inputs, compared to the outcomes and inputs of other people.
expectancy theory
Posits that people will exert high effort levels to perform at high levels so that they can obtain valued outcomes.
extinction
Occurs when a consequence or lack of a consequence makes it less likely that a behavior will be repeated in the future.
extrinsic outcomes
Are awarded or given by other people (like a supervisor).
goal commitment
The degree to which people dedicate themselves to achieving a goal.
goal theory
States that people will perform better if they have difficult, specific, accepted performance goals or objectives.
input
Any personal qualities that a person views as having value and that are relevant to the organization.
intrinsic outcomes
Are awarded or given by people to themselves (such as a sense of achievement).
negative reinforcement
Occurs when a behavior causes something undesirable to be removed, increasing the likelihood of the behavior reoccurring.
nonreinforcement
Occurs when no consequence follows a worker’s behavior.
operant conditioning
A learning process based on the results produced by a person “operating on” the environment.
operant conditioning theory
Posits that people learn to behave in a particular fashion as a result of the consequences that followed their past behaviors.
outcome
Anything a person perceives as getting back from an organization in exchange for the person’s inputs.
overreward inequity
Occurs when people perceive their outcome/input ratio to be greater than that of their referent other.
performance-outcome expectancy
E2, the perceived relationship between performance and outcomes (or P ➨ O).
positive reinforcement
Occurs when a desirable consequence that satisfies an active need or removes a barrier to need satisfaction increases the likelihood of a behavior reoccurring.
punishment
An aversive consequence that follows a behavior and makes it less likely to reoccur.
referent others
Workers that a person uses to compare inputs and outcomes, and who perform jobs similar in difficulty and complexity to the employee making an equity determination.
reinforcement
Occurs when a consequence makes it more likely a behavior will be repeated in the future.
schedules of reinforcement
The frequency at which effective employee behaviors are reinforced.
self-efficacy
A belief about the probability that one can successfully execute some future action or task, or achieve some result.
state of equity
Occurs when people perceive their outcome/input ratio to be equal to that of their referent other.
underreward inequity
Occurs when people perceive their outcome/input ratio to be less than that of their referent other.
valences
The degree to which a person perceives an outcome as being desirable, neutral, or undesirable.
14.1 Motivation: Direction and Intensity
1. Define motivation, and distinguish direction and intensity of motivation.
This chapter has covered the major motivation theories in organizational behavior. Motivation theories endeavor to explain how people become motivated. Motivation has two major components: direction and intensity. Direction is what a person is trying to achieve. Intensity is the degree of effort a person expends to achieve the target. All motivation theories address the ways in which people develop direction and intensity.
14.2 Content Theories of Motivation
1. Describe a content theory of motivation, and compare and contrast the main content theories of motivation: manifest needs theory, learned needs theory, Maslow’s hierarchy of needs, Alderfer’s ERG theory, Herzberg’s motivator-hygiene theory, and self-determination theory.
Motivation theories are classified as either content or process theories. Content theories focus on what motivates behavior. The basic premise of content theories is that humans have needs. When these needs are not satisfied, humans are motivated to satisfy the need. The need provides direction for motivation. Murray’s manifest needs theory, McClelland’s learned needs theory, Maslow’s hierarchy of needs, and Herzberg’s motivator-hygiene theory are all content theories. Each has something to say about the needs that motivate humans in the workplace.
14.3 Process Theories of Motivation
1. Describe the process theories of motivation, and compare and contrast the main process theories of motivation: operant conditioning theory, equity theory, goal theory, and expectancy theory.
Process theories focus on how people become motivated. Operant conditioning theory states that people will be motivated to engage in behaviors for which they have been reinforced (rewarded). It also states that people will avoid behaviors that are punished. The rate at which behaviors are rewarded also affects how often they will be displayed. Equity theory’s main premise is that people compare their situations to those of other people. If a person feels that they are being treated unfairly relative to a referent other, the person may engage in behaviors that are counterproductive for the organization. Employers should try to develop feelings of fairness in employees. Goal theory is a strong theory. It states that difficult, specific goals will result in high performance if employees accept the goals and are committed to achieving them.
14.4 Recent Research on Motivation Theories
1. Describe the modern advancements in the study of human motivation.
Expectancy theory is a process theory. It also is the broadest of the motivation theories. Expectancy theory predicts that employees will be motivated to be high performers if they perceive that high performance leads to valued outcomes. Employees will be motivated to avoid being low performers if they perceive that it leads to negative outcomes. Employees must perceive that they are capable of achieving high performance, and they must have the appropriate abilities and high self-efficacy. Organizations need to provide adequate resources and to measure performance accurately. Inaccurate performance ratings discourage high performance. Overall, expectancy theory draws attention to how organizations structure the work environment and distribute rewards.
chapter review questions
1. Discuss the benefits that accrue when an organization has a good understanding of employee needs.
2. How might Maslow explain why organizational rewards that motivate workers today may not motivate the same workers in 5 or 10 years?
3. Describe the process by which needs motivate workers.
4. Discuss the importance of Herzberg’s motivators and hygienes.
5. Describe a work situation in which it would be appropriate to use a continuous reinforcement schedule.
6. Discuss the potential effectiveness and limitations of punishment in organizations.
7. How can equity theory explain why a person who receives a high salary might be dissatisfied with their pay?
8. Equity theory specifies a number of possible alternatives for reducing perceived inequity. How could an organization influence which of these alternatives a person will pursue?
9. What goals would be most likely to improve your learning and performance in an organizational behavior class?
10. Identify two reasons why a formal goal-setting program might be dysfunctional for an organization.
11. What steps can an organization take to increase the motivational force for high levels of performance?
12. Discuss how supervisors sometimes unintentionally weaken employees E ➨ P and P ➨ O expectancies.
13. How can an employee attach high valence to high levels of performance, yet not be motivated to be a high performer?
14. Is there “one best” motivation theory? Explain your answer.
management skills application exercises
1. Many companies strive to design jobs that are intrinsically motivating. Visit several small and large company websites and search their career section. What job features related to motivation are highlighted? What type of employees do you think the companies will attract with these jobs?
2. You will be paired with another student in this class. Each of you will take one side of the issue and debate:
1. Student A: All members of the organization should be given the same specific, difficult-to-achieve goals.
2. Student B: Specific, difficult-to-achieve goals should only be given to certain members of the organization.
3. Assume the role of sales manager, and write a memo to two of your reports that have the following situations and job performance.
1. Employee 1: Shawn is a onetime stellar performer. They were twice the top performing salesperson in the company in the past decade. In the past year, Shawn has missed goal by 4 percent. Shawn recently became the parent to twins and says that the reason for missing goal this year was due to the territory being saturated with product from previous years.
2. Employee 2: Soo Kim is an energetic salesperson who is putting in long hours and producing detailed sales reports, but their performance on the sales side has not met expectations. When you examine the customer feedback page on your website, you notice that they have five times as many positive reviews and glowing comments about Soo Kim.
managerial decision exercises
1. You are a manager and it’s performance appraisal time, which is a yearly exercise to provide feedback to your direct reports that is often stressful for both the employee and the manager. You feel that the feedback process should be more of an ongoing process than the yearly formal process. What are the benefits of this yearly process, and what, if any, are the drawbacks of providing both positive and remediation feedback to your direct reports?
2. You have been told by a worker on another team that one of your direct reports made an inappropriate comment to a coworker. What do you do to investigate the matter, and what actions would you take with your report, the person that the comment was directed to, and other people in the organization?
3. You learn that an employee who doesn’t report to you has made an inappropriate comment to one of your direct reports. What do you do to investigate the matter, and what actions would you take with your report, the person that made the comment, their manager, and other people in the organization?
4. Your company is considering implementing a 360° appraisal system where up to 10 people in the organization provide feedback on every employee as part of the annual performance appraisal process. This feedback will come from subordinates, peers, and senior managers as well as individuals in other departments. You have been asked to prepare a memo to the director of human resources about the positive and negative effects this could have on the motivation of employees. Note that not all of the employees are on a bonus plan that will be impacted by this feedback.
Critical Thinking Case
Motivating Employees at JCPenney, Walmart, and Amazon in the Age of Online Shopping
In the 1980s, Walmart had killed (or was killing) the mom-and-pop store. “Buy local” signs were seen, urging consumers to buy from their local retailers rather than from the low-cost behemoth. Markets have continued to shift and the “buy local” signs are still around, but now the battleground has shifted with the disruptive growth of e-commerce. Even mighty Walmart is feeling some growing pains.
Census Bureau data for 2017 shows that e-commerce, or online shopping, accounted for 8.9 percent of all retail sales in the United States, accounting for \$111.5 billion (U.S. Census Bureau 2017). Feeling the pinch, many malls across the country are closing their doors, and their empty retail spaces are being repurposed. Credit Suisse predicts that due to competition from online shopping, 20 to 25 percent of American malls will close within the next five years (Dying Malls Make Room for New Condos Apartment 2017). Furthermore, according to a 2017 study, 23 percent of Americans already purchase their groceries online (Embrace the Internet, Skip the Checkout 2017).
Whether face-to-face with customers or filling orders in a warehouse, motivated employees are essential to business success. And company culture helps drive that motivation. As a 2015 Harvard Business Review article put it, “Why we work determines how well we work” (McGregor & Doshi 2015). Adapting earlier research for the modern workplace, the study found six reasons that people work: play, purpose, potential, emotional pressure, economic pressure, and inertia. The first three are positive motives while that later three are negative. The researchers found that role design, more than any other factor, had the highest impact on employee motivation.
Anecdotally, using role design to motivate employees can be seen across industries. Toyota allows factory workers to innovate new processes on the factory floor. Southwest Airlines encourages a sense of "play" among crewmembers who interact directly with passengers (which has resulted in some humorous viral videos). A sense of the organization’s identity (and a desire to be part of it) and how the career ladder within the company is perceived are second and third in their impact on employee motivation. Unhealthy competition for advancement can do more harm than good to employee motivation, and as a result many large companies are restructuring their performance review and advancement systems (McGregor & Doshi 2015). Conversely, costs from unmotivated employees can be high. In August 2017, retailer JCPenney had an employee arrested who had allegedly cost the company more than \$10,000 in stolen cash and under-rung merchandise at a mall store. Another employee had stolen more than \$1,000 of clothes from the store less than a month earlier.
Brick-and-mortar retail outlets from Macy’s to Walmart have come under pressure by increased online shopping, particularly at Amazon.com. Walmart has responded by both trying to improve the shopping experience in its stores and creating an online presence of its own. A recent study funded by Walmart found that 60 percent of retails workers lack proficiency in reading and 70 percent have difficulty with math (Class is in session at Walmart Academy 2017). Increasing math and team skills for the employees would increase efficiency and certainly help improve employee self-image and motivation. With this in mind, Walmart has created one of the largest employer training programs in the country, Walmart Academy (McGregor & Doshi 2015). The company expects to graduate more than 225,000 of its supervisors and managers from a program that covers topics such as merchandising and employee motivation. In another program, Pathways, Walmart has created a course that covers topics such as merchandising, communication, and retail math (Walmart 2016 Global Responsibility Report 2016). The Pathways program was expected to see 500,000 entry-level workers take part in 2016 (Walmart 2016). All employees who complete the course receive a dollar an hour pay increase. Educating employees pays off by recognizing that the effort put in pays off with better-motivated and better-educated employees. In the case of Walmart, “upskilling” has become a priority.
Walmart has gone beyond education to motivate or empower employees. In 2016, pay raises for 1.2 million employees took effect as part of a new minimum-wage policy, and it streamlined its paid time off program that same year (Schmid 2017). In its 2016 Global Responsibility Report, Walmart points out that over the course of two years, the company has invested \$2.7 billion in wages, benefits, and training in the United States (Staley 2017).
Critical Thinking Questions
1. A 2015 New York Times article described Amazon as “a soulless, dystopian workplace where no fun is had and no laughter heard” (Cook 2015 n.p.). Employees themselves came to the company’s defense (Ciubotariu 2015). Does this reputation continue to haunt Amazon, or has it been addressed?
2. How do employees differ between a Walmart retail location and an Amazon order fulfillment center? How many white-collar or skilled jobs does Amazon have compared to Walmart?
3. With Amazon moving into the retail market with the purchase of Whole Foods, and with Walmart expanding its e-commerce, how are employee motivation challenges going to shift?
sources
Ciubotariu, Nick. 2015. “An Amazonian's response to "Inside Amazon: Wrestling Big Ideas in a Bruising Workplace." LinkedIn. https://www.linkedin.com/pulse/amazo...romSplash=true
Class is in session at Walmart Academy. 2017. Bend Bulletin. www.bendbulletin.com/home/550...almart-academy
Cook, John. 2015. “Full memo: Jeff Bezos responds to brutal NYT story, says it doesn’t represent the Amazon he leads.” GeekWire. www.geekwire.com/2015/full-m...ds-to-be-zero/
“Dying Malls Make Room for New Condos Apartment.” 2017. Bend Bulletin. www.bendbulletin.com/business...dos-apartments
“Embrace the Internet, Skip the Checkout.” 2017. Bend Bulletin. www.bendbulletin.com/business...p-the-checkout
McGregor, Lindsay and Doshi, Neel. 2015. “How Company Culture Shapes Employee Motivation.” Boston, MA: Harvard Business Review. https://hbr.org/2015/11/how-company-...yee-motivation
Schmid, Emily. 2017. “Work That Matters: Looking Back on 2 Years of Investing in People.” Walmart Today. Bentonville, AR: Walmart Digital Communications. https://blog.walmart.com/opportunity...ting-in-people
Staley, Oliver. 2017. “ Walmart—yes, Walmart—is making changes that could help solve America’s wealth inequality problem.” Yahoo! Finance. https://finance.yahoo.com/news/walma...100102778.html
U.S. Census Bureau. 2017. Quarterly Retail E-Commerce Sales, 2nd Quarter 2017. Washington, DC: U.S. Department of Commerce. https://www.census.gov/retail/mrts/w...ec_current.pdf
WalMart 2016 Global Responsibility Report. 2016. Bentonville, AR: Walmart. corporate.walmart.com/2016grr
Walmart. 2016. “Pathways program infographic. Bentonville, AR: Walmart. https://corporate.walmart.com/photos...am-infographic | textbooks/biz/Management/Principles_of_Management_(OpenStax)/14%3A_Work_Motivation_for_Performance/14.05%3A_Summary.txt |
Learning Objectives
After reading this chapter, you should be able to answer these questions:
1. What is the benefit of working in teams, and what makes teams effective?
2. How do teams develop over time?
3. What are some key considerations in managing teams?
4. What are the benefits of conflict for a team?
5. How does team diversity enhance decision-making and problem-solving?
6. What are some challenges and best practices for managing and working with multicultural teams?
EXPLORING MANAGERIAL CAREERS
Eva Hartmann, Trellis LLC
Eva Hartmann has nearly 20 years of experience as a strategic, results-driven, innovative leader with significant expertise in human resources strategy, talent and leadership development, and organizational effectiveness. She has worked in a variety of industries, from manufacturing to Fortune 500 consulting. Eva is a transformational change agent who has developed and led strategic human capital programs and talent initiatives in multiple challenging environments globally. Eva is passionate about enhancing both individual and organizational performance.
Eva began her career in one of the large “Big 6” management consulting firms at the time, and she happily returned several years ago to consulting. She is the founder and president of Trellis LLC, a human capital consulting and staffing firm in Richmond, Virginia.
Prior to Trellis, Eva was the global human resources leader for a large global manufacturer of plastic film products and was responsible for the HR strategy and operations of a \$600 million global division. In this role, Eva led a global team of HR managers in North and South America, Europe, and Asia to support global HR initiatives to drive business results and build human capital and performance across the division.
Eva has also held a variety of leadership and managerial roles in both human resources and quality functions at several nationally and globally recognized companies, including Wachovia Securities, Genworth Financial, Sun Microsystems, and Andersen Consulting (now Accenture).
Eva holds an MBA from the College of William and Mary in Williamsburg, Virginia, and a BA in anthropology from the University of Virginia in Charlottesville, Virginia. She is also an adjunct faculty member with the University of Richmond Robins School of Business. Eva currently serves on the board of the Society of Human Resource Management (SHRM) of Richmond, Virginia.
Much of the work that is performed today in organizations requires a focus on teamwork. The ability to work successfully as a team member, as well as the ability to lead teams, is an ultimate advantage within the workforce. Teams themselves must be managed, in addition to managing just the individuals, to be successful. We’ve all heard the quote originally coined by Aristotle that states that “the whole is greater than the sum of its parts.” This captures the nature of the team perfectly—there is such a synergy that comes from a team that the individuals alone are not able to create. This chapter details the importance of and benefits that you may derive from working as a team, as well as some of the ways we can make our teams more successful.
15: Managing Teams
Learning Objectives
1. What is a team, and what makes a team effective?
Teamwork has never been more important in organizations than it is today. Whether you work in a manufacturing environment and utilize self-directed work teams, or if you work in the “knowledge economy” and derive benefits from collaboration within a team structure, you are harnessing the power of a team.
A team, according to Katzenbach and Smith in their Harvard Business Review (HBR) article “The Discipline of Teams,” is defined as “people organized to function cooperatively as a group”.1 The five elements that make teams function are:
• Common commitment and purpose
• Specific performance goals
• Complementary skills
• Commitment to how the work gets done
• Mutual accountability
A team has a specific purpose that it delivers on, has shared leadership roles, and has both individual and mutual accountabilities. Teams discuss, make decisions, and perform real work together, and they measure their performance by assessing their collective work products. Wisdom of Teams reference. This is very different from the classic working group in an organization (usually organized by functional area) in which there is a focused leader, individual accountabilities and work products, and a group purpose that is the same as the broader organizational mission. Think of the finance organization or a particular business unit in your company—these are, in effect, larger working groups that take on a piece of the broader organizational mission. They are organized under a leader, and their effectiveness is measured by its influence on others within the business (e.g., financial performance of the business.)
So, what makes a team truly effective? According to Katzenbach and Smith’s “Discipline of Teams,” there are several practices that the authors have observed in successful teams. These practices include:
Establish urgency, demanding performance standards, and direction. Teams work best when they have a compelling reason for being, and it is thus more likely that the teams will be successful and live up to performance expectations. We’ve all seen the teams that are brought together to address an “important initiative” for the company, but without clear direction and a truly compelling reason to exist, the team will lose momentum and wither.
Select members for their skill and skill potential, not for their personality. This is not always as easy as it sounds for several reasons. First, most people would prefer to have those with good personalities and positive attitudes on their team in order to promote a pleasant work environment. This is fine, but make sure that those individuals have the skill sets needed (or the potential to acquire/learn) for their piece of the project. The second caveat here is that you don’t always know what skills you need on a project until you really dig in and see what’s going on. Spend some time upfront thinking about the purpose of the project and the anticipated deliverables you will be producing, and think through the specific types of skills you’ll need on the team.
Pay particular attention to first meetings and actions. This is one way of saying that first impressions mean a lot—and it is just as important for teams as for individuals. Teams will interact with everyone from functional subject-matter experts all the way to senior leadership, and the team must look competent and be perceived as competent. Keeping an eye on your team’s level of emotional intelligence is very important and will enhance your team’s reputation and ability to navigate stakeholders within the organization.
Set some clear rules of behavior. I have been through many meetings and team situations in which we have rushed through “ground rules” because it felt like they were obvious—and everyone always came up with the same list. It is so critical that the team takes the time upfront to capture their own rules of the road in order to keep the team in check. Rules that address areas such as attendance, discussion, confidentiality, project approach, and conflict are key to keeping team members aligned and engaged appropriately.
Set and seize upon a few immediate performance-oriented tasks and goals. What does this mean? Have some quick wins that make the team feel that they’re really accomplishing something and working together well. This is very important to the team’s confidence, as well as just getting into the practices of working as a team. Success in the larger tasks will come soon enough, as the larger tasks are really just a group of smaller tasks that fit together to produce a larger deliverable.
Challenge the group regularly with fresh facts and information. That is, continue to research and gather information to confirm or challenge what you know about your project. Don’t assume that all the facts are static and that you received them at the beginning of the project. Often, you don’t know what you don’t know until you dig in. I think that the pace of change is so great in the world today that new information is always presenting itself and must be considered in the overall context of the project.
Spend lots of time together. Here’s an obvious one that is often overlooked. People are so busy that they forget that an important part of the team process is to spend time together, think together, and bond. Time in person, time on the phone, time in meetings—all of it counts and helps to build camaraderie and trust.
Exploit the power of positive feedback, recognition, and reward. Positive reinforcement is a motivator that will help the members of the team feel more comfortable contributing. It will also reinforce the behaviors and expectations that you’re driving within the team. Although there are many extrinsic rewards that can serve as motivators, a successful team begins to feel that its own success and performance is the most rewarding.
Collaboration is another key concept and method by which teams can work together very successfully. Bringing together a team of experts from across the business would seem to be a best practice in any situation. However, Gratton and Erickson, in their article Eight Ways to Build Collaborative Teams, found that collaboration seems to decrease sharply when a team is working on complex project initiatives. In their study, they examined 55 larger teams and identified those with strong collaboration skills, despite the level of complexity. There were eight success factors for having strong collaboration skills:
• “Signature” relationship practices
• Role models of collaboration among executives
• Establishment of “gift” culture, in which managers mentor employees
• Training in relationship skills
• A sense of community
• Ambidextrous leaders—good at task and people leadership
• Good use of heritage relationships
• Role clarity and talk ambiguity2
As teams grow in size and complexity, the standard practices that worked well with small teams don’t work anymore. Organizations need to think about how to make collaboration work, and they should leverage the above best practices to build relationships and trust.
concept check
1. What is the definition of a team?
2. Name some practices that can make a team more successful. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.01%3A_Teamwork_in_the_Workplace.txt |
Learning Objectives
1. How do teams develop over time?
If you have been a part of a team—as most of us have—then you intuitively have felt that there are different “stages” of team development. Teams and team members often start from a position of friendliness and excitement about a project or endeavor, but the mood can sour and the team dynamics can go south very quickly once the real work begins. In 1965, educational psychologist Bruce Tuckman at Ohio State University developed a four-stage model to explain the complexities that he had witnessed in team development. The original model was called Tuckman’s Stages of Group Development, and he added the fifth stage of “Adjourning” in 1977 to explain the disbanding of a team at the end of a project. The four stages of the Tuckman model are:3
• Forming
• Storming
• Norming
• Performing
• Adjourning
The forming stage begins with the introduction of team members. This is known as the “polite stage” in which the team is mainly focused on similarities and the group looks to the leader for structure and direction. The team members at this point are enthusiastic, and issues are still being discussed on a global, ambiguous level. This is when the informal pecking order begins to develop, but the team is still friendly.
The storming stage begins as team members begin vying for leadership and testing the group processes. This is known as the “win-lose” stage, as members clash for control of the group and people begin to choose sides. The attitude about the team and the project begins to shift to negative, and there is frustration around goals, tasks, and progress.
After what can be a very long and painful Storming process for the team, slowly the norming stage may start to take root. During Norming, the team is starting to work well together, and buy-in to group goals occurs. The team is establishing and maintaining ground rules and boundaries, and there is willingness to share responsibility and control. At this point in the team formation, members begin to value and respect each other and their contributions.
Finally, as the team builds momentum and starts to get results, it is entering the performing stage. The team is completely self-directed and requires little management direction. The team has confidence, pride, and enthusiasm, and there is a congruence of vision, team, and self. As the team continues to perform, it may even succeed in becoming a high-performing team. High-performing teams have optimized both task and people relationships—they are maximizing performance and team effectiveness. Katzenberg and Smith, in their study of teams, have created a “team performance curve” that graphs the journey of a team from a working group to a high-performing team. The team performance curve is illustrated in Figure 15.2.3.
The process of becoming a high-performance team is not a linear process. Similarly, the four stages of team development in the Tuckman model are not linear, and there are also factors that may cause the team to regress to an earlier stage of development. When a team member is added to the group, this may change the dynamic enough and be disruptive enough to cause a backwards slide to an earlier stage. Similarly, if a new project task is introduced that causes confusion or anxiety for the group, then this may also cause a backwards slide to an earlier stage of development. Think of your own experiences with project teams and the backslide that the group may have taken when another team member was introduced. You may have personally found the same to be true when a leader or project sponsor changes the scope or adds a new project task. The team has to re-group and will likely re-Storm and re-Form before getting back to Performing as a team.
CATCHING THE ENTREPRENEURIAL SPIRIT
Starting the Startup Team
Nothing is more exciting than a startup business. The enthusiasm is high, and people are excited about the new venture and the prospects that await. Depending on the situation, there may be funding that the startup has received from investors, or the startup could be growing and powering itself organically. Either way, the startup faces many different questions in the beginning, which will have a tremendous impact on its growth potential and performance down the road. One of the most critical questions that faces a startup —or any business for that matter—is the question of who should be on the team. Human capital is the greatest asset that any company can have, and it is an especially critical decision in a startup environment when you have limited resources and those resources will be responsible for building the company from ground up.
In Noam Wasserman’s January 2012 HBSP article “Assembling the Startup Team,” Wasserman asserts:
Nothing can bedevil a high-potential startup more than its people problems. In research on startup performance, venture capitalists attributed 65% of portfolio company failures to problems within the startup’s management team. Another study asked investors to identify problems that might occur at their portfolio companies; 61% of the problems involved team issues. These problems typically result from choices that founders make as they add team members…”
These statistics are based on people problems in startups, and it isn’t quite clear what percent of larger company failures could be directly or indirectly attributed to people and team issues. I would imagine that the percentage is also significant. The impact of people problems and team issues in a startup organization that is just getting its footing and trying to make the right connections and decisions can be very significant. If you know anyone who has a company in startup mode, you may have noticed that some of the early team members who are selected to join the team are trusted family members, friends, or former colleagues. Once a startup company grows to a certain level, then it may acquire an experienced CEO to take the helm. In any case, the startup is faced early on with important questions on how to build the team in a way that will maximize the chance of success.
In “Assembling the Startup Team,” the author refers to the three Rs: relationships, roles, and rewards as being key elements that must be managed effectively in order to avoid problems in the long term. Relationships refers to the actual team members that are chosen, and there are several caveats to keep in mind. Hiring relatives or close friends because they are trusted may seem like the right idea in the beginning, but the long-term hazards (per current research) outweigh the benefits. Family and friends may think too similarly, and the team misses the benefit of other perspectives and connections. Roles are important because you have to think about the division of labor and skills, as well as who is in the right roles for decision-making. The startup team needs to think through the implications of assigning people to specific roles, as that may dictate their decision power and status. Finally, defining the rewards can be difficult for the startup team because it essentially means that they are splitting the pie—i.e., both short-term and long-term compensation. For startup founders, this can be a very difficult decision when they have to weigh the balance of giving something away versus gaining human capital that may ultimately help the business to succeed. Thinking through the tradeoffs and keeping alignment between the “three Rs” is important because it challenges the startup team to think of the long-term consequences of some of their early decisions. It is easy to bring family and friends into the startup equation due to trust factors, but a careful analysis of the “three Rs” will help a startup leadership team make decisions that will pay off in the long term.
discussion questions
1. Why might it be a bad decision to hire someone for a key startup role based only on the fact that the person is close family or a friend? What are the potential tradeoffs to the business?
2. What does it mean for the “three Rs” to be in alignment? What is the potential risk of these not being in alignment? What could go wrong?
concept check
1. What are the four stages of team development?
2. What can cause a team to regress in its development? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.02%3A_Team_Development_Over_Time.txt |
Learning Objectives
1. What are some key considerations in managing teams?
For those of us who have had the pleasure of managing or leading a team, we know that it can feel like a dubious distinction. Leading a team is fulfilling—especially if the task or organizational mandate at hand is so critical to the organization that people are happy to be a part of the team that drives things forward. It can also be an exercise in frustration, as the charge is to lead a group composed of various individuals, which at various times will act both like a group and like a bunch of individuals. Managing teams is no small feat, and the most experience managers truly understand that success ultimately depends on their ability to build a strong and well-functioning team. In J.J. Gabarro’s The Dynamics of Taking Charge (HBS Press, 1987, pp. 85–87), he quotes a manager who had successfully worked to turn around a number of organizations:4
“People have to want to work together; they have to see how to do it. There has to be an environment for it and that takes time. It’s my highest priority right now but I don’t write it down anywhere because it’s not like other priorities. If I told corporate that building a team was my prime goal they’d tell me, so what? They’d expect that as part of making things better.”
I love this quotation because it’s so indicative of the state of most organizations today. The focus is on corporate goals and priorities—very task-driven and outcome-driven—but it is the people dynamics and how people work together in the company and in TEAMS that can make a real difference to the goals and outcome.
MANAGERIAL LEADERSHIP
Who Am I Managing?
Making the jump from individual contributor to manager is never easy, and it doesn’t take long for a new manager to realize that what got him there is much different than what is needed to be successful in the future. Individual contributors that have been recently promoted would probably say that they have strong technical skills in their area, and that they were very good at doing what they were doing. In a more savvy organization that recognizes leadership competencies, individual contributors would probably say that they have strong technical skills AND that they showed some behaviors and potential to lead others. When new managers enter their new roles, they expect that they will be managing people—that is, the people on their teams. Few new managers fully realize that the challenge ahead is not just in managing their people, but in managing all the other stakeholders and constituencies that want to and need to weigh in.
One of the key challenges that faces new managers is figuring out to balance all of the multiple demands from both the team and the stakeholders and constituencies external to the team. Linda A. Hill, the Wallace Brett Donham Professor of Business Administration at Harvard Business School, states that “among all the challenges facing new managers, the need to reconcile different constituencies’ expectations and interests is probably the most difficult.” She asserts that the demands that the new manager’s direct reports, his peers, his boss, and the company’s customers place on the new manager will cause conflict at times. Having teams of their own, new managers may think that managing their direct reports is the most important role to play, even at the exclusion of managing other stakeholders. This is incorrect. A new manager needs to “manage his other consistencies just as carefully.” (“Helping New Managers Succeed,” Lauren Keller Johnson, HBR 2008).
Whenever I started a new role, I always created a quick stakeholder checklist for myself. This document is essentially a list of all the stakeholders (beyond the team I am managing) with whom I need to build a relationship in order to be successful. I listed the names of my boss, my boss’s boss, my peers, and any other key influencers or internal customers from the business. This is a quick checklist of the people that I need to immediately have a “meet and greet” with and then possibly even set up a regular meeting with at a certain cadence. I have learned over the years that each of these stakeholders will have some input and impact on my success, and the quicker and more effectively I engage them in the work my team is performing, the better the chance of my team’s success. Some of the questions I will ask myself when figuring out my stakeholder list include:
• Whose support will I need?
• Who needs my support? What do they need from me or my team?
• Who can keep me and my team from being successful?
• What is my ongoing influencing strategy?
Some new managers will feel that these strategies for building stakeholder support are too “political” and they don’t feel right. Trust me when I tell you that this is a necessary part of the new manager role, because now the role and the work call for greater interdependence and relation building in order to be successful. It is no longer just about individual technical skills, but more about building and managing relationships with people who will support you and your team to get your work done. So, if you are a new manager asking “Who am I managing?” … the answer is EVERYONE.
discussion questions
1. Do you agree with the statement that “what got you there isn’t what will make you successful in the future”? Why or why not?
2. Who would be on your stakeholder checklist? Which stakeholders are you already engaging and building relationships with?
In Linda A. Hill’s Harvard Business Review article “Managing Your Team”5 (HBR 1995), she discusses that managing a team means managing paradox. Paradox exists in the fact that teams have both individual and collective identities and goals. Each individual has goals and ideas as to what he wants to accomplish—on the project, in one’s career, and in life. The team itself, of course, has goals and success metrics that it needs to meet in order to be successful. Sometimes these can be in conflict with each other. Competition may arise among team members, and a win-loss attitude may take place over a collaborative and problem-solving team dynamic. The team manager may need to step in to help integrate all of the individual differences to enable them to productively pursue the team goal. Therein lies the primary paradox—balancing individual differences and goals AND the collective identity and goals. Other paradoxes include:
• Fostering support AND confrontation among team members
• Focusing on performance AND learning and development
• Balancing managerial authority AND team member discretion and autonomy
• Balancing the Triangle of Relationships—manager, team, and individual
Managing a team also means managing its boundaries. Managing the team’s boundaries—or space between the team and its external forces, stakeholders, and pressures—is a delicate balance of strategy, stakeholder management, and organizational behavior. The team manager must serve, in part, as a buffer to these external factors so that they don’t derail or distract the team from its goals. However, the manager must also understand enough about the external environment and have enough emotional intelligence to understand which forces, players, or situations must be synthesized within the team for its own benefit. Think about any medium or large-scale change initiative that you have been a part of in your career. Ideally, there is generally a vision for change and a level of sponsorship at the senior levels of the organization that is supposed to pave the way for that change to take root. The project team is officially “blessed” to kick off the team, create a charter, and identify the needed actions to drive the initiative to successful completion.
The dynamic that ensues after the kickoff is really what will determine the success of the team. There are numerous stakeholders in any organization, and many will be pro-change initiative, but others may be against the initiative—either due to lack of understanding or concerns about losing power, territory, etc. The external environment and business strategy may not be particularly well suited for a change initiative to take place, and so there may be the feeling of forces opposing the project team efforts. A strong team manager needs manage these “boundaries” with the organization to help the team navigate through and with the organizational complexities, goals, nuances, and egos that are a part of any organization. In Linda A. Hill’s Harvard Business Review article “Exercising Influence,” she states that “managers also need to manage relationships with those who are outside their team but inside their organizations.6 To do so, they must understand the power dynamics of the larger organization and invest time and energy in building and maintaining relationship with those on who the team is dependent.” It is also, in her view, “the manager’s job, at a minimum, to educate other about organizational structures, systems, or politics that interfere with the team’s performance.” With all of the potential external influences on a team, managing a team’s boundaries can truly mean the difference between success and failure.
The final element of managing a team is to manage the team itself—both the people elements and the process elements, or task at hand. The process-focused elements include managing the work plan to reach the overall goal, as well as the incremental meetings and milestones that are a part of the team’s journey to reach the longer-term goal. Keeping the team focused on its objectives—beginning with setting agendas all the way to managing project tasks and celebrating milestones—assures that the team will stay on track. Projects and initiatives vary in size, scope, and complexity, and so the project management tools shouldn’t be prescribed in a general sense. The important takeaway here is to choose an approach and a tool that works for the culture of the team and the organization, and that helps the team understand where they are, where they need to go, and what resources are a part of that process.
In managing the team members and interpersonal dynamics, there is the important element of selecting the right team members, shaping the team’s norms and culture (how are decisions made, what are our rules, how do we manage conflict, etc.), and coaching the team. Defining the right skill sets, functions, perspectives, and expertise of the members will ensure a solid foundation. Helping the team to identify and formalize the ground rules for team engagement will help manage in the face of adversity or team conflict in the future. Finally, playing a role as a supportive coach will help both the individual team members and the group entity think through issues and make progress towards goals. A coach doesn’t solve the individual/team problem, but helps the team think through a solution and move forward. Teams may need guidance on how to work things out within the team, and the manager must provide feedback and hold team members accountable for their behavior and contribution. Continuous improvement is the name of the game. A team may not start out as high performing, but they can certainly achieve that goal if everyone is focused on incremental improvements to communication, collaboration, and performance.
concept check
1. Discuss the paradox(es) of a team.
2. How can a leader manage team boundaries? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.03%3A_Things_to_Consider_When_Managing_Teams.txt |
Learning Objectives
1. What are the benefits of conflict for a team?
There are many sources of conflict for a team, whether it is due to a communication breakdown, competing views or goals, power struggles, or conflicts between different personalities. The perception is that conflict is generally bad for a team and that it will inevitably bring the team down and cause them to spiral out of control and off track. Conflict does have some potential costs. If handled poorly, it can create distrust within a group, it can be disruptive to group progress and moral, and it could be detrimental to building lasting relationships. It is generally seen as a negative, even though constructive conflicts and constructive responses to conflicts can be an important developmental milestone for a team. Some potential benefits of conflict are that it encourages a greater diversity of ideas and perspectives and helps people to better understand opposing points of view. It can also enhance a team’s problem-solving capability and can highlight critical points of discussion and contention that need to be given more thought.
Another key benefit or outcome of conflict is that a team that trusts each other—its members and members’ intentions—will arise from conflict being a stronger and higher-performing team. Patrick Lencioni, in his bestselling book The Five Dysfunctions of a Team (2002, p. 188), writes:7
“The first dysfunction is an absence of trust among team members. Essentially, this stems from their unwillingness to be vulnerable within the group. Team members who are not genuinely open with one another about their mistakes and weaknesses make it impossible to build a foundation for trust. This failure to build trust is damaging because it sets the tone for the second dysfunction: fear of conflict. Teams that lack trust are incapable of engaging in unfiltered and passionate debate of ideas. Instead, they resort to veiled discussions and guarded comments.”
Lencioni also asserts that if a team doesn’t work through its conflict and air its opinions through debate, team members will never really be able to buy in and commit to decisions. (This lack of commitment is Lencioni’s third dysfunction.) Teams often have a fear of conflict so as not to hurt any team members’ feelings. The downside of this avoidance is that conflicts still exist under the surface and may resurface in more insidious and back-channel ways that can derail a team. How can a team overcome its fear of conflict and move the team forward? Lencioni names a few strategies that teams can use to make conflict more common and productive. Mining is a technique that can be used in teams that tend to avoid conflict. This technique requires that one team member “assume the role of a ‘miner of conflict’—someone who extracts buried disagreements within the team and sheds the light of day on them. They must have the courage and confidence to call out sensitive issues and force team members to work through them.” Real-time permission is another technique to “recognize when the people engaged in conflict are becoming uncomfortable with the level of discord, and then interrupt to remind them that what they are doing is necessary.” This technique can help the group to focus on the points of conflict by coaching the team not to sweep things under the rug.
The team leader plays a very important role in the team’s ability to address and navigate successfully through conflicts. Sometime a leader will have the attitude that conflict is a derailer and will try to stymie it at any cost. This ultimately leads to a team culture in which conflict is avoided and the underlying feelings are allowed to accumulate below the surface of the discussion. The leader should, by contrast, model the appropriate behavior by constructively addressing conflict and bringing issues to the surface to be addressed and resolved by the team. This is key to building a successful and effective team.
There are a variety of individual responses to conflict that you may see as a team member. Some people take the constructive and thoughtful path when conflicts arise, while others may jump immediately to destructive behaviors. In Managing Conflict Dynamics: A Practical Approach, Capobianco, Davis, and Kraus (2005) recognized that there are both constructive and destructive responses to conflict, as well as active and passive responses that we need to recognize. In the event of team conflict, the goal is to have a constructive response in order to encourage dialogue, learning, and resolution.8 Responses such as perspective taking, creating solutions, expressing emotions, and reaching out are considered active and constructive responses to conflict. Reflective thinking, delay responding, and adapting are considered passive and constructive responses to conflict. See Figure 15.4.1 for a visual of the constructive responses, as well as the destructive responses, to conflict.
In summary, conflict is never easy for an individual or a team to navigate through, but it can and should be done. Illuminating the team about areas of conflict and differing perspectives can have a very positive impact on the growth and future performance of the team, and it should be managed constructively.
concept check
1. What are some techniques to make conflict more productive?
2. What are some destructive responses to conflict? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.04%3A_Opportunities_and_Challenges_to_Team_Building.txt |
Learning Objectives
1. How does team diversity enhance decision-making and problem-solving?
Decision-making and problem-solving can be much more dynamic and successful when performed in a diverse team environment. The multiple diverse perspectives can enhance both the understanding of the problem and the quality of the solution. As I reflect on some of the leadership development work that I have done in my career, I can say from experience that the team activities and projects that intentionally brought diverse individuals together created the best environments for problem-solving. Diverse leaders from a variety of functions, from across the globe, at varying stages of their careers and experiences with and outside of the company had the most robust discussions and perspectives. Diversity is a word that is very commonly used today, but the importance of diversity and building diverse teams can sometimes get lost in the normal processes of doing business. Let’s discuss why we need to keep these principles front of mind.
In the Harvard Business Review article “Why Diverse Teams are Smarter” (Nov. 2016), David Rock and Heidi Grant support the idea that increasing workplace diversity is a good business decision.9 A 2015 McKinsey report on 366 public companies found that those in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean, and those in the top quartile for gender diversity were 15% more likely to have returns above the industry mean. Similarly, in a global analysis conducted by Credit Suisse, organizations with at least one female board member yielded a higher return on equity and higher net income growth than those that did not have any women on the board.
Additional research on diversity has shown that diverse teams are better at decision-making and problem-solving because they tend to focus more on facts, per the Rock and Grant article.10 A study published in the Journal of Personality and Social Psychology showed that people from diverse backgrounds “might actually alter the behavior of a group’s social majority in ways that lead to improved and more accurate group thinking.” It turned out that in the study, the diverse panels raised more facts related to the case than homogenous panels and made fewer factual errors while discussing available evidence. Another study noted in the article showed that diverse teams are “more likely to constantly reexamine facts and remain objective. They may also encourage greater scrutiny of each member’s actions, keeping their joint cognitive resources sharp and vigilant. By breaking up workforce homogeneity, you can allow your employees to become more aware of their own potential biases—entrenched ways of thinking that can otherwise blind them to key information and even lead them to make errors in decision-making processes.” In other words, when people are among homogeneous and like-minded (nondiverse) teammates, the team is susceptible to groupthink and may be reticent to think about opposing viewpoints since all team members are in alignment. In a more diverse team with a variety of backgrounds and experiences, the opposing viewpoints are more likely to come out and the team members feel obligated to research and address the questions that have been raised. Again, this enables a richer discussion and a more in-depth fact-finding and exploration of opposing ideas and viewpoints in order to solve problems.
Diversity in teams also leads to greater innovation. A Boston Consulting Group article entitled “The Mix that Matters: Innovation through Diversity” explains a study in which BCG and the Technical University of Munich conducted an empirical analysis to understand the relationship between diversity in managers (all management levels) and innovation. The key findings of this study show that:11
• The positive relationship between management diversity and innovation is statistically significant—and thus companies with higher levels of diversity derive more revenue from new products and services.
• The innovation boost isn’t limited to a single type of diversity. The presence of managers who are either female or are from other countries, industries, or companies can cause an increase in innovation.
• Management diversity seems to have a particularly positive effect on innovation at complex companies—those that have multiple product lines or that operate in multiple industry segments.
• To reach its potential, gender diversity needs to go beyond tokenism. In the study, innovation performance only increased significantly when the workforce included more than 20% women in management positions. Having a high percentage of female employees doesn’t increase innovation if only a small number of women are managers.
• At companies with diverse management teams, openness to contributions from lower-level workers and an environment in which employees feel free to speak their minds are crucial for fostering innovation.
When you consider the impact that diverse teams have on decision-making and problem-solving—through the discussion and incorporation of new perspectives, ideas, and data—it is no wonder that the BCG study shows greater innovation. Team leaders need to reflect upon these findings during the early stages of team selection so that they can reap the benefits of having diverse voices and backgrounds.
concept check
1. Why do diverse teams focus more on data than homogeneous teams?
2. How are diversity and innovation related? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.05%3A_Team_Diversity.txt |
Learning Objectives
1. What are some challenges and best practices for managing and working with multicultural teams?
As globalization has increased over the last decades, workplaces have felt the impact of working within multicultural teams. The earlier section on team diversity outlined some of the highlights and benefits of working on diverse teams, and a multicultural group certainly qualifies as diverse. However, there are some key practices that are recommended to those who are leading multicultural teams so that they can parlay the diversity into an advantage and not be derailed by it.
People may assume that communication is the key factor that can derail multicultural teams, as participants may have different languages and communication styles. In the Harvard Business Review article “Managing Multicultural Teams,” the authors point out four key cultural differences that can cause destructive conflicts in a team.12 The first difference is direct versus indirect communication. Some cultures are very direct and explicit in their communication, while others are more indirect and ask questions rather than pointing out problems. This difference can cause conflict because, at the extreme, the direct style may be considered offensive by some, while the indirect style may be perceived as unproductive and passive-aggressive in team interactions.
The second difference that multicultural teams may face is trouble with accents and fluency. When team members don’t speak the same language, there may be one language that dominates the group interaction—and those who don’t speak it may feel left out. The speakers of the primary language may feel that those members don’t contribute as much or are less competent. The next challenge is when there are differing attitudes toward hierarchy. Some cultures are very respectful of the hierarchy and will treat team members based on that hierarchy. Other cultures are more egalitarian and don’t observe hierarchical differences to the same degree. This may lead to clashes if some people feel that they are being disrespected and not treated according to their status. The final difference that may challenge multicultural teams is conflicting decision-making norms. Different cultures make decisions differently, and some will apply a great deal of analysis and preparation beforehand. Those cultures that make decisions more quickly (and need just enough information to make a decision) may be frustrated with the slow response and relatively longer thought process.
These cultural differences are good examples of how everyday team activities (decision-making, communication, interaction among team members) may become points of contention for a multicultural team if there isn’t adequate understanding of everyone’s culture. The authors propose that there are several potential interventions to try if these conflicts arise. One simple intervention is adaptation, which is working with or around differences. This is best used when team members are willing to acknowledge the cultural differences and learn how to work with them. The next intervention technique is structural intervention, or reorganizing to reduce friction on the team. This technique is best used if there are unproductive subgroups or cliques within the team that need to be moved around. Managerial intervention is the technique of making decisions by management and without team involvement. This technique is one that should be used sparingly, as it essentially shows that the team needs guidance and can’t move forward without management getting involved. Finally, exit is an intervention of last resort, and is the voluntary or involuntary removal of a team member. If the differences and challenges have proven to be so great that an individual on the team can no longer work with the team productively, then it may be necessary to remove the team member in question.
There are some people who seem to be innately aware of and able to work with cultural differences on teams and in their organizations. These individuals might be said to have cultural intelligence. Cultural intelligence is a competency and a skill that enables individuals to function effectively in cross-cultural environments. It develops as people become more aware of the influence of culture and more capable of adapting their behavior to the norms of other cultures. In the IESE Insight article entitled “Cultural Competence: Why It Matters and How You Can Acquire It” (Lee and Liao, 2015), the authors assert that “multicultural leaders may relate better to team members from different cultures and resolve conflicts more easily.13 Their multiple talents can also be put to good use in international negotiations.” Multicultural leaders don’t have a lot of “baggage” from any one culture, and so are sometimes perceived as being culturally neutral. They are very good at handling diversity, which gives them a great advantage in their relationships with teammates.
In order to help employees become better team members in a world that is increasingly multicultural, there are a few best practices that the authors recommend for honing cross-cultural skills. The first is to “broaden your mind”—expand your own cultural channels (travel, movies, books) and surround yourself with people from other cultures. This helps to raise your own awareness of the cultural differences and norms that you may encounter. Another best practice is to “develop your cross-cultural skills through practice” and experiential learning. You may have the opportunity to work or travel abroad—but if you don’t, then getting to know some of your company’s cross-cultural colleagues or foreign visitors will help you to practice your skills. Serving on a cross-cultural project team and taking the time to get to know and bond with your global colleagues is an excellent way to develop skills. In my own “past life,” I led a global human resources organization, and my team included employees from China, India, Brazil, Hungary, the Netherlands, and the United States. We would have annual meetings as a global HR team, and it was so rewarding to share and learn about each other’s cultures. We would initiate the week with a gift exchange in a “show and tell” format from our various countries, so that everyone would learn a little bit more about the cultures in which our fellow colleagues were working. This type of interaction within a global team is a great way to facilitate cross-cultural understanding and communication, and to sharpen everyone’s cultural intelligence.
MANAGING CHANGE
Understanding Our Global Colleagues
If you are a part of a global team, there are so many challenges that confront you even before you talk about people dynamics and cultural differences. You first may have to juggle time zone differences to find an adequate meeting time that suits all team members. (I used to have a team call with my Chinese colleagues at 8 p.m. my time, so that I could catch them at 8 a.m. in China the next day!) Language challenges can also pose a problem. In many countries, people are beginning to learn English as one of the main business languages. However, as I have experienced, people don’t always speak their language the same way that you might learn their language in a book. There are colloquialisms, terms, and abbreviations of words that you can’t learn in a classroom—you need to experience how people speak in their native countries.
You also need to be open-minded and look at situations from the perspective of your colleagues’ cultures, just as you hope they will be open-minded about yours. This is referred to as cultural intelligence. Whenever I would travel globally to visit my colleagues in other countries, I would see foods, traditions, situations, and behaviors that were very “foreign” to me. Although my first response to experiencing these might be to think “wow, that’s strange,” I would try to think about what some of my global colleagues find “foreign” when they come to visit me in the United States. For example, my travel to China would put me in contact with chicken feet, a very popular food in China and one that I dislike immensely. Whenever I was offered chicken feet, I would turn them down in the most polite way possible and would take another food that was offered instead. I started to wonder about what my Chinese colleagues thought about the food when they’d come to visit me in the United States. Every year, I would host a global HR meeting in the United States, and a bit part of that meeting was the camaraderie and the sharing of various meals together. When I asked my Chinese colleagues what foods they thought were unpleasant, they mentioned cheese and meat. I was surprised about the meat, and when I asked, they said that it wasn’t the meat itself necessarily, but it was the giant portions of meat that Americans will eat that, to them, is pretty unappetizing. Again, it is so important to check yourself and your own culture every so often, and to think about those elements that we take for granted (e.g., gigantic meat portions) and try to look at them from the eyes of another culture. It really makes us smarter and better partners to our global colleagues around the world.
In the HBR article “Getting Cross-Cultural Teamwork Right,” the author states that three key factors—mutual learning, mutual understanding, and mutual teaching—build trust with cross-cultural colleagues as you try to bridge cultural gaps. With mutual learning, global colleagues learn from each other and absorb the new culture and behaviors through listening and observation. In mutual understanding, you try to understand the logic and cultural behaviors of the new culture to understand why people are doing what they do. This, of course, requires suspending judgment and trying to understand and embrace the differences. Finally, mutual teaching involves instructing and facilitating. This means trying to bridge the gap between the two cultures and helping yourself and others see where different cultures are coming from in order to resolve misunderstandings.
Understanding and finding common ground with your global colleagues isn’t easy, and it takes patience and continuous improvement. In the end, however, I think that you will find it one of the most rewarding and enlightening things you can do. The more we work to close the multicultural “gap” and make it a multicultural advantage, the better off we will be as professionals and as people.
discussion questions
1. What are some multicultural experiences that you’ve had in which you feel that there was a very wide gap between you and an individual from another culture? How did you handle it?
2. Has economic globalization helped people to bridge these cultural gaps? Why or why not?
Once you have a sense of the different cultures and have started to work on developing your cross-cultural skills, another good practice is to “boost your cultural metacognition” and monitor your own behavior in multicultural situations. When you are in a situation in which you are interacting with multicultural individuals, you should test yourself and be aware of how you act and feel. Observe both your positive and negative interactions with people, and learn from them. Developing “cognitive complexity” is the final best practice for boosting multicultural skills. This is the most advanced, and it requires being able to view situations from more than one cultural framework. In order to see things from another perspective, you need to have a strong sense of emotional intelligence, empathy, and sympathy, and be willing to engage in honest communications.
In the Harvard Business Review article “Cultural Intelligence,” the authors describe three sources of cultural intelligence that teams should consider if they are serious about becoming more adept in their cross-cultural skills and understanding. These sources, very simply, are head, body, and heart. One first learns about the beliefs, customs, and taboos of foreign cultures via the head. Training programs are based on providing this type of overview information—which is helpful, but obviously isn’t experiential. This is the cognitive component of cultural intelligence. The second source, the body, involves more commitment and experimentation with the new culture. It is this physical component (demeanor, eye contact, posture, accent) that shows a deeper level of understanding of the new culture and its physical manifestations. The final source, the heart, deals with a person’s own confidence in their ability to adapt to and deal well with cultures outside of their own. Heart really speaks to one’s own level of emotional commitment and motivation to understand the new culture.
The authors have created a quick assessment to diagnose cultural intelligence, based on these cognitive, physical, and emotional/motivational measures (i.e., head, body, heart).
Please refer to Table 15.1 for a short diagnostic that allows you to assess your cultural intelligence.
Assessing Your Cultural Intelligence
Generally, scoring below 3 in any one of the three measures signals an area requiring improvement. Averaging over 4 displays strength in cultural intelligence.
Adapted from “Cultural Intelligence,” Earley and Mosakowski, Harvard Business Review, October 2004
Give your responses using a 1 to 5 scale where 1 means that you strongly disagree and 5 means that you strongly agree with the statement.
Before I interact with people from a new culture, I wonder to myself what I hope to achieve.
If I encounter something unexpected while working in a new culture, I use that experience to build new ways to approach other cultures in the future.
I plan on how I am going to relate to people from a different culture before I meet with them.
When I come into a new cultural situation, I can immediately sense whether things are going well or if things are going wrong.
Add your total from the four questions above.
Divide the total by 4. This is your Cognitive Cultural Quotient.
It is easy for me to change my body language (posture or facial expression) to suit people from a different culture.
I can alter my expressions when a cultural encounter requires it.
I can modify my speech style by changing my accent or pitch of voice to suit people from different cultures.
I can easily change the way I act when a cross-cultural encounter seems to require it.
Add your total from the four questions above.
Divide the total by 4. This is your Cognitive Physical Quotient.
I have confidence in my ability to deal well with people from different cultures than mine.
I am certain that I can befriend people of different cultural backgrounds than mine.
I can adapt to the lifestyle of a different culture with relative ease.
I am confident in my ability to deal with an unfamiliar cultural situation or encounter.
Add your total from the four questions above.
Divide the total by 4. This is your Emotional/Motivational Cognitive Quotient.
Table 15.1
Cultural intelligence is an extension of emotional intelligence. An individual must have a level of awareness and understanding of the new culture so that he can adapt to the style, pace, language, nonverbal communication, etc. and work together successfully with the new culture. A multicultural team can only find success if its members take the time to understand each other and ensure that everyone feels included. Multiculturalism and cultural intelligence are traits that are taking on increasing importance in the business world today.14 By following best practices and avoiding the challenges and pitfalls that can derail a multicultural team, a team can find great success and personal fulfillment well beyond the boundaries of the project or work engagement.
concept check
1. What are some of the challenges of a multicultural team?
2. Explain the cultural intelligence techniques of head, body, and heart. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.06%3A_Multicultural_Teams.txt |
key terms
knowledge economy
The information society, using knowledge to generate tangible and intangible values
working group
Group of experts working together to achieve specific goals; performance is made up of the individual results of all members
emotional intelligence
The capability of individuals to recognize their own emotions and others’ emotions
ground rules
Basic rules or principles of conduct that govern a situation or endeavor
collaboration
The action of working with someone to produce or create something
Forming
The first stage of team development—the positive and polite stage
Storming
The second stage of team development—when people are pushing against the boundaries
Norming
The third stage of team development—when team resolves its differences and begins making progress
Performing
The fourth stage of team development—when hard work leads to the achievement of the team’s goal
paradox
A self-contradictory statement or situation
boundaries
Lines that make the limits of an area; team boundaries separate the team from its external stakeholders
mining
To delve in to extract something of value; a technique for generating discussion instead of burying it
real-time permission
A technique for recognizing when conflict is uncomfortable, and giving permission to continue
adaptation
Technique of working with or around differences
structural intervention
Technique of reorganizing to reduce friction on a team
managerial intervention
Technique of making decisions by management and without team involvement
exit
Technique of last resort—removal of a team member
cultural intelligence
A skill that enables individuals to function effectively in cross-cultural environments
cognitive complexity
The ability to view situations from more than one cultural framework
head, body, and heart
Techniques for becoming more adept in cross-cultural skills—learning about cultures (head), physical manifestations of culture (body), and emotional commitment to new culture (heart)
15.1 Teamwork in the Workplace
1. What is a team, and what makes teams effective?
A team is defined as “people organized to function cooperatively as a group.” Some of the characteristics of a team are that it has a common commitment and purpose, specific performance goals, complementary skills, commitment to how the work gets done, and mutual accountability.
Some of the practices that make a team effective are that they have a sense of urgency and direction; they set clear rules of behavior; they spend lots of time together; and they utilize feedback, recognition, and reward.
15.2 Team Development Over Time
1. How do teams develop over time?
Teams go through different stages of team development, which were coined in 1977 as Tuckman’s Stages of Group Development by educational psychologist Bruce Tuckman. Tuckman’s model includes these four stages: Forming, Storming, Norming, and Performing. A fifth stage, Adjourning, was added later to explain the disbanding and closure of a team at the end of a project.
Forming begins with team members being happy and polite as they get to know each other and understand the work they’ll do together. Storming starts once the work is underway and the team is getting to know each other, and conflicts and project stress begins to seep in. During Norming, the team starts to set rules of the road and define how they want to work together. Performing means that the team is underway and is having some successes and gaining traction. This is definitely not a linear process. Teams can regress to earlier stages if there are changes in team members or work orders that cause disruption and loss of momentum and clarity.
15.3 Things to Consider When Managing Teams
1. What are some key considerations in managing teams?
Managing a team is often more complex than people would admit. Although a team and the team leader may be focused on the task or project work, it is actually the people dynamics and how the team works together that will make a real difference to the goals and outcomes. Managers need to remember that most of their time will be spent managing the people dynamics—not the tasks.
Managing teams also means a certain amount of paradox. A team has both individual and collective goals that need to be managed effectively. A manager needs to foster both team supportiveness and the ability to engage in conflict and confrontation. A team manager also needs to help the team with its boundaries and act as a buffer, a stakeholder manager, or a strategist when the situation calls for each. Exercising influence with key stakeholder groups external to the project group is one of the most critical functions in managing a team.
15.4 Opportunities and Challenges to Team Building
1. What are the benefits of conflict for a team?
Conflict during team interactions can feel like it derails progress, but it is one of the most important experiences that a team can have together. A team that can productively work through conflict will end up stronger, building more trust and being more open to sharing opinions. Team members will feel safe buying in and committing to decision-making as a team.
One of the other key benefits of conflict is that it encourages a greater diversity of ideas and perspectives, and it helps people to better understand opposing points of view. If a team doesn’t work through conflict well and doesn’t feel comfortable with the sharing and debating of ideas, it loses the opportunity to effectively vet ideas and potential solutions. The result is that the decision or solution will be limited, as team members haven’t fully shared their concerns and perspectives.
15.5 Team Diversity
1. How does team diversity enhance team decision-making and problem-solving?
Decision-making and problem-solving is so much more dynamic and successful when performed in a diverse team environment. Much like the benefits of conflict, diversity can bring forward opposing points of view and different perspectives and information that might not have been considered if the team were more homogeneous. Diverse teams are thus made “smarter” by bringing together an array of information, sources, and experiences for decision-making.
Other research on diversity indicates that diverse teams excel at decision-making and problem-solving because they tend to focus more on facts. Studies indicate that diverse team members may actually sway the team’s behavior to focus more on proven data—possibly because of the prospect of having to explain and back up one’s perspectives if a conflict should erupt on the team. In a more homogenous team, there is more risk of “groupthink” and the lack of challenging of ideas.
15.6 Multicultural Teams
1. What are some challenges and best practices for managing and working with multicultural teams?
With the increase in globalization over the years, teams have seen the addition of multicultural individuals on their teams, who bring with them their own diverse backgrounds and perspectives. There are very positive aspects that result from the added diversity, as discussed in the previous questions. There are also challenges that we need to be aware of when we are managing these teams.
Challenges can arise from communication styles and accents, but can also appear in the form of decision-making norms and attitudes toward hierarchy. There are some team manager interventions that are best practices for addressing these challenges. There are also some best practices for building the cultural intelligence that will make the team more adept at understanding and dealing with differences among cultures.
chapter review questions
1. What are the key differences between a team and a working group?
2. At what stage of team development does the team finally start to see results?
3. What can cause a team to digress to an earlier stage of team development?
4. What can a team leader do to manage the team’s boundaries?
5. How does managing conflict help a team learn and grow?
6. What are some strategies to make conflict more productive?
7. Why are diverse teams better at decision-making and problem-solving?
8. Why do diverse teams utilize data more often than homogeneous teams?
9. What are some of the challenges that multicultural teams face?
10. What are the key sources of cultural intelligence?
management skills application exercises
1. Do you agree with Katzenbach and Smith’s key practices that make teams effective? Why or why not? Which of these practices have you personally experienced? Are there any additional practices that you would add?
2. Have you ever been part of a team that made it through all four stages of team development? In which stage did the team remain the longest? In which stage did the team remain the shortest amount of time? What did you learn?
3. Why do you think it is so important to manage a team’s boundaries? How can external stakeholders impact the function and performance of the team? Why is emotional intelligence such an important skill to have when managing a team?
4. In your experience, have you ever been in a situation in which conflict became a negative thing for a team? How was the conflict handled? How can a team manager ensure that conflict is handled constructively?
5. What is the difference between cultural intelligence and emotional intelligence? How can the cultural intelligence of a team improve performance? Have you ever been on a multicultural team that was high on cultural intelligence? How about a team that was low on cultural intelligence? What were the impacts?
managerial decision exercises
1. You are a manager of a team that is taking a long time to move through the Storming stage. There are two individuals on the team that seem to be unproductive when dealing with conflict and are holding the team back. What would you do to help the team move through conflict management and begin Norming and Performing?
2. One of your direct reports on your team is very focused on his own personal development. He is a strong employee individually, but hasn’t had as much experience working in a team environment on a project. He wants to do well, but isn’t exactly sure how to work within this context. How would you instruct him?
3. You are leading a team responsible for a very important strategic initiative at your company. You have launched the project, and your team is very motivated and excited to move forward. You have the sense, however, that your sponsor and some other stakeholders are not fully engaged. What do you do to engage them?
4. You are the project manager of a cross-functional team project that was just approved. You have been given several good team members who are from different functions, but many of them think similarly and are unlikely to question each other on team decisions. You have the choice of keeping a homogeneous team that will probably have few team issues or building a diverse team that may well engage in conflict and take much longer to come to decisions. What choice would you make? What other information would you want to know to make the decision?
5. You are the director of a multicultural team with employees across the globe. Your team rarely has the opportunity to meet in person, but you have been given the budget to bring everyone together for a week-long global team meeting and team building. How would you structure the time together? What are some of the activities you would suggest to build stronger relationships among team members?
Critical Thinking Case
Diverse Teams Hold Court
Diverse teams have been proven to be better at problem-solving and decision-making for a number of reasons. First, they bring many different perspectives to the table. Second, they rely more on facts and use those facts to substantiate their positions. What is even more interesting is that, according to the Scientific American article “How Diversity Makes Us Smarter,” simply “being around people who are different from us makes more creative, diligent, and harder-working.”
One case in point is the example of jury decision-making, where fact-finding and logical decision-making are of utmost importance. A 2006 study of jury decision-making, led by social psychologist Samuel Sommers of Tufts University, showed that racially diverse groups exchanged a wider range of information during deliberation of a case than all-white groups did. The researcher also conducted mock jury trials with a group of real jurors to show the impact of diversity on jury decision-making.
Interestingly enough, it was the mere presence of diversity on the jury that made jurors consider the facts more, and they had fewer errors recalling the relevant information. The groups even became more willing to discuss the role of race case, when they hadn’t before with an all-white jury. This wasn’t the case because the diverse jury members brought new information to the group—it happened because, according to the author, the mere presence of diversity made people more open-minded and diligent. Given what we discussed on the benefits of diversity, it makes sense. People are more likely to be prepared, to be diligent, and to think logically about something if they know that they will be pushed or tested on it. And who else would push you or test you on something, if not someone who is different from you in perspective, experience, or thinking. “Diversity jolts us into cognitive action in ways that homogeneity simply does not.”
So, the next time you are called for jury duty, or to serve on a board committee, or to make an important decision as part of a team, remember that one way to generate a great discussion and come up with a strong solution is to pull together a diverse team.
critical thinking questions
1. If you don’t have a diverse group of people on your team, how can you ensure that you will have robust discussions and decision-making? What techniques can you use to generate conversations from different perspectives?
2. Evaluate your own team at work. Is it a diverse team? How would you rate the quality of decisions generated from that group?
sources
Adapted from Katherine W. Phillips, “How Diversity Makes Us Smarter,” Scientific American, October 2014, p. 7–8. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/15%3A_Managing_Teams/15.07%3A_Summary.txt |
Learning Objectives
After reading this chapter, you should be able to answer these questions:
1. Understand and describe the communication process.
2. Know the types of communications that occur in organizations.
3. Understand how power, status, purpose, and interpersonal skills affect communications in organizations.
4. Describe how corporate reputations are defined by how an organization communicates to all of its stakeholders.
5. Know why talking, listening, reading, and writing are vital to managing effectively.
EXPLORING MANAGERIAL CAREERS
John Legere, T-Mobile
The chief executive officer is often the face of the company. He or she is often the North Star of the company, providing guidance and direction for the entire organization. With other stakeholders, such as shareholders, suppliers, regulatory agencies, and customers, CEOs often take more reserved and structured approaches. One CEO who definitely stands out is John Legere, the CEO of T-Mobile. The unconventional CEO of the self-proclaimed “un-carrier” hosts a Sunday morning podcast called “Slow Cooker Sunday” on Facebook Live, and where most CEOs appear on television interviews in standard business attire, Legere appears with shoulder-length hair dressed in a magenta T-shirt, black jacket, and pink sneakers. Whereas most CEOs use well-scripted language to address business issues and competitors, Legere refers to T-Mobile’s largest competitors, AT&T and Verizon, as “dumb and dumber.”
In the mobile phone market, T-Mobile is the number-three player competing with giants AT&T and Verizon and recently came to an agreement to merge with Sprint. Of all the consolidation sweeping through the media and telecommunications arena, T-Mobile and Sprint are the most direct of competitors. Their merger would reduce the number of national wireless carriers from four to three, a move the Federal Communications Commission has firmly opposed in the past. Then again, the wireless market looks a bit different now, as does the administration in power.
John Legere and other CEOs such as Mark Cuban, Elon Musk, and Richard Branson have a more public profile than executives at other companies that keep a lower profile and are more guarded in their public comments, often restricting their public statements to quarterly investor and analyst meetings. It is likely that the personality and communication style that the executives reveal in public is also the way that they relate to their employees. The outgoing personality of someone such as John Legere will motivate some employees, but he might be seen as too much of a cheerleader by other employees.
Sometimes the unscripted comments and colorful language that Legere uses can cause issues with employees and the public. For instance, some T-Mobile employees in their call center admonished Legere for comments at a press event where he said Verizon and AT&T were “raping” customers for every penny they have. Legere’s comments caused lengthy discussions in online forums such as Reddit about his choice of words. Legere is known for speaking his mind in public and often uses profanity, but many thought this comment crossed the line. While frank, open communication is often appreciated and leads to a clarity of message, senders of communication, be it in a public forum, an internal memo, or even a text message, should always think through the consequences of their words.
sources
Tara Lachapelle, “T-Mobile’s Argument for Sprint Deal is as Loud as CEO John Legere’s Style,” The Seattle Times, July 9, 2018, www.seattletimes.com/busines...legeres-style/; Janko Roettgers, “T-Mobile CEO John Legere Pokes Fun at Verizon’s Go90 Closure,” Variety, June 29, 2018, https://variety.com/2018/digital/new...90-1202862397/; Rachel Lerman, “T-Mobile’s Loud, Outspoken John Legere is Not Your Typical CEO,” The Chicago Tribune, April 30, 2018, www.chicagotribune.com/business/sns-tns-bc-tmobile-legere-20180430-story.html; Steve Kovach, T-Mobile Employees Speak Out and Call CEO’s Recent Rape Comments “Violent” and “Traumatizing”,” Business Insider, June 27, 2014, https://www.businessinsider.com/t-mo...comment-2014-6; Brian X. Chen, One on One: John Legere, the Hip New Chief of T-Mobile USA,” New York Times, January 9, 2013, https://bits.blogs.nytimes.com/2013/...-t-mobile-usa/.
We will distinguish between communication between two individuals and communication amongst several individuals (groups) and communication outside the organization. We will show that managers spend a majority of their time in communication with others. We will examine the reasons for communication and discuss the basic model of interpersonal communication, the types of interpersonal communication, and major influences on the communication process. We will also discuss how organizational reputation is defined by communication with stakeholders.
16: Managerial Communication
Learning Objectives
1. Understand and describe the communication process.
Interpersonal communication is an important part of being an effective manager:
• It influences the opinions, attitude, motivation, and behaviors of others.
• It expresses our feelings, emotions, and intentions to others.
• It is the vehicle for providing, receiving, and exchanging information regarding events or issues that concern us.
• It reinforces the formal structure of the organization by such means as making use of formal channels of communication.
Interpersonal communication allows employees at all levels of an organization to interact with others, to secure desired results, to request or extend assistance, and to make use of and reinforce the formal design of the organization. These purposes serve not only the individuals involved, but the larger goal of improving the quality of organizational effectiveness.
The model that we present here is an oversimplification of what really happens in communication, but this model will be useful in creating a diagram to be used to discuss the topic. Figure 16.1.1 illustrates a simple communication episode where a communicator encodes a message and a receiver decodes the message.1
Encoding and Decoding
Two important aspects of this model are encoding and decoding. Encoding is the process by which individuals initiating the communication translate their ideas into a systematic set of symbols (language), either written or spoken. Encoding is influenced by the sender’s previous experiences with the topic or issue, her emotional state at the time of the message, the importance of the message, and the people involved. Decoding is the process by which the recipient of the message interprets it. The receiver attaches meaning to the message and tries to uncover its underlying intent. Decoding is also influenced by the receiver’s previous experiences and frame of reference at the time of receiving the message.
Feedback
Several types of feedback can occur after a message is sent from the communicator to the receiver. Feedback can be viewed as the last step in completing a communication episode and may take several forms, such as a verbal response, a nod of the head, a response asking for more information, or no response at all. As with the initial message, the response also involves encoding, medium, and decoding.
There are three basic types of feedback that occur in communication.2 These are informational, corrective, and reinforcing. In informational feedback, the receiver provides nonevaluative information to the communicator. An example is the level of inventory at the end of the month. In corrective feedback, the receiver responds by challenging the original message. The receiver might respond that it is not her responsibility to monitor inventory. In reinforcing feedback, the receiver communicated that she has clearly received the message and its intentions. For instance, the grade that you receive on a term paper (either positive or negative) is reinforcing feedback on your term paper (your original communication).
Noise
There is, however, a variety of ways that the intended message can get distorted. Factors that distort message clarity are noise. Noise can occur at any point along the model shown in Figure 16.1.1, including the decoding process. For example, a manager might be under pressure and issue a directive, “I want this job completed today, and I don’t care what it costs,” when the manager does care what it costs.
concept check
1. Describe the communication process.
2. Why is feedback a critical part of the communication process?
3. What are some things that managers can do to reduce noise in communication? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/16%3A_Managerial_Communication/16.01%3A_The_Process_of_Managerial_Communication.txt |
Learning Objectives
1. Know the types of communications that occur in organizations.
In the communication model described above, three types of communication can be used by either the communicator in the initial transmission phase or the receiver in the feedback phase. These three types are discussed next.
Oral Communication
This consists of all messages or exchanges of information that are spoken, and it’s the most prevalent type of communication.
Written Communication
This includes e-mail, texts, letters, reports, manuals, and annotations on sticky notes. Although managers prefer oral communication for its efficiency and immediacy, the increase in electronic communication is undeniable. As well, some managers prefer written communication for important messages, such as a change in a company policy, where precision of language and documentation of the message are important.
Managerial Leadership
Dealing with Information Overload
One of the challenges in many organizations is dealing with a deluge of emails, texts, voicemails, and other communication. Organizations have become flatter, outsourced many functions, and layered technology to speed communication with an integrated communication programs such as Slack, which allows users to manage all their communication and access shared resources in one place. This can lead to information overload, and crucial messages may be drowned out by the volume in your inbox.
Add the practice of “reply to all,” which can add to the volume of communication, that many coworkers use, and that means that you may get five or six versions of an initial e-mail and need to understand all of the responses as well as the initial communication before responding or deciding that the issue is resolved and no response is needed. Here are suggestions to dealing with e-mail overload upward, horizontally, and downward within your organization and externally to stakeholders and customers.
One way to reduce the volume and the time you spend on e-mail is to turn off the spigot of incoming messages. There are obvious practices that help, such as unsubscribing to e-newsletters or turning off notifications from social media accounts such as Facebook and Twitter. Also, consider whether your colleagues or direct reports are copying you on too many emails as an FYI. If yes, explain that you only need to be updated at certain times or when a final decision is made.
You will also want to set up a system that will organize your inbox into “folders” that will allow you to manage the flow of messages into groups that will allow you to address them appropriately. Your system might look something like this:
1. Inbox: Treat this as a holding pen. E-mails shouldn’t stay here any longer than it takes for you to file them into another folder. The exception is when you respond immediately and are waiting for an immediate response.
2. Today: This is for items that need a response today.
3. This week: This is for messages that require a response before the end of the week.
4. This month/quarter: This is for everything that needs a longer-term response. Depending on your role, you may need a monthly or quarterly folder.
5. FYI: This is for any items that are for information only and that you may want to refer back to in the future.
This system prioritizes e-mails based on timescales rather than the e-mails’ senders, enabling you to better schedule work and set deadlines.
Another thing to consider is your outgoing e-mail. If your outgoing messages are not specific, too long, unclear, or are copied too widely, your colleagues are likely to follow the same practice when communicating with you. Keep your communication clear and to the point, and managing your outbox will help make your inbound e-mails manageable.
critical thinking questions
1. How are you managing your e-mails now? Are you mixing personal and school and work-related e-mails in the same account?
2. How would you communicate to a colleague that is sending too many FYI e-mails, sending too may unclear e-mails, or copying too many people on her messages?
sources
Amy Gallo, Stop Email Overload, Harvard Business Review, February 21, 2012, https://hbr.org/2012/02/stop-email-overload-1;
Barry Chingel, “How to beat email Overload in 2018”, CIPHER, January 16, 2018, https://www.ciphr.com/advice/email-overload/;
Monica Seely, “At the Mercy of Your Inbox? How to Cope With Email Overload”, The Guardian, November 6, 2017, https://www.theguardian.com/small-bu...email-overload.
Nonverbal Communication
There is also the transformation of information without speaking or writing. Some examples of this are things such as traffic lights and sirens as well as things such as office size and placement, which connote something or someone of importance. As well, things such as body language and facial expression can convey either conscious or unconscious messages to others.
Major Influences on Interpersonal Communication
Regardless of the type of communication involved, the nature, direction, and quality of interpersonal communication processes can be influenced by several factors.3
Social Influences
Communication is a social process, as it takes at least two people to have a communication episode. There is a variety of social influences that can affect the accuracy of the intended message. For example, status barriers between employees at different levels of the organization can influence things such as addressing a colleague as at a director level as “Ms. Jones” or a coworker at the same level as “Mike.” Prevailing norms and roles can dictate who speaks to whom and how someone responds. Figure 16.2.2 illustrates a variety of communications that illustrate social influences in the workplace.
Perception
In addition, the communication process is heavily influenced by perceptual processes. The extent to which an employee accurately receives job instructions from a manager may be influences by her perception of the manager, especially if the job instructions conflict with her interest in the job or if they are controversial. If an employee has stereotyped the manager as incompetent, chances are that little that the manager says will be taken seriously. If the boss is well regarded or seen as influential in the company, everything that she says may be interpreted as important.
Interaction Involvement
Communication effectiveness can be influenced by the extent to which one or both parties are involved in conversation. This attentiveness is called interaction attentiveness or interaction involvement.4 If the intended receiver of the message is preoccupied with other issues, the effectiveness of the message may be diminished. Interaction involvement consists of three interrelated dimensions: responsiveness, perceptiveness, and attentiveness.
Organizational Design
The communication process can also be influenced by the design of the organization. It has often been argued to decentralize an organization because that will lead to a more participative structure and lead to improved communication in the organization. When messages must travel through multiple levels of an organization, the possibility of distortion can also occur, which would be diminished with more face-to-face communication.
concept check
1. What are the three major types of communication?
2. How can you manage the inflow of electronic communication?
3. What are the major influences on organizational communication, and how can organizational design affect communication? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/16%3A_Managerial_Communication/16.02%3A_Types_of_Communications_in_Organizations.txt |
Learning Objectives
1. Understand how power, status, purpose, and interpersonal skills affect communications in organizations.
The Roles Managers Play
In Mintzberg’s seminal study of managers and their jobs, he found the majority of them clustered around three core management roles.5
Interpersonal Roles
Managers are required to interact with a substantial number of people during a workweek. They host receptions; take clients and customers to dinner; meet with business prospects and partners; conduct hiring and performance interviews; and form alliances, friendships, and personal relationships with many others. Numerous studies have shown that such relationships are the richest source of information for managers because of their immediate and personal nature.6
Three of a manager’s roles arise directly from formal authority and involve basic interpersonal relationships. First is the figurehead role. As the head of an organizational unit, every manager must perform some ceremonial duties. In Mintzberg’s study, chief executives spent 12% of their contact time on ceremonial duties; 17% of their incoming mail dealt with acknowledgments and requests related to their status. One example is a company president who requested free merchandise for a handicapped schoolchild.7
Managers are also responsible for the work of the people in their unit, and their actions in this regard are directly related to their role as a leader. The influence of managers is most clearly seen, according to Mintzberg, in the leader role. Formal authority vests them with great potential power. Leadership determines, in large part, how much power they will realize.
Does the leader’s role matter? Ask the employees of Chrysler Corporation (now Fiat Chrysler). When Sergio Marchionne, who passed away in 2018, took over the company in the wake of the financial crisis, the once-great auto manufacturer was in bankruptcy, teetering on the verge of extinction. He formed new relationships with the United Auto Workers, reorganized the senior management of the company, and—perhaps, most importantly—convinced the U.S. federal government to guarantee a series of bank loans that would make the company solvent again. The loan guarantees, the union response, and the reaction of the marketplace, especially for the Jeep brand, were due in large measure to Marchionne’s leadership style and personal charisma. More recent examples include the return of Starbucks founder Howard Schultz to reenergize and steer his company and Amazon CEO Jeff Bezos and his ability to innovate during a downturn in the economy.8
Popular management literature has had little to say about the liaison role until recently. This role, in which managers establish and maintain contacts outside the vertical chain of command, becomes especially important in view of the finding of virtually every study of managerial work that managers spend as much time with peers and other people outside of their units as they do with their own subordinates. Surprisingly, they spend little time with their own superiors. In Rosemary Stewart’s (1967) study, 160 British middle and top managers spent 47% of their time with peers, 41% of their time with people inside their unit, and only 12% of their time with superiors. Guest’s (1956) study of U.S. manufacturing supervisors revealed similar findings.
Informational Roles
Managers are required to gather, collate, analyze, store, and disseminate many kinds of information. In doing so, they become information resource centers, often storing huge amounts of information in their own heads, moving quickly from the role of gatherer to the role of disseminator in minutes. Although many business organizations install large, expensive management information systems to perform many of those functions, nothing can match the speed and intuitive power of a well-trained manager’s brain for information processing. Not surprisingly, most managers prefer it that way.
As monitors, managers are constantly scanning the environment for information, talking with liaison contacts and subordinates, and receiving unsolicited information, much of it because of their network of personal contacts. A good portion of this information arrives in verbal form, often as gossip, hearsay, and speculation.9
In the disseminator role, managers pass privileged information directly to subordinates, who might otherwise have no access to it. Managers must decide not only who should receive such information, but how much of it, how often, and in what form. Increasingly, managers are being asked to decide whether subordinates, peers, customers, business partners, and others should have direct access to information 24 hours a day without having to contact the manager directly.10
In the spokesperson role, managers send information to people outside of their organizations: an executive makes a speech to lobby for an organizational cause, or a supervisor suggests a product modification to a supplier. Increasingly, managers are also being asked to deal with representatives of the news media, providing both factual and opinion-based responses that will be printed or broadcast to vast unseen audiences, often directly or with little editing. The risks in such circumstances are enormous, but so too are the potential rewards in terms of brand recognition, public image, and organizational visibility.11
Decisional Roles
Ultimately, managers are charged with the responsibility of making decisions on behalf of both the organization and the stakeholders with an interest in it. Such decisions are often made under circumstances of high ambiguity and with inadequate information. Often, the other two managerial roles—interpersonal and informational—will assist a manager in making difficult decisions in which outcomes are not clear and interests are often conflicting.
In the role of entrepreneur, managers seek to improve their businesses, adapt to changing market conditions, and react to opportunities as they present themselves. Managers who take a longer-term view of their responsibilities are among the first to realize that they will need to reinvent themselves, their product and service lines, their marketing strategies, and their ways of doing business as older methods become obsolete and competitors gain advantage.
While the entrepreneur role describes managers who initiate change, the disturbance or crisis handler role depicts managers who must involuntarily react to conditions. Crises can arise because bad managers let circumstances deteriorate or spin out of control, but just as often good managers find themselves in the midst of a crisis that they could not have anticipated but must react to just the same.12
The third decisional role of resource allocator involves managers making decisions about who gets what, how much, when, and why. Resources, including funding, equipment, human labor, office or production space, and even the boss’s time, are all limited, and demand inevitably outstrips supply. Managers must make sensible decisions about such matters while still retaining, motivating, and developing the best of their employees.
The final decisional role is that of negotiator. Managers spend considerable amounts of time in negotiations: over budget allocations, labor and collective bargaining agreements, and other formal dispute resolutions. During a week, managers will often make dozens of decisions that are the result of brief but important negotiations between and among employees, customers and clients, suppliers, and others with whom managers must deal.13
concept check
1. What are the major roles that managers play in communicating with employees?
2. Why are negotiations often brought in to communications by managers? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/16%3A_Managerial_Communication/16.03%3A_Factors_Affecting_Communications_and_the_Roles_of_Managers.txt |
Learning Objectives
1. Describe how corporate reputations are defined by how an organization communicates to its stakeholders.
Management communication is a central discipline in the study of communication and corporate reputation. An understanding of language and its inherent powers, combined with the skill to speak, write, listen, and form interpersonal relationships, will determine whether companies succeed or fail and whether they are rewarded or penalized for their reputations.
At the midpoint of the twentieth century, Peter Drucker wrote, “Managers have to learn to know language, to understand what words are and what they mean. Perhaps most important, they have to acquire respect for language as [our] most precious gift and heritage. The manager must understand the meaning of the old definition of rhetoric as ‘the art which draws men’s hearts to the love of true knowledge.’”14
Later, Eccles and Nohria reframed Drucker’s view to offer a perspective of management that few others have seen: “To see management in its proper light, managers need first to take language seriously.”15 In particular, they argue, a coherent view of management must focus on three issues: the use of rhetoric to achieve a manager’s goals, the shaping of a managerial identity, and taking action to achieve the goals of the organizations that employ us. Above all, they say, “the essence of what management is all about [is] the effective use of language to get things done.”16 One of the things managers get done is the creation, management, and monitoring of corporate reputation.
The job of becoming a competent, effective manager thus becomes one of understanding language and action. It also involves finding ways to shape how others see and think of you in your role as a manager. Many noted researchers have examined the important relationship between communication and action within large and complex organizations and conclude that the two are inseparable. Without the right words, used in the right way, it is unlikely that the right reputations develop. “Words do matter,” write Eccles and Nohria. “They matter very much. Without words, we have no way of expressing strategic concepts, structural forms, or designs for performance measurement systems.” Language, they conclude, “is too important to managers to be taken for granted or, even worse, abused.”17
So, if language is a manager’s key to corporate reputation management, the next question is obvious: How good are managers at using language? Managers’ ability to act—to hire a talented workforce, to change an organization’s reputation, to launch a new product line—depends entirely on how effectively they use management communication, both as a speaker and as a listener. Managers’ effectiveness as a speaker and writer will determine how well they are able to manage the firm’s reputation. And their effectiveness as listeners will determine how well they understand and respond to others and can change the organization in response to their feedback.
We will now examine the role management communication plays in corporate reputation formation, management, and change and the position occupied by rhetoric in the life of business organizations. Though, this chapter will focus on the skills, abilities, and competencies for using language, attempting to influence others, and responding to the requirements of peers, superiors, stakeholders, and the organization in which managers and employees work.
Management communication is about the movement of information and the skills that facilitate it—speaking, writing, listening, and processes of critical thinking. It’s also about understanding who your organization is (identity), who others think your organization is (reputation), and the contributions individuals can make to the success of their business considering their organization’s existing reputation. It is also about confidence—the knowledge that one can speak and write well, listen with great skill as others speak, and both seek out and provide the feedback essential to creating, managing, or changing their organization’s reputation.
At the heart of this chapter, though, is the notion that communication, in many ways, is the work of managers. We will now examine the roles of writing and speaking in the role of management, as well as other specific applications and challenges managers face as they play their role in the creation, maintenance, and change of corporate reputation.
concept check
1. How are corporate reputations affected by the communication of managers and public statements?
2. Why is corporate reputation important? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/16%3A_Managerial_Communication/16.04%3A_Managerial_Communication_and_Corporate_Reputation.txt |
Learning Objective
1. Know why talking, listening, reading, and writing are vital to managing effectively.
The major channels of managerial communication displayed in Figure 16.5.1 are talking, listening, reading, and writing. Among these, talking is the predominant method of communicating, but as e-mail and texting increase, reading and writing are increasing. Managers across industries, according to Deirdre Borden, spend about 75% of their time in verbal interaction. Those daily interactions include the following.
One-on-One Conversations
Increasingly, managers find that information is passed orally, often face-to-face in offices, hallways, conference rooms, cafeterias, restrooms, athletic facilities, parking lots, and literally dozens of other venues. An enormous amount of information is exchanged, validated, confirmed, and passed back and forth under highly informal circumstances.
Telephone Conversations
Managers spend an astounding amount of time on the telephone these days. Curiously, the amount of time per telephone call is decreasing, but the number of calls per day is increasing. With the nearly universal availability of cellular and satellite telephone service, very few people are out of reach of the office for very long. The decision to switch off a cellular telephone, in fact, is now considered a decision in favor of work-life balance.
Video Teleconferencing
Bridging time zones as well as cultures, videoconferencing facilities make direct conversations with employees, colleagues, customers, and business partners across the nation or around the world a simple matter. Carrier Corporation, the air-conditioning manufacturer, is now typical of firms using desktop videoconferencing to conduct everything from staff meetings to technical training. Engineers at Carrier’s Farmington, Connecticut, headquarters can hook up with service managers in branch offices thousands of miles away to explain new product developments, demonstrate repair techniques, and update field staff on matters that would, just recently, have required extensive travel or expensive, broadcast-quality television programming. Their exchanges are informal, conversational, and not much different than they would be if the people were in the same room.18
Presentations to Small Groups
Managers frequently find themselves making presentations, formal and informal, to groups of three to eight people for many different reasons: they pass along information given to them by executives, they review the status of projects in process, and they explain changes in everything from working schedules to organizational goals. Such presentations are sometimes supported by overhead transparencies or printed outlines, but they are oral in nature and retain much of the conversational character of one-to-one conversations.
Public Speaking to Larger Audiences
Most managers are unable to escape the periodic requirement to speak to larger audiences of several dozen or, perhaps, several hundred people. Such presentations are usually more formal in structure and are often supported by PowerPoint or Prezi software that can deliver data from text files, graphics, photos, and even motion clips from streaming video. Despite the more formal atmosphere and sophisticated audio-visual support systems, such presentations still involve one manager talking to others, framing, shaping, and passing information to an audience.
A series of scientific studies, beginning with Rankin, Nichols and Stevens, and Wolvin and Coakley, confirm: most managers spend the largest portion of their day talking and listening.19 Werner’s thesis, in fact, found that North American adults spend more than 78% of their communication time either talking or listening to others who are talking.
According to Werner and others who study the communication habits of postmodern business organizations, managers are involved in more than just speeches and presentations from the dais or teleconference podium. They spend their days in meetings, on the telephone, conducting interviews, giving tours, supervising informal visits to their facilities, and at a wide variety of social events.20
Each of these activities may look to some managers like an obligation imposed by the job. Shrewd managers see them as opportunities to hear what others are thinking, to gather information informally from the grapevine, to listen in on office gossip, to pass along viewpoints that haven’t yet made their way to the more formal channels of communication, or to catch up with a colleague or friend in a more relaxed setting. No matter what the intention of each manager who engages in these activities, the information they produce and the insight that follows from them can be put to work the same day to achieve organizational and personal objectives. “To understand why effective managers behave as they do,” writes Kotter, “it is essential first to recognize two fundamental challenges and dilemmas found in most of their jobs.” Managers must first figure out what to do, despite an enormous amount of potentially relevant information (along with much that is not), and then they must get things done “through a large and diverse group of people despite having little direct control over most of them.”21
The Role of Writing
Writing plays an important role in the life of any organization. In some organizations, it becomes more important than in others. At Procter & Gamble, for example, brand managers cannot raise a work-related issue in a team meeting unless the ideas are first circulated in writing. For P&G managers, this approach means explaining their ideas in explicit detail in a standard one-to-three-page memo, complete with background, financial discussion, implementation details, and justification for the ideas proposed.
Other organizations are more oral in their traditions—3M Canada is a “spoken” organization—but the fact remains: the most important projects, decisions, and ideas end up in writing. Writing also provides analysis, justification, documentation, and analytic discipline, particularly as managers approach important decisions that will affect the profitability and strategic direction of the company.
Writing is a career sifter. If managers demonstrate their inability to put ideas on paper in a clear, unambiguous fashion, they’re not likely to last. Stories of bad writers who’ve been shown the door early in their careers are legion. Managers’ principal objective, at least during the first few years of their career, is to keep their name out of such stories. Remember: those who are most likely to notice the quality and skill in managers’ written documents are the very people most likely to matter to managers’ future.
Managers do most of their own writing and editing. The days when managers could lean back and thoughtfully dictate a letter or memo to a skilled secretarial assistant are mostly gone. Some senior executives know how efficient dictation can be, especially with a top-notch administrative assistant taking shorthand, but how many managers have that advantage today? Very few, mostly because buying a computer and printer is substantially cheaper than hiring another employee. Managers at all levels of most organizations draft, review, edit, and dispatch their own correspondence, reports, and proposals.
Documents take on lives of their own. Once it’s gone from the manager’s desk, it isn’t theirs anymore. When they sign a letter and put it in the mail, it’s no longer their letter—it’s the property of the person or organization it was sent to. As a result, the recipient is free to do as she sees fit with the writing, including using it against the sender. If the ideas are ill-considered or not well expressed, others in the organization who are not especially sympathetic to the manager’s views may head for the copy machine with the manager’s work in hand. The advice for managers is simple: do not mail the first draft, and do not ever sign your name to a document you are not proud of.
Communication Is Invention
Without question, communication is a process of invention. Managers literally create meaning through communication. A company, for example, is not in default until a team of auditors sits down to examine the books and review the matter. Only after extended discussion do the accountants conclude that the company is, in fact, in default. It is their discussion that creates the outcome. Until that point, default was simply one of many possibilities.
The fact is managers create meaning through communication. It is largely through discussion and verbal exchange—often heated and passionate—that managers decide who they wish to be: market leaders, takeover artists, innovators, or defenders of the economy. It is only through communication that meaning is created for shareholders, employees, customers, and others. Those long, detailed, and intense discussions determine how much the company will declare in dividends this year, whether the company is willing to risk a strike or labor action, and how soon to roll out the new product line customers are asking for. Additionally, it is important to note that managers usually figure things out by talking about them as much as they talk about the things they have already figured out. Talk serves as a wonderful palliative: justifying, analyzing, dissecting, reassuring, and analyzing the events that confront managers each day.
Information Is Socially Constructed
If we are to understand just how important human discourse is in the life of a business, several points seem especially important.
Information is created, shared, and interpreted by people. Meaning is a truly human phenomenon. An issue is only important if people think it is. Facts are facts only if we can agree upon their definition. Perceptions and assumptions are as important as truth itself in a discussion about what a manager should do next.22 Information never speaks for itself. It is not uncommon for a manager to rise to address a group of her colleagues and say, “The numbers speak for themselves.” Frankly, the numbers never speak for themselves. They almost always require some sort of interpretation, some sort of explanation or context. Do not assume that others see the facts in the same way managers do, and never assume that what is seen is the truth. Others may see the same set of facts or evidence but may not reach the same conclusions. Few things in life are self-explanatory.
Context always drives meaning. The backdrop to a message is always of paramount importance to the listener, viewer, or reader in reaching a reasonable, rational conclusion about what she sees and hears. What’s in the news these days as we take up this subject? What moment in history do we occupy? What related or relevant information is under consideration as this new message arrives? We cannot possibly derive meaning from one message without considering everything else that surrounds it.
A messenger always accompanies a message. It is difficult to separate a message from its messenger. We often want to react more to the source of the information than we do to the information itself. That’s natural and entirely normal. People speak for a reason, and we often judge their reasons for speaking before analyzing what they have to say. Keep in mind that, in every organization, message recipients will judge the value, power, purpose, intent, and outcomes of the messages they receive by the source of those messages as much as by the content and intent of the messages themselves. If the messages managers send are to have the impact hoped for, they must come from a source the receiver knows, respects, and understands.
Managers’ Greatest Challenge
Every manager knows communication is vital, but every manager also seems to “know” that she is great at it. Managers’ greatest challenge is to admit to flaws in their skill set and work tirelessly to improve them. First, managers must admit to the flaws.
Larkin and Larkin write, “Deep down, managers believe they are communicating effectively. In ten years of management consulting, we have never had a manager say to us that he or she was a poor communicator. They admit to the occasional screw-up, but overall, everyone, without exception, believes he or she is basically a good communicator.”23
Managers’ Task as Professionals
As a professional manager, the first task is to recognize and understand one’s strengths and weaknesses as a communicator. Until these communication tasks at which one is most and least skilled are identified, there will be little opportunity for improvement and advancement.
Foremost among managers’ goals should be to improve existing skills. Improve one’s ability to do what is done best. Be alert to opportunities, however, to develop new skills. Managers should add to their inventory of abilities to keep themselves employable and promotable.
Two other suggestions come to mind for improving managers’ professional standing. First, acquire a knowledge base that will work for the years ahead. That means speaking with and listening to other professionals in their company, industry, and community. They should be alert to trends that could affect their company’s products and services, as well as their own future.
It also means reading. Managers should read at least one national newspaper each day, including the Wall Street Journal, the New York Times, or the Financial Times, as well as a local newspaper. Their reading should include weekly news magazines, such as U.S. News & World Report, Bloomberg’s Business Week, and the Economist. Subscribe to monthly magazines such as Fast Company and Fortune. And they should read at least one new hardcover title a month. A dozen books each year is the bare minimum on which one should depend for new ideas, insights, and managerial guidance.
Managers’ final challenge is to develop the confidence needed to succeed as a manager, particularly under conditions of uncertainty, change, and challenge.
ETHICS IN PRACTICE
Disney and H-1B Visas
On January 30, 2015, The Walt Disney Company laid off 250 of its IT workers. In a letter to the laid-off workers, Disney outlined the conditions for receipt of a “stay bonus,” which would entitle each worker to a lump-sum payment of 10% of her annual salary.
Of course, there was a catch. Only those workers who trained their replacements over a 90-day period would receive the bonus. One American worker in his 40s who agreed to Disney’s severance terms explained how it worked in action:
“The first 30 days was all capturing what I did. The next 30 days, they worked side by side with me, and the last 30 days, they took over my job completely. I had to make sure they were doing my job correctly.”
To outside observers, this added insult to injury. It was bad enough to replace U.S. workers with cheaper, foreign labor. But to ask, let alone strong-arm, the laid-off workers into training their replacements seemed a bit much.
However unfortunate, layoffs are commonplace. But this was different. From the timing to the apparent neglect of employee pride, the sequence of events struck a nerve. For many, the issue was simple, and Disney’s actions seemed wrong at a visceral level. As criticism mounted, it became clear that this story would develop legs. Disney had a problem.
For David Powers and Leo Perrero, each a 10-year information technology (IT) veteran at Disney, the invitation came from a vice president of the company. It had to be good news, the men thought. After all, they were not far removed from strong performance reviews—perhaps they would be awarded performance bonuses. Well, not exactly. Leo Perrero, one of the summoned workers, explains what happened next.
“I’m in the room with about two-dozen people, and very shortly thereafter an executive delivers the news that all of our jobs are ending in 90 days, and that we have 90 days to train our replacements or we won’t get a bonus that we’ve been offered.”
Powers explained the deflating effect of the news: “When a guillotine falls down on you, in that moment you're dead . . . and I was dead.”
These layoffs and the hiring of foreign workers under the H-1B program lay at the center of this issue. Initially introduced by the Immigration and Nationality Act of 1965, subsequent modifications produced the current iteration of the H-1B visa program in 1990. Importantly, at that time, the United States faced a shortage of skilled workers necessary to fill highly technical jobs. Enter the H-1B visa program as the solution. This program permits U.S. employers to temporarily employ foreign workers in highly specialized occupations. “Specialty occupations” are defined as those in the fields of architecture, engineering, mathematics, science, medicine, and others that require technical and skilled expertise.
Congress limited the number of H-1B visas issued to 85,000 per year. That total is divided into two subcategories: “65,000 new H-1B visas issued for overseas workers in professional or specialty occupation positions, and an additional 20,000 visas available for those with an advanced degree from a U.S. academic institution.” Further, foreign workers are not able to apply for an H-1B visa. Instead, a U.S. employer must petition on their behalf no earlier than six months before the starting date of employment.
In order to be eligible for an employer to apply a foreign worker for an H-1B visa, the worker needed to meet certain requirements, such as an employee-employer relationship with the petitioning U.S. employer and a position in a specialty occupation related to the employee’s field of study, where the employee must meet one of the following criteria: a bachelor’s degree or the foreign equivalent of a bachelor’s degree, a degree that is standard for the position, or previous qualified experience within the specialty occupation.
If approved, the initial term of the visa is three years, which may be extended an additional three years. While residing in the United States on an H-1B visa, a worker may apply to become a permanent resident and receive a green card, which would entitle the worker to remain indefinitely.
U.S. employers are required to file a Labor Condition Application (LCA) on behalf of each foreign worker they seek to employ. That application must be approved by the U.S. Department of Labor. The LCA requires the employer to assure that the foreign worker will be paid a wage and be provided working conditions and benefits that meet or exceed the local prevailing market and to assure that the foreign worker will not displace a U.S. worker in the employer’s workforce.
Given these representations, U.S. employers have increasingly been criticized for abuse of the H-1B program. Most significantly, there is rising sentiment that U.S. employers are displacing domestic workers in favor of cheaper foreign labor. Research indicates that a U.S. worker’s salary for these specialty occupations often exceeds \$100,000, while that of a foreign worker is roughly \$62,000 for the very same job. The latter figure is telling, since \$60,000 is the threshold below which a salary would trigger a penalty.
Disney faced huge backlash and negative press because of the layoffs and hiring of foreign workers. Because of this, Disney had communication challenges, both internally and externally.
Disney executives framed the layoffs as part of a larger plan of reorganization intended to enable its IT division to focus on driving innovation. Walt Disney World spokesperson Jacquee Wahler gave the following explanation:
“We have restructured our global technology organization to significantly increase our cast member focus on future innovation and new capabilities, and are continuing to work with leading technical firms to maintain our existing systems as needed.” (Italics added for emphasis.)
That statement is consistent with a leaked memo drafted by Disney Parks and Resort CIO Tilak Mandadi, which he sent to select employees on November 10, 2014 (not including those who would be laid off), to explain the rationale for the impending layoffs. The memo read, in part, as follows:
“To enable a majority of our team to shift focus to new capabilities, we have executed five new managed services agreements to support testing services and application maintenance. Last week, we began working with both our internal subject matter experts and the suppliers to start transition planning for these agreements. We expect knowledge transfer to start later this month and last through January. Those Cast Members who are involved will be contacted in the next several weeks.”
Responding to the critical New York Times article, Disney represented that when all was said and done, the company had in fact produced a net jobs increase. According to Disney spokesperson Kim Prunty:
“Disney has created almost 30,000 new jobs in the U.S. over the past decade, and the recent changes to our parks’ IT team resulted in a larger organization with 70 additional in-house positions in the U.S. External support firms are responsible for complying with all applicable employment laws for their employees.”
New jobs were promised due to the restructuring, Disney officials said, and employees targeted for termination were pushed to apply for those positions. According to a confidential Disney source, of the approximately 250 laid-off employees, 120 found new jobs within Disney, 40 took early retirement, and 90 were unable to secure new jobs with Disney.
On June 11, 2015, Senator Richard Durbin of Illinois and Senator Jeffrey Sessions of Alabama released a statement regarding a bipartisan letter issued to the attorney general, the Department Homeland Security, and the Department of Labor.
“A number of U.S. employers, including some large, well-known, publicly-traded corporations, have laid off thousands of American workers and replaced them with H-1B visa holders . . . . To add insult to injury, many of the replaced American employees report that they have been forced to train the foreign workers who are taking their jobs. That’s just plain wrong and we’ll continue to press the Administration to help solve this problem.”
In response to request for comment on the communications issues raised by the Disney layoffs and aftermath, New York Times columnist Julia Preston shared the following exclusive analysis:
“I would say Disney’s handling of those lay-offs is a case study in how not to do things. But in the end it’s not about the communications, it’s about the company. Those layoffs showed a company that was not living up to its core vaunted family values and no amount of shouting by their communications folks could change the facts of what happened.”
questions for discussion
1. Is it ethical for U.S. companies to lay off workers and hire foreign workers under the H-1B program? Should foreign countries restrict the hiring of foreign workers that meet their workforce requirements?
2. Discuss the internal and external communications that Disney employed in this situation. The examples here are of the formal written communications. What should Disney have been communicating verbally to their employees and externally?
sources
Preston, Julia, Pink Slips at Disney. But First, Training Foreign Replacements, The New York Times June 3, 2015, www.nytimes.com/2015/06/04/us...lacements.html;
Vargas, Rebecca, EXCLUSIVE: Former Employees Speak Out About Disney's Outsourcing of High-Tech Jobs, WWSB ABC 7 (Oct. 28, 2015), www.mysuncoast.com/news/local...5081380c1.html;
Boyle, Mathew, Ahead of GOP Debate, Two Ex-Disney Workers Displaced by H1B Foreigners Speak Out for First Time, Breitbart.com, October 28, 2015, http://www.breitbart.com/big-governm...for-first-time;
Sandra Pedicini, Tech Workers File Lawsuits Against Disney Over H-1B Visas, Orlando Sentinel, published January 25, 2016, accessed February 6, 2016, available at http://www.orlandosentinel.com/busin...125-story.html;
U.S. Citizenship and Immigration Services, Understanding H-1B Requirements, accessed February 6, 2016, available at https://www.uscis.gov/eir/visa-guide...b-requirements;
May, Caroline, Sessions, Durbin: Department Of Labor Has Launched Investigation Into H-1B Abuses, Breitbart.com (June 11, 2015), http://www.breitbart.com/big-governm...o-h-1b-abuses/;
Email from Julia Preston, National Immigration Correspondent, The New York Times, to Bryan Shannon, co-author of this case study, dated February 10, 2016.
concept check
1. What are the four components of communication discussed in this section?
2. Why is it important to understand your limitations in communicating to others and in larger groups?
3. Why should managers always strive to improve their skills? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/16%3A_Managerial_Communication/16.05%3A_The_Major_Channels_of_Management_Communication_Are_Talking_Listening_Reading_and_Writing.txt |
key terms
communicator
The individual, group, or organization that needs or wants to share information with another individual, group, or organization.
decoding
Interpreting and understanding and making sense of a message.
encoding
Translating a message into symbols or language that a receiver can understand.
noise
Anything that interferes with the communication process.
receiver
The individual, group, or organization for which information is intended.
interaction attentiveness/ interaction involvement
A measure of how the receiver of a message is paying close attention and is alert or observant.
figurehead role
A necessary role for a manager who wants to inspire people within the organization to feel connected to each other and to the institution, to support the policies and decisions made on behalf of the organization, and to work harder for the good of the institution.
The Process of Managerial Communication
1. Understand and describe the communication process.
The basic model of interpersonal communication consists of an encoded message, a decoded message, feedback, and noise. Noise refers to the distortions that inhibit message clarity.
Types of Communications in Organizations
1. Know the types of communications that occur in organizations.
Interpersonal communication can be oral, written, or nonverbal. Body language refers to conveying messages to others through such techniques as facial expressions, posture, and eye movements.
Factors Affecting Communications and the Roles of Managers
1. Understand how power, status, purpose, and interpersonal skills affect communications in organizations.
Interpersonal communication is influenced by social situations, perception, interaction involvement, and organizational design. Organizational communication can travel upward, downward, or horizontally. Each direction of information flow has specific challenges.
Managerial Communication and Corporate Reputation
1. Describe how corporate reputations are defined by how an organization communicates to all of its stakeholders.
It is important for managers to understand what your organization stands for (identity), what others think your organization is (reputation), and the contributions individuals can make to the success of the business considering their organization’s existing reputation. It is also about confidence—the knowledge that one can speak and write well, listen with great skill as others speak, and both seek out and provide the feedback essential to creating, managing, or changing their organization’s reputation.
The Major Channels of Management Communication Are Talking, Listening, Reading, and Writing
1. Describe the roles that managers perform in organizations.
There are special communication roles that can be identified. Managers may serve as gatekeepers, liaisons, or opinion leaders. They can also assume some combination of these roles. It is important to recognize that communication processes involve people in different functions and that all functions need to operate effectively to achieve organizational objectives.
chapter review questions
1. Describe the communication process.
2. Why is feedback a critical part of the communication process?
3. What are some things that managers can do to reduce noise in communication?
4. Compare and contrast the three primary forms of interpersonal communication.
5. Describe the various individual communication roles in organizations.
6. How can managers better manage their effectiveness by managing e-mail communication?
7. Which communication roles are most important in facilitating managerial effectiveness?
8. Identify barriers to effective communication.
9. How can barriers to effective communication be overcome by managers?
management skills application exercises
1. The e-mails below are not written as clearly or concisely as they could be. In addition, they may have problems in organization or tone or mechanical errors. Rewrite them so they are appropriate for the audience and their purpose. Correct grammatical and mechanical errors. Finally, add a subject line to each.
E-Mail 1
To: Employees of The Enormously Successful Corporation
From: CEO of The Enormously Successful Corporation
Subject:
Stop bringing bottled soft drinks, juices and plastic straws to work. Its an environment problem that increases our waste and the quality of our water is great. People don’t realize how much wasted energy goes into shipping all that stuff around, and plastic bottles, aluminum cans and straws are ruining our oceans and filling land fills. Have you seen the floating island of waste in the Pacific Ocean? Some of this stuff comes from other countries like Canada Dry I think is from canada and we are taking there water and Canadians will be thirsty. Fancy drinks isn’t as good as the water we have and tastes better anyway.
E-Mail 2
To: All Employees
From: Management
Subject:
Our Committee to Improve Inter-Office Communication has decided that there needs to be an update and revision of our policy on emailing messages to and from those who work with us as employees of this company. The following are the results of the committee’s decisions, and constitute recommendations for the improvement of every aspect of email communication.
1. Too much wordiness means people have to read the same thing over and over repeatedly, time after time. Eliminating unnecessary words, emails can be made to be shorter and more to the point, making them concise and taking less time to read.
2. You are only allowed to send and receive messages between 8:30 AM east coat time and 4:30 PM east coast time. You are also not allowed to read e-mails outside of these times. We know that for those of you on the west coast or traveling internationally it will reduce the time that you are allowed to attend to e-mail, but we need this to get it under control.
3. You are only allowed to have up to 3 recipients on each e-mail. If more people need to be informed it is up to the people to inform them.
1. Write a self-evaluation that focuses specifically on your class participation in this course. Making comments during class allows you to improve your ability to speak extemporaneously, which is exactly what you will have to do in all kinds of business situations (e.g., meetings, asking questions at presentations, one-on-one conversations). Thus, write a short memo (two or three paragraphs) in which you describe the frequency with which you make comments in class, the nature of those comments, and what is easy and difficult for you when it comes to speaking up in class.
If you have made few (or no) comments during class, this is a time for us to come up with a plan to help you overcome your shyness. Our experience is that as soon as a person talks in front of a group once or twice, it becomes much easier—so we need to come up with a way to help you break the ice.
Finally, please comment on what you see as the strengths and weaknesses of your discussions and presentations in this class.
2. Refer to the photo in Figure 16.2.1. Comment on the body language exhibited by each person at the meeting and how engaged they are in the communication.
3. In the movie The Martian, astronaut Mark Watney (played by Matt Damon) is stranded on Mars with limited ability to communicate with mission control. Watney holds up questions to a camera that can transmit photographs of his questions, and mission control could respond by pointing the camera at a “yes” or “no” card with the camera. Eventually, they are able to exchange “text” messages but no voice exchanges. Also, there is a significant time delay between the sending and receipt of the messages. Which part of the communication process would have to be addressed to ensure that the encoding of the messages, the decoding of the messages, and that noise is minimized by Watney and mission control?
managerial decision exercises
1. Ginni Rometty is the CEO of IBM. Shortly after taking on the role of CEO and being frustrated by the progress and sales performance, Rometty released a five-minute video to all 400,000 plus IBM employees criticizing the lack of securing deals to competitors and lashed out at the sales organization for poor sales in the preceding quarter. Six months later, Rometty sent another critical message, this time via e-mail. How effective will the video and e-mail be in communicating with employees? How should she follow up on these messages?
2. Social media, such as Facebook, is now widespread. Place yourself as a manager that has just received a “friend” request from one of your direct reports. Do you accept, reject, or ignore the request? Why, and what additional communication would you have regarding this with the employee?
3. During a cross-functional meeting, one of the attendees who reports to a manager who is also at the meeting accuses one of your reports of not being fit for the position she is in. You disagree and feel that your report is a good fit for her role. How do you handle this?
Critical Thinking Case
Facebook, Inc.
Facebook has been in the news with criticism of its privacy policies, sharing customer information with Fusion GPS, and criticism regarding the attempts to influence the 2016 election. In March 2014, Facebook released a study entitled “Experimental evidence of massive-scale emotional contagion through social networks.” It was published in the Proceedings of the National Academy of Sciences (PNAS), a prestigious, peer-reviewed scientific journal. The paper explains how social media can readily transfer emotional states from person to person through Facebook’s News Feed platform. Facebook conducted an experiment on members to see how people would respond to changes in a percentage of both positive and negative posts. The results suggest that emotional contagion does occur online and that users’ positive expressions can generate positive reactions, while, in turn, negative expressions can generate negative reactions.
Facebook has two separate value propositions aimed at two different markets with entirely different goals.
Originally, Facebook’s main market was its end users—people looking to connect with family and friends. At first, it was aimed only at college students at a handful of elite schools. The site is now open to anyone with an Internet connection. Users can share status updates and photographs with friends and family. And all of this comes at no cost to the users.
Facebook’s other major market is advertisers, who buy information about Facebook’s users. The company regularly gathers data about page views and browsing behavior of users in order to display targeted advertisements to users for the benefit of its advertising partners.
The value proposition of the Facebook News Feed experiment was to determine whether emotional manipulation would be possible through the use of social networks. This clearly could be of great value to one of Facebook’s target audiences—its advertisers.
The results suggest that the emotions of friends on social networks influence our own emotions, thereby demonstrating emotional contagion via social networks. Emotional contagion is the tendency to feel and express emotions similar to and influenced by those of others. Originally, it was studied by psychologists as the transference of emotions between two people.
According to Sandra Collins, a social psychologist and University of Notre Dame professor of management, it is clearly unethical to conduct psychological experiments without the informed consent of the test subjects. While tests do not always measure what the people conducting the tests claim, the subjects need to at least know that they are, indeed, part of a test. The subjects of this test on Facebook were not explicitly informed that they were participating in an emotional contagion experiment. Facebook did not obtain informed consent as it is generally defined by researchers, nor did it allow participants to opt-out.
When information about the experiment was released, the media response was overwhelmingly critical. Tech blogs, newspapers, and media reports reacted quickly.
Josh Constine of TechCrunch wrote:
“ . . . there is some material danger to experiments that depress people. Some people who are at risk of depression were almost surely part of Facebook’s study group that were shown a more depressing feed, which could be considered dangerous. Facebook will endure a whole new level of backlash if any of those participants were found to have committed suicide or had other depression-related outcomes after the study.”
The New York Times quoted Brian Blau, a technology analyst with the research firm Gartner, “Facebook didn’t do anything illegal, but they didn’t do right by their customers. Doing psychological testing on people crosses the line.” Facebook should have informed its users, he said. “They keep on pushing the boundaries, and this is one of the reasons people are upset.”
While some of the researchers have since expressed some regret about the experiment, Facebook as a company was unapologetic about the experiment. The company maintained that it received consent from its users through its terms of service. A Facebook spokesperson defended the research, saying, “We do research to improve our services and make the content people see on Facebook as relevant and engaging as possible. . . . We carefully consider what research we do and have a strong internal review process.”
With the more recent events, Facebook is changing the privacy settings but still collects an enormous amount of information about its users and can use that information to manipulate what users see. Additionally, these items are not listed on Facebook’s main terms of service page. Users must click on a link inside a different set of terms to arrive at the data policy page, making these terms onerous to find. This positioning raises questions about how Facebook will employ its users’ behaviors in the future.
critical thinking questions
1. How should Facebook respond to the 2014 research situation? How could an earlier response have helped the company avoid the 2018 controversies and keep the trust of its users?
2. Should the company promise to never again conduct a survey of this sort? Should it go even further and explicitly ban research intended to manipulate the responses of its users?
3. How can Facebook balance the concerns of its users with the necessity of generating revenue through advertising?
4. What processes or structures should Facebook establish to make sure it does not encounter these issues again?
5. Respond in writing to the issues presented in this case by preparing two documents: a communication strategy memo and a professional business letter to advertisers.
sources
Kramer, Adam; Guillory, Jamie; and Hancock, Jeffrey, “Experimental evidence of massive-scale emotional contagion through social networks,” PNAS (Proceedings of the National Academy of Sciences of the United States of America). March 25, 2014 www.pnas.org/content/111/24/8788.full;
Laja, Peep. “Useful Value Proposition Examples (and How to Create a Good One), ConversionXL, 2015 conversionxl.com/value-propos...how-to-create/;
Yadav, Sid. “Facebook - The Complete Biography,” Mashable, Aug. 25, 2006. mashable.com/2006/08/25/faceb.../#orb9TmeYHiqK;
Felix, Samantha, “This Is How Facebook Is Tracking Your Internet Activity,” Business Insider, Sept. 9, 2012 http://www.businessinsider.com/this-...ctivity-2012-9 | textbooks/biz/Management/Principles_of_Management_(OpenStax)/16%3A_Managerial_Communication/16.06%3A_Summary.txt |
Learning Objectives
After reading this chapter, you should be able to answer these questions:
1. Understand the importance of planning and why organizations need to plan and control.
2. Outline the planning and controlling processes.
3. Identify different types of plans and control systems employed by organizations.
4. Explain the individual and organizational effects associated with goal setting and planning.
5. Understand how planning occurs in today’s organizations.
6. Discuss the impact that control has on organizational members.
7. Describe management by objectives as a philosophy and as a management tool/technique; describe its effects.
8. Differentiate between the execution of the planning and controlling activities under control- and involvement-oriented management practices.
EXPLORING MANAGERIAL CAREERS
Elizabeth Charbonnier: ChezPastis.com
ChezPastis.com, the brainchild of Elisabeth Charbonnier, specializes in selling French and other gourmet foods online. Before starting ChezPastis.com, Elisabeth and her partners were professional chefs, and their goal for their company is to make gourmet products available to the world. ChezPastis.com began with a bang, and before long Elisabeth and her partners were too busy to plan for the future and were just trying to survive. After six months, ChezPastis.com experienced growing pains similar to other Internet start-ups.
One of the partners, Zack Fortuna, was online one day trying to order some books for his daughter’s birthday. The message he got after attempting to place his order was frustrating: “Sorry! The items you have requested are currently on backorder and will not be available for two months.” Zack needed the books in two weeks, not two months. He decided to drive to the bookstore and buy books that were in stock rather than waste time online searching for items that might not be in stock. Suddenly, Zack realized that ChezPastis.com frequently runs out of items as well and this delays customer orders. Perhaps ChezPastis.com’s growing pains have something to do with their supply problems.
Question: Are ChezPastis.com’s inventory problem attributable to poor planning, poor control, or both? How can Elisabeth, Zack, and the other partners improve the situation?
“If you are good enough, it isn’t necessary to set aside time for formal planning. After all, ‘planning time’ takes away from ‘doing time.’” Managers often make such statements, possibly as a way of rationalizing their lack of a formal planning program. These claims are simply not valid—planning does influence the effectiveness of the entire organization.
Some years ago, the Calico Candy Company developed and produced a highly successful saltwater taffy Santa Claus. Buoyed by this success, the company planned and manufactured a saltwater taffy Easter Bunny and produced the Santa at Christmas again. This time, however, Calico got stuck with its taffy through faulty planning. Market research clearly showed that consumer preferences had shifted from taffy to chocolate. Rather than plan its products to meet this new preference, the company stayed with what had worked in the past and lost a “ton of money.” Yes, planning is important.
Outcome: Zack comes to work the next day excited about his insight. The partners know that inventory has been an ongoing trouble spot but hadn’t realized the effect it could be having on potential customers who get frustrated with delayed orders and go elsewhere. After collecting data on customer requests and backorders, the partners discover that they fill customer orders immediately only 50 percent of the time! Jolted by this thunderbolt, the partners decide to hold regular strategic planning meetings where they will view the big picture and plan for the future. The first things they decide to do are install better control systems over their inventory process and collect data on customer online experiences with ChezPastis.com.
Elisabeth proposes setting a goal of never having to tell a customer that requested items are on backorder. Zack agrees that this is an admirable goal; however, he thinks they should set a daring but reachable goal of immediately filling customer orders 80 percent of the time. After all, they are a small business in an unpredictable environment, and they don’t want to frustrate employees with a potentially impossible goal.
The essence of planning is to see opportunities and threats in the future and, respectively, exploit or combat them as the case may be. . . . Planning is a philosophy, not so much in the literal sense of that word but as an attitude, a way of life.1
17: Organizational Planning and Controlling
Learning Objectives
1. Understand the importance of planning and why organizations need to plan and control.
Planning is the process by which managers establish goals and specify how these goals are to be attained. Plans have two basic components: outcome or goal statements and action statements. Outcome or goal statements represent the end state—the targets and outcomes managers hope to attain. Action statements reflect the means by which organizations move forward to attain their goals. British prime minister Theresa May is determined to change the way that public companies’ boards are comprised of advocating that employees be part of every board. As a part of her action statement, she advocated putting an employee representative in every boardroom, just like Mick Barker, a railway worker since the 1970s, has been quietly helping to shape decision-making as a member of the board of directors at the top of transport giant First Group.2
Planning is an intellectual activity.3 It is difficult to see managers plan because most of this activity unfolds in the mind of those doing the planning. While planning, managers have to think about what has to be done, who is going to do it, and how and when they will do it. Planners think both retrospectively (about past events) and prospectively (about future opportunities and impending threats). Planning involves thinking about organizational strengths and weaknesses, as well as making decisions about desired states and ways to achieve them.4
Planning for organizational events, whether in the internal or external environment, should be an ongoing process—part of a manager’s daily, weekly, and monthly duties and a routine task for all members of high-involvement organizations. Plans should be continually monitored. Managers and other organizational members should check to see if their plans need to be modified to accommodate changing conditions, new information, or new situations that will affect the organization’s future. Plans need to be administered with flexibility, as organizations learn about new and changing conditions. Clearly, the Calico Candy Company failed to monitor its plans in this way. By thinking of planning as a continuous activity, methods can be formulated for handling emerging and unforeseen opportunities and threats. Planning is one process through which organizational activity can be given meaning and direction.
Why Should Managers Plan?
Managers have several reasons for formulating plans for themselves, their employees, and various organizational units: (1) to offset uncertainty and change; (2) to focus organizational activity on a set of objectives; (3) to provide a coordinated, systematic road map for future activities; (4) to increase economic efficiency; and (5) to facilitate control by establishing a standard for later activity.
Several forces contribute to the necessity for organizational planning. First, in the internal environment, as organizations become larger and more complex, the task of managing becomes increasingly complex. Planning maps out future activities in relation to other activities in the organization. Second, as the external environment becomes increasingly complex and turbulent, the amount of uncertainty faced by a manager increases. Planning enables organizations to approach their environment systematically.
A study out of Cornell University and Indiana University found that absenteeism costs companies \$40 billion per year; the absence of planning was one of the biggest problems businesses face. Firms that follow a clearly defined plan in their day-to-day operations will be more successful than those that do not. The authors state, “organizational controlled consequences that would tend to deter absenteeism.” Interestingly, this may be as simple as inspecting the organizational policies that provide the “rules” for employee absenteeism.5
Do Managers Really Plan?
Managers should plan formally, but do they? Some observers contend that managers typically are too busy to engage in a regular form of systematic planning. McGill University management professor Henry Mintzberg notes:
When managers plan, they do so implicitly in the context of daily actions, not in some abstract process reserved for two weeks in the organization’s mountain retreat. The plans of the chief executives I have studied seemed to exist only in their heads—as flexible, but often specific, intentions. . . . The job of managing does not breed reflective planners; the manager is a real-time responder to stimuli.6
Others disagree. After reviewing a number of studies focused on the degree to which planning and other managerial activities are inherent parts of managing, management professors J. Carroll and J. Gillen state that “the classical management functions of Fayol, Urwick, and others are not folklore as claimed by some contemporary management writers but represent valid abstractions of what managers actually do and what managers should do.”7 Barbara Allen, president of Sunbelt Research Associates, notes that she did a considerable amount of planning before launching her new business. Now that she is operating successfully, she reviews and updates her plans periodically.8
Managers often are very busy people. Some act without a systematic plan of action; however, many managers do plan systematically.9 For example, many managers develop systematic plans for how their organization will react to a crisis. United Airlines, for example, created a crisis planning group. The group developed United’s crisis contingency plan book, which specifies what the airline’s crisis management team should do in the event of a crisis. Keri Calagna, principal, Deloitte Risk and Financial Advisory, Deloitte & Touche LLP, comments that up to 20.7% of a firm’s value resides in reputation but that CEOs and 77% of the board of directors members identified reputation risk as the area about which they felt most vulnerable and that only 39% had a plan to address it.10
The question about whether managers really plan and the observation that many times they are simply too busy to retreat to the mountaintop and reflect on where the organization should be going and how it should get there misses the point: there are different types of planning.
concept check
1. What is the process where managers establish goals and outline how these goals will be met called?.
2. How do the internal and external environments of the organization and its strengths and weaknesses impact the planning process?
3. Why should managers plan? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.01%3A_Is_Planning_Important.txt |
Learning Objectives
1. Outline the planning and controlling processes.
Planning is a process. Ideally, it is future-oriented, comprehensive, systematic, integrated, and negotiated.11 It involves an extensive search for alternatives and analyzes relevant information, is systematic in nature, and is commonly participative.12 The planning model described in this section breaks the managerial function of planning into several steps, as shown in Figure 17.2.1. Following this step-by-step procedure helps ensure that organizational planning meets these requirements.
Step 1: Developing an Awareness of the Present State
According to management scholars Harold Koontz and Cyril O’Donnell, the first step in the planning process is awareness.13 It is at this step that managers build the foundation on which they will develop their plans. This foundation specifies an organization’s current status, pinpoints its commitments, recognizes its strengths and weaknesses, and sets forth a vision of the future. Because the past is instrumental in determining where an organization expects to go in the future, managers at this point must understand their organization and its history. It has been said—“The further you look back, the further you can see ahead.”14
Step 2: Establishing Outcome Statements
The second step in the planning process consists of deciding “where the organization is headed or is going to end up.” Ideally, this involves establishing goals. Just as your goal in this course might be to get a certain grade, managers at various levels in an organization’s hierarchy set goals. For example, plans established by a university’s marketing department curriculum committee must fit with and support the plans of the department, which contribute to the goals of the business school, whose plans must, in turn, support the goals of the university. Managers, therefore, develop an elaborate network of organizational plans, such as that shown in Figure 17.2.2, to achieve the overall goals of their organization.
Goal vs. Domain Planning
Outcome statements can be constructed around specific goals or framed in terms of moving in a particular direction toward a viable set of outcomes. In goal planning, people set specific goals and then create action statements.15 For example, freshman Kristin Rude decides that she wants a bachelor of science degree in biochemistry (the goal). She then constructs a four-year academic plan that will help her achieve this goal. Kristin is engaging in goal planning. She first identifies a goal and then develops a course of action to realize her goal.
Another approach to planning is domain/directional planning, in which managers develop a course of action that moves an organization toward one identified domain (and therefore away from other domains).16 Within the chosen domain may lie a number of acceptable and specific goals. For example, high-school senior Neil Marquardt decides that he wants to major in a business-related discipline in college. During the next four years, he will select a variety of courses from the business school curriculum yet never select a major. After selecting courses based on availability and interest, he earns a sufficient number of credits within this chosen domain that enables him to graduate with a major in marketing. Neil never engaged in goal planning, but in the end, he will realize one of many acceptable goals within an accepted domain.
The development of the Post-it® product by the 3M Corporation demonstrates how domain planning works. In the research laboratories at 3M, efforts were being made to develop new forms and strengths of cohesive substances. One result was cohesive material with no known value because of its extremely low cohesive level. A 3M division specialist, Arthur L. Fry, frustrated by page markers falling from his hymn book in church, realized that this material, recently developed by Spencer F. Silver, would stick to paper for long periods and could be removed without destroying the paper. Fry experimented with the material as page markers and note pads—out of this came the highly popular and extremely profitable 3M product Scotch Post-it®. Geoff Nicholson, the driving force behind the Post-it® product, comments that rather than get bogged down in the planning process, innovations must be fast-tracked and decisions made whether to continue or move on early during the product development process.17
Situations in which managers are likely to engage in domain planning include (1) when there is a recognized need for flexibility, (2) when people cannot agree on goals, (3) when an organization’s external environment is unstable and highly uncertain, and (4) when an organization is starting up or is in a transitional period. In addition, domain planning is likely to prevail at upper levels in an organization, where managers are responsible for dealing with the external environment and when task uncertainty is high. Goal planning (formulating goals compatible with the chosen domain) is likely to prevail in the technical core, where there is less uncertainty.
Hybrid Planning
Occasionally, the coupling of domain and goal planning occurs, creating a third approach, called hybrid planning. In this approach, managers begin with more general domain planning and commit to moving in a particular direction. As time passes, learning occurs, uncertainty is reduced, preferences sharpen, and managers are able to make the transition to goal planning as they identify increasingly specific targets in the selected domain. Movement from domain planning to goal planning occurs as knowledge accumulates, preferences for a particular goal emerge, and action statements are created.
Consequences of Goal, Domain, and Hybrid Planning
Setting goals not only affects performance directly, but also encourages managers to plan more extensively. That is, once goals are set, people are more likely to think systematically about how they should proceed to realize the goals.18 When people have vague goals, as in domain planning, they find it difficult to draw up detailed action plans and are therefore less likely to perform effectively. When studying the topic of motivation, you will learn about goal theory. Research suggests that goal planning results in higher levels of performance than does domain planning alone.19
Step 3: Premising
In this step of the planning process, managers establish the premises, or assumptions, on which they will build their action statements. The quality and success of any plan depend on the quality of its underlying assumptions. Throughout the planning process, assumptions about future events must be brought to the surface, monitored, and updated.20
Managers collect information by scanning their organization’s internal and external environments. They use this information to make assumptions about the likelihood of future events. As Kristin considers her four-year pursuit of her biochemistry major, she anticipates that in addition to her savings and funds supplied by her parents, she will need a full-time summer job for two summers in order to cover the cost of her undergraduate education. Thus, she includes finding full-time summer employment between her senior year of high school and her freshman year and between her freshman and sophomore years of college as part of her plan. The other two summers she will devote to an internship and finding postgraduate employment—much to mom and dad’s delight! Effective planning skills can be used throughout your life. The plan you develop to pay for and complete your education is an especially important one.
Step 4: Determining a Course of Action (Action Statements)
In this stage of the planning process, managers decide how to move from their current position toward their goal (or toward their domain). They develop an action statement that details what needs to be done, when, how, and by whom. The course of action determines how an organization will get from its current position to its desired future position. Choosing a course of action involves determining alternatives by drawing on research, experimentation, and experience; evaluating alternatives in light of how well each would help the organization reach its goals or approach its desired domain; and selecting a course of action after identifying and carefully considering the merits of each alternative.
Step 5: Formulating Supportive Plans
The planning process seldom stops with the adoption of a general plan. Managers often need to develop one or more supportive or derivative plans to bolster and explain their basic plan. Suppose an organization decides to switch from a 5-day, 40-hour workweek (5/40) to a 4-day, 40-hour workweek (4/40) in an attempt to reduce employee turnover. This major plan requires the creation of a number of supportive plans. Managers might need to develop personnel policies dealing with payment of daily overtime. New administrative plans will be needed for scheduling meetings, handling phone calls, and dealing with customers and suppliers.
Planning, Implementation, and Controlling
After managers have moved through the five steps of the planning process and have drawn up and implemented specific plans, they must monitor and maintain their plans. Through the controlling function (to be discussed in greater detail later in this chapter), managers observe ongoing human behavior and organizational activity, compare it to the outcome and action statements formulated during the planning process, and take corrective action if they observe unexpected and unwanted deviations. Thus, planning and controlling activities are closely interrelated (planning ➨ controlling ➨ planning...). Planning feeds controlling by establishing the standards against which behavior will be evaluated during the controlling process. Monitoring organizational behavior (the control activity) provides managers with input that helps them prepare for the upcoming planning period—it adds meaning to the awareness step of the planning process.
Influenced by total quality management (TQM) and the importance of achieving continuous improvement in the processes used, as well as the goods and services produced, organizations such as IBM-Rochester have linked their planning and controlling activities by adopting the Deming cycle (also known as the Shewhart cycle).
It has been noted on numerous occasions that many organizations that do plan fail to recognize the importance of continuous learning. Their plans are either placed on the shelf and collect dust or are created, implemented, and adhered to without a systematic review and modification process. Frequently, plans are implemented without first measuring where the organization currently stands so that future comparisons and evaluations of the plan’s effectiveness cannot be determined. The Deming cycle, shown in Figure 17.2.4, helps managers assess the effects of planned action by integrating organizational learning into the planning process. The cycle consists of four key stages: (1) Plan—create the plan using the model discussed earlier. (2) Do—implement the plan. (3) Check—monitor the results of the planned course of action; organizational learning about the effectiveness of the plan occurs at this stage. (4) Act—act on what was learned, modify the plan, and return to the first stage in the cycle, and the cycle begins again as the organization strives for continuous learning and improvement.
concept check
1. What are the five steps in the planning process?
2. What is the difference between goal, domain, and hybrid planning?
3. How are planning, implementation, and controlling related? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.02%3A_The_Planning_Process.txt |
Learning Objectives
1. Identify different types of plans and control systems employed by organizations.
From an activity perspective, organizations are relatively complex systems, as they are involved in numerous activities. Many of these activities require management’s attention from both a planning and controlling perspective. Managers therefore create different types of plans to guide operations and to monitor and control organizational activities. In this section, we introduce several commonly used plans. The major categories are hierarchical, frequency-of-use (repetitiveness), time-frame, organizational scope, and contingency. Table 17.1 provides a closer look at many types of plans that fall in each of these categories.
Hierarchical Plans
Organizations can be viewed as a three-layer cake, with its three levels of organizational needs. Each of the three levels—institutional, administrative, and technical core—is associated with a particular type of plan. As revealed in Table 17.1, the three types of hierarchical plans are strategic, administrative, and operating (technical core). The three hierarchical plans are interdependent, as they support the fulfillment of the three organizational needs. In the organization’s hierarchy, the technical core plans day-to-day operations.
Organizational Plans
Hierarchical Plans
• Strategic plans (institutional)—define the organization’s long-term vision; articulate the organization’s mission and value statements; define what business the organization is in or hopes to be in; articulate how the organization will integrate itself into its general and task environments.
• Administrative plans—specify the allocation of organizational resources to internal units of the organization; address the integration of the institutional level of the organization (for example, vision formulation) with the technical core (vision implementation); address the integration of the diverse units of the organization.
• Operating plans (technical core)—cover the day-to-day operations of the organization.
Frequency-of-Use Plans
Standing Plans
• Policies—general statements of understanding or intent; guide decision-making, permitting the exercise of some discretion; guide behavior (for example, no employee shall accept favors and/or entertainment from an outside organization that are substantial enough in value to cause undue influence over one’s decisions on behalf of the organization).
• Rules—guides to action that do not permit discretion in interpretation; specify what is permissible and what is not permissible.
• Procedures—like rules, they guide action; specify a series of steps that must be taken in the performance of a particular task.
Single-Use Plans
• Programs—a complex set of policies, rules, and procedures necessary to carry out a course of action.
• Projects—specific action plans often created to complete various aspects of a program.
• Budgets—plans expressed in numerical terms.
Time-Frame Plans
• Short-, medium-, and long-range plans—differ in the distance into the future projected:
• Short-range—several hours to a year
• Medium-range—one to five years
• Long-range—more than five years
Organizational Scope Plans
• Business/divisional-level plans—focus on one of the organization’s businesses (or divisions) and its competitive position.
• Unit/functional-level plans—focus on the day-to-day operations of lower-level organization units; marketing, human resources, accounting, and operations plans (production).
• Tactical plans—division-level or unit-level plans designed to help an organization accomplish its strategic plans.
Contingency Plans
• Plans created to deal with events that might come to confront the organization (e.g., natural disasters, terrorist threats); alternative courses of action that are to be implemented if events disrupt a planned course of action.
Table 17.1 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Strategic Plans
Strategic management is that part of the management process concerned with the overall integration of an organization’s internal divisions while simultaneously integrating the organization with its external environment. Strategic management formulates and implements tactics that try to match an organization as closely as possible to its task environment for the purpose of meeting its objectives.
Strategic plans address the organization’s institutional-level needs. Strategic plans outline a long-term vision for the organization. They specify the organization’s reason for being, its strategic objectives, and its operational strategies—the action statements that specify how the organization’s strategic goals are to be achieved.
Part of strategic planning involves creating the organization’s mission, a statement that specifies an organization’s reason for being and answers the question “What business(es) should we undertake?” The mission and the strategic plan are major guiding documents for activities that the organization pursues. Strategic plans have several defining characteristics: They are long-term and position an organization within its task environment; they are pervasive and cover many organizational activities; they integrate, guide, and control activities for the immediate and the long term; and they establish boundaries for managerial decision-making.
Operating plans provide direction and action statements for activities in the organization’s technical core. Administrative plans work to integrate institutional-level plans with the operating plans and tie together all of the plans created for the organization’s technical core.
Frequency-of-Use Plans
Another category of plans is frequency-of-use plans. Some plans are used repeatedly; others are used for a single purpose. Standing plans, such as rules, policies, and procedures, are designed to cover issues that managers face repeatedly. For example, managers may be concerned about tardiness, a problem that may occur often in the entire workforce. These managers might decide to develop a standing policy to be implemented automatically each time an employee is late for work. The procedure invoked under such a standing plan is called a standard operating procedure (SOP).
Single-use plans are developed for unique situations or problems and are usually replaced after one use. Managers generally use three types of single-use plans: programs, projects, and budgets. See Table 17.1 for a brief description of standing and single-use plans.
Time-Frame Plans
The organization’s need to address the future is captured by its time-frame plans. This need to address the future through planning is reflected in short-, medium-, and long-range plans. Given the uniqueness of industries and the different time orientations of societies—study Hofstede’s differentiation of cultures around the world in terms of their orientation toward the future—the times captured by short, medium, and long-range vary tremendously across organizations of the world. Konosuke Matsushita’s 250-year plan, which he developed for the company that bears his name, is not exactly typical of the long-range plans of U.S. companies!
Short-, medium-, and long-range plans differ in more ways than the time they cover. Typically, the further a plan projects into the future, the more uncertainty planners encounter. As a consequence, long-range plans are usually less specific than shorter-range plans. Also, long-range plans are usually less formal, less detailed, and more flexible than short-range plans in order to accommodate such uncertainty. Long-range plans also tend to be more directional in nature.
Organizational Scope Plans
Plans vary in scope. Some plans focus on an entire organization. For example, the president of the University of Minnesota advanced a plan to make the university one of the top five educational institutions in the United States. This strategic plan focuses on the entire institution. Other plans are narrower in scope and concentrate on a subset of organizational activities or operating units, such as the food services unit of the university. For further insight into organizational scope plans, see Table 17.1.
Contingency Plans
Organizations often engage in contingency planning (also referred to as scenario or “what if” planning). You will recall that the planning process is based on certain premises about what is likely to happen in an organization’s environment. Contingency plans are created to deal with what might happen if these assumptions turn out to be wrong. Contingency planning is thus the development of alternative courses of action to be implemented if events disrupt a planned course of action. A contingency plan allows management to act immediately if an unplanned occurrence, such as a strike, boycott, natural disaster, or major economic shift, renders existing plans inoperable or inappropriate. For example, airlines develop contingency plans to deal with terrorism and air tragedies. Most contingency plans are never implemented, but when needed, they are of crucial importance.
concept check
1. Define and describe the different types of plans defined in Table 17.1 and how organizations use them. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.03%3A_Types_of_Plans.txt |
Learning Objectives
1. Explain the individual and organizational effects associated with goal setting and planning.
Creating goals is an inherent part of effective managerial planning. There are two types of organizational goals that are interrelated—official and operational goals.21 Official goals are an organization’s general aims as expressed in public statements, in its annual report, and in its charter. One official goal of a university, for example, might be to be “the school of first choice.” Official goals are usually ambiguous and oriented toward achieving acceptance by an organization’s constituencies. Operational goals reflect management’s specific intentions. These are the concrete goals that organization members are to pursue.22 For example, an operational goal for a hospital might be to increase the number of patients treated by 5 percent or to reduce readmission.
The importance of goals is apparent from the purposes they serve. Successful goals (1) guide and direct the efforts of individuals and groups; (2) motivate individuals and groups, thereby affecting their efficiency and effectiveness; (3) influence the nature and content of the planning process; and (4) provide a standard by which to judge and control organizational activity. In short, goals define an organizational purpose, motivate accomplishment, and provide a yardstick against which progress can be measured.
Goal Formulation—Where Do Organizational Goals Come From?
There are two different views about how organizational goals are formulated. The first view focuses on an organization and its external environment. You will recall that there are many stakeholders (e.g., owners, employees, managers) who have a vested interest in the organization. Organizational goals emerge as managers try to maintain the delicate balance between their organization’s needs and those of its external environment.23 The second view concentrates on the set of dynamics in the organization’s internal environment. Internally, an organization is made up of many individuals, coalitions, and groups who continually interact to meet their own interests and needs.24 They bargain, trade, and negotiate, and through these political processes, organizational goals eventually emerge.
Neither approach to goal formulation can alone provide for long-term organizational success. Goals must fit an organization into its external environment while satisfying the needs of external constituencies. In addition, goals must enable an organization’s internal components to work in harmony. For example, the goals of its marketing department need to mesh with those of its production and finance departments. The challenge for managers is to balance these forces and preserve the organization.
Multiple Goals and the Goal Hierarchy
Consistent with the two views of goal emergence, Peter Drucker offers the perspective that organizations must simultaneously pursue multiple goals. A well-known management scholar, consultant, and writer, Drucker believes that to achieve organizational success, managers must try to achieve multiple goals simultaneously—namely, market standing, innovation, productivity, profitability; physical and financial resources, manager performance and development, employee performance and attitude, and public responsibility.25 Reflecting his concerns, the Hewlett-Packard Corporation has established the seven corporate goals listed in Table 17.2. Sometimes units within organizations may pursue goals that actually conflict with the goals of other internal units. The innovation goal of a research and development department, for example, might conflict with the production department’s goal of efficiency.26 Managers must strive to integrate the network of goals and resolve internal conflicts when they arise.
Hewlett-Packard’s Corporate Goals
Source: Adapted from Y. K. Shetty. 1979. New look at corporate goals. California Management Review 22(2): 71–79.
Profit. To achieve sufficient profit to finance our company growth and to provide the resources we need to achieve our other corporate objectives.
Customers. To provide products and services of the greatest possible value to our customers, thereby gaining and holding their respect and loyalty.
Field of Interest. To enter new fields only when the ideas we have, together with our technical, manufacturing and marketing skills, assure that we can make a needed and profitable contribution to the field.
Growth. To let our growth be limited only by our profits and our ability to develop and produce technical products that satisfy real customer needs.
People. To help our own people share in the company’s success, which they make possible: to provide job security based on their performance, to recognize their individual achievements, and to help them gain a sense of satisfaction and accomplishment from their work.
Management. To foster initiative and creativity by allowing the individual great freedom of action in attaining well-defined objectives.
Citizenship. To honor our obligations to society by being an economic, intellectual and social asset to each nation and each community in which we operate.
Table 17.2
Broad organizational goals, such as productivity, innovation, and profitability, are likely to be broken into subgoals at various organizational levels. The complexities posed by many interrelated systems of goals and major plans can be illustrated by a goal hierarchy.27 Thus, an organization sets organizational-level, divisional-level, departmental-level, and job-related goals. In the process, managers must make sure that lower-level goals combine to achieve higher-level goals.
concept check
1. What is the difference between official and operational goals?
2. How do multiple goals fit into a goal hierarchy? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.04%3A_Goals_or_Outcome_Statements.txt |
Learning Objectives
1. Understand how planning occurs in today’s organizations.
Studies indicate that, in the 1950s, approximately 8.3 percent of all major U.S. firms (1 out of every 12) employed a full-time long-range planner. By the late 1960s, 83 percent of major U.S. firms used long-range planning. Today it is estimated that nearly all U.S. corporations with sales over \$100 million prepare formal long-range plans.28 Most formal plans extend five years into the future, and about 20 percent extend at least ten years.
Encouraging Planning
In spite of the advantages to be gained by planning, many managers resist it. Some feel that there is not enough time to plan or that it is too complicated and costs too much. Others worry about the possible consequences of failing to reach the goals they set. Instead of preplanning, sometimes referred to as blueprint planning (that is, formulating outcome and action statements before moving forward), many managers simply fail to plan or at best engage in in-process planning (they read events and think about the next step just before acting). In-process planning works extremely well when individuals have a sense of what it is that they want to achieve and can improvise as they move forward in a sea of uncertainty and turbulence. This is much like skilled hockey players relying on their instincts, reading the defense, and improvising as they move up the ice and toward the opponent’s net. This process often works better than attempting to implement a detailed preplan, as often characterizes plays in football.
In situations where we want to encourage preplanning, certain techniques facilitate the process:
• Develop an organizational climate that encourages planning.
• Top managers support lower-level managers’ planning activities—for example, by providing such resources as personnel, computers, and funds—and serve as role models through their own planning activities.
• Train people in planning.
• Create a reward system that encourages and supports planning activity and carefully avoids punishment for failure to achieve newly set goals.
• Use plans once they are created.
In order for managers to invest the time and energy needed to overcome resistance to planning, they must be convinced that planning does, in fact, pay off.
Does Planning Really Pay Off?
Managers of organizations in complex and unstable environments may find it difficult to develop meaningful plans, yet it is precisely conditions of environmental complexity and instability that produce the greatest need for a good set of organizational plans. Yet the question remains, does planning really pay off?
We know from our earlier discussion that setting goals is an important part of the planning process. Today, much is known about what characterizes effective individual goals. (We discuss this issue in greater detail later in this chapter.) Although group and organizational goals have been studied less, it is probably safe to assume that most of our knowledge about individual goals also applies to group and organizational goals. The research suggests that effective organizational goals should (1) be difficult but reachable with effort, (2) be specific and clearly identify what is desired, (3) be accepted by and have the commitment of those who will help achieve them, (4) be developed by employees if such participation will improve the quality of the goals and their acceptance, and (5) be monitored for progress regularly.
While the evidence is not abundant, studies suggest that firms that engage in planning are more financially successful than those that do not.29 For example, one study reports that the median return on investment for a five-year period is 17.1 percent for organizations engaged in strategic planning, versus 5.9 percent for those that do not.30 Similarly, of 70 large commercial banks, those that had strategic planning systems outperformed those that did not.31
Although planning clearly has observable benefits, it can be expensive. The financial commitment can be large for organizations with formal planning staff. Even so, research suggests that planning is warranted.
The Location of the Planning Activity
Classical management thinking advocates a separation of “planning” and “doing.” According to this school of thought, managers plan for technical core employees and formulate most of the plans for the upper levels of the organization, with little participation from lower-level managers and workers. In contrast, behavioral management theorists suggest involving organization members in drawing up plans that affect them. Implementation of a management-by-objectives program (to be discussed later in this chapter), for example, is one means by which this participative planning can be realized. Researchers at the Tavistock Institute in England promote the idea of self-managed workgroups as a means of expanding the level of employee involvement. According to their socio-technical model, workgroups assume a major role in planning (as well as in organizing, directing, and controlling) the work assigned to them. Many organizations—for example, the John Lewis Partnership, Volvo, and Motorola—have had successful experiences with employee involvement in planning and controlling activities.32
Planning Specialists
To keep pace with organizational complexity, technological sophistication, and environmental uncertainty, many organizations use planning specialists. Professional planners develop organizational plans and help managers plan. Boeing and Ford are among the many organizations with professional planning staff. Planning specialists at United Airlines developed United’s crisis management plan.
Organizations have planning specialists and planning departments in place for a variety of reasons. These specialized roles have emerged because planning is time-consuming and complex and requires more attention than line managers can provide. In rapidly changing environments, planning becomes even more complex and often necessitates the development of contingency plans, once again demanding time for research and special planning skills. At times, effective planning requires an objectivity that managers and employees with vested interests in a particular set of organizational activities cannot provide.
A planning staff’s goals are varied. Their primary responsibility is to serve as planning advisors to top management and to assist lower-level line managers in developing plans for achieving their many and varied organizational objectives. Frequently, they coordinate the complex array of plans created for the various levels within an organization. Finally, planning staff provides encouragement, support, and skill for developing formal organizational plans.
MANAGING CHANGE
Using Technology for a More Efficient Business
The need to control costs has been around since trade, buying and selling, began. Each new technology creates new possibilities in production and cost reduction. Recent technology isn’t any different. Leaps in connectivity and data management are creating as many start-ups and new ways of identifying and solving problems.
Innovu uses new technology to help small and start-up businesses control the costs of their health benefits. Most small companies and start-ups are self-insured; that is, the company pays any covered employee medical bills or finances any wellness programs directly. According to Diane Hess, the executive director of the Central Penn Business Group on Health, employers account for 30 percent of the \$2.9 trillion in health care spending in the United States, and workers’ compensation cost employers \$91 billion in 2014. These costs included \$31.4 billion for medical and \$30.9 in cash payments (Hess 2016). Innovu mines employee claims to find trends and also provides data on costs due to absenteeism, disability, and workers’ compensation (Mamula 2017). As employers move to wellness programs to improve productivity and reduce medical costs, Innovu helps employers “make sure there are improvements to justify the expenses”(Hess 2016 n.p.).
In a similar vein, Marsh & McLennan Agency Michigan LLC is moving from simply providing insurance and generic “wellness programs” to helping companies focus on improving employees’ overall well-being. While traditional wellness programs focus on physical health to improve productivity, the emerging trend is to help employees with family, social, and financial issues as well. The most comprehensive program from Marsh & McLennan is its MMA Michigan’s Wellbeing University, which works to expand traditional wellness programs into nontraditional support services. The comprehensive approach of the program helps midsize employers “attract and retain talent, encourage employee satisfaction and reduce absenteeism.” The move beyond simple wellness is a move toward investing in employees. Bret Jackson, president of Economic Alliance for Michigan, said, “If you have a happy and healthy employee, productivity increases" (Greene 2017 n.p.).
Branch Messenger is a novel idea to solve employee scheduling. Employees are able to view schedules, cover shifts, and ask for time off, all from an app on their phone. It integrates with existing company systems to allow data analysis, but perhaps more importantly, it allows employees to connect. The start-up’s program has been adopted by large companies, such as Target, McDonald’s, and Walgreens, to allow employees to swap shifts simply by using an app on their cell phones. This process streamlines the process of swapping shifts by allowing employees to handle most of the leg work, “bridg[ing] the communication gap between workers and the companies that employ them.” The application is free to employees and runs on both iOS and Android devices. It can also generate digital schedules from paper schedules and create messaging channels that are workplace-specific. Moving past simple shift flexibility, the application allows businesses to tap into an “on-demand” workforce that is more elastic. It also allows enterprises to “extend the value of existing workforce management systems without the need to switch costs” (Takahasi 2017 n.p.)
Allison Harden, a shift manager for a Pizza Hut in Tampa, Florida, likes the added connectivity of the program. “The messaging feature and the ability to share pictures and posts makes it really easy to stay connected with them,” Allison says. “It’s a way that I can do it outside a social network. Not everyone has Facebook and stuff like that—so it’s good and work-friendly, safe for work” (Branch Messenger 2017 n.p.).
“Safe for work” can carry connotations of “oversharing” on social media, but during Hurricane Irma, Allison and her crew relied on Branch Messenger for storm preparation, allowing the manager to post a safety checklist and update shifts. Then during the storm itself and after, drivers were able to tell each other which gas stations actually had gas, who still had electricity, and who was safe (Branch Messenger 2017).
sources
Branch Messenger. 2017. “A Branch Customer Story: How A Tampa Pizza Hut Stayed in Contact During Hurricane Irma.” blog.branchmessenger.com/a-br...urricane-irma/
Greene, Jay. 2017. “New course for Marsh & McLennan Agency as clients seek well-being.” Crain’s Detroit Business. http://www.crainsdetroit.com/article...eek-well-being
Hess, Diane. 2016. “Column: Using data to make business more efficient, employees more healthy.” Lancaster Online, November 8, 2016. lancasteronline.com/business/...5cc57a478.html
Mamula, Kris B. 2017. “Station Square data analytics company to use \$6.5 million to grow.” Post-Gazette, August 10, 2017. www.post-gazette.com/business...s/201708100025
Takahasi, Dean. 2017. “Branch Manager helps hourly workers swap shifts on mobile.” venturebeat.com. https://venturebeat.com/2017/08/02/b...ves-on-mobile/
questions
1. What ethical problems could surface with data mining as it applies to employee health records?
2. What security risks would a company need to consider when utilizing smartphone apps for work?
concept check
1. How do today’s organizations approach planning?
2. Does planning pay off for today’s organizations?
3. Which people in the organization should be involved in planning, and what are their roles? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.05%3A_Formal_Organizational_Planning_in_Practice.txt |
Learning Objectives
1. Discuss the impact that control has on organizational members.
Managers, of course, want their employees to work hard. However, effort alone is not enough; it must be directed toward the appropriate target and executed in a proper manner. The question we explore here is, do planning, goal setting, and the development of action statements have a favorable impact on employee motivation, performance, and job satisfaction?
We turn to goal theory for our answer. Research provides us with a clear and unequivocal picture of the effects of setting goals for organizational members. Goal theory specifies that certain types of goals motivate employee behavior and thereby contribute to the level of employee performance. Goal theory, while somewhat narrow in scope, is the most completely supported theory of motivation.33 You have learned or will learn about the implications of goal setting as a fundamental part of the planning process and as a standard for the exercise of control when studying motivation. For goals to be effective, they must be difficult, specific, and accepted by the employee, and they must be met with feedback from management. Manufacturers often use production goals to motivate employees.
Characteristics of Goals That Motivate Performance
Goal theory (and the research related to it) highlights several important goal attributes—goal difficulty, goal specificity, goal acceptance and commitment, and goal feedback. As Figure 17.6.1 shows, workers who have a goal, even if it is quite general, usually perform better than those with no goals. Yet certain types of goals are more effective than others. Two primary characteristics of goals that enhance their motivating potential are goal specificity and goal difficulty.34 With regard to goal specificity, a goal that states “improve your performance” or “do your best” is generally not very effective because it is too general. Weyerhaeuser, for example, observed that its truck drivers hauling logs significantly increased their performance level when they were instructed to load their trucks to 94 percent of legal weight capacity, as opposed to simply “doing their best.” The drivers found the specific goal to be motivating, and they often competed with one another to achieve the prescribed goal. In the first nine months following the introduction of the 94 percent target, Weyerhaeuser estimated its savings to be approximately \$250,000.
The second component of an effective goal is goal difficulty. People with difficult goals perform better than those with easy goals (note the third and fourth bars in Figure 17.6.1). If goals are perceived as too difficult or impossible, however, they lose their motivating effectiveness. Ideally, goals will be both specific and difficult. Thus, setting specific and challenging goals contributes more to planning effectiveness and organizational performance than does working under “no-goal” or “do your best” goal conditions.35
Even a goal that is both difficult and specific, however, is not going to be effective unless it is accepted by the person who is expected to achieve it.36 Goal acceptance is the degree to which people accept a goal as their own (“I agree that this report must be finished by 5 p.m.”).37 Goal commitment is more inclusive, referring to our level of attachment to or determination to reach a goal (“I want to get that report done on time”).38 Goals sometimes fail to motivate people when managers assign them without making sure that workers have accepted or committed to the goals. Figure 17.6.2 summarizes the conditions necessary to maximize goal-directed effort (motivation 5 direction 1 intensity), a major contributor to subsequent performance, while Figure 17.6.3 summarizes the three sets of factors that facilitate goal commitment.39
Goal feedback is the last important goal attribute. Goal feedback provides us with knowledge about the results of our efforts. This information can come from a variety of sources, such as supervisors, peers, subordinates, customers, inanimate performance monitoring systems, and self-assessment. Regardless of the source, the right kind of feedback serves two important functions: directional and effort. Directionally, good feedback tells employees whether they are on the right path and on target or suggests the need for redirection. In addition, it should provide information that suggests the adequacy or inadequacy of the employee’s level of effort. Thus, feedback is of critical importance!
The Negative Side of Goals
There is, however, a negative side to goal setting. Total quality management (TQM) pioneer W. Edwards Deming fears that goals tend to narrow the performer’s vision and invite people to slack off once the goal is achieved. TQM is also oriented more toward process (means) than toward success (goals, outcomes). Organizational learning and continuous improvement, a central component of TQM, is oriented toward continually finding problems in the production process that when eliminated will result in performance increases.40 Performance goals, on the other hand, generally focus the performer’s attention on successfully achieving a specified level of accomplishment at some future point.
Evidence also reveals a negative side to an employee’s commitment to difficult goals. When organizational members are strongly committed to achieving difficult goals, their involvement in acts of good organizational citizenship is likely to decline.41 This negative relationship is unfortunate because organizations operating in highly turbulent, competitive, and uncertain environments are extremely fragile social systems. They need the commitment and the sense of ownership that propel organizational members to spontaneously engage in behaviors that are not specified in their job descriptions but that are important to the organization’s success and well-being.
There are several other negative effects associated with goals: The methods and means created to accomplish organizational goals may themselves become the goal (means-ends inversion). Organizational goals may be in conflict with personal or societal goals. Goals that are too specific may inhibit creativity and innovation. Ambiguous goals may fail to provide adequate direction, and goals and reward systems are often incompatible. For example, universities commonly encourage faculty members to be better teachers, but their reward systems primarily encourage good research.42
Goal Setting and Employee Job Satisfaction
The statement “goal-setting enhances job satisfaction” is not exactly accurate.43 The relationship between goal setting and planning and job satisfaction is somewhat more complex. Goal setting, and therefore planning, impacts job satisfaction by working through the employee’s level of performance and level of aspiration. Job satisfaction (or dissatisfaction) is most likely determined by the level of performance and not by the goals that have been set.
An employee’s affective reaction to performance is determined not by the performance level itself but by the level of performance in relation to his aspiration level.44 Job satisfaction, therefore, stems from the employee’s evaluation of his actual performance in comparison to his aspiration level (or performance goal). In cases (see Figure 17.6.4) where performance reaches or passes the level aspired to, a positive emotion (job satisfaction) is likely to be produced. Performance that fails to reach aspirations causes a negative emotion (job dissatisfaction). In addition, if performance is valued by the employee because of the extrinsic rewards tied to it, high performance will create job satisfaction only if achieving the performance goal leads to the receipt of these valued extrinsic rewards.45 Thus, goal setting is indirectly and contingently related to job satisfaction. If goal setting contributes to employees reaching their performance aspirations and/or the outcomes that are associated with that performance, job satisfaction is a likely by-product.
Managing through Goal Setting
What can managers do to motivate employees through goal setting? First, it is important to encourage goal acceptance and commitment. This can be accomplished by working with organizational members to set difficult, specific, and reasonable goals and to make certain that members perceive them as reasonable. If necessary, provide training and other support needed to make the goals attainable. Offer feedback that lets people know when they are approaching the goal. Avoid using threats. Feedback that criticizes without providing insight into ways to contribute to performance improvements is both frustrating and unlikely to be effective. One of Deming’s concerns about goal setting is that it creates fear in employees—fear of the failure to reach the goal. He sees fear as a serious disease that contributes to poor organizational performance.46 Instead, a positive, success-oriented approach is almost always more effective. If and when negative feedback is needed to correct errors, a manager’s criticisms of an employee should be credible, constructive, and objective. In addition, it is important to recall that feedback that simply criticizes, without providing insight into how to make the needed corrections, will produce few if any positive results. Finally, keep in mind that, whereas goal acceptance occurs before people work on a task and can be encouraged through promises of reward, goal commitment can be nurtured throughout the performance period as workers receive rewards for progress.
Encourage the development of work-group norms that contribute to goal commitment. Use legitimate authority to encourage the setting of specific and difficult goals. Stimulate workers to develop a sense of ownership in goals, thus producing goal acceptance and commitment. There are those who believe goal acceptance and commitment can be nurtured when workers come together as members of a family working toward the common goal of proving their worth.47
Controlling as an Organizational Activity
A few years ago, the Duluth Police Department found itself struggling with employee morale. The summer had passed, and the department discovered that it had allowed too much vacation time given the volume of summer activity facing the department. As it developed its staffing plans for the upcoming summer, it would have to grant fewer requests for summer vacations. Management soon learned that there would actually be more requests for summer vacation than the previous summer. Conflict between management and the police union appeared inevitable.
The department turned to creative problem-solving. In the process, it came up with the idea of moving from a seven-day week to an eight-day week. Under the old schedule, a police officer worked a traditional five days a week, eight hours a day, 40 hours, with two days off each week. Under the new schedule, officers would work 12 hours a day and 48 hours a week. In addition, officers would work four days and then have four days off. This would in effect give officers half the upcoming summer off without taking a single day of vacation. The plan was endorsed by both the police union and the city council. Following the endorsement of the new staffing plan, the department developed a plan for monitoring the effectiveness of this new schedule and collected baseline data so that subsequent assessment of the schedule could be compared to previous work schedules.48
In January, the new compressed work schedule was implemented. This was accompanied by a control system that would monitor the effectiveness of the new schedule. The department was particularly concerned about the impact of the schedule on stress levels, job satisfaction, and the overall effectiveness of its policing function. That is, would the 12-hour workday negatively affect performance? Periodically during the next couple of years, the department monitored the consequences of its new work schedule. There were several positive results. The level of stress appeared to decline along with the increases in hours worked and leisure time satisfaction, without any negative performance effects. Now, several years later, there is virtually no desire to return to the old, more traditional work schedule.
In effective organizations, the activities of planning and controlling are intricately interwoven. For each plan deemed important to the functioning of the organization, a system to monitor the plan’s effectiveness must be designed and implemented. In the remainder of this chapter, we explore the nature of control, the control process, and its effects on the organization and its members.
Controlling and the Control Process
Controlling is a managing activity. Controlling is defined as the process of monitoring and evaluating organizational effectiveness and initiating the actions needed to maintain or improve effectiveness. Thus, managers who engage in the controlling activity watch, evaluate, and when needed, suggest corrective action.
Like the managerial functions of planning, organizing, and directing, controlling is a complex activity that is performed at many organizational levels. Upper-level managers, for example, monitor their organization’s overall strategic plans, which can be implemented only if middle-level managers control the organization’s divisional and departmental plans, which, in turn, rely on lower-level managers’ control of groups and individual employees (see our earlier discussion of the goal hierarchy).
The Need for Control
Although there is a continual and universal need for control in organizations, the importance, amount, and type of control vary across organizational situations. Probably the most important influence on the nature of an organization’s control systems is the amount of environmental change and complexity it faces.
Organizations that operate with relatively stable external environments usually need to change very little, so managers eventually are able to control their organizations by using a set of routine procedures. With greater levels of environmental change and the accompanying uncertainty, however, controlling requires continual attention from managers. Routines and rigid control systems are simply not adequate for such conditions.
Environmental complexity also affects the nature of control systems. Simple environments contain a limited number of highly similar components that are relatively easy to control through common sets of rules and procedures. The same bureaucratic control system, for example, can be used at most branch offices of a large bank. As complexity increases through organizational growth, product diversification, and so on, managers’ needs for up-to-date information and coordination among organizational activities intensify. The complexity that calls for increased control, however, also requires open, organic systems that can respond quickly and effectively to complex environments. In such complicated situations, organizations often specify the development of flexible systems as a means goal: “To allow us to manage the complexities of our organization, we must remain flexible and open.” Other control activities shift to ends goals, such as “We want to increase market share 10 percent in each of our divisions.” Flexibility allows substantial choice as to how ends goals will be met: “Each division may decide how to achieve its 10 percent increase in market share.” Figure 17.6.5 shows the level of control organizations need under different environmental conditions.
A Control Model
In essence, control affects every part of an organization. Among some of the major targets of the organization’s control efforts are the resources it receives, the output it generates, its environmental relationships, its organizational processes, and all managerial activities. Especially important targets of control include the functional areas of operations, accounting, marketing, finance, and human resources.
Traditional control models (see Figure 17.6.6) suggest that controlling is a four-step process.
1. Establish standards. Standards are the ends and means goals established during the planning process; thus, planning and controlling are intricately interwoven. Planning provides the basis for the control process by providing the standards of performance against which managers compare organizational activities. Subsequently, the information generated as a part of the control process (see the subsequent steps in the control model) provides important input into the next planning cycle.
2. Monitor ongoing organizational behavior and results. After determining what should be measured, by whom, when, and how, an assessment of what has actually taken place is made.
3. Compare actual behavior and results against standards. Ongoing behavior is compared to standards. This assessment involves comparing actual organizational accomplishments relative to planned ends (what an organization is trying to accomplish) and means (how an organization intended for actions to unfold). The outcome of this comparison provides managers with the information they will evaluate in the final step.
4. Evaluate and take action. Using their comparative information, managers form conclusions about the relationships found between expectations and reality and then decide whether to maintain the status quo, change the standard, or take corrective action.
Variations in Control Systems
Although all good control systems follow the process described above, this doesn’t mean that all control systems are identical. Control systems differ in terms of the degree to which they are self-managing, as opposed to externally managed, and by the point in the process at which control is exercised.
Cybernetic and Non-Cybernetic Systems
Control systems differ in the amount of outside attention required for them to operate effectively. Systems using cybernetic control are based on self-regulating procedures that automatically detect and correct deviations from planned activities and effectiveness levels. Few organizational control systems are totally cybernetic, but some come close. The control system for a coal-fired electrical generating station at Detroit Edison, for example, uses computers to monitor the flow of pulverized coal into the burning chamber. The computers speed up or reduce the flow as necessary to maintain adequate fuel supplies.
Merely automating a work system does not necessarily mean that the control system is cybernetic. The drone submarine sent to explore and photograph the sunken Titanic was fully automated, but humans on the surface monitored the effectiveness of the sub’s operations and its adherence to the planned mission. To be classified as a cybernetic system, a work system must have built-in automatic control capabilities, although the built-in control need not be machine-based. A group of workers who control their own activities without outside assistance constitute a cybernetic system.
Control systems that are operated completely independently from the work system itself involve non-cybernetic control. They rely on external monitoring systems in much the same way that a manufacturing company uses a separate quality assurance department to monitor and enforce quality standards rather than allowing production crews to perform this activity. Cybernetic control systems automatically detect and correct deviations, but automating a control system does not mean it is cybernetic. This technician is adjusting the mixture in the vat, so this system is not self-regulating and thus is not cybernetic.
Time Perspectives
Organizations can introduce the control activity at three stages in the work process: prior to, during, or after the performance of a work activity.49 In practice, most managers use a hybrid control system that incorporates control at each of these intervals so that managers can prepare for a job, guide its progress, and assess its results.
Managers use precontrols (or preaction controls) to prevent deviation from a desired plan of action before work actually begins. For example, Butch Ledworowski, owner of Lil’ America Building Contractors, inspects all construction materials to see that they meet industry standards. Managers can use two types of concurrent controls (steering and screening control) to prevent deviation from the planned course of action while work is in progress. Steering controls are reactive concurrent controls; they occur after work has begun but before it is completed. At Lil’ America, for instance, Butch visits each construction site and watches his carpenters, offering advice and instruction as they work. Screening controls (also referred to as yes/no, go/no-go controls) are preventive concurrent controls. As activity at a critical stage is completed, managers use screening controls to assess work performed to that point and to judge whether progress is adequate. If it is, a yes decision is made to proceed to the next stage. At Lil’ America, for example, Butch always inspects carpentry work after walls have been framed. Unless he approves the work, electricians cannot begin wiring the structure.
Managers use postaction controls after the product or service is complete to examine the output. After each remodeling job, Butch assesses the work to determine whether it meets specifications, was completed on time, and came in at or under budget. Postaction controls play an important role in future planning, but their primary function is to provide feedback by describing the degree to which previous activities have succeeded.
Characteristics of Effective Control Systems
Successful control systems have certain common characteristics. First, a good control system follows the prescriptions in the control model (see Figure 17.6.6) and adequately addresses each organizational target. Next, to the extent possible, an effective control system takes a hybrid approach so that precontrol, concurrent, and postaction control systems can be used to monitor and correct activities at all points in an organization’s operations. Other characteristics of a good control system include its treatment of information, its appropriateness, and its practicality.50
The control process itself and, certainly, all effective control systems are based on information. Without good information, managers cannot assess whether ends and means goals are met. They cannot determine the relationship between them or provide feedback to planners. To be effective, information must be accurate, objective, timely, and distributed to organization members who need it. High-involvement organizations work to make sure that virtually all organizational information is accessible by any employee who needs it in order to make quality decisions. Oticon, a Danish manufacturer of hearing aids, for example, scans all company communications and places them in its information system that all employees can access.
Another characteristic of a good control system is its focus on issues of importance to the organization. Managers who develop control procedures for virtually all work activities and outcomes waste resources and, as will be discussed later in this chapter, risk creating a control system that produces negative feelings and reactions.
A final characteristic of a good control system is its practicality. Something that works well for another organization or looks wonderful in print still has to fit your organization to work well there. Some practical considerations to look for in a control system include feasibility, flexibility, the likelihood that organization members will accept it, and the ease with which the system can be integrated with planning activities.
The Impact of Control on Organizational Members
Thus far, you have been learning about the importance of the controlling function. Consider now what the controlling function does for—or to—the organization’s members. If designed well, control systems have many positive effects both for organizations and for the people who work in them (see Table 17.3).51 Unfortunately, sometimes control systems can produce a number of negative effects.
The Impact of Control on Organization Members
Potential Positive Effects of Control
Clarifies expectations
Reduces ambiguity
Provides feedback
Facilitates goal setting
Enhances satisfaction
Enhances performance
Potential Negative Effects of Control
Consumes resources
Creates feelings of frustration and helplessness
Creates red tape
Creates inappropriate goals
Fosters inappropriate behavior
Decreases satisfaction
Increases absenteeism
Increases turnover
Creates stress
Table 17.3 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Positive Effects
Organizational control systems can provide many positive effects for organization members in terms of motivation, performance, and satisfaction. This occurs by providing adequate structure, appropriate feedback, and effective goal-setting programs.
When workers want clarification of what they are expected to do, a leader can improve both their performance and satisfaction by providing structure. The guidance provided by both precontrol and concurrent control systems can likewise be received favorably. Another potential and related benefit for employees with an uncertainty avoidance or low tolerance for ambiguity personality is that the structure of a good control system reduces the uncertainty of a work situation.
A good control system also provides constructive feedback. Most employees react quite favorably to the timely provision of accurate feedback about their effectiveness.52 Feedback helps workers correct ineffective behaviors. Perhaps more importantly, feedback can be very rewarding. People who have a need to succeed (individuals with a high need for achievement) are gratified when feedback tells them that they are, in fact, succeeding. Feedback can improve job performance if workers use it to adjust their goals, approach, or effort levels appropriately. Both concurrent and postaction controls provide employees with feedback about the appropriateness of their behavior and the degree to which their work is producing successful results.
You have already seen that goal setting can be an important contributor to effective management. A good control system is very useful for identifying appropriate goals. Consider the control system used by the sales company where Maria Castro works. It specifies an expected sales approach (means goal) that helps her work toward a specific, difficult sales goal (ends goal). Precontrols help her understand how to achieve the desired sales level by providing such means goals as specific sales calls to make and promotional specials to offer. Concurrent controls and postcontrols provide feedback that helps Maria monitor her progress. The combined effects of goal setting and feedback about goal progress are particularly powerful.
Negative Effects
Unfortunately, control systems don’t always function well. Excessive controls are a waste of money and energy. Donald Pemble, for example, needs a larger travel budget because he must personally inspect bridges under his new control system. His inspectors spend the time they could have used to inspect bridges in logging entries, painting numbers, and griping about the unfairness of the situation. Not only do excessive controls waste money because they fail to enhance effectiveness, but they can also create additional problems. For example, Shannon and her coworkers have changed from good corporate citizens who kept accurate records and conducted comprehensive inspections into harried workers who falsify log entries. Worse, unsuspecting motorists travel over what might be unsafe bridges.
The vast amount of paperwork and documentation called for by an excessive control system can also cause frustration and helplessness. The red tape created by many universities’ control systems, for example, wastes students’ time. Standing in lines for hours, they wait to pay dorm fees, purchase meal tickets, rent parking spaces, pay tuition, and register for classes. Their frustration and dissatisfaction are mirrored by many university employees who question the competence, the reasonableness, and perhaps even the intelligence of supervisors who insist on maintaining excessive control.
Another dysfunctional result of poor control systems can be seen in their effect on goal-setting programs. Whereas a good control system can help design and monitor valuable goal-setting programs, a poor control system can accomplish quite the opposite. A control system focused on unreasonable ends and means goals can motivate workers to establish inappropriate individual goals. For instance, the ends goal Donald Pemble established of having all bridges inspected within two years was unreachable, and his monthly inspection quotas (means goals) were unobtainable. Donald’s insistence on maintaining these inappropriate goals was evident in his reactions when the inspectors failed to meet them. Consequently, Shannon and her coworkers focused on preserving their jobs as a primary goal, rather than on conducting quality inspections.
In addition to encouraging the formation of inappropriate goals, poor control systems emphasize and reward behaviors that, although not necessarily inappropriate, may hinder more productive behavior. Managers who concentrate on workers’ attendance, for example, may not promote such desirable behaviors as creativity, cooperation, and team building.53 Although there is nothing wrong with encouraging attendance, a control system that fosters attendance (by punishing tardiness) because it is easier to measure than creativity encourages rigid, uncreative behavior (on the part of employees who are almost always at work). An advertising agency that controls attendance but not creativity, for example, would soon be in serious trouble.
Even when control systems help identify appropriate goals and encourage appropriate behavior, rigid adherence to narrow goals can create problems. A large number of specific, concrete goals, for example, can inhibit creativity. The vast amount of time organization members must spend tending to concrete goals leaves them little time or energy to create. It is not only creativity that suffers, however. Every minute used taking attendance in a classroom is one less minute available for teaching. Every hour a police officer spends completing paperwork is one less hour available for public service. Managers should use only the goals they need, no more.
The Need for Personal Control
Organizations clearly have a need to control their members and operations, but individuals also have a need for personal control, a need to believe that they have the “ability to effect a change, in a desired direction, on the environment.”54 Sometimes organizations, through their structures and management processes, make people feel they have too little control. For example, managers can execute the control function by designing and demanding strict adherence to organizational rules and standard operating procedures. Colleges and universities, for example, tell students which classes they are allowed to take and when, what grades they have to maintain, how to behave outside the classroom, and so on. Companies tell employees when to come to work, how many hours to work, what to wear, when to take breaks, how to perform their jobs, and many other things. The challenge facing managers is to strike a balance between the amount of control their organization needs and the amount of personal control needed by its members. Studies suggest that, when this balance is reached, both the satisfaction and performance of organization members can be enhanced.55 In addition, evidence reveals that a number of other organizationally undesirable consequences can result from low or less than desired levels of personal control, such as withdrawal and health-related effects (stress, frustration, and depression).56
Finding the optimal balance between organizational and personal control is not an easy task, however, because most employees desire more personal control than their organizations allow. People will strive to gain greater control “in spite of (and frequently because of) the barriers and constraints the organization places on the attainment of personal control.”57 Repeated failures to gain personal control may cause workers to develop what has been called learned helplessness.58 People who learn that they are helpless to influence their work environment are likely to be the source of low productivity, low quality, high absenteeism, dissatisfaction, and turnover. They tend to react with depression, anxiety, stress, frustration, hostility, anger, and alienation. Furthermore, once helplessness has been learned, people often continue to behave helplessly, even if the environment changes to permit them greater control. Managers must thus prevent employees from developing learned helplessness because reversing it is very difficult. They should allow workers to control the aspects of their work lives that they can adequately control and use only the necessary amount of organizational control.
In Search of Balance
At this point, it might seem that managers should just accede to workers’ persistent demands for greater control. Research shows, however, that indiscriminately giving employees larger amounts of control actually causes performance to suffer if such control exceeds their capacity to use it.59
If a control system that is too excessive does not work, and if giving workers all of the personal control they desire is not effective, what do managers do to achieve the proper balance? First, people need to possess personal control; therefore, give them the amount of control they are able to handle. Second, make certain that workers given control believe they can use it effectively. Help them translate their effort into successful performance. Third, recognize that organizational control systems influence the personal control perceptions of organizational members. These, in turn, change behavior and attitudes.
By interviewing and/or surveying employees, managers can learn more about employees’ needs for control. Through organizational scans, managers can determine the amount and location of control already existing in the organization, as well as the areas needing control. The objective then becomes one of achieving the best possible match between employees and their work environment.
concept check
1. How is goal theory used in the planning process?
2. What are the organizational downsides to goals?
3. How is goal setting tied to job satisfaction and performance? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.06%3A_Employees%27_Responses_to_Planning.txt |
Learning Objectives
1. Describe management by objectives as a philosophy and as a management tool/technique; describe its effects.
When people are personally committed to their organization’s plans, those plans are more likely to be accomplished. This truism is the philosophy underlying management by objectives.
Management by objectives (MBO) is a philosophy of management, a planning and controlling technique, and an employee-involvement program.60 As a management philosophy, MBO stems from the human resource model and Theory Y’s assumption that employees are capable of self-direction and self- control. MBO also is anchored in Maslow’s need theory. The reasoning is that employee involvement in the planning and control processes provides opportunities for the employee to immerse the self in work-related activities, to experience work as more meaningful, and to satisfy higher-order needs (such as self-esteem), which leads to increased motivation and job performance (see Figure 17.7.1). It is hypothesized that, through involvement, employee commitment to a planned course of action will be enhanced and job satisfaction will be increased.
Although there are many variations in the practice of MBO, it is basically a process by which an organization’s goals, plans, and control systems are defined through collaboration between managers and their employees. Together they identify common goals, define the results expected from each individual, and use these measurements to guide the operation of their unit and to assess individual contributions.61 In this process, the knowledge and skills of many organizational members are used. Rather than managers telling workers “These are your goals”—the approach of classical management philosophy—managers ask workers to join them in deciding what their goals should be.
After an acceptable set of goals has been established for each employee through a give-and-take, collaborative process, employees play a major role in developing an action plan for achieving these goals. In the final stage in the MBO process, employees develop control processes, monitor their own performance, and recommend corrections if unplanned deviations occur. At this stage, the entire process begins again. Figure 17.7.2 depicts the major stages of the MBO process.
The Theory of MBO
MBO has the potential to enhance organizational effectiveness. The following four major components of the MBO process are believed to contribute to its effectiveness: (1) setting specific goals; (2) setting realistic and acceptable goals; (3) joint participation in goal setting, planning, and controlling; and (4) feedback.62 First, as we saw earlier, employees working with goals outperform employees working without goals. Second, it is assumed that participation contributes to the setting of realistic goals for which there is likely to be goal acceptance and commitment. Setting realistic and acceptable goals is an important precondition for successful outcomes, especially if the goals are difficult and challenging in nature. Finally, feedback plays an important role. It is only through feedback that employees learn whether they should sustain or redirect their efforts in order to reach their goal, and it is only through feedback that they learn whether or not they are investing sufficient effort.
Thus, from a theoretical perspective, there are several reasons why MBO should produce a positive impact on employee performance, motivation, commitment, and job satisfaction. In the next section, we briefly look at what the research tells us about the effectiveness of MBO programs.
The Evidence
In both the public and private sectors, MBO is a widely employed management tool. A recent review of the research on MBO provides us with a clear and consistent view of the effects of these programs. In the 70 cases studied by Robert Rodgers and John Hunter, 68 showed increased productivity gains, and only 2 showed losses.63 In addition, the increases in performance were significant. Rodgers and Hunter report that the mean increase exceeded 40 percent.
While the results are generally positive in nature, differences in performance effects appear to be associated with the level of top management commitment. In those cases where top management is emotionally, intellectually (that is, top management espouses the value and importance of MBO), and behaviorally (top management actually uses MBO themselves) committed, the performance effects tend to be the strongest. The weakest MBO effects appear when top management does very little to “talk the value/importance of MBO” and they don’t use the system themselves, even as they implement it for others.64 This evidence tells us that “the processes” used to implement MBO may render a potentially effective program ineffective. Thus, not only should managers pay attention to the strategies used to facilitate planning and controlling (like MBO), they should also be concerned with how they go about implementing the plans. MBO requires top management commitment, and it should be initiated from the top down.65
Research shows that an MBO program can play a meaningful role in achieving commitment to a course of action and improving performance. In fact, research clearly documents instances where MBO programs have increased organizational effectiveness. Still, there have been failures. After reviewing 185 studies of MBO programs, one researcher concluded that they are effective under some circumstances but not all.66 For example, MBO tends to be more effective in the short term (less than two years), in the private sector, and in organizations removed from direct contact with customers. These factors also affect the success of an MBO program:
• The intensity of upper-level managers’ commitment: Half-hearted commitment to an MBO system is associated with a higher failure rate.
• The time element: Is there enough time for employees to learn how to participate in an MBO process, that is, to learn how to set meaningful goals, develop good action statements, and develop effective monitoring systems? Is there enough time for employees to learn how to assume responsibility in a new context? Is there enough time for employees and managers to collaborate in a joint planning and controlling process?
• The legitimacy of the system: Is it integrated into an overall philosophy of management? Or does it seem like a gimmick to seduce employees into being more productive?
• The integration of employees’ goals: Are goals for each employee integrated well enough into the goals of their larger work unit?
To be truly effective over the long haul, MBO programs probably need to be coupled with some type of gainsharing program (that is, programs whereby organizations share some of the financial gains accrued from the ideas, productivity improvements, and cost savings that stem from employee participation). Based on his extensive observation of involvement-oriented organizations, Edward E. Lawler III notes that information, knowledge, power, and rewards are four key components of an effective and sustained high involvement.67 Typically, MBO systems don’t provide mechanisms through which employees share in the economic gains that may accrue to the organization as a result of their expanded role and responsibility. In light of the conditions that influence the effectiveness of MBO programs, management is challenged to provide an appropriate context for the design and maintenance of an effective MBO system.
concept check
1. What is management by objectives? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.07%3A_Management_by_Objectives-_A_Planning_and_Control_Technique.txt |
Learning Objectives
1. Differentiate between the execution of the planning and controlling activities under control- and involvement-oriented management practices.
Planning and controlling are approached with distinctive differences under control-oriented and involvement-oriented approaches to management. In the mechanistic organization, both activities tend to be lodged with management in the organizational hierarchy, often above the point in the organization where the plans are being carried out. The hierarchy plays an active role in both the planning and controlling process, and the employee is often a passive player carrying out the planning directives and the target of the control activity.
The organic organization, with its involvement-oriented management practices, places the employee as an active player in both the planning and controlling activity. Management’s role becomes one of a consultant, facilitator, enabler, philosopher, teacher, coach, and resource provider as employees take on active roles in planning and controlling and in assuming responsibility for the execution of both activities.
Upper-level managers assume responsibility for planning and controlling their units while employees assume the right and responsibility for planning and controlling at their job level. As upper-level managers carry out their planning and controlling activities, they do so by soliciting input from those below them in the organizational hierarchy.
Systems such as MBO are much more likely to characterize the planning and controlling process in involvement-oriented organizations than in control-oriented organizations. Control in high-involvement organizations is diffused through many groups and is commonly focused on task accomplishment and overcoming obstacles, with a de-emphasis on fixing blame with a particular individual for performance failures. In many control-oriented management systems, the reins of control are firmly held by the hierarchy, and the activities of individuals are carefully controlled. Performance failures, therefore, tend to become focused on the individual who fails to perform.
Finally, mechanistic organizations are more likely to create large planning departments and to centralize the planning function with specialists. As organizations confront increasing environmental or technology-induced uncertainty, rapid environmental change, and turbulence, planning and controlling move closer to the point in the organization where the plans are implemented and carried out on a day-to-day basis. In place of hierarchy-based control, organizations rely more on professional employees and groups of employees to control their own actions as they execute organizational plans.
MANAGING CHANGE
Blockchain and Managing Currency Fluctuations
When a business goes from being local, even if local is defined as a whole country, to being a global business, a whole new set of constraints is presented and must be controlled and planned. Traditionally, currency fluctuations can be one of the more interesting if not daunting elements of global business. Modern technology, however, has taken that challenge one step further.
The impact of currency fluctuations on profitability is discussed in economics, finance, and various accounting texts. What currency should be used to buy inventory? To sell inventory? How do puts and calls mitigate currency fluctuations? Is the added expense worth covering the potential loss? These are all questions businesses must consider when moving into a global market. When Tata Consultancy Services, India’s largest software services exporter, reported first-quarter results that were below expectations in the first quarter of 2017, much of the blame was laid on currency fluctuations, which accounted for 80 basis points of the drop in profitability (Alawadhi 2017).
But starting in 2009, financial transactions, including global financial transactions, became a little more complicated. Or did they? Bitcoin emerged in 2009 from an unknown source only known as Satoshi Nakamoto (The Economist Explains 2015). Built on what is called blockchain technology, Bitcoin and other cryptocurrencies (jargon for digital assets that are secured by cryptography) are a technological unknown in the future of exchange and financing. The technology behind blockchain and the resulting assets is complicated but not necessary to understand the potential effects of the technology. Effectively, Bitcoin is a “peer-to-peer electronic cash system that uses a distributed ledger to bypass central control systems for transactions” (Pepijn 2017). As peer-to-peer transactions, cryptocurrencies bypass the normal channels, such as banks and credit card processors. Theoretically, this lowers transaction costs for both the buyer and the seller. Blockchain, which can include assets beyond currency, also allows firms to raise funds directly from investors, bypassing investment bankers and venture capitalists. According to the Financial Post, “High levels of encryption protect the transaction by validating the parties involved and by preventing hacking, erasure or amendments” (Francis 2017).
Bitcoin uses blockchain technology to maintain a record of its currency ecosystem. The viability of blockchain technology as a thing in itself should not be confused with Bitcoin’s price volatility, which has seen its price increase (and decrease) by several orders of magnitude. Shady bitcoin exchanges and a shifting regulatory landscape, a result of governments attempting to regulate the very concept of a means of exchange, have produced enormous swings up and down (Crypto Investor 2017).
But however volatile the new currencies, blockchain technology is seeing other, relatively sane applications. Isabel Cooke at Barclays has already used “distributed ledger technology,” or blockchain technology, to process a trade finance transaction in the real world: “Our pilot trade brought the sign-off time from ten days to four hours. It reduced costs, added transparency, decreased risk and looked to improve the customer experience” (Why blockchain is ‘difficult and exciting’ 2017). With an immutable, public ledger to work from, “Creating a really clear audit trail across organizations provides real value – whether that’s with land registration or trade finance. If we have a shared view of data on ledgers, we can then build business logic on top of that, and that can apply to interest rates swaps or smart contracts within the investment bank” (Crypto Investor 2017).
So are blockchains and cryptocurrencies the wave of the future or just a modern financial bubble or threat to global financial security? Some industry writers say that the decentralization and lower costs of the technology are necessary and will launch even more industries (Pepijn 2017). Even governments and central banks are looking at the potential benefits and costs savings of an electronic currency. According to investment banker Alex Tapscott, if the Bank of England replaced 30 percent of the traditional British currency with digital money, he thinks it would add 3 percent to British GDP. The expectation is that digital currency would lower consumer prices and increase sellers’ profits. And the encryption technology would prevent counterfeiting, fraud, or tampering (Francis 2017).
In a perfect world, exchanges in a global currency, such as the blockchain-based cryptocurrencies, could sidestep currency fluctuations. In the real world, however, the wild value fluctuations of cryptocurrencies mean blockchain technology has a way to go before delivering on that possibility, if it ever does.
sources
Alawadhi, Neha. 2017. “Currency fluctuations and BFSI, retail sluggishness hurt TCS's Q1 show.” Moneycontrol.com. http://www.moneycontrol.com/news/bus...w-2325575.html
Crypto Investor. 2017. “Bitcoin: Three Ways the Bubble Could Pop.” Medium.com, September 15, 2017. medium.com/@Truth_Investor/b...p-40678ce11698
Economist Explains, The. 2015. “Who is Satoshi Nakamoto?” The Economist, November 2, 1015. https://www.economist.com/blogs/econ...ist-explains-1
Francis, Diane. 2017. “Why the smart money is betting on blockchain.” Financial Post. business.financialpost.com/di...-on-blockchain
Pepijn, Daan. 2017. “With smart controls and contracts, blockchain tech is bridging the real and virtual worlds.” The Next Web. thenextweb.com/contributors/...#.tnw_oDCnSKF2
“Why blockchain is ‘difficult and exciting.’” 2017. Barclays, May 16, 2017. www.home.barclays/news/2017/...lockchain.html
questions
1. What other applications can you see for blockchain technology? Would they reduce costs?
2. What drawbacks or potentials risks do you see in blockchain technology?
3. Do you think blockchain technology could be used to offset currency fluctuations? Would this likely increase or decrease the risk?
4. Why would governments be suspicious of cryptocurrencies and consider regulating or outlawing them? Have any governments done so to date?
concept check
1. Describe the execution of the planning and controlling activities under control- and involvement-oriented management practices. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.08%3A_The_Control-_and_Involvement-Oriented_Approaches_to_Planning_and_Controlling.txt |
key terms
action statements
The means by which an organization moves forward to attain its goals.
outcome or goal statements
End states—the targets and outcomes that managers hope to attain.
Deming cycle
A planning model directed toward attaining continuous improvement by integrating organizational learning into the planning process (plan, do, check, act).
domain/directional planning
The development of a course of action that moves an organization toward one domain or direction (and, therefore, away from other domains or directions).
goal planning
Development of action statements to move toward the attainment of a specific goal.
hybrid planning
The coupling of domain and goal planning.
planning
The process by which managers establish goals and specify how these goals are to be attained.
contingency plans
Plans that deal with alternative courses of action.
single-use plans
Plans developed for unique situations or problems and one-time use.
standing plans
Rules, policies, and procedures about how to deal with issues that managers face repeatedly.
strategic plans
Hierarchical plans that address an organization’s institutional-level needs and attempt to position it advantageously within its task environment.
operating plans
Direction and action statements for activities in the organization’s technical core.
administrative plans
Plans that work to integrate institutional-level plans with the operating plans and tie together all of the plans created for the organization’s technical core.
goal hierarchy
The interrelationship among an organization’s job-, department-, divisional-, and organizational-level goals.
official goals
The aims of an organization that are expressed in highly abstract and general terms, generally employed for the organization’s external constituents.
operational goals
The aims of an organization that reflect management’s specific intentions.
concurrent controls
Controls intended to prevent deviation from a planned course of action while work is in progress.
controlling
Monitoring the behavior of organizational members and the effectiveness of the organization itself to determine whether organizational goals are being achieved and taking corrective action if necessary.
cybernetic control
Self-regulating control procedures.
hybrid control system
Control system that exercises control prior to, during, and after the performance of a work activity.
noncybernetic control
Control systems that operate independently from the work system that is being monitored; a monitoring system that is external to the target of control.
postaction controls
Controls employed after a product or service is complete.
precontrols
Controls designed to prevent deviation from a desired plan of action before work actually begins.
management by objectives (MBO)
A philosophy of management, a planning and controlling technique, and an employee involvement program.
17.1 Is Planning Important
1. Understand the importance of planning and why organizations need to plan and control.
Planning is the process through which managers establish goals and detail how these goals will be attained.
17.2 The Planning Process
1. Outline the planning and controlling processes.
There are five major stages in the planning process. First, an organization establishes its preplanning foundation, which reviews past events and describes the current situation. In the second step, the organization sets forth goals based on the preplanning foundation. In the third step, managers forecast what is likely to happen in the organization’s internal and external environments in order to develop alternative courses of action. Then, managers identify possible courses of action for meeting their objectives, evaluate each alternative, and select a course of action. Finally, planners develop the supportive plans necessary to accomplish the organization’s major plan of action. Once implemented, that plan is monitored and controlled so that it meets the goals established in the second step.
17.3 Types of Plans
1. Identify different types of plans and control systems employed by organizations.
Managers create many types of plans based on hierarchical level, frequency of use, time frame, and organizational scope. Contingency plans to be used in case of unexpected events or wrong assumptions are critical for effective management in highly turbulent environments.
17.4 Goals or Outcome Statements
1. Explain the individual and organizational effects associated with goal setting and planning.
Goal development is an important part of the planning process. Goals developed for employees, for departments, and for entire organizations greatly enhance organizational effectiveness. Evidence reveals that performance is higher when organizations, as well as individuals, operate under difficult (but attainable), specific goals.
17.5 Formal Organizational Planning in Practice
1. Understand how planning occurs in today’s organizations.
Plans reduce uncertainty and risk, focus attention on goals, and enhance understanding of the external environment. Although most major organizations engage in formal planning, many managers fail to plan appropriately. Lack of time, uncertainty about the future, and fear of failure are among the reasons given by managers for their failure to plan.
17.6 Employees' Responses to Planning
1. Discuss the impact that control has on organizational members.
The primary purposes of the controlling function are to monitor the extent to which an organization’s plans are being followed and their effectiveness and to identify when and where it is necessary to take corrective action. To accomplish these ambitious tasks, managers construct control systems that touch most aspects of an organization’s functional areas, its relationship with the external and internal environments, and its relationships across different hierarchical levels.
The control process consists of four steps. In Steps 1 and 2, managers create standards and monitor ongoing organizational behavior. In Step 3, they examine the degree to which ongoing activity is consistent with their goals and means objectives and the relationship between the two. In Step 4, managers develop prescriptions to correct problems, to maintain strengths, and to provide feedback to an organization’s planners.
Whereas all control systems have the same general purposes, they differ in their specifics. Some are self-managing cybernetic systems; non-cybernetic systems require regular external supervision to be effective. Other variations in control systems include the point at which control activities are applied: before the work has begun (precontrols), while work is in progress (concurrent controls), and after work has been completed (postaction controls). A hybrid control system engages a variety of control activities at many points in time.
Although there are variations in control systems, all good systems have characteristics that enable them to work well in a given organization. Managers evaluating a control system might thus gauge its adequacy in providing accurate, timely, objective information to appropriate people in the organization. They also should examine whether the system focuses on the most critical aspects of their organization’s conditions in a feasible, flexible manner that will be accepted by organizational members. Because of the importance of the information it provides, a good control system should also be integrated with planning activities.
Any control system can produce both positive and negative effects. If it is well designed, a control system provides needed structure and feedback and facilitates the development and execution of effective goal-setting programs. The result can be a satisfied, motivated, and productive workforce. Inappropriate control systems, however, can cause frustration, dissatisfaction, and poor performance. Being aware of a control system’s potential effects on organization members helps managers capitalize on its positive aspects, reduce the impact of negative effects, and promote workers’ acceptance of the system.
The effort to maintain control is not restricted to managers. All employees have a need for personal control, a need that sometimes conflicts with their organization’s need to maintain control. To achieve effectiveness, managers must balance the control needs of both the organization and its members.
17.7 Management by Objectives: A Planning and Control Technique
1. Describe management by objectives as a philosophy and as a management tool/technique; describe its effects.
Management by objectives (MBO), with its emphasis on goal setting, participation, and feedback, frequently contributes to increased employee goal commitment, motivation, and performance. If performance matches the employee’s aspirations, job satisfaction is likely to be an important by-product of the organization’s planning and controlling activities.
17.8 The Control- and Involvement-Oriented Approaches to Planning and Controlling
1. Differentiate between the execution of the planning and controlling activities under control- and involvement-oriented management practices.
Planning and controlling are approached with distinctive differences under control-oriented and involvement-oriented approaches to management. In the mechanistic organization, both activities tend to be lodged with management in the organizational hierarchy, often above the point in the organization where the plans are being carried out. The hierarchy plays an active role in both the planning and controlling process, and the employee is often a passive player carrying out the planning directives and the target of the control activity.
chapter review questions
1. Define managerial planning and controlling.
2. Discuss the relationship between the two managerial functions of planning and controlling.
3. Identify and briefly describe each stage in the planning and controlling processes.
4. Compare and contrast three different types of planning.
5. What are multiple goals? What is a goal hierarchy? How are these concepts related?
6. Briefly describe the two views of the goal formulation process, and explain how they differ.
7. Describe the MBO process, the philosophy behind it, and its relationship with performance.
8. Distinguish between cybernetic and noncybernetic control and between pre, concurrent, and postaction control systems.
9. Identify and discuss three positive and three negative effects often associated with control systems.
10. How does the desire for personal control affect managers, and how can they balance it with organizational control systems?
management skills application exercises
1. Use the tools described in this chapter to write a plan that will help you set goals, plans on how to achieve them (e.g., achieve an A average in all of my core concentration courses and A– in all courses I am taking). Also account for personal time and other activities you are involved in and goals that you have for these, such as keeping physically fit, etc.
2. You are managing a small manufacturing operation that involved the final assembly of Children sippy cups. There are two components to the sippy cup: the cup, a lid, and a straw as well as the box that will hold the product. You have 2 direct reports who you can assign to assemble the product. You also have a dotted-line report with the purchasing agent for the company that procures the components of the product (a dotted-line report is where one employee must work for and report to more than one manager) as well as the boxes and material needed (e.g., plastic that is used on the shrink-wrapping machine) to complete the product for sale. You have been given the following metrics.
1. You have been given a goal of producing 2,300 units per week.
2. It takes 1 minute to assemble the sippy cup.
3. It takes 45 seconds to place the sippy cup in the box and shrink-wrap the product.
4. It takes 15 seconds to examine the product for meeting quality, and you expect that 99.5% of the products will meet or exceed expectations.
5. The employees work for 8 hours per day.
Write up a plan that has achievable goals for your two direct reports and your dotted-line report. Also prepare a memo to your supervisor about how you plan on achieving your goal.
3. You and another student will engage in a role-play exercise. One will be the manager, and one will be an employee who is not happy with the aggressive goals that he has been given. After a 10-minute discussion, you both report on what was resolved, what was not, and how this would affect job satisfaction and performance for the employee.
managerial decision exercises
1. You are a manager, and your direct report is complaining about not being involved in the planning process. How do you respond?
2. You are a sales manager and have reviewed the monthly sales goals and conclude that the targets can’t be achieved without additional hires or paying employees overtime to secure additional orders. Also, you think that the product could have an 8% price increase without hindering sales units. You review the operational plans and want to provide an alteration of the plans to your boss. What should you do to plan that discussion?
Critical Thinking Case
How Do Amazon, UPS, and FedEx Manage Peak Seasons?
Typically, the day after Thanksgiving (Black Friday) marks the beginning of the holiday shopping season in the United States. Holiday sales, typically defined as sales occurring in November and December, account for roughly 30 percent of annual sales for U.S. retailers (Holiday Forecasts and Historical Sales 2015). For 2016, total online sales from November 10 to December 31 amounted to 91.7 billion dollars. And the top retailers for this period were eBay, Amazon, Walmart, and Target (Tasker 2016). The growth in online sales appears inevitable, but how do the top shippers, UPS and FedEx, manage the sudden upsurge?
Not always so well. In 2013, both FedEx and UPS underestimated holiday demand, and with bad weather conditions as well, struggled to deliver packages as promised. Since then, both carriers have worked hard to keep adequate resources available to handle the end-of-year upsurge. But in 2014, UPS overcompensated and had too much capacity, once again damaging profitability (Livengood 2017).
Matching retailer expectations to reality is a challenge, and not just for the shipping companies. Although retailers would prefer to know how much to expect in sales, forecasts will be inaccurate, sometimes wildly so. In preparing its forecast for the 2017 peak season, Logistics Management examined economic factors, such as GDP, job growth, retail sales, and inventory levels. It also looked at imports. An informal survey of logistical professionals found that 93.5 percent expect the 2017 season to be the same as 2016 (35.5 percent) or more active (58 percent) (Berman 2017).
In June 2017, UPS announced that it would be adding a surcharge to some peak season rates. According to the UPS website, “During the 2016 holiday season, the company’s average daily volume exceeded 30 million packages on more than half of the available shipping days. In contrast, on an average nonpeak day, the company ships more than 19 million packages” (UPS Establishes New Peak Shipping Charge 2017). The rate for the 2017 peak season would apply to select services and to oversize shipments, primarily (UPS Establishes New Peak Shipping Charge 2017). Analysts see the surcharge as a signal that UPS is the rate setter in parcel delivery. Such an assessment is not surprising given that the increase in parcel delivery as an outcome of increased e-commerce is seen as a core driver of earnings for UPS (Franck 2017).
Second-ranked FedEx, in contrast, announced that it would not follow suit but instead would “forgo most holiday surcharges on home deliveries this year” (Schlangenstein 2017). The surcharges levied by UPS are aimed primarily at small shippers, not the larger contract shippers. By not adding a seasonal surcharge, FedEx might hope to capture sales from individuals and small businesses that are deterred by the UPS surcharge (Schlangenstein 2017).
Kevin Sterling, a Seaport Global Holdings analyst, believes that FedEx has the existing capacity to absorb additional ground shipments. “[FedEx is] going to let UPS be Scrooge at Christmas” (Schlangenstein 2017). UPS already has a contract with Amazon, the de facto behemoth of online shopping, for normal shipping, leaving room for FedEx to pick up the slack during the holiday rush (Schlangenstein 2017).
In contrast, UPS reports that the additional charge is needed to offset the costs of additional resources necessary to achieve expected upsurges in capacity. UPS spokesperson Glenn Zaccara commented, “UPS’s peak season pricing positions the company to be appropriately compensated for the high value we provide at a time when the company must double daily delivery volume for six to seven consecutive weeks to meet customer demands” (Schlangenstein 2017).
With or without surcharges, price structures at both companies strive to discourage shipment of heavy, odd-sized, or oversized packages because such packages won’t flow through either company’s sorting systems and require special handling. All the same, FedEx has seen a 240 percent increase in such shipments over the last 10 years, which make up roughly 10 percent of all packages shipped using its ground services. And although FedEx is not adding a holiday surcharge, per se, it has added charges for packages that require extra handling, particularly shipments between November 20 through December 24 (Schlangenstein 2017).
critical thinking questions
1. What do you think are some of the difficulties of adding 25 percent more employees for the holiday season? What kind of planning do you think would be needed?
2. China effectively shuts down for two weeks each year and celebrates the lunar new year. How does that resemble (or not) peak season in Western countries?
3. The case focuses on U.S. markets. How are European markets affected by holiday shopping?
4. Have your own shopping habits changed with the ease of online shopping? If so, how? Do you expect them to change when you graduate and have more disposable income?
sources
Berman, Jeff. 2017. “Prospects for Peak Season appear to be cautiously optimistic.” Logistics Management. http://www.logisticsmgmt.com/article...sly_optimistic
Franck, Thomas. 2017. “UPS set to make a boatload on its new surcharges during holiday season, Citi predicts.” CNBC. https://www.cnbc.com/2017/08/08/ups-...-predicts.html
Holiday Forecasts and Historical Sales. 2015. National Retail Federation. https://nrf.com/resources/holiday-he...storical-sales
Livengood, Anna. 2017. “UPS’ Peak Season Surprise.” Veriship Resource Center. https://veriship.com/resources/ups-p...ason-surprise/
Schlangenstein, Mary. 2017. “FedEx Will Shun Most Home Holiday Fees, Unlike UPS.” Transport Topics. http://www.ttnews.com/articles/fedex...ees-unlike-ups
Tasker, Becky. 2016. “2016 Holiday Shopping: Up-To-The-Minute Data From ADI.” CMO.com. http://www.cmo.com/adobe-digital-ins...-from-adi.html
UPS Establishes New Peak Shipping Charge.” 2017. UPS Pressroom. www.pressroom.ups.com/pressr...7873904827-900 | textbooks/biz/Management/Principles_of_Management_(OpenStax)/17%3A_Organizational_Planning_and_Controlling/17.09%3A_Summary.txt |
Learning Objectives
After reading this chapter, you should be able to answer these questions:
1. What do we mean by the management of technology and innovation (MTI), and why is it crucial?
2. How do organizations develop technology and innovation?
3. What are external sources of technology and innovation development, and when are they best used?
4. What are internal sources of technology and innovation development, and when are they best used?
5. How and why do entrepreneurs develop MTI skills?
6. No matter what method is used, what skills do you need to successfully manage technology and innovation?
7. How do you look into the future to keep pace?
Acer Group—Becoming a Hardware + Software + Services Global Competitor
Do you think that you would be interested in a career in the technology space? Here is an overview of the history of Acer Corporation that will provide a glimpse into this industry. Acer Group was established in 1976. The Acer Group’s family of brands includes Acer, Gateway, Packard Bell, and eMachines. The multibrand strategy of Acer allows each brand to target different customer needs in the worldwide personal computer market. Acer was the third-largest maker of personal computers (second largest in notebooks) in 2008 and had revenues exceeding \$16 billion. In 2017, Acer is sixth in the personal computer industry with revenues exceeding \$70 billion. This Taiwanese firm has established itself as a global player in the PC market and has expanded into gaming and other related businesses. How it got there is through innovative use of alliances and acquisitions as well as forward-looking development within the firm.
The Firm’s History
Acer was founded in 1976 as Multitech. The focus of Multitech was on trade and product design (internal innovation). Just three years later, Multitech designed Taiwan’s first mass-produced computer product. The focus from the start was on a product for export—Taiwan is such a small market the firm knew it needed to make a global footprint in the computer market. Multitech, which became Acer in 1987, developed a long-term mission to allow anyone to use and benefit from technology. They have built their reputation on the development and manufacturing of sophisticated, intuitive, easy-to-use products.
Early Innovations
When Multitech first started, the PC market was young and the founders saw many opportunities. Acer holds more patents than any other Taiwanese-based corporation, and Taiwan accounts for 70 percent of global computer hardware manufacturing. When Acer beat IBM to the market with 32-bit PCs in 1986, it signaled the beginning of the end for IBM’s PC business. Until 1990, Acer was more internally innovative than it was externally oriented for alliances and acquisitions.
External Technology Development
In 1990, Altos Peripherals was acquired. This marked the beginning of two decades of multiple alliances and acquisitions by Acer. Because of Acer’s success in developing innovations, other companies were willing and eager to develop different types of alliances. Some of the early alliances allowed Acer to partner with some of the biggest players in the computer technology industry. For example:
• 1996—Acer signed a reciprocal patent licensing agreement with IBM, Intel, and Texas Instruments allowing the use of one other’s patented technology.
• 1999—Acer Group and IBM formed a seven-year procurement and technology alliance.
This strategy has continued:
• 2010—Acer and Founder Technology signed a memorandum of mutual understanding to strengthen their long-term PC business cooperation.
• 2016—Acer’s board of directors approved the establishment of a joint venture with Starbreeze AB to design, manufacture, promote, market, and serve StarVR Virtual Reality Head-Mounted Displays.
As Acer grew in strength in the marketplace, it began to make acquisitions. These acquisitions were aimed at multibranding as well as obtaining technological innovations. For example:
• 1998—Acer acquired Texas Instruments’ TI-Acer interest and renamed the company Acer Semiconductor Manufacturing Inc.
• 2007—Acer merged with Gateway Inc.
• 2008—Acer merged with Packard Bell Inc.
• 2008—Acer acquired E-TEN.
• 2015—Acer acquired GPS cycling computer brand Xplova.
• 2016—Acer acquired wireless pet camera maker Pawbo.
To illustrate the usefulness of this strategy, in 2011 Acer Inc. bought iGware Inc. for \$320 million to try to enter the potentially lucrative cloud market. Then in 2012, Acer created cloud software and infrastructure tools for devices.
Acer also developed equity-based partnerships. Examples of this strategy include:
• 2009—Acer acquired 29.9% of Olidata.
• 2015—Acer invested in robotics start-up company Jibo.
• 2016—Acer made an equity investment in grandPad, a provider of technology solutions specifically designed for senior citizens.
• 2017—Acer became the largest corporate shareholder of AOPEN Inc.
Becoming a Global Competitor
While Acer was changing its business model from internal innovations as well as evolving from a manufacturing company to a development and marketing firm, it continued to spread its global footprint. It did this through various partnerships and by developing innovative products with its partners and within its own R&D areas. For example, in 2003 Acer launched the Empowering Technology Platform to meld hardware, software, and service to provide end-to-end technologies to customers. In 2008, the Aspire One was launched as the company’s first mobile Internet device. In addition, Acer made a strong move into the high-end gaming market with the Aspire Predator series.
These steps were designed to enhance and strengthen Acer’s global position. Acer’s product range includes PC notebooks and netbooks, desktop computers, storage systems, peripheral devices, LCD televisions, and e-business solutions. The firm is number one in a number of markets with various products. The Europe, Middle East, and Africa (EMEA) market is a stronghold for Acer’s mobile computing solutions. Acer is the largest supplier of LCD televisions in Western Europe. Acer is first in the notebook market in Italy, Spain, Austria, Holland, Switzerland, Russia, Belgium, Denmark, Hungary, Poland, and the Slovakian Republic.
In the United States and Canada, Acer is making its mark through its Channel Business Model (CBM). It developed this model as it expanded beyond Taiwan and continued to improve it as it divested its manufacturing facilities. This model allows Acer to be flexible in adapting to global IT market trends. CBM involves collaboration with partners and suppliers to develop and market top-tier products and services. In 2003, they used this model to co-brand a notebook computer with Ferrari, the Italian carmaker.
In 2009, Acer unveiled the Acer F900 and M900 smartphones at the Mobile World Congress. They began by shipping to channel partners in EMEA and Asia. These products have a relatively large 3.8-inch-wide VGA display and a 3.75G HSPA connectivity for high-speed data transfer, and they are the introductory products with Acer’s new widget-based user interface that provides easy navigation with vivid 3D animation. The acquisition of Packard Bell was key to Acer’s entrance into this market with this advanced product.
From 2008 to 2013, Acer’s strategy was to enhance worldwide presence with a new multi-brand strategy. With the successful completion of the mergers of Gateway and Packard Bell, Acer then heavily emphasized its goal to further strengthen its global footprint with a multi-brand strategy and solid partnerships. Since 2014, the Acer Group has been transforming into a hardware + software + services company.
To accomplish this shift, Acer needed to spin off or divest certain units. This accomplished two things: 1) it made cash available for acquisitions and other new business development, and 2) it refocused the strategy of Acer.
Examples of the spin-offs and divestments included:
• 2000—Acer spun off its manufacturing operation to focus on developing technologically advanced, user-friendly solutions.
• 2000—Acer split off its OEM (Original Equipment Manufacturing) business unit to create Wistron Corp., an independent design and IT manufacturing company.
Acer continues to lead in notebook technology while extending its product lines to enhance people’s lives through technology. In notebook technology, Acer was the leader in branding notebooks (Ferrari 4000 carbon-fiber notebook—2005), green notebooks (2010), and lightest notebook with the longest battery life (Aspire line—2012), as well as the Chromebook launch in 2015 with a 15.6-inch screen. However, its product lines have multiplied into cloud technology, gaming, and other technologies that “add value to customers’ lives” (Acer annual report).
Acer has used a variety of strategic moves to continue to be competitive in the changing world of computer-related technology. Early on, they used internal innovation as a primary growth strategy to build a reputation and establish a footprint in the industry. Then they used external methods of acquiring technology and markets—mergers, acquisitions, alliances, joint ventures, equity positions, etc. Acer continues to nurture its strengths in research and development while continuing to look for new opportunities for acquisition and alliances.
Sources: Anonymous. 2009. Acer website, “Showcases Multi-brand Products at Computex 2009 including Aspire Timeline Notebook, Aspire One Netbook, Aspire All-In-One PC.” JCN Newswire- Japan Corporate News Network. Tokyo, June 3, 2018; www.acer-group.com; Acer Group 10-K reports.
18: Management of Technology and Innovation
Learning Objectives
1. What do we mean by the management of technology and innovation (MTI), and why is it crucial?
Management of technology and innovation is critical to the organization. Because of innovations and new technologies, we have historically seen the emergence of innovative organizational structures and new ways of performing work. For example, the Industrial Revolution ushered in the functional structure for organizations. As business moved from small craft businesses like blacksmiths to railroads, there was a need to introduce a more complex business structure. Today, we see the innovations in information technology changing structures to more network based with people being able to work remotely. The changes in structure are innovations in the technology of how work is accomplished; the innovations brought on by the invention of new products influence the technology we use and how we use it.
Technology can be defined in a number of ways. The basic purpose of a system (such as an organization) is to convert inputs into outputs. Therefore, we will define organizational technology as the processes within the organization that help to convert inputs into outputs as well as the supporting evaluation and control mechanisms. The management of technology involves the planning, implementation, evaluation, and control of the organization’s resources and capabilities in order to create value and competitive advantage. This involves managing:
1. Technology strategy—the logic of how technology will be used and what role technology will have in the organization. For example, will innovation (first-to-market strategies dominate) be the focus, or will the firm want to do things better to obtain market share and value (let others take the initial risks)?
2. Technology forecasting—the use of tools to study the environment for potential technological changes that can both positively and negatively affect the firm’s value proposition. Digitization of a variety of products such as watches and cameras provided great opportunities for some firms and caused others to go bankrupt. Forecasting (or at least keeping an eye on the changes in technology) is very important in the management of technology.
3. Technology road-mapping—the process of taking an innovation or technology and trying to build more value by looking for ways to use technology in different markets and places.
4. Technology project portfolio—the use of portfolio techniques in the development and use of technology enhances the potential value of technologies being developed and the technologies that are currently part of a firm’s portfolio. Disney was a leading producer of animated films. However, Disney did not stop there—the portfolio of characters in the films are now marketed as products and displayed in Disney theme parks, and Disney very carefully manages the availability of the animated films.
Innovation activities are an important subset of technology activities. Innovation includes “newness” in the development and used of products and/or processes within a firm and within an industry. Invention, new product development, and process-improvement methods are all examples of innovation. Management of innovation includes both change management and managing organizational processes that encourage innovation. The management of innovation is more than just planning new products, services, brand extensions, or technology inventions—it is about imagining, mobilizing, and competing in new ways. For the organization, innovation management involves setting up systems and processes that allow newness that adds value to emerge. Some firms, like Google and 3M, give some employees time during the workweek to work on their own ideas with the hope of sparking new ideas that will add value. Google News and 3M Post-it Notes are products that emerged from this practice. In order to manage innovation processes successfully, the firm must undertake several activities (these can involve the study of technologies currently in use).
1. Casting a wide net while trying to keep up with potential changes in the firm, the market, the competition, etc. is crucial. Eastman Kodak was the dominant U.S. camera manufacturer. On several occasions in their history they missed opportunities to take advantage of innovations in their product line—they did not cast their net out. Land, the founder of Polaroid, went to Kodak with his invention of instant photographs—Kodak said no. Kodak did not see the telephone as a potential competitor until it was too late. Kodak was especially vulnerable because the firm was a late entrant into the digital camera market. As a result of failure to cast a wide net in keeping up with trends and innovations, Kodak went bankrupt.
2. Creating newness with existing products can expand the portfolio of value of a product. 3M has done this with all kinds of tape and with different formats and forms of Post-it Notes. Asking “how else can the product be altered or used?” is critical to developing platforms of products.
3. Creating a culture open to newness is critical to cultivating ideas. If the leadership of the firm is open to ideas from all over the organization, then the firm will be more innovative. Some large firms such as Texas Instruments encourage employees to start new businesses if TI does not want to keep a product in house. Often, TI is the first investor and customer of these small firms.
4. Communicating knowledge throughout the firm is important. This knowledge can be positive and negative at first glance. For Post-it Notes, the glue used emerged from the laboratory efforts to create a stronger glue to compete with Elmer’s Super Glue. Obviously, the outcome did not meet the original goal, but the communication of the new formula’s characteristics—tacky and leaves no residue—triggered other usage.
5. Changing with courage is necessary if a firm is going to manage innovation and stay competitive. Too often firms get comfortable with where they are, narrow their focus in studying the environment, and focus on building strength in their current market. This leads to strategic inertia—not innovating and losing customers and market share to more innovative companies. Just as Kodak failed to change, so did IBM—famously, the CEO of IBM was quoted as saying “who wants a computer on their desk?” as IBM continued manufacturing mainframes while desktops and then laptops were emerging.
MANAGING CHANGE
E-Hubs Integrate Global Commerce
Thanks to the wonders of technological advancement, global electronic trading now goes far beyond the Internet retailing and trading that we are all familiar with. Special websites known as trading hubs, or eMarketplaces, facilitate electronic commerce between businesses in specific industries such as automotive manufacturing, retailing, telecom provisioning, aerospace, financial products and services, and more. Virtually all Forex (foreign exchange) is done via trading hubs that provide an open market for trading of a variety of currencies. Because there are a large number of trades involving currencies, the price is discoverable and there is transparency in the market. By contrast, Bitcoin is mainly traded in smaller quantities, and there are often large discrepancies between prices for the cryptocurrency in different exchanges.
The trading hub functions as a means of integrating the electronic collaboration of business services. Each hub provides standard formats for the electronic trading of documents used in a particular industry, as well as an array of services to sustain e-commerce between businesses in that industry. Services include demand forecasting, inventory management, partner directories, and transaction-settlement services. And the payoff is significant—lowered costs, decreased inventory levels, and shorter time to market—resulting in bigger profits and enhanced competitiveness. For example, large-scale manufacturing procurement can amount to billions of dollars. Changing to “just-in-time purchasing” on the e-hub can save a considerable percentage of these costs.
Electronic trading across a hub can range from the collaborative integration of individual business processes to auctions and exchanges of goods (electronic barter). Global content management is an essential factor in promoting electronic trading agreements on the hub. A globally consistent view of the “content” of the hub must be available to all. Each participating company handles its own content, and applications such as content managers keep a continuously updated master catalog of the inventories of all members of the hub. The transaction manager application automates trading arrangements between companies, allowing the hub to provide aggregation and settlement services.
Ultimately, trading hubs for numerous industries could be linked together in a global e-commerce web—an inclusive “hub of all hubs .” One creative thinker puts it this way: “The traditional linear, one step at a time, supply chain is dead. It will be replaced by parallel, asynchronous, real-time marketplace decision-making. Take manufacturing capacity as an example. Enterprises can bid their excess production capacity on the world e-commerce hub. Offers to buy capacity trigger requests from the seller for parts bids to suppliers who in turn put out requests to other suppliers, and this whole process will all converge in a matter of minutes.”
Sources: “Asian Companies Count Losses—Hatch Ways to Cope with Weak Dollar,” Reuters, https://www.reuters.com, January 24, 2018; Rob Verger, “This Is What Determines the Price of Bitcoin,” Popular Science, https://www.popsci.com, January 22, 2018; Bhavan Jaipragas, “Alibaba’s Electronic Trading Hub to Help Small and Medium-sized Enterprises Goes Live in Malaysia,” This Week in Asia, http://www.scmp.com, November 3, 2017.
Critical Thinking Questions
1. How do companies benefit from participating in an electronic trading hub?
2. What impact does electronic trading have on the global economy?
There are six critical areas that affect society and business and thus require firms to practice good management of technology and innovation. Each of these must be managed for value to be created and captured:1
1. Management of Human Resources. Work environment (tools and structures) are much different today than they were at the turn of the millennium. For example, the iPhone was first introduced in 2007. Cell phone technology in the year 2000 was not for everyone—most people still had landline telephones. The introduction of cell phone technology and its use in business has made many employees feel like they are on 24-hour call. Because workers tend to carry their phones everywhere, they are available to be called, texted, or e-mailed.
Providing learning opportunities (whether online or traditional training and development) has become a more important part of human resources management—employees need to be given time to adjust to the introduction of new ways of working, new software, etc. For example, it is the rare 45-year-old manager today that owned or used a laptop computer before graduating college.
2. Cooperative Model Expansion. The more rapidly innovation occurs, the more rapidly technology occurs within firms, within industries, and within economies. These changes require that cooperatives be developed. These cooperatives can take a variety of forms, both internal and external to the firm. We will discuss internal and external MTI as well as entrepreneurial MTI.
3. Internationalization. There is much more internationalization of products and markets. Sometimes, the innovations spread in ways that were not predicted. For example, GE wanted to develop a portable MRI machine to be used in less-developed countries. The machine would be portable and would use a laptop interface to send images for diagnoses. It was successful developed and a plant was built overseas, and then GE discovered there were markets in more-developed economies that they had not considered. For example, large-animal veterinarians wanted to use the machines on farms and ranches. Finding the best markets and the best production options has become an important part of MTI.
4. Issues around Environmental Concerns. Environmental concerns can be important throughout the whole life cycle of a product. From development to manufacturing to usage to disposal, are all concerns for MTI. For example, energy production is a cause of great concern. The use of fossil fuels such as coal, oil, and natural gas have impacted carbon levels in the atmosphere. Nuclear power does not have that impact, but accidents at such facilities can be catastrophic. Use of wind, water, waves, and sunlight to produce energy does not lead to carbon emissions, but there are other environmental concerns. Building large dams such as Hoover Dam in the United States is much more difficult now because society is much more aware of the changes in the ecosystem such large projects cause.
5. Growth of Service Industries. As economies become more knowledge and information based, service industries will continue to grow. The services provided by Internet suppliers, specialists in network security, etc. will influence how business will grow for the foreseeable future—especially in developing economies. The emergence of a more knowledge- and information-based global economy means that services will become more critical and service industries will continue to grow at a faster pace than product-based industries.2
6. Use of Intellectual Property Rights (IPR) as a Strategic Resource. Because many new products and processes are based on intellectual property rights (patents, copyrights, and trademarks), it is crucial that organizations manage their IPR as a valuable asset. This requires value articulation through value transference, translation, and transportation.3 For example, Dolby Laboratories patented innovative noise-reduction technology that was translated to a stereo film sound technique that was patent protected to transportation to new patents protecting the “analog world.” As a result, Dolby enjoyed long-term growth from its innovation and over 80 percent of its revenues came from licensing the technology rather than producing competing products.
Organizations have to be flexible in the management of technology and innovation. Acer, in the opening case, has used a variety of methods to acquire new technology and to innovate and expand its platforms. When Acer started out, the management realized that being a domestic company in Taiwan was very limiting, so they cast their net widely. They originally used internal R&D to grow. Then they expanded their markets and their product lines through mergers and acquisitions. They have increased their product offerings as the laptop market has matured. They are now using services platforms to continue their expansion and growth.
concept check
1. How are the management of technology and the management of innovation similar? How are they different?
2. How can firms create value through good management of technology and innovation?
3. How has Acer managed its technology and innovation processes? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/18%3A_Management_of_Technology_and_Innovation/18.01%3A_MTIIts_Importance_Now_and_In_the_Future.txt |
Learning Objectives
1. How do organizations develop technology and innovation?
There are a number of ways that organizations can develop and manage technology and innovation. We will focus on organization-level activities and the three strategic processes in this section of the chapter.
In order for a firm to develop a successful management of technology and innovation strategy, it is imperative that the organization be readied for the effort. This requires agility because changes and adjustments to products and processes are filled with risk and uncertainty. However, agility is inherently less efficient if it is to be effective. Therefore, the management of technology and innovation must balance short-term efficiency with long-term effectiveness in the market if the firm is to add value and thrive in a changing environment. Strong dynamic capabilities are needed if the organization is going to be able to address the challenges of innovation and dynamic competition.4 There are four things the firm should do to balance the conflicting demands of being agile in a dynamic environment. These are:
1. Design systems and processes that can identify, assess, and develop technology-based opportunities (or protect from new technology threats). The systems and processes should be able to sense what is coming.
2. Identify communication needs and efficiently turn data into information so that the right information can be available to make the best decision in a timely fashion. The current interest in big data and what it can tell firms is tied to the notion that we have a lot of bytes of data available because of computer technology that are not being used effectively or efficiently.
3. Develop employees through training and learning opportunities. This becomes more critical as the competitive environment for the organization becomes more dynamic. The management of technology and innovation requires that all levels of the organization are involved and that efforts are made to ensure that employees are allowed to enhance their skills for themselves and the organization. The more dynamic the environment, the more important skill enhancement is for the firm and the individual.
4. Use good change management processes to help the firm succeed in introducing newness into the organization. Many firms learned expensive lessons when desktop computers were introduced into the workplace. First, most managers did not type, so they did not adopt the new technology. Second, younger staff members were more likely to be comfortable with the new computers (even elated because the computer was better than they could afford at home), so knowledge power was turned upside down from the hierarchy and seniority. Third, many firms installed desktops with little or no training (because they were “upgraded typewriters”) while leaving the typewriters easily accessible. The result was that some companies deemed desktops a failure and sold the equipment at a loss. Obviously, desktop computers are now a vital tool in the workplace, but this just illustrates what happens when a good change management process that includes proper support systems, communication, and training is not implemented.
There are three basic organizational processes—buying and partnering, developing newness within the firm, and entrepreneurially exploiting a space in the environment. Figure 18.2.1 delineates the three types. Buying and partnering includes mergers and acquisitions, joint ventures, contractual agreements, and other forms of acquiring technology/innovation from external sources. Internal sources of new technology/innovation for the organization include research and development of new products as well as reconfiguring or developing new processes—ways of doing things. This can be an organization structure or redesigning an assembly line. Adding robotics to a manufacturing process may be an internally driven process, or a firm may buy a robotics manufacturer to acquire the capability to add robotics to the assembly process.
The third type of creating new technologies/innovations involves exploiting a space in the environment through entrepreneurial or new-business development activities. Michael Dell started Dell in his dormitory room at the University of Texas. He wanted a better computer than he could buy, so he bought parts and assembled his own. Friends asked him to build one for them. He realized there was an innovative process of customizing computers and delivering directly from the manufacturer to the customer. Michael Dell’s exploitation of the custom-built, direct manufacturer-to-customer delivery led to a multibillion-dollar business. Table 18.1 lists the advantages and disadvantages of each of the technology/innovation creation methods.
Advantages and Disadvantages of Creation Methods
Method Advantages Disadvantages
External Processes:
M&A, joint ventures, contractual relationships, cross-organizational projects, informal relationships
1. Quicker
2. Blending rather than discovering
3. Often less costly
1. Requires bringing different firm cultures together
2. Often leads to the perception of winners and losers
3. Not-invented-here syndrome
Internal Processes: R&D
1. Clear ownership of the technology/innovation
2. Legal protections may be stronger
1. Often takes longer
2. Key personnel may leave at a critical time
3. Can be very costly
New Business/Entrepreneurship
1. Usually more agile and flexible in the marketplace
2. Dedicated leadership—it is their “baby”
1. Highest risk factor
2. Lack of skills within the firm to do things besides innovation
3. Usually have very little slack
Table 18.1 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
concept check
1. How do managers develop technology and innovation?
2. What are the advantages and disadvantages of each creation method? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/18%3A_Management_of_Technology_and_Innovation/18.02%3A_Developing_Technology_and_Innovation.txt |
Learning Objectives
1. What are external sources of technology and innovation development, and when are they best used?
The external processes for developing and acquiring technology and innovation include a variety of options. They are most successfully used under the following circumstances:
1. The product line or the processes of the firm have fallen behind those of its competitors.
2. A new entrant into the market of the industry has changed the competitive dynamics.
3. A firm believes that its product mix or way of doing things is not going to be successful in the long run.
The major advantage of using an external process is speed—for the focal firm, the time needed to blend an acquired technology or innovation is usually much shorter than the time required to try to make a discovery and bring it to market or implement it within the firm. Often, external processes are less costly. The disadvantages are tied to the need to blend different firms or bring “others” into the activities of the firm. For example, there may be cultural conflicts in an acquisition or there may be resistance to acceptance of the newness that is brought into the firm.
The most common types of external processes used to enhance technology and innovation in a firm include:
1. Mergers/acquisitions (M&A), which involve ownership changes within the firms. For an acquisition, one firm buys another; for a merger, the two firms come together and form a new firm. The essence of both of these approaches is that a new, larger organizational entity is formed. The new firm should have more market power (be larger) and should gain knowledge about technology or a domain of activity. The blending of two cultures, two sets of processes, and two structures are all potential disadvantages of M&A activity.
2. Joint ventures are long-term alliances that involve the creation of a new entity to specifically carry out a product/process innovation. The entity is usually governed by a contractual relationship that specifies the contributions and obligations of the partners in the joint venture. There are potential culture clashes as well as the potential for strategic drift—losing strategic focus on the reasons for the joint venture.
3. Franchise agreements are usually long-term agreements that involve long payoffs for the sharing of known technology. Fast food restaurants, such as McDonald’s, use franchise agreements with store owners. McDonald’s provides R&D for new processes and new products. The store owners (franchisees) pay a fee for the use of the name and the marketing of the product. The contract and monitoring costs associated with franchise agreements are the big disadvantage of this type of alliance.
4. Licensing agreements involve technology acquisition without R&D. For example, Dolby contracts with producers of various types of sound equipment to allow them to use their technology to have better sound quality. Licensing agreements are quite common in high-tech industries. The contract costs and constraints are the disadvantages of licensing agreements.
5. Formal and informal contracts are used to allow firms to share technology between them. For formal contracts, the length of time the contract is enforceable is a defining characteristic. The more formal a contract, usually the longer it is, and it usually includes more details about the usage and limitations of the technology. For the informal contract, the advantage is that if the activity is no longer beneficial, it is much easier to disband.
All of the methods are of use to firms large and small. In the opening case, Acer used a number of methods to externally acquire technology.
concept check
Look at the Acer case at the beginning of the chapter and respond to the following items.
1. Identify the times Acer used external methods of acquiring newness for their organization.
2. What goals did they accomplish? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/18%3A_Management_of_Technology_and_Innovation/18.03%3A_External_Sources_of_Technology_and_Innovation.txt |
Learning Objectives
1. What are internal sources of technology and innovation development, and when are they best used?
The most common type of internal process for technology and innovation in the organization is research and development (R&D). R&D involves the seeking and development of new technologies, products, and/or processes through creative efforts within the firm. The benefits of internal processes include ownership of the technology/innovation that provide legal protections (i.e., patents and trademarks). In addition, the understanding and the knowledge gained from the process of R&D can give the firm a head start on the next generation of technology. Apple’s place as a first mover in the technology of laptops and telephones allowed it to maintain a creative advantage for a number of years. The disadvantages of R&D are that it is usually slower and more costly and can be disrupted by the departure of key personnel. The death of Steve Jobs has slowed the innovation of Apple in the eyes of many consumers.
ETHICS IN PRACTICE
Unearthing Your Secrets
Cybercrimes in our technologically driven world are on the increase—identity theft, pornography, and sexual predator victim access, to name a few. The FBI’s computer analysis response team confirms their caseload includes 800 cases reported per day in 2017. To keep up with the changing world we live in, law enforcement, corporations, and government agencies have turned to new crime-fighting tools, one of the most effective being digital forensics.
The leader in this technology is Guidance Software, founded in 1997 to develop solutions that search, identify, recover, and deliver digital information in a forensically sound and cost-effective manner. Headquartered in Pasadena, California, the company employs 391 people at offices and training facilities in Chicago, Illinois; Washington, DC; San Francisco, California; Houston, Texas; New York City; and Brazil, England, and Singapore. The company’s more than 20,000 high-profile clients include leading police agencies, government investigation and law enforcement agencies, and Fortune 1000 corporations in the financial service, insurance, high-tech and consulting, health care, and utility industries.
Guidance Software’s suite of EnCase® solutions is the first computer forensics tool able to provide world-class electronic investigative capabilities for large-scale complex investigations. Law enforcement officers, government/corporate investigators, and consultants around the world can now benefit from computer forensics that exceed anything previously available. The software offers an investigative infrastructure that provides network-enabled investigations, enterprise-wide integration with other security technologies, and powerful search and collection tools. With EnCase, clients can conduct digital investigations, handle large-scale data collection needs, and respond to external attacks.
Notably, the company’s software was used by law enforcement in the Casey Anthony murder case and the Sony PlayStation security breach, and was used to examine data retrieved by U.S. special forces in the Osama bin Laden raid.
Guidance Software also helps reduce corporate and personal liability when investigating computer-related fraud, intellectual property theft, and employee misconduct. It protects against network threats such as hackers, worms, and viruses and hidden threats such as malicious code.
In response to increases in the number and scope of discovery requests, Guidance Software developed its eDiscovery Suite. The software package dramatically improves the practice of large-scale discovery—the identification, collection, cataloging, and saving of evidence—required in almost every major legal case these days. eDiscovery integrates with other litigation-support software to significantly decrease the time for corporations to accomplish these tasks. At the same time, it improves regulatory compliance and reduces disruption. The result is many millions of dollars in cost savings. In late 2017, Guidance Software was acquired by OpenText, an enterprise information management company that employs more than 10,000 people worldwide.
Sources: FBI website, www.fbi.gov, accessed January 15, 2018; Guidance Software website, www.guidancesoftware.com, accessed January 15, 2018; OpenText website, https://www.opentext.com, accessed January 15, 2018; “Casey Anthony: The Computer Forensics,” The State v Casey Anthony website, https://statevcasey.wordpress.com, July 18, 2011; Declan McCullagh, “Finding Treasures in Bin Laden Computers,” CBS News, https://www.cbsnews.com, May 6, 2011; Evan Narcisse, “ Who’s Cleaning Up the PSN Debacle for Sony?” Time, http://techland.time.com, May 4, 2011.
Critical Thinking Questions
1. How is Guidance Software responding to and helping to manage changes in our technology-driven world?
2. What other types of forensics software do you foresee a need for in the future? Do you think there are ethical issues in using forensics software, and why or why not?
3. What are the benefits and risks of Guidance Software being acquired by a larger company?
concept check
1. Look at the Acer case at the beginning of the chapter. Identify the times they used internal methods of acquiring newness for their organization.
2. What goals did they accomplish?
18.05: Management Entrepreneurship Skills for Technology and Innovation
Learning Objectives
1. How and why do entrepreneurs need to develop MTI skills?
Entrepreneurial activities in the marketplace often signal newness in a product or process. For an entrepreneurial firm, the value proposition is a key factor. The value proposition answers the following two questions:
1. How will the firm make money on the product and/or services offered?
2. How will the firm be positioned in the marketplace?
New business entities (a type of entrepreneurial activity) are usually more flexible and agile in the marketplace. The entrepreneur is very dedicated to the success of the firm because the new business is the “baby” of the entrepreneur. The starting of a new business is the riskiest approach for introducing new products and processes. The failure rate for entrepreneurs is high. Because the firm is new, there is usually very little slack in resources available—money is tight, labor is limited, and time is fleeting. Therefore, entrepreneurial activities are most successful when the lean start-up process can be used. It is applicable where development costs are low and revisions are not very costly. One reason there are many startups in the development of applications for mobile phones is that the costs are low and improvement of the product (once successful) is relatively easy. Entrepreneurs have the ability to adapt their plans incrementally, especially when using lean start-up methods.5 For entrepreneurs, the capabilities to sense, seize, and transform can be an advantage if they stay agile and avoid over-committing to a course of action.6 Entrepreneurs, by definition, are more agile than more-established organizations.
This agility is true within large firms that want to continue to be entrepreneurial in their activities. Firms such as Google and 3M allow their employees to work on innovative projects during their working hours. Google modeled its policy of allowing employees time to explore other potential products and processes after 3M’s longtime policy. Both of these firms are known as innovative firms because they encourage employees to look for and test innovative and valuable propositions. The flexibility allowed employees gives both Google and 3M the agility to find new ways of doing things.
concept check
1. In the beginning, Acer was very entrepreneurial. However, the firm realized that if it was to continue to grow, it needed to develop some structures and processes. What adjustments did Acer make to become a global firm? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/18%3A_Management_of_Technology_and_Innovation/18.04%3A_Internal_Sources_of_Technology_and_Innovation.txt |
Learning Objectives
1. No matter what method is used, what skills do you need to successfully manage technology and innovation?
There are a number of skills needed to successfully manage technology and innovation in the organization. No matter what organization you are a part of, there are two skills the organization must develop to be successful—the ability to manage learning and knowledge processes, and the ability to analyze and forecast future trends. Individual skills that are critical to the organization’s success include leadership/followership and creative thinking.
Organizational skills involve how the firm puts people and resources together to create value—building capabilities. With the right capabilities, the organization can develop a competitive advantage. In the world of technology and innovation, the management of learning and knowledge processes is critical. The organization needs to have systems in place that allow it to collect data that can be analyzed to form information. The information needs to be used to gain knowledge and insight. At each step, learning takes place. Organizational learning is the acquisition of knowledge through the collection of data that is analyzed to gather information, which is then transferred and shared through communication among members of the organization. This communication process provides the foundation for knowledge acquisition and enhancement within the firm. There are two types of knowledge that must be managed: explicit knowledge (codified or written down as rules or guidelines) and tacit knowledge (which emerges from the experience of an individual). Tacit knowledge can become explicit at some point if the expert is able to codify the knowledge for others. However, it is not always possible to codify tacit knowledge. For example, Henry Bessemer was sued by the patent purchasers who could not get his steel-making process to work. In the end, Bessemer set up his own steel company because he knew how to gauge when to add and subtract heat based on the impurities in the iron ore, even though he could not convey it to his patent users. Bessemer’s company became one of the largest in the world and changed the face of steelmaking. After the introduction of the Bessemer process, steel and wrought iron became similarly priced, and some users, primarily railroads, turned to steel.7 The insights and experiences that are gained from the gathering of data and converting that data into information are key to successful MTI. Organizational knowledge is the sharing and utilization of the learning that takes place in the firm.
The ability to forecast the future is another key organizational skill in the management of technology and innovation. This involves scanning the environment for trends and possible areas of value-creation opportunities. It also involves understanding the risk involved with newness in the firm and the risk involved in not seeking newness—both can cause the firm to lose value. Any method of forecasting comes with limitations. These include:
1. Forecasting methods, by definition, are uncertain in their outcomes. Usually the firm is trying to develop scenarios concerning best, worst, and most likely outcomes. With this information, risk can be assessed.
2. Forecasts are imperfect—the firm cannot predict all potential influences in the competitive marketplace. Bessemer knew he had a better process, but he did not predict the problems he had licensing his patent.
3. Forecasts are at best an educated guess. Many forecast techniques rely on statistical analysis, but the numbers used in the analysis are forecasts themselves or rely on patterns of behavior continuing in the marketplace.
4. With all the issues with forecasting, a company that produces excellent forecasts will most likely formulate better strategy and capture more value.
The knowledge-management system of the firm can help the ability of the firm to forecast. Experience and learning about industry and general environment trends can help individuals and teams forecast more accurately.
Individuals within the firm also need to have certain skills to enhance the management of technology and innovation processes. These skills include a balance of leadership and followership and the ability to think creatively.
Most individuals in the organization understand what leadership is. For MTI, it is important that the right person be in the leadership position when needed. For example, in new product development, the leader during the design phase is likely to be an engineer, the leader in the prototype development phase may be an engineer or a production person, and as the product is introduced to the marketplace the leader may be a marketing person. It is necessary for these individuals to communicate, and they may all be on a project team that is under the direction/coordination of a dedicated project manager. However, the leadership on the project shifts within the creation-to-market process. While leadership is critical, so is followership. Followership is the mirror image of leadership. Most will never have taken a class in followership. You cannot have leaders without followers. There is a skill set for leadership and a skill set for followership. It is the actions of followers that determine the success of a leader. The success of organizations is more the result of good followership than of great leadership. Leadership is influencing others, and followership is seeking or accepting influence. In the case of new product development outlined above, each of the individuals were leaders during some point in the project and each were followers during the project. Individuals spend a lot of time seeking and learning about leadership, but followership is also critical to organizational success. Innovative companies are often lead by a combination of two individuals who lead and follow each other. For example, Microsoft was founded by Bill Gates and Paul Allen. The names of firms started or built by two people are common: Sears & Roebuck, Proctor & Gamble, Marks, and Spencer. The characteristics of a good follower include:
1. They are truthful. Followers who tell the truth and leaders who listen are an unbeatable combination.
2. They are supportive. Don’t blame your boss for an unpopular decision or policy. “I know this is an unpopular decision, but…” Absent person example of trust. [I call it confessing the sins of the boss in the hallway after the meeting.]
3. They give the boss the benefit of their knowledge and experience. Your job is to make the organization successful.
4. They take the initiative to solve problems by providing solutions, not just issues.
5. They keep the leader Informed. The higher a manager is in an organization, the more people are less inclined to talk openly with them. Great followers provide the good, the bad, and the ugly of information, knowledge, and experience.
concept check
1. What is organizational learning?
2. What are the differences between leadership and followership?
3. What forecasting techniques are used in the management of technology and innovation?
18.07: Managing Now for Future Technology and Innovation
Learning Objectives
1. How do you look into the future to keep pace?
To keep pace with changes in technology and to keep up with needed innovation processes, individuals within the firm must keep track of what competitors are doing as well as what inventions or discoveries may usurp an industry’s place in the market. This is an external process, and that involves scanning the environment. The information gathered during scanning should inform the firm about the general trends and opportunities to create new value. Internally, the firm wants to understand the task and processes as well as understand the skills that currently exist in the organization. By identifying potential future scenarios in the external environment and understanding what resources and capabilities the firm has, the task for those managing technology and innovation becomes answering the key questions:
1. Where are we now?
2. Where do we want to be?
3. What do we need to move from here to there?
concept check
1. How do you keep up with a constantly evolving environment of technology and innovation? | textbooks/biz/Management/Principles_of_Management_(OpenStax)/18%3A_Management_of_Technology_and_Innovation/18.06%3A_Skills_Needed_for_MTI.txt |
key terms
technology
The branch of knowledge that deals with the creation and use of technical means and the application of this knowledge for practical ends.
management of technology
The planning, implementation, evaluation, and control of the organization’s resources and capabilities in order to create value and competitive advantage.
innovation
Invention, new product development, and process-improvement methods are all examples of innovation.
management of innovation
Includes both change management and managing organizational processes that encourage innovation.
strategic inertia
The tendency of organizations to continue on their current trajectory.
mergers/acquisitions (M&A)
For an acquisition, one firm buys another; for a merger, the two firms come together and form a new firm.
joint ventures
Long-term alliances that involve the creation of a new entity to specifically carry out a product/process innovation.
strategic drift
Occurs when a joint venture loses strategic focus on the reasons for the joint venture.
franchise agreements
Long-term agreements that involve long payoffs for the sharing of known technology.
licensing agreements
Involve technology acquisition without R&D.
formal and informal contracts
Used to allow firms to share technology between each other.
research and development (R&D)
Involves the seeking and developing of new technologies, products, and/or processes through creative efforts within the firm.
entrepreneurial activities
The implementation of new ventures and idea generation in organizations.
value proposition
A promise by a company to a customer or market segment.
organizational learning
The acquisition of knowledge through the collection of data that is analyzed to gather information, which is then transferred and shared through communication among members of the organization.
explicit knowledge
Information codified or written down as rules or guidelines.
tacit knowledge
Emerges from experience of an individual.
leadership
The action of leading a group of people or an organization.
followship
The process of seeking or accepting influence.
18.1 MTI—Its Importance Now and In the Future
1. What do we mean by the management of technology and innovation (MTI), and why is it crucial?
Management of technology and innovation is critical to the organization. Because of innovations and new technologies, we have historically seen the emergence of innovative organizational structures and new ways of performing work. The management of technology involves the planning, implementation, evaluation, and control of the organization’s resources and capabilities in order to create value and competitive advantage. Management of innovation includes both change management and managing organizational processes that encourage innovation.
18.2 Developing Technology and Innovation
1. How do organizations develop technology and innovation?
There are four things the firm should do to balance the conflicting demands of being agile in a dynamic environment. These are: design systems and processes, identify communication needs and efficiently turn data into information, develop employees through training and learning, and use good change management processes. There are three basic organizational processes—buying and partnering, developing newness within the firm, and entrepreneurially exploiting a space in the environment.
18.3 External Sources of Technology and Innovation
1. What are external sources of technology and innovation development, and when are they best used?
The external processes for developing and acquiring technology and innovation include a variety of options. They are most successfully used under the following circumstances:
1. The product line or the processes of the firm have fallen behind those of its competitors.
2. A new entrant into the market of the industry has changed the competitive dynamics.
3. A firm believes that its product mix or way of doing things is not going to be successful in the long run.
The most common types of external processes used to enhance technology and innovation in a firm include: mergers/acquisitions (M&A), joint ventures, franchise agreements, licensing agreements, and formal and informal contracts.
18.4 Internal Sources of Technology and Innovation
1. What are internal sources of technology and innovation development, and when are they best used?
The most common type of internal process for technology and innovation in the organization is research and development (R&D). R&D involves the seeking and developing of new technologies, products, and/or processes through creative efforts within the firm. The disadvantages of R&D are that it is usually slower and more costly and can be disrupted by the departure of key personnel.
18.5 Management Entrepreneurship Skills for Technology and Innovation
1. How and why do entrepreneurs develop MTI skills?
For an entrepreneurial firm, the value proposition is a key factor. New business entities (a type of entrepreneurial activity) are usually more flexible and agile in the marketplace; however, the failure rate for new entrepreneurial firms is high. Entrepreneurs, by definition, are more agile than more-established organizations. Agility is crucial within large firms that want to continue to be entrepreneurial in their activities.
18.6 Skills Needed for MTI
1. No matter what method is used, what skills do you need to successfully manage technology and innovation?
There are two skills the organization must develop to be successful—the ability to manage learning and knowledge processes, and the ability to analyze and forecast future trends. Individual skills that are critical to the organization’s success include leadership/followership and creative thinking. There are two types of knowledge that must be managed: explicit knowledge and tacit knowledge.
18.7 Managing Now for Future Technology and Innovation
1. How do you look into the future to keep pace?
To keep pace with changes in technology and to keep up with needed innovation processes, individuals within the firm must keep track of what competitors are doing as well as what inventions or discoveries may usurp an industry’s place in the market. This is an external process, and that involves scanning the environment.
chapter review questions
1. How do we define technology and innovation, and how are they related?
2. What are the four areas that need to be managed by the firm if it is going to take advantage of the technology it has and the technology it needs to create?
3. What are the five Cs of managing innovation, and how do they help direct a firm’s innovation activities?
4. How does an organization enhance its agility? When is more agility needed in the firm?
5. Compare and contrast the advantages and disadvantages of the three approaches for technology and innovation development.
6. What circumstances indicate a firm should consider an external process for developing/acquiring technology?
7. How does a firm determine the type of external process for developing/acquiring technology it should pursue?
8. What are the benefits of using internal sources for developing new technologies, products, and/or processes? What are the potential disadvantages?
9. How does an entrepreneurial firm identify and utilize a value proposition?
10. How does knowledge management impact the management of technology and innovation?
11. Followership is critical to MTI—how does the quality of followership in the organization impact the ability of leadership to create value?
12. How does the management of technology and innovation help a firm create value? Why should the firm strive to have a unique value proposition?
management skills application exercises
1. Assess the education that you have received from grade school up to this course. What technology has been used to provide education to you? What technology and innovation would improve the “product” of education?
2. Come up with 50 alternative uses for the following products: day-old newspapers, old television sets, ballpoint pens, used Dixie cups. Share your results with other students as see if that develops new ideas.
3. Think of the best experience you have had using a smartphone app (e.g., banking, rideshare, etc.) and a bad experience that could be improved through an app. Describe the features and functionality and the benefits for both the customers and the organization that would use the app.
managerial decision exercises
1. You are a manager at a traditional automobile manufacturer (Ford, GM, Daimler-Chrysler). You know that Tesla is an up-and-coming competitor, and you’re also working on electric cars for your company. An article in the Wall Street Journal about electric cars and the future of gas stations has caught your interest.8 One sentence has caught your eye: “Until you drive an EV, you are colored by 135 years of going to the gas station. Under that scenario, you say ‘Where is the new company that’s doing EV charging on street corners or in my highway entrance?,’ but that isn’t really how this works.” What innovations regarding recharging or other aspects of traditional “driving” could be incorporated into the electric vehicles you are developing?
2. You are a sales manager and know that technologies like automation, robotics, artificial intelligence, and the Internet of things are changing the way that you use and interact with the products that you use. You sense that your customers might be a good source for forecasting future product innovations. You decide to ask your salespeople to interview their toughest customers to generate ideas. Write up eight questions that your sales representatives can use to gather the information.
3. In October 2015, Google restructured into Alphabet, a holding company, which analysts said would facilitate innovation among its diverse subsidiaries. What are the benefits and risks of this decision, and would you have made a similar or alternative decision?
Critical Thinking Case
Novartis’s Prescription for Invoice Processing
What do you do when you have more than 600 business units operating through 360 independent affiliates in 140 countries around the world—processing complex invoices in various languages and currencies? You seek out the best technology solution to make the job easier.
At global pharmaceutical giant Novartis, the IT department is a strategic resource, a community of 2,000 people serving 63,000 customers in 200 locations and 25 data centers. Because most of the company’s invoices come from international suppliers, they have differences in design, language, taxes, and currency. Consequently, many ended up as “query items” requiring manual resolution by Novartis accounting staff—which delayed payments and made those invoices extremely costly to process. In fact, finance personnel spent so much of their time resolving queried invoices that other work suffered. A solution was badly needed.
To maximize its investment, Novartis needed a flexible solution that would meet its current and future needs and function in other business departments in a variety of geographic locations. It should provide fast, accurate document capture and multilanguage support, and should extend to other types of information—such as faxes and electronic data—in addition to paper documents. Finally, in order to obtain financing for the project, return on investment (ROI) was required within nine months of project implementation.
Input Accel for Invoices from EMC/Captiva was the answer. The software extracts data from paper documents, applies intelligent document recognition (IDR) technology to convert them to digital images, and sends relevant data to enterprise resource planning, accounts payable (A/P), and other back-end management systems. The specialized Input Accel server manages output by recognizing and avoiding holdups in the workflow process. It also ensures if a server goes offline, others will carry on functioning, thus avoiding downtime.
Now Novartis scans incoming invoices at a centrally located site, and the images are transmitted to the Input Accel for Invoices server for image improvement. Invoice data is then extracted and validated against supplier information. Most invoices are transferred directly for payment, with relatively few invoices requiring transfer to one of three accounts payable clerks who deal with queries manually. Novartis is a global leader in research and development of products that improve health issues. Input Accel was selected by Novartis to be part of its accounting system.
Thanks to IT, overall efficiency has increased, processing errors are reduced, and accounting personnel can use their time and expert knowledge for more meaningful tasks than resolving invoice errors. For Novartis, it is “mission accomplished.”
critical thinking questions
1. What factors contributed to Novartis’s invoice processing being so complex?
2. How did IT help the company solve that problem?
3. What other uses and functions does Input Accel serve, and how will this be useful to Novartis over the long term? (You may want to visit the EMC/Captiva website, www.emc.com, for more information on Input Accel’s capabilities.)
sources
“OpenText Acquires EMC Enterprise Division,” MetaSource, http://www.metasource.com, September 20, 2016; Novartis corporate website, http://www.novartis.com, March 20, 2006; “Processing Invoices From Around the World,” ECM Connection, www.ecmconnection, February 2, 2006; Kathryn Balint, “Captiva’s Paper Chase Paying Off,” San Diego Union-Tribune, December 9, 2005, pp. C1, C5. | textbooks/biz/Management/Principles_of_Management_(OpenStax)/18%3A_Management_of_Technology_and_Innovation/18.08%3A_Summary.txt |
Strategic management is an area of study that examines the problems of maximizing organizational effectiveness from the perspective of executives at the highest command level of the organization’s hierarchy. If the organization consists of a single firm, the problems are referred to as business-level problems. If the organization consists of a group of firms under common ownership, the problems are referred to as corporate-level problems. Solutions to these problems are called strategies. Strategic management is the study of how executives formulate and implement strategies (Learned, Christiansen, Andrew, & Guth, 1969).
In process, strategy implementation follows strategy formulation. In life, however, strategy implementation precedes strategy formulation, for executives learn to follow orders before they learn to give orders. For this reason, the narrative that follows begins with strategy implementation and ends with strategy formulation. In between, simulation games and cases are discussed.
2.1: Meeting With Subordinates
The goal of strategy implementation is to realize the organization’s vision as articulated by its leaders. Executives implement strategies through subordinates. The strategy might be one that the executive is told to implement exactly as formulated, one that the executive has decided, or one that the executive seeks to develop in collaboration with subordinates. In all three instances, face-to-face meetings are necessary to reach a mutual understanding between executive and subordinates.
• 2.1: Meeting With Subordinates
Meetings between executive and subordinates, individually and as a group, can be conducted using one of three basic methods: tell and sell, tell and listen, and problem solving. The objective that can be achieved and the skills needed for an effective meeting depend on the method.
• 2.2: Quality and Acceptance
While a strategy is a solution to a problem, the implementation of strategy itself creates problems that must be resolved. The effective resolution of problems depends on applying the leadership method that fits each type of problem. Problems can be classified into types based on their requirements for objective quality and subjective acceptance.
2: Strategy Implementation
Meetings between executive and subordinates, individually and as a group, can be conducted using one of three basic methods: tell and sell, tell and listen, and problem solving (Maier, 1973). The objective that can be achieved and the skills needed for an effective meeting depend on the method.
The objective of tell-and-sell is to transmit information. This method is suitable when high acceptance by subordinates is assured or unnecessary, because the strategy involve issues about which subordinates are indifferent. A strategy involving product pricing, sourcing, and coding is of this kind.
The objective of tell-and-listen is to maintain control while encouraging subordinates to express themselves in a setting that is safe and therapeutic. This method is suitable for a strategy that is firm but unpleasing to subordinates, such as one involving termination of service, demotion, transfer, and undesirable working conditions.
The objective of problem solving is to arrive at the best strategy that the executive’s team can devise based on the ideas and facts available to all team members. This general-purpose method is suitable for an executive skillful in leading problem-solving discussions. To be successful, the executive will have to work around subordinates’ reluctance to admit to problems and to disagree with their superiors. The executive also will have to inhibit the executive’s own tendency to make suggestions, because any suggestion made by a superior will be seen as a command by subordinates, and a signal that their views are not welcome. As such, the superior’s suggestion will not be properly considered. The suggestion may be met with silence, or vehemently attacked.
High subordinate acceptance is assured when the strategy decided is one devised by the team. The quality of a team-devised strategy, however, depends on the skill of the executive conducting the meeting. Even so, a less-than-best strategy implemented by subordinates who believe in it can be more effective than the best strategy implemented by subordinates who do not believe in it. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/1%3A_Introduction.txt |
While a strategy is a solution to a problem, the implementation of strategy itself creates problems that must be resolved. The effective resolution of problems depends on applying the leadership method that fits each type of problem (Maier, 1963). Problems can be classified into types based on their requirements for objective quality and subjective acceptance.
Decision quality, dependent on knowledge and expertise, is factual. Decision acceptance, dependent on participation and involvement, is emotional. Effective decisions (ED) are the product of decision quality (Q) and its acceptance (A) by those who must work with the decision, thus, ED = Q × A. The two dimensions, quality and acceptance, give rise to four types of problems: high quality low acceptance (Q/A), high acceptance low quality (A/Q), low quality and acceptance (/QA), and high acceptance and quality (QA/). A matrix showing the four types of problems and the leadership method that fits each type is shown in Figure \(1\).
Figure \(1\): Quality and Acceptance Dimensions of Problems
Q/A problems are those concerning pricing, sourcing, and technical issues. The effective decision for these problems depends on facts, analysis, and expert judgment. Involving subordinates who do not know the facts and are not experts in the issue will be seen by subordinates as wasting their time. An expert should decide. If someone with more expertise than the executive is available, the executive should defer to the expert.
A/Q problems are those requiring a decision for which the choice is immaterial to its quality, but about which fairness is a concern. Who should work overtime, who should get the new office, what should be the penalty for breaking a rule, and what should be the reward for exceptional performance, are examples of problems of this kind. The executive should engage those involved in a group discussion, and accept the consensus of the group. The executive should expect that the group consensus will vary with the personalities involved, even when the objective facts are the same. This is not a problem, for fairness is not an immutable rule, but a feeling that a decision fits the concerns of the members of the group.
/QA problems are those requiring a decision for which neither quality nor acceptance will be lacking whatever the decision may be. Decisions on work direction are generally of this kind. Should work proceed from A to B or vice versa? Asking subordinates to make the decision as a group can give rise to an engaging but time-wasting debate over trivial concerns. The executive should settle the matter by the easiest means available, such as flipping a coin.
QA/ problems are those involving methods of work and standards for performance. Conflicts of interest between superiors and subordinates, fairness among subordinates, and expertise required to understand data might all be involved. Problems of this kind can be handled in one of two ways.
One way is for the executive to address first the quality aspect of the problem by making the decision or delegating the decision to an expert. Having decided on the solution, the executive applies persuasion to gain acceptance. The persuasion might include a quid pro quo, sufficient to gain acceptance but not so much as to undermine the solution. The acceptance that comes from persuasion, however, is rarely enthusiastic.
A better way is for the executive to address first the acceptance aspect of the problem by applying the method of group decision. The method assures acceptance, but a quality outcome depends on discussion leadership skills. These include skills in stating the problem, clarifying the facts, encouraging new contributions, discouraging repetition, keeping discussion on track, separating solution generation from solution evaluation, and assuring that alternatives are rigorously screened.
The skills do not include subterfuge, for the objective is not to guide group discussion to the solution that the discussion leader prefers, but to work with the group to reach the best decision possible. In fact, the process is hindered when the discussion leader has a preference, because a leader who has a preference feels compelled to state the preference. Preference stated, the group has more difficulty in reaching the highest quality decision, because the members must work on two objectives simultaneously, solving the problem and pleasing the leader. If after stating the preference, the leader proceeds to promote the preference and defend it against criticism, group members, suspecting deceit, will respond defensively, effectively ending the collaborative state of mind.
3: Simulation Games
Simulation games give practice in strategy implementation, for practice requires action that games demand. In a game, as in life, success depends upon separating elements that matter from elements that do not matter.
A game involves both fictitious elements and real elements. The fictitious elements of a strategic-management simulation game are the attributes of the simulated business environment. The real elements are the players, their thoughts, feelings, and actions. To learn principles and skills that can be useful in everyday life, the player should accept the game’s fictitious elements as given, and work with the real elements to win in the game. Winning, the objective of every game, should not be overlooked, for the game is not worth playing when players do not try to win. Yet the reward of winning is incidental to its true purpose, which is for the players to learn strategy-implementation skills. Learning strategy-implementation skills means learning how to take care of yourself and your associates whatever executive or ownership role you and they might play in a firm, for the challenge of strategy implementation is in reconciling each executive’s personal interests with the personal interests of others on whom the executive depends. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/2%3A_Strategy_Implementation/2.2%3A_Quality_and_Acceptance.txt |
Cases give practice in strategy formulation. A case may be fictional or real. When real, the case may be set or live.
When a case is fictional, all the facts for strategy formulation are contained within the write-up of the case. The student is expected to formulate the strategy that best addresses the facts as given. Generally, no research beyond what is supplied in the write-up is required. The only information outside of the case write-up that would be useful is information that is common knowledge among the students enrolled in the course.
A case that is real and set is about a firm at a set time, as given in the write-up of the case. The student is expected to formulate the strategy that best addresses the facts known at that time. Generally, searching for information going beyond what is contained in the write-up of the case and what is asked by the instructor is unnecessary. Moreover, information found about opinions or events that occurred after the time of the case can hinder good work, because a strategy based on the opinion of others is vacuous, and a strategy based on events occurring after the time of the case is illogical.
A case that is real and live is about an ongoing, generally local, firm. The student is expected to formulate a strategy that best accomplishes the goals of the assignment. While the case is being studied, important aspects of the case may change, including the goals sought and the limitations of the assignment. Adapting to the changes is part of the challenge of the live case.
Casework generally involves a writing assignment or a presentation-participation assignment, or both. The writing assignment may be an individual assignment or a group assignment. The presentation-participation assignment is generally structured such that a group of students present the case to the rest of the class or to a panel of judges.
• 4.1: Writing Assignment
The purpose of a case writing assignment is to give practice in the kind of writing that is valued in the workplace. If after you have competed your assignment, you would not yourself pay money for what you have written, then what you have written is not good enough.
• 4.2: Presentation-Participation Assignment
The presentation-participation assignment is a role-playing assignment where every participant benefits through practice. Generally, a group of presenters assumes the role of consultants, while the audience assume the role of firm executives, other consultants, or both.
4: Cases
The purpose of a case writing assignment is to give practice in the kind of writing that is valued in the workplace. If after you have competed your assignment, you would not yourself pay money for what you have written, then what you have written is not good enough.
In the workplace, you would not pay for writing that tells you facts you already know. The writer might mention what you already know here and there in the piece, but if the piece is substantially about facts you already know, the piece would have no value to you.
You would not pay for writing that is unclear, especially when you know the author could be clearer. If the author writes that the company should focus on something, you would want the author to clarify. How is the company supposed to focus? What action must be taken to constitute focus?
You would not pay for writing that tells you to research or analyze the problem. The assignment requires analyze for which research might be useful. Admonishing the reader to do research and analysis, however, is condescending and useless.
Generally, the assignment will ask that the case be written from the viewpoint of a consultant, an outsider of the firm. From this viewpoint, the firm is identified by name. Do not use first- and second-person pronouns, we and you, to refer to the firm.
Generally, the assignment will require a narrative. If so, write in complete sentences organized into paragraphs, with attention to topic sentences and transitions between paragraphs. Do not submit a list when a narrative is required. Whereas a narrative shows how the writer thinks, a list only shows that the writer knows some words.
The following is a checklist of additional pointers on case writing:
1. Respond directly to the assignment. If the assignment is to submit research findings, do the research, submit the findings, and explain how you got the findings. If the assignment is to make a recommendation, analyze the facts, make a recommendation, and explain why the recommended course of action is best.
2. Answer the question before explaining the answer. If the requirement is to answer in one paragraph, the answer should be the first sentence of the paragraph. If the requirement is to answer in a short essay, the answer should be the last sentence of the first paragraph. In this instance, the first one or two sentences of the first paragraph should lead to the answer, the middle paragraphs should explain the answer, and the last paragraph should re-iterate the answer.
3. Cons before pros. Address reasonable arguments against your position before addressing the arguments for your position. The best argument for your position should be the last argument.
4. Write about what you know. Write especially about what you know that others may not know, because they have not studied the case as well as you have studied it. The mind needs time to work, so study the case several days before you write about it.
5. Do not question yourself or undermine your own position by apologizing, equivocating, or otherwise suggesting ineptitude. Do not write “In my opinion” (suggesting it is not worth much), “I think” (suggesting you do not know), or “I feel” (suggesting you do not think).
6. Do not complain about insufficient information, or call for further study or research. The task of strategic management is to identify the best course of immediate action given available information.
7. Write with grace and dignity. Do not disparage, patronize, preach, use slang, or make frivolous comments.
8. Be specific. Business is a numbers game, so use numbers whenever possible. When describing a course of action, give enough detail for the action to be visualized, as in a skit. Action that cannot be visualized cannot be executed.
9. Be assertive, neither wishy-washy nor dogmatic. Avoid mights (wishy-washy) and musts (dogmatic).
10. Economize on words. Do not merely restate the facts of the case. Either use the facts, to support an argument or introduce a topic, or do not mention them at all. Do not write a long introduction—get quickly to the point.
4.2: Presentation-Participation Assignment
The presentation-participation assignment is a role-playing assignment where every participant benefits through practice. Generally, a group of presenters assumes the role of consultants, while the audience assume the role of firm executives, other consultants, or both.
Before the presentation, the presenting group should agree on the positions to take and on each member’s part in the group presentation. Every member should have a substantive part that involves a position and an argument for or against the position. No one should be assigned solely to introduce or to conclude the presentation. Every member should speak only once.
Presenters should dress in a way that does not detract from the presentation. To assure that the audience knows each presenter’s name and can therefore address each one by name in the discussion that follows, the group should either plan for each speaker to be introduced by the immediately preceding speaker, or for each to begin with a self-introduction. To aid memory, the introduction should highlight a distinctive attribute of the speaker.
Speakers should be respectful of the audience. The speaker should refer to the firm by name, not as we or you. The former is wrong because the presenting group does not speak for the firm. The latter is condescending even when the presentation is to executives of the firm in a live case.
Be mindful of the context. Unlike a sales presentation, whereby the sales team makes a pitch to the firm that if successful will result in a sale, the consultant’s presentation is delivery of a product that the client has already purchased. While the executives may be interested in arguments supporting the consultant’s recommendation, they also will be interested in the limitations of the recommendation, for much of the value that executives gain from consultant’s work comes from understanding limitations.
During the presentation, members of the audience should note points of interest that should be clarified. When the floor is open for discussion, members of the audience should bring up the points of interest, taking care not to repeat points already stated. Each member should look for an opportunity to make one contribution to the discussion, and generally not more than three contributions, depending on the number of participants and the time allotted for the discussion.
The quality of the contribution is important. One contribution is better than none, for one attempt shows that one tries. But more than one is not necessarily better than one, because the later attempts may show that one does not listen. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/4%3A_Cases/4.1%3A_Writing_Assignment.txt |
The process of strategy formulation is the process of finding solutions to problems. The goal is to arrive at the best strategy, which is one that is (a) supported by the facts of the problem situation, (b) practical, and (c) aligned with the mission of the organization and the vision of its leaders.
• 5.1: Facts
When faced with a problem, people often overgeneralize from their previous experience and fail to use known facts of the problem situation.
• 5.2: Practicality
The practicality of a strategy is the extent to which the strategy serves the purpose intended. Whereas facts are either true or false, practicality is a matter of degree. Tools for assessing practicality include SWOT, VRIO, breakeven analysis, projected financial statements, EPS-EBIT analysis, and matrices.
• 5.3: Mission/Vision
A firm is an institution commanded by people with a common purpose. To the extent that the purpose is being met (What business are we in?), that purpose is its mission. To the extent that the purpose is aspirational (What business do we want to be in?), that purpose is its vision. From another perspective, the firm has a mission; its leaders have a vision.
5: Strategy Formulation
When faced with a problem, people often overgeneralize from their previous experience and fail to use known facts of the problem situation. People overgeneralize when they see similarities between the current problem and one of a past experience, while overlooking the differences. Although basic principles from a past experience can be effectively applied to similar problems, learning the wrong lesson is common, for every experience is unique in some way. The effort required to draw useful findings from facts can be tedious, so people tend to grasp at easy solutions that are not supported by the facts of the problem situation. Such solutions are gambles that are rarely effective.
To counter these psychological barriers to effective problem-solving, Maier (1963) has advanced four principles for screening solutions, two negative principles and two positive principles, as follows:
1. Solutions transferred from other situations should be rejected (Negative #1).
2. Solutions supported by facts or interpretations of facts that are challenged by other members of the group should be rejected (Negative #2).
3. Solutions founded either upon any of the unchallenged facts or unchallenged interpretations of facts taken from the problem situation should be selected for consideration and evaluation (Positive #1).
4. When exceptions to a trend in results can be satisfactorily explained, solutions based upon the trend should be selected for further consideration (Positive #2).
Maier envisioned that the leader of a problem-solving discussion group would apply these principles to screen out less desirable solutions and screen in more desirable ones after the group has arrived at a list of proposed solutions, for the overarching principle of problem solving is that the solution-generating process should be distinct from and precede the solution-evaluating process. Both processes are necessary, but whereas solution generation requires creativity, solution evaluation requires criticism. Criticism inhibits creativity. When the two processes are muddled, people limit their contributions to ideas that will not be criticized. The group does not get to the best solution, because discussion ends with the first solution that is acceptable.
5.1: Facts
The facts of a business are summarized in financial statements that for public companies are included in annual reports to shareholders and filings with regulatory agencies (in the U.S., look especially for Form 10-K of the U.S. Securities and Exchange Commission). These reports and filings can usually be found in the investor area of the public firm’s website. Beginners in the art of business analysis may see nothing interesting in the numbers. For professionals, however, those numbers are more interesting than what people say, for numbers can lie, but people are worse.
When reviewing financial statements, first, look for trends in the income statement and the balance sheet. Has revenue, gross margin, and net income been rising or falling? Has cash, receivables,inventory, and other items of the balance sheet been rising or falling? Next, look for exceptions to the trend. Exceptions may be caused by notable environmental effects, strategic actions, or both. Raise questions about the exceptions. Recall Screening Principle 4: When exceptions to a trend in results can be satisfactorily explained, solutions based upon the trend should be selected for further consideration.
Examine also the relationships among the items of the financial statement. Examine ratios. The formulas for computing common financial ratios are shown in Table $1$.
Table $1$: Common Financial Ratios
Name Formula
Liquidity
Current Ratio*
$\dfrac{Current \; Assets}{Current \; Liabilities} \nonumber$
Quick Ratio
$\dfrac{Current \; Assets - Inventories}{Current \; Liabilities} \nonumber$
Leverage
Long Term Debt to Total Assets
$\dfrac{Long \; Term \; Debt}{Total \; Assets} \nonumber$
Long Term Debt to Equity*
$\dfrac{Long \; Term \; Debt}{Total \; Shareholder's \; Equity} \nonumber$
Non-Current Debt to Equity
$\dfrac{Total \; Liabilities - Current \; Liabilities}{Total \; Shareholder's \; Equity} \nonumber$
Activity
Inventory Turnover*
$\dfrac{Cost \; of \; Sales}{Average \; Inventory} \nonumber$
Accounts Receivable Turnover
$\dfrac{Credit \; Sales}{Average \; Accounts \; Receivable} \nonumber$
Profitability
Gross Profit Margin
$\dfrac{Gross \; Income}{Sales} \nonumber$
Operating Profit Margin
$\dfrac{Operating \; Income}{Sales} \nonumber$
Net Profit Margin
$\dfrac{Net \; Income \; After \; Taxes}{Sales} \nonumber$
Return on Assets (ROA)
$\dfrac{Net \; Income \; After \; Taxes}{Average \; Total \; Assets} \nonumber$
Return on Equity (ROE)*
$\dfrac{Net \; Income \; After \; Taxes}{Average \; Total \; Shareholder's \; Equity} \nonumber$
Earnings per Share (EPS)
$\dfrac{Net \; Income \; After \; Taxes}{Average \; Number \; of \; Shares \; Outstanding} \nonumber$
Price-Earnings Ratio
$\frac{Net \; Income \; After \; Taxes}{Average \; Market \; Captalization \; Value } = \frac{Net \; Income \; After \; Taxes \; per \; Share}{Average \; Market \; Price \; per \; Share } \nonumber$
* Key Ratios
Examine the firm’s financial ratios over time, especially the key ratios asterisked in Table $1$. At the first pass, precision is unnecessary. The objective is to get a quick feel for the numbers and to locate exceptions for further investigation. Compute ratios mentally, to develop a useful top-executive skill that improves with practice. Write down results. They say you can tell a person’s rank in an organization by how she gets numerical results. If she uses a computer, she’s an administrative aide; if she uses a hand calculator, she’s a middle manager; but if she uses the back of an envelope, she heads the firm.
Finally, the most informative ratio is the one nobody expected, for the informative value of facts is the difference between actual and expected facts. For this reason, always go beyond the common ratios to look for relationships that others may have missed. A missed relationship can be the basis of a strategy that has not occurred to others. The best strategy is usually among those that have not occurred to others, because if it had, it would likely have already been adopted, and the problem would already have been solved. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/5%3A_Strategy_Formulation/5.1%3A_Facts/5.1.1%3A_Financial_Statements.txt |
Whereas financial statements are a standard method of organizing facts about a firm of interest to owners, regulators, tax collectors, and other stakeholders, no equivalently standard method of organizing facts about the environment of a firm is available. The closest to a standard method may be Michael Porter’s (1980) Five Forces. Porter groups the reasons for the relative successes of industries into five categories that he calls forces. These forces include two powers of closely related industries, two threats from unrelated parties, and relationships among competitors in the industry. The forces are (a) bargaining power of buyers, (b) bargaining power of sellers, (c) threat of new entrants, (d) threat of substitute products or services, and (e) rivalry among competitors. Porter’s adapted schematic drawing of the five forces is shown in Figure \(2\).
Figure \(2\): Porter's Five Forces
5.1.2.1: Bargaining Power of Buyers
The bargaining power of buyers refer to the bargaining power of a firm’s customers. This force favors the industry when the buyers of its products are many, for the intensity of the competition among buyers rises with their number, which reduces their bargaining power in dealings with their suppliers.
5.1.2.2: Bargaining Power of Sellers
The bargaining power of sellers refer to the bargaining power of a firm’s suppliers. This force favors the industry when sellers of the resources it needs are many, for like buyers, the intensity of the competition among sellers rises with their number, which reduces their bargaining power in dealings with their customers.
5.1.2.3: Threat of New Entrants
The threat of new entrants is the ease by which new companies can join the industry. The new entrants may initially expand the market for a new industry by helping to publicize the benefits of the industry’s products, but as the market approaches saturation, new entrants cut into the market share of the established companies. In the long-term, costly entry bolsters the profitability of the industry. Thus, this force favors the industry when the cost of entry, comprising required fees and necessary investments, is high.
5.1.2.4: Threat of Substitute Products or Services
Even when the power of buyers is weak, the availability of substitutes for the products of an industry limits the prices that can be charged for the products. Threat of substitution favors the industry when good substitutes are not available or available at high prices only.
5.1.2.5: Rivalry Among Existing Firms
Besides industry structure and culture, the extent to which existing firms of an industry try to outcompete each other depends upon their numbers. Rivalry increases with the number of competitors, so this force favors the industry when the number of competitors is small.
5.1.2.6: Applying the Five Forces
In the absence of numbers, Porter’s Five Forces is applied by using judgment to interpret available facts. Judgments differ, so one person might conclude that a force is favorable to the industry, whereas another person examining the same facts might reach a different conclusion. The disagreements should be explored to see if they arise from resolvable differences in knowledge or understanding. Unresolved disagreements at the solution-evaluation stage call for applying Screening Principle #2: Solutions supported by facts or interpretations of facts that are challenged by other members of the group should be rejected.
Essentially, Porter’s Five Forces is a checklist of items to study about the environment of a business. The checklist assures that all bases are covered. The primary value of the checklist is in the learning that occurs as the items of the list are discussed and debated, with the completed list itself having only a modest value in assisting memory of issues considered. What truly matters is the quality of the strategy, not the quality of the list. In other words, participants in a five-force discussion should see it as an opportunity to learn more about the firm, rather than an assignment to develop a quality list. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/5%3A_Strategy_Formulation/5.1%3A_Facts/5.1.2%3A_Porter%27s_Five_Forces.txt |
The practicality of a strategy is the extent to which the strategy serves the purpose intended. Whereas facts are either true or false, practicality is a matter of degree. Tools for assessing practicality include SWOT, VRIO, breakeven analysis, projected financial statements, EPS-EBIT analysis, and matrices.
5.2.1: SWOT
The classic tool for assessing the practicality of a strategy is a list of considerations known as SWOT, standing for Strengths, Weaknesses, Opportunities, and Threats (Learned, Christiansen, Andrews, and Guth, 1969). Strengths and weaknesses are nominally factors internal to the organization, so the examination of an organization’s strengths and weaknesses is known as internal factor analysis. Opportunities and threats are nominally factors external to the organization, so the examination of these factors is known as external factor analysis. In fact, strengths do not exist without opportunities, and weaknesses do not exist without threats. An airline may employ many pilots who are excellent musicians, but musical talent is not the airline’s strength in the absence of an opportunity for the airline to apply its pilot-musicians to advance its business.
Accordingly, a listing of an organization’s strengths tends to overlap a listing of its opportunities. Likewise, a listing of its weaknesses tends to overlap a listing of its threats. To confound matters even more, a fact than one person considers a strength another may consider a weakness. If a firm has more employees than its competitor, for example, the firm has more resources at its disposal, apparently a strength. Yet, more employees also mean more difficulties in coordinating activities, apparently a weakness.
To address the overlap and varied interpretations, a four-part SWOT analysis can be reduced to a two-part ST analysis, that is, list only strengths and threats. Even better, reduce plurals to singulars, from strengths to strength, and threats to threat. The longer the list, the more the strongest item of each list becomes indistinct, reducing its value in strategy assessment. When only the best is good enough, the best strategy must be the one that builds on the firm’s primary strength and forestalls the firm’s most immediate threat.
5.2.2: VRIO
VRIO, standing for Value, Rare, costly to Imitate, and exploited by Organization (Barney, 2002), is a systematic means of identifying a firm’s core competencies that expands on strengths. The idea is to list the resources and capabilities of the firm that are valuable, which is to say that without them the firm would be less profitable or more vulnerable to threats. Then to cull the list to arrive at a shorter list of items that are rare, which is to say that few other firms have them. Then, to cull the second list to arrive at a final list of items that are costly for other firms to imitate. The items of the final list are the firm’s core competencies. Practical strategies are the ones that exploit core competencies. Strategies directed at unexploited core competencies are especially desirable.
In practice, each executive's VRIO listing is likely to differ from the list of every other executive, and attempts to reconcile the lists can be divisive. If some executive’s area of responsibility should be missing from the core-competency list, the implication on the standing of the executive whose area of responsibility is missing from the list is ominous.
5.2.3: Breakeven Analysis
The objective of breakeven analysis is to identify the point at which the firm’s net income will be zero. The firm will be marginally sustainable at this point, for in business, a positive net income is necessary for long-term survival. A strategy is less desirable to the extent it moves a profitable firm closer to its breakeven point.
Breakeven analysis is based on a model of a firm with a single product with cost of production falling into two categories: fixed and variable. For the model, whereas fixed costs do not change with production volume, variable cost rises linearly with production volume. Thus, Total Cost (C) equals Total Fixed Cost (F) plus Unit Variable Cost (v) multiplied by production volume (Q), as shown in Equation \ref{1}.
$C=F + vQ \label{1}$
When unit price (p) is constant and the quantity produced is the quantity sold, total revenue (R) is the product of price and quantity, as shown in Equation \ref{2}.
$R=pQ \label{2}$
The breakeven quantity (Q*) is where C = R, as shown in Equation \ref{3}.
$pQ^{*} = F + v Q^{*} \label{3}$
Applying algebra to Equation \ref{3}, the breakeven quantity is as shown in Equation \ref{4}.
$Q^{*} = \dfrac{F}{p - v} \label{4}$
Thus, if Lucy’s lemonade stand is built with $20 worth of lumber, the fixed cost; if making lemonade requires$0.10 worth of lemons per cup, the variable cost; then if Lucy sells lemonade for $0.50 a cup, Lucy’s lemonade business will break even after she has sold$20 / ($0.50 -$0.10) = 50 cups of lemonade.
Although the particulars of Lucy’s lemonade stand may not apply to any sizeable everyday-world business, the basic principle is the same, but some adaptation usually is necessary. Many firms have more than one product and more than one model of each product. If sales of the products and models tend to rise and fall together, the firm’s breakeven can still be found even when an aggregated unit of output of the firm’s products and models is unavailable by applying Equation \ref{5}, derived by dividing both sides of Equation \ref{4} by current production volume (Q’).
$\dfrac{Q^{*}}{Q'} = \dfrac{F}{pQ' - vQ'} \label{5}$
The left side of Equation \ref{5} is the breakeven point relative to current production volume. On the right side, pQ’ is current total revenue and vQ’ is current total variable cost. The figure for current total revenue appears on the firm’s current income statement. The figure for current total variable cost can be estimated from the same statement. If the firm’s policy is to adapt quickly to changes in sales by changing production-employment levels, then all of the firm’s current total cost of sales may be considered a reasonable estimate of current total variable cost. Otherwise, current total variable cost will be a fraction of current total cost of sales. The remaining current cost of sales, expenses, and interest charges sum to the firm’s current total fixed cost.
Graphing the relationships in the form of a breakeven chart, with quantity on the horizontal axis and the dollar amount on the vertical axis as illustrated in Figure $3$ for Equation \ref{3}, and Figure $4$, for Equation \ref{5}, can be helpful in a presentation. On both charts, the breakeven point is at the intersection between R, the total-revenue line, and F + vQ, the total-cost line. Breakeven charts can show the effect on profitability and the breakeven point of changing prices, marketing expenditures, and other contemplated actions.
Figure $3$: Absolute-Quantity Breakeven Chart. Total Revenue (R), Total Fixed and Variable Costs (F + vQ), and Total Fixed Cost (F) vs. absolute quantity produced and sold. The crossing point is the breakeven quantity (Q*).
Figure $4$: Relative-Quantity Breakeven Chart. Total Revenue (R), Total Fixed and Variable Costs (F + vQ), and Total Fixed Cost (F) vs. relative quantity produced and sold. The crossing point is the breakeven quantity relative to current quantity produced and sold (Q* / Q).
5.2.4: Projected Financial Statement
Projected, also known as pro forma, financial statements are especially useful for assessing the practicality of a strategy that includes several elements that must be coordinated. Launching a new product epitomizes a strategy of this kind. Expenses must be incurred to finalize development of the product, followed by manufacturing, advertising, and delivery of the product to customers. Financing through borrowing or sales of shares might be necessary. In general, projecting the financial statements is necessary to ascertain how much financing is needed and when it is needed.
A complete set of project financial statements includes three scenarios: pessimistic, optimistic, and likely. To proceed, begin with the likely scenario. Project first the items of the income statement, followed by those of the balance sheet.
On a spreadsheet, assign a column to each year, starting with the first year of the strategy and ending with the third year after the product reaches its market. Starting with revenue, enter on the spreadsheet the likely annual revenue of the strategy for each of the five years. Follow by projecting the cost of the goods or services over the same periods, and then the expenses from the most recent year to the last year projected. You can simplify your work on some items by entering formulas rather than numbers. For example, enter cost of goods or services as a ratio of revenue, gross margin as revenue minus cost of goods or services, and so forth.
Enter zeros for interest expenses beyond those of existing debt. You will return to interest expense later, if after completing the projections you find that borrowing is needed. When you reach net income after taxes, enter dividends or withdrawals, as the case may be, following existing policy on the payment. The item following dividends or withdrawals will be the contribution to retained earnings. Add this amount to the firm’s retained earnings of the previous year to arrive at the retained earnings of the income-statement-ending year.
After projecting retained earnings over all the years of the projected income statement, project the remaining items of the balance sheet, excepting cash. Account receivables may be reasonably projected as a fraction of revenue. Likewise, inventory and accounts payable may be reasonably projected as fractions of cost of goods or services. Use a summative formula to compute Total Liabilities and Equity. Use a reference formula to assure that the figure for Total Assets is the same as the one for Total Liabilities and Equity. Use a subtractive formula to compute Cash. Thus, Cash is the plug account that assure that the balance sheet balances, so that Total Assets = Total Liabilities and Equity, as it must.
Examine the cash account. If it is low or negative, enter the combination of long-term debt and capital sufficient for positive cash, reasonable current and quick ratios, and acceptable long-term debt to equity ratios. A model for choosing between debt and equity financing is discussed in Part 5.2.5.
To finalize the projection, replace the zero-interest-expense items of the projected income statement with formulas that compute interest expense as a percentage of long-term and other debt that may be in the projected balance sheet. Tweak dividends or withdrawals, long-term debt, and capital until the liquidity ratios are about right for every year projected.
Having projected the likely scenario, proceed to projecting the pessimistic and optimistic scenarios, using the spreadsheet of the likely scenario as the template. For presentations, apply the graphic features of the spreadsheet to show charts of revenue, net income after taxes, long-term debt, and other items that might be of interest.
5.2.5: EPS-EBIT Analysis
The viability of a strategy must be assured before its financing is addressed, for a wager that is not a good bet is not a good bet irrespective of who fronts the money for the bet. Viability assured, the analysis of earnings per share (EPS) relative to earnings before interest and taxes (EBIT) addresses the question of whether the financing of a corporation’s strategy should be by debt or equity. Two examples highlight the issue.
Bob has a safe investment that will surely earn more than the interest that Bob must pay to borrow the needed money from his bank. The investment might be to buy materials for renovating a house for which Bob has a signed contract from the homeowner. Should Bob ask his bank for a loan, or ask an investor he knows to invest in the project for a share of the outcome, a likely profit and an unlikely investment loss?
Sue has a risky investment that will lose money if she fails, but win her a lucrative prize if she succeeds. The investment might be to employ an assistant to help her develop artificial-intelligence software for a national competition. Should Sue ask her bank for a loan, or ask an investor she knows to invest in the competition for a share of the outcome, an unlikely profit and a likely investment loss?
The answer might seem obvious. Bob should ask his bank (debt financing), and Sue should ask her investor (equity financing). In principle, whereas debt financing is more practical when the risk is low, equity financing is more practical when the risk is high. Between the extremes, the answer will depend on the interest rate of the debt relative to the share of the project that must be given up for the equity, moderated by tax, legal, and personal concerns. These considerations can be clarified with algebra and a graph.
Consider an EPS-maximizing linear model (David & David, 2017) whereby debt to finance strategic investments incurs an interest payment (I). Consider also that a constant corporate income tax rate (r) applies to earnings net of all interest payments, so that the firm’s projected income-tax payment is (EBIT – I)r and its projected after-tax earnings is therefore (EBIT – I) – (EBIT – I)r. EPS is the firm’s after-tax earnings divided by its number of shares outstanding (n). Accordingly, if the firm’s strategy should be financed with debt only, then its projected EPS is derived by applying Equation \ref{6}.
$\text{EPS} = \dfrac{\left ( \text{EBIT}-I \right ) - \left ( \text{EBIT}-I \right ) \left ( 1-r \right ) }{n} = \dfrac{\left ( \text{EBIT}-I \right )\left ( 1-r \right )}{n} \label{6}$
On the other hand, if the strategy is financed with equity only, a number of new shares (m) will have to be issued in lieu of debt, but with no debt, no interest payment will have to be made, so I = 0. In this case, the firm’s projected EPS is derived by applying Equation \ref{7}.
$\text{EPS} = \dfrac{\text{EBIT} \left ( 1-r \right )}{n+m} \label{7}$
Thus, for the general case of necessary payments of interest on debt (I > 0) and of reasonable taxes on corporate income (1 > r > 0), when EBIT = 0, EPS for debt-only financing (Equation \ref{6} must be negative and EPS for equity-only financing must be zero (Equation \ref{7}). These two points are shown in Figure $3$, a graph of EPS relative to EBIT.
Figure $3$: EPS-EBIT Chart.
For both debt-only and equity-only financing, EPS rises linearly with EBIT, but the slope of the curve (actually a straight line) is greater for debt-only financing. To see this, Equation \ref{8} rearranges Equation \ref{6} in slope-intercept form to show that the slope of the curve for debt-only financing, (1 – r) / n, differs only from the slope for equity-only financing (Equation \ref{7}), (1 – r) / (n + m), in that the equity-only denominator is greater by m. Since equity financing implies that m > 0, the equity-only slope must be smaller.
$\text{EPS} = \dfrac{\text{EBIT} \left ( 1-r \right )}{n} - \dfrac{I \left ( 1-r \right )}{n} \label{8}$
The critical point is at the intersection of the two curves. Debt-only financing is favored for EBIT above this point, whereas equity-only financing is favored below it.
Algebraically, the critical point (EBIT*) is when the equity-only EPS (Equation \ref{7}) equals the debt-only EPS (Equation \ref{8}). At that point, Equation \ref{9} holds. Isolating EBIT* on the left gives rise to Equation \ref{10}.
$\text{EPS} = \dfrac{\text{EBIT}^{*} \left ( 1-r \right )}{n+m} = \dfrac{\text{EBIT}^{*} \left ( 1-r \right )}{n} - \dfrac{I \left ( 1-r \right )}{n} \label{9}$
$\text{EBIT}^{*} = I\left ( \dfrac{n}{m} +1 \right ) \label{10}$
Confirming intuition, Equation \ref{10} shows that debt financing is preferred over equity financing (EBIT* is smaller) when the interest payment (I) is lower and more shares must be issued relative to those outstanding (n/m is smaller). Math sharpens intuition.
5.2.6: Matrices
Matrices, useful for showing the practicality of a strategy along two or more dimensions, add precision to qualitative arguments. That the axes and associated numbers of a matrix are usually imprecise is limitation of data, rather than a fault in the technique itself.
5.2.6.1: Product positioning matrix
Matrices are especially useful in marketing, by breaking down the often-ambiguous idea of product desirability into more tangible attributes. A washing machine, for example, can have two attributes: capacity and energy efficiency. A matrix of available washing machines in a market can show the relative placement of a proposed new machine among those already available. A matrix of this kind is a product-positioning matrix, also known as a perceptual map, as illustrated in Figure $4$. On the figure, each washing-machine model is represented by a circle whose size corresponds to its share of the market. The practicality of a new model is assessed by visually observing its place on the matrix. Generally, a new model should be positioned high on the attribute that customers uniformly desire (e.g., energy efficiency) and away from other models on the attribute that vary in desirability among customers (e.g., capacity).
Figure $4$: Product Positioning Matrix of Washing Machines.
To arrive at a single comprehensive score for products with several uniformly desirable attributes, assign each attribute a weight corresponding to its judged importance to the market (e.g., .40 for energy efficiency, .25 for water efficiency, and .35. for noise). Then ask a panel representative of the customers to score the attributes of each model on a fixed rating scale, say from 1 to 5. For each model, multiple the panel’s average scores across the attributes (e.g., 4 for energy efficiency, 5 for water efficiency, and 2 for noise) by their weights and sum the weighted scores across all attributes to arrive at a single comprehensive score of the product’s rated desirability for that market (e.g., 4 × .4 + 5 × .25 + 2 × .35 = 3.55). If the weights are set such that they sum to one (.40 + .25 + .35 = 1.0), then the comprehensive score will fall conveniently within the range of the rating scale (e.g., 1 to 5).
5.2.6.2: Product portfolio matrix
A conglomerate doing business in several markets may have market shares and market growth that differ by market. In this case, a market-share, market-growth matrix can highlight the practicality of a strategy that is more or less aggressive, a point made by Henderson (1970) of the Boston Consulting Group (BCG), whose product portfolio matrix is well known. Unlike the product-positioning matrix, which shows competing models of a single market, the product portfolio matrix shows non-competing businesses in different markets.
The BCG product portfolio matrix is unusual in two respects. First, instead of absolute market shares, the matrix uses relative market share, computed by dividing the absolute market share of the business by the market share of the competitor with the highest market share. Thus, if the absolute market shares of the three competitors are 30%, 25%, and 15%, then the relative market shares of those competitors are 30% / 25% = 1.2, 25% / 30% = 0.83, and 15% / 30% = 0.50, respectively. Second, the matrix shows relative market share as falling, rather than rising, with distance from the origin. An example of a product portfolio matrix is shown in Figure $5$.
Figure $5$: Product Portfolio Matrix.
In Figure $5$, businesses appear as circles, the size of which corresponds to each business’s percentage of the firm’s total revenue. Henderson suggests that a strategy of investment is practical for question marks, businesses with low relative market share in an industry with high market growth. The investment objective is to turn question marks to stars, businesses with high relative market share in an industry with high market growth. To keep up with market growth, stars require continued investment, so they generally generate little cash. Eventually, however, market growth must diminish, in which case the stars become cash cows, businesses with high relative market share in a market with low growth. A strategy of maintenance is appropriate for cash cows, for their profitability would not rise with further investments. The cash they generate should be reinvested in question marks, completing the cycle of cash cows → question marks → stars → cash cows.
A disinvestment strategy is practical for pets, originally called dogs. These are businesses with low relative market share in a market with little to no market growth. Relative to the other businesses of the firm, they are failures.
The line dividing high and low relative market shares depends on how the markets of the various businesses are defined. The narrower the definition, the fewer the number of competing firms and therefore the higher the market share of each firm. The ambiguity makes the product portfolio matrix more of an illustrative technique than a theory of investment. One could start with 1.0 as the dividing line. If none of the firm’s businesses appears to the left of the line, which occurs when none has the highest absolute share of its market, then set the line to 0.5 or lower.
The line dividing high and low market growth depends on how the economy is defined. The definition of the economy should include all the areas in which the firm does business. The line of division could be set at 0% or at the long-term growth rate of the defined economy, which is about 5% a year globally, about 2% a year for the United States, and more or less elsewhere.
5.2.6.3: Porter’s generic strategies
Porter’s (1980) argument for the practicality of three so-called generic strategies and the impracticality of one is based on a matrix of strategic target vs. strategic advantage, as illustrated in Figure $6$. Strategic target refers to the population that the firm’s product is intended to serve, and strategic advantage refers to the extent to which the product is, in the customer’s perception, either superior (uniqueness) or inexpensive (low cost), the presumption being that firms maximize profit, so a firm with a superior product would not sell the product for a low price.
Figure $6$: Porter's Generic Strategies.
Porter argues that if a firm can keep cost below that of its competitors, an overall cost leadership strategy of pricing the product low to attract an industrywide market is practical. Also practical is a differentiation strategy of making the product appear superior in the eyes of the customer, either because of branding or desirable features or both, so that the product remains attractive industrywide even when priced higher than the prices of its competitors. Also practical is a focus strategy of reaching just a segment of the industry with an inexpensive product, cost focus; or a higher-priced unique product, differentiation focus. Porter disparages any strategy that is not among the three as stuck in the middle.
5.3: Mission Vision
A firm is an institution commanded by people with a common purpose. To the extent that the purpose is being met (Question: What business are we in?), that purpose is its mission. To the extent that the purpose is aspirational (Question: What business do we want to be in?), that purpose is its vision. From another perspective, the firm has a mission; its leaders have a vision.
The mission/vision statement may be narrow, specifying the product (e.g., electric car), or broad, specifying the function (e.g., mobility device). Some argue that the functional statement is best, because the functional statement specifies how the product satisfies the primary need of its primary customers, which is to say, is customer oriented. Who the primary customers are or should be, and what primary need is or should be satisfied by the firm’s product are often uncertain, which is why coming up with a statement that fits can be challenging.
A statement that does not differentiate the firm from all other firms (e.g., maximize profit), however, should be avoided. At best, it would be unnoticed; at worst, it would suggest ineptitude.
The well-written mission/vision statement is short, truthful, and clear. It is a statement with which dedicated employees agree even when they disagree on many other issues. It inspires, and is itself the product of a certain inspiration.
A firm may have a formal statement that appears in its annual report to shareholders. The formal statement may be true or not. If true, the statement should show in what its executives do. If not true, the statement may have been written for appearance’s sake, perhaps to satisfy some requirement, or may have lost its meaning as leaders and circumstances change over time.
Thus, a strategy aligned with the formally stated mission/vision of the firm may still be unacceptable to the firm’s current executives, because their true love is not what is formally stated. Still, the formal statement is a guide. It meant something to those who wrote it. Some element of what they wrote might still be in play. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/5%3A_Strategy_Formulation/5.2%3A_Practicality.txt |
Many strategies fall readily into one of a small number of common types. A type is not a strategy, because a type is not a workable plan. For a plan to be workable, the plan must specify who is to act and when the action is to occur. When a strategy fits into a type, however, the strategy may be immediately assessed as better or worse because of its type.
6.1: Liquidation
A liquidation strategy, whereby the entire firm is offered for sale, is a case of strategic failure. Liquidation is an admission of defeat rather than a practical strategy. Firms do not need strategic managers to liquidate themselves. They need lawyers.
6.2: Continuous Improvement
Continuous improvement is philosophy, not strategy. It implies continuing to do what has been done, with efforts made towards small improvements in process and product from time to time. The philosophy can suffice for successful firms in stable environments. That is, in the absence of a decision to change directions, employees of well-managed firms look for ways to improve the work they do. They are usually aware of ways to improve the work by spending more money. The challenge of strategic management is to find ways to improve the work while spending less money, or the least amount of money. Meeting that challenge, however, requires a strategy.
6.3: Divestiture
Divestiture, when a firm sells part of itself but remains viable, is practical only when facts show that a buyer will pay an attractive price for the part of the firm that is divested. Absent a buyer, divestiture is hope, not strategy.
6.4: Partnership
Partnership, where a firm joint ventures or contracts with another, is similar to divestiture in that it requires the cooperation of another firm. If the facts do not show that another firm is a willing, able, and ready partner, partnering also is hope, not strategy.
6.5: Acquisition and Integration
Acquiring a supplier (backward integration), a customer (forward integration), a competitor (horizontal integration), or an unrelated business (conglomeration) requires a target firm and the ability to pay a premium price, usually 15% or more, for the acquisition. Unlike products, which may be more useful to the buyer than to the seller, firms are moneymaking entities for which the value of the monetary stream they deliver is generally the same for both parties. The seller bought into the firm because the seller viewed the firm positively, as the interested buyer does. The seller will only sell when the seller is offered payment distinctly more than the monetary stream that the seller expects with continued ownership. This is why the thought that a firm can be acquired without paying a substantial premium is fantasy, and why a strategy of acquisition is usually not practical.
6.6: Research
Research is a gamble. Unless the facts show that the gamble is likely to pay off, gambling with the firm’s resources is not what top managers are paid to do.
6.7: Retrenchment
Retrenchment is cutting expenditures. The strategy is practical if the facts show that the savings would exceed the possible loss of revenue.
6.8: Organic Growth
Organic growth refers to growth in revenue attributable to regular business operations, which does not include acquisitions and mergers. This kind of growth can arise from four types of strategies, as illustrated by the Ansoff (1957) matrix of Figure \( 1 \).
Figure \( 1 \): Ansoff Matrix of Organic Growth.
6.8.1: Market Penetration
Market penetration is lowering prices or raising promotional expenditures or both, with the objective of increasing sales volume. The strategy raises the firm’s breakeven point, undermining the firm’s financial position. The strategy must be justified by its coherence with the mission of the firm and vision of its leaders.
6.8.2: Market Development
Market development is introducing an existing product to a new market. The method by which the product will be made available must be clear, together with the costs of building and maintaining the supply chain of product to market.
6.8.3: Product Development
Product development is either modifying a product to make it more appealing to customers, or developing a new product. The strategy can result in expanding customer choice. If so, the cost of managing stock to assure availability whenever a customer places an order increases. The increased cost is difficult to estimate, so it tends to be overlooked. The compelling justification for the strategy is that the strategy identifies, using a method such as a product-position matrix, the key attributes of the product that is to be developed, together with price, cost, and profit estimates based on reasoning that is sound.
6.8.4: Diversification
Diversification is introducing a modified or new product to a new market. The strategy involves both market development and product development, which makes it especially difficult to execute successfully.
7: Conclusion
Good ideas are not good because they are the same ideas that have been successful elsewhere. Good ideas are good because they are based on facts of the problem situation. Inasmuch as the task of strategic management is to formulate and implement good ideas, the search for good ideas should always start by studying the facts that are known. Theory can be helpful in organizing and clarifying the facts.
Sometimes, however, theory misleads either because the theory is either wrong or incorrectly applied. When the theory is incompatible with the facts, the facts must prevail. The strategy based on theory must give way to the strategy based on facts.
Thus, the first consideration in evaluating a strategy is the extent to which the strategy is based on facts of the problem situation. The final consideration is the extent to which the strategy is acceptable to those who must execute it. The former is a quality consideration; the latter is an acceptance consideration. The effective strategy satisfies both considerations: Effectiveness = Quality × Acceptance.
8: References
Ansoff, I. (1957). Strategies for diversification. Harvard Business Review, 35 (5), 113-124.
Barney, J. B. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9, 50-81.
David, Fred. R., & David, Forest. R. (2017). Strategic management: A competitive advantage approach (16th ed.). Boston: Pearson.
Henderson, B. (1970). The product portfolio matrix. Retrieved 26 July 2018 from https://www.bcg.com/publications/197...portfolio.aspx.
Learned, E., Christiansen, C., Andrews, K., & Guth, W. (1969). Business policy: Text and cases (Rev. ed.). Homewood, IL: Irwin.
Maier, N. R. F. (1963). Problem-solving discussions and conferences: Leadership methods and skills. NY: McGraw-Hill.
Maier, N. R. F. (1973). Psychology in Industrial Organizations (4th ed.). Boston: Houghton Mifflin.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. NY: Free Press. | textbooks/biz/Management/Principles_of_Strategic_Management_(Thavikulwat)/6%3A_Common_Types_of_Strategies.txt |
Learning Objectives
1. Define projects and explain the characteristics of the projects.
2. Explain two main project characteristics (uniqueness and being temporary) that distinguish projects from operations and processes.
3. Identify primary project constraints.
4. Explain why projects cannot be successful all the time.
5. Elaborate on the project management life cycle, the process groups, and knowledge areas.
Overview
This chapter’s primary objective is to list and explain the key concepts related to project management and describe important benefits related to projects as well as the formal study of project management. This chapter provides an overview of project management, defining both projects and project management and exploring the difference between project management and operations management. Technological innovations and disruptions, and constantly changing social and economic conditions locally and all across the world impose new burdens on the organizations to shorten the time needed to develop and deliver new products and services that would increase organizations’ competitive advantage. Therefore, many organizations have become more aware of adopting a systematic project management approach that can drive the change they desire (see Chapter 12). This chapter also provides the concepts of project life cycle, project management process groups, and project management knowledge areas according to the PMBOK Guide 6th Edition.
1.02: Definition and Key Concepts of Project Management
Projects are defined by PMBOK Guide 6th and 7th editions as “a temporary endeavor undertaken to create a unique product, service, or result”. These two characteristics will be detailed in the following section “Project Characteristics”. Besides, key project management concepts, which are constraints, key success factors, project life cycle, project process groups, and knowledge areas, will be delineated.
All of us are engaged in projects on a regular basis in our daily lives, and we use the term “project” frequently in our daily conversations. Although it had not been put forward in an organized way, people have been undertaking projects since the earliest days of organized human activity when our prehistoric ancestors had hunting parties. Large complex undertakings such as the seven wonders of the world including the only surviving artifact, the pyramids of Giza, were also projects. Even something as simple as creating a dinner or picking up your daughter from school can be considered a project. Renovating our house’s garage, planning a Disney vacation for kids, getting married, and achieving a degree, diploma or certificate are all projects as well. One of the common and most utilized project software programs, Microsoft Project Professional 2019, provides a “Wedding Planner” template.
Examples of some projects and their outcomes can be given as planning and executing the summer and winter Olympic games, building the Great Wall of China, developing the COVID-19 vaccine, constructing the Chernobyl New Safe Confinement, preparation, and publication of a journal or a project management textbook, building the Suez Canal, development of a commercial jet airplane such as Airbus A380 and Boeing 787, developing or modifying software packages, and successfully launching the Hubble Space Telescope. Besides these far-famed projects, Project Management Institute’s (PMI) web pages on “PMI Project of the Year Award”[1] and “Most Influential Projects”[2] would be very helpful to be familiar with some of the recent ongoing or successful, and influential projects implemented all across the world.
Organizations of all shapes and sizes continue to transform the ways they innovate and deliver to continuously improve customer satisfaction levels. If an organization wants to increase its revenue and profit, gain more market share, increase the number of loyal customers, and ultimately obtain a stronghold in its market, it needs to plan and execute projects that will lead to and drive change rather than just performing and relying on routine daily tasks. If we have a grocery market, selling the same products every day to the customers would help us maintain the profits at a level we can survive. However, consider that there is another grocery market started to operate in our neighborhood. Besides traditional in-person shopping, we all witness a significant surge in electronic commerce websites’ product portfolio and sales (e.g., web-based businesses such as Amazon and AliExpress, click and mortar businesses such as Walmart and Target). Together, both factors, a grocery market in the neighborhood and e-commerce websites, could lead to a downward trend in sales and profit for our grocery market. Thus, even to protect our current position, we may have to come up with new ideas that have not been implemented by us before. We can add new brands to our shelves, offer new product lines, expand the store to accommodate more products, offer promotions to attract more customers, create social media and YouTube videos, launch a new e-commerce website, or establish a partnership with food delivery companies such as Grubhub and Uber eats. All of these ideas require preparing a business case to evaluate the feasibility of these ideas. If we decide to proceed with this idea, we can initiate a project to generate outcomes that would produce tangible and intangible benefits for our grocery market. Disruption is the new normal, but when an organization introduces change, it must be done correctly. Succeeding in such turbulent times means organizations cannot afford to waste precious resources on failed projects. This is the primary reason why many organizations recognize tools, techniques, and processes associated with project management, and implement a systematic project management approach relying on best practices and lessons learned. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/01%3A_Introduction_to_Project_Management/1.01%3A_Learning_Objectives_and_Overview.txt |
PMBOK Guides define a project as a temporary endeavor undertaken to create a unique product, service, or result. The starting point in discussing how projects should be properly managed involves evaluating how we identify a project and understanding how we differentiate it from daily operations, and hence, clearly outline which tasks cannot be defined as a project. Therefore, it is of high importance to distinguish between a project and a process (or an operation that is a routine task repeated regularly).
A project has two primary attributes that distinguish it from ongoing and routine works that are business operations. They can be listed as below:
1. Projects and their outcomes are unique.
2. Projects are temporary, that is, they have a definite beginning and ending date.
Projects are completed when the project goals are achieved or it’s determined that the project is no longer viable. Eventually, a successful project meets or exceeds the expectations of the stakeholders.
In the following subsections, let us discuss these two distinctive characteristics.
Unique outcome
Projects produce unique products, services, or results. Projects exist to bring about a product, service, process, or outcome that hasn’t existed or been used before by the implementing organization or beneficiaries. While some projects are based on previous projects that were carried out in a similar fashion, each project is unique and begins with a business case and project charter. Constructing a replica of a building should be also considered a project although the same architectural blueprints are used. Although containing repetitive elements, this new construction work requires conceptualization and planning. A project manager is assigned to that project, who creates, develops, and manages a new project team and prepares detailed planning for the project constraints such as scope, schedule, budget, resources, risks, and quality. That building may be constructed in the same area (even next to the existing building) or another city, state, or country. Naturally, construction at other locations could necessitate substantial customization (tailoring) taking into account the internal influencers as well as external influencers such as weather, legislative regulations, and supply chain factors in new locations.
Projects can involve developing and producing a new deliverable. Besides, in many cases, they may address improving and modifying an existing deliverable. Examples of projects can be listed as below:
1. Modification of an ERP (Enterprise Resource Planning) system by revising the current modules and adding new modules,
2. Installing new safety features to a vehicle (e.g., new airbags, traction systems, accident prevention systems),
3. Remodeling a building or a parking lot,
4. Renovating the power lines all across a city or state,
5. Reorganizing the workflow in a workplace such as a restaurant, grocery market, local motor vehicles bureau, and a library,
6. Creating a designated area for self-checkout kiosks in markets,
7. Creating a new TV, YouTube, or social media advertisement for a hand sanitizer.
Each project requires a unique approach based on the objectives to be achieved, the complexity and/or the size of the work required, the number, interests, and powers of stakeholders involved, and the clarity of the solutions being pursued. Those skilled in the art and science of project management can tailor the use of tools, techniques, and processes to maximize the value delivered to and by the organizations.
When the project deliverables are inspected and accepted by the client (i.e., customer or product owner), and the project is closed, the project manager can hand over the deliverables to the operational units which can be either internal or external clients. For example, if the project’s objective was to create a new payroll information system in an organization, the system is delivered to the IT department and/or the payroll department of the organization. From there, these functional departments can utilize and maintain the system. The payroll department can pay the employees’ salaries every month based on the inputs entered into the system. Paying salaries to these employees regularly becomes an operation (a routine task). Thus, the organization can gain benefits from the new system since payrolls are computed properly with minimum acceptable errors and by avoiding human errors. However, whenever there is a new need to modify the system or purchase a new one, this should be treated as a new project, which will require the establishment of a new project team and the assignment of a project manager. Therefore, this leads us to the second characteristic of a project, which is its temporary nature.
Temporary Nature
The second characteristic that distinguishes a project from an ongoing work is its temporary nature. Projects are not an everyday business process and have a definite beginning date and an end date. A project is assigned a schedule with a certain completion date because the ultimate objective of a project is to benefit from its deliverables. Therefore, a significant portion of project effort is dedicated to ensuring that the project is completed at the appointed time. To do this, schedules are created to explicitly indicate when tasks should begin and end. Activity network diagrams and Gantt charts help determine, visualize, and monitor the schedule of the whole project and the interdependence among project activities. Projects can last minutes, hours, days, weeks, months, or years.
In contrast with projects, operations are ongoing and repetitive. They involve work that is continuous without an ending date wherein the same processes are repeated to produce the same results. The purpose of operations is to keep the organization functioning while the purpose of a project is to meet its strategic goals and create a change in the organization to acquire new or additional tangible or intangible benefits that cannot be acquired by conducting daily operations. Projects aim at moving an organization from a current state to a future desired state where the organization could find the opportunity to move forward and improve its financial and market conditions.
To illustrate this, consider a hypothetical automaker that operates on a global scale. Designing a new SUV and its components based on a strategic objective, creating prototypes, and conducting crash and safety tests require a systematic project management approach. After delivering the final product, this SUV can be placed into the assembly line in a factory. Whenever all the parts are assembled in this manufacturing facility by workers, robotic arms, and machinery, and hundreds of vehicles are manufactured on a daily, weekly, or monthly basis, this process becomes an operation. Ordering raw materials and vehicle parts to create many vehicles in the factory constitutes the operational process which also consists of the transactions occurring along the supply chain on an ongoing basis. As long as consumers demand this vehicle model and it is profitable for the company to manufacture and sell it, the company can continue manufacturing it. All these repetitive and routine manufacturing processes can be considered an operation. However, when there is a need to change some features of the vehicle (e.g., adding new airbags, modifying some engine components), the company would need to start a new project.
A project is completed when its goals are accomplished, and its deliverables are approved by the client. Sometimes projects end when it is determined that the goals and objectives cannot be accomplished or when the project outcome is no longer needed. Serious schedule delays or a need to increase the budget substantially might cause the project sponsor to consider cancellation. Some reasons to terminate the projects earlier than their scheduled completion time can be listed as follows:
1. Funding is exhausted or no longer available,
2. Resources (human or physical resources, or services) are no longer available,
3. The external client (funder) or the current or potential customers no longer wants the project completed,
4. The organization changed its strategy or determined a new priority,
5. Management decided to end the project, and
6. A legal cause or a new regulation necessitated the project to end.
It is not uncommon to terminate a project earlier than its completion time without achieving its goals and carrying out all the activities. Nevertheless, these unsuccessful projects are still considered as projects.
Case Study 1.1: Characteristics of a Project Undertaken by Grocery LLC
The uniqueness of a project and its temporary nature would help a business or organization to assess if it has a project, and hence, would need to implement a systematic project management approach and form a project team.
Consider a scenario that our organization is a grocery chain (Grocery LLC) with fifty branches across five states. During the weekends, and between 4 pm and 7 pm during the week, these branches, in general, experience more than usual traffic of customers. Therefore, long lines form in front of the current check-out stations where the cashiers work. Sometimes, it is not possible to assign an adequate number of cashiers to all the existing stations because of the lack of personnel. The chief operations officer (COO) of Grocery LLC visited CEO’s office several times to discuss potential solutions to this problem. With the help of her operations team, she prepared a business case with several solutions. During the preparation of the business case, in order to elicit the business, stakeholder, and solution requirements of these solutions, the team sent paper and e-mail surveys to all the branches to understand managers’ and employees’ expectations and interviewed ten managers, ten supervisors, and thirty employees who volunteered for follow-up and further examination. Furthermore, two hundred customers who volunteered and were given a \$20 gift card to spend at the grocery market were interviewed when they visited these branches to do their shopping during the busy hours. The team also visited other grocery chains’ markets which are the main competitors of Grocery LLC to observe their daily operations. The team also collaborated with a market research consultancy company for further analysis and to receive expert judgment. Among several options, the candidate solution with the highest priority was identified as the establishment of self-checkout areas in all the branches. This solution was discussed in the project selection committee meeting at which our organization’s CFO, CTO, and senior representatives from three departments (R&D, procurement, and human resources) are the members. Based on pre-determined criteria and the weights that our organization uses for all the projects (see Chapter 2, Table 2.5), this solution was selected to proceed with as a project. The committee decided to organize the project as a program and to assign 5 project managers who are responsible for ten branches each. Grocery LLC wanted to start the project in January 2022 and finish all the works by August 2022. Once self-checkout areas are built and inspected to verify if they can be utilized to the full capacity with all the requirements met, customers will be able to check out their items themselves without the presence of cashiers, and, hence they can avoid crowded lines.
Based on this case study, we should ask, first off, if this can be considered a project. Projects are temporary, and hence have a definite start date and an end date. They result in the creation of a unique product, service, process, or outcome, and are completed when their goals and objectives have been met (or the objectives cannot be met, and accordingly they are terminated early) and finally signed off by the project sponsor and the clients (funder).
Using these criteria, let’s examine if the establishment of self-checkout areas in all branches is a project:
• Is it unique?
Yes, because the self-checkout kiosks don’t exist in this grocery chain. The outcome of this project offers a new way of service to the customers which would increase the speed of checkouts and reduce the lines at traditional checkout stations. The main purpose of this project is to provide faster service to the customers during busy hours. For each branch, a new design and implementation can be required due to the different layouts and sizes, and according to varying demands of the local customers. Therefore, it is also a unique endeavor for each branch.
• Is this a temporary endeavor? Is there a way to determine when the project is completed?
Yes, the project starts in January 2022 and ends in August 2022. When the kiosks are installed and the self-checkout service is offered to the customers at each branch, we can close the project and disband the project teams. Then, this will become an operation that is carried out every day.
Besides these two characteristics, we should also ask another question that is related to the constraints of a project.
• Is there a way to determine stakeholder satisfaction?
Yes, the expectations of the stakeholders will be documented in the form of requirements while preparing a needs assessment, business case, and a benefits realization plan before a project start, and during the initiation and planning processes. These requirements will be compared to the finished product to determine if the self-checkout stations could satisfy the expectations of stakeholders, primarily market employees and customers.
Case Study 1.2: Characteristics of Another Project Undertaken by Grocery LLC (M-Commerce Project)
Consider a new scenario for Grocery LLC. Physical sales have declined since the onset of the COVID-19 pandemic all across the world. Customers prefer buying online instead of visiting a store in person since they have serious concerns to contract Covid-19. Our fifty stores in five states lost around 30% of regular customers, and the revenue declined by 25% since the start of the pandemic restrictions in March 2020. Considering the pessimistic trends forecasted regarding the pandemic as well as the increasing digitalization of companies and consumers, the project selection committee decided to have a better online presence by creating a mobile app and optimizing the website for mobile devices. Therefore, our current customers who purchase goods and services from our grocery stores, as well as potential customers, will have the opportunity to purchase through their computers and smartphones. So, our team was asked to elicit the requirements by communicating with the key stakeholders such as grocery managers and employees, and customers. It was planned to start this project on May 2, 2022, and finish on October 27, 2022.
Let’s evaluate this project in terms of uniqueness and temporary nature.
• Is it unique?
Yes, because the grocery chain diversifies its sales channels by strengthening its online presence through optimizing its website for mobile devices and creating a new mobile application. The outcome of this project offers a new way of service to the customers.
• Is this a temporary endeavor? Is there a way to determine when the project is completed?
Yes, the project starts on May 2, 2022, and finishes on October 27, 2022. When the mobile app is ready for the customers to install on their smartphones, and customers can view the website on their mobile devices, we can perform administrative and financial tasks to close the project, and we can disband the project team. Then, this becomes a routine task for the operational units to maintain and support the website and mobile app.
• Is there a way to determine stakeholder satisfaction?
Yes, the expectations of the stakeholders will be documented in the form of requirements while preparing a business case, and during the initiation and planning processes. The requirements for a mobile app and optimized mobile website will be compared to the finished products to determine if they satisfy the expectations of stakeholders. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/01%3A_Introduction_to_Project_Management/1.03%3A_Project_Characteristics.txt |
Projects do not live in a vacuum. They are affected by many factors including constraints, assumptions, and internal and external factors (referred to as Enterprise Environmental Factors – EEFs by PMBOK Guide 6th Edition). Three main constraints (i.e., triple or iron triangle constraints) are scope, schedule, and cost, and they are considered the main pillars of a project. They are also regarded as the main reason why we need a systematic project management approach. These primary constraints also compete with each other. Therefore, project managers should consider trade-offs among them. For example, increasing the project scope may require a revision of the schedule and budget. In many cases, expanding the project scope with more product specifications and project activities would result in a longer schedule and higher budget. This trade-off will be discussed in the following sections, and mostly in their respective chapters. Maintaining the balance among these constraints is difficult because projects are prone to change. Thus, the technical and interpersonal skills of project managers, and how they utilize the best and proven practices of project management, and the quality of a project team are essential prerequisites of conducting an effective project.
Besides triple constraints, the other three constraints which are also tightly linked to the triple constraints are resources, quality, and risks. Tightly aligned with and at the top of all these six constraints, the success of a project depends on the client and/or stakeholder satisfaction. Clients make their decisions to accept the final deliverables of a project by evaluating these constraints.
Scope
Project scope is the work performed to deliver a product, service, or result with the specified features and functions[1]. Scope refers to what the project is trying to achieve. It entails all the work involved in delivering the project outcomes and the processes used to produce them. It reflects the purpose of the project. The difference between the project and product scopes will be detailed in Chapter 4 “Project Planning”.
A project is built upon the scope. After all the product or service requirements are elicited from all relevant stakeholders, observations, documents, and other sources, the project manager can start working on the project activities which will be carried out to meet these requirements. After product requirements and project activities are defined, and the activities are sequenced, the project manager and the team can proceed with the estimation of activity durations, allocation of resources, estimation of costs, and identification of risks, quality, and performance metrics.
Schedule
A schedule is a model for executing the project’s activities, including durations, dependencies, and other planning information[2]. Project scheduling provides a detailed plan that represents how and when the project will carry out all the activities that would lead to the delivery of the products, services, and results defined in the project scope. It serves as a tool for communication and collaboration with all the stakeholders and managing and monitoring their expectations. It also serves as a baseline for performance reporting[3]. While monitoring the performance and progress of a project, a schedule is assessed commonly to identify problems (e.g., delays, missed deadlines, incomplete deliverables) in the project. After the project team defines the activities based on the product and project scopes, activity durations are estimated, activities are sequenced, their interdependences are outlined, and hence, the resources can be allocated to each activity. The project schedule should also consider national, federal, or local holidays and the absence of human resources due to vacations and other issues such as sickness and family issues. We will discuss scheduling in Chapter 7 “Scheduling”.
Cost
Cost is the budget approved for the project including all necessary expenses needed to deliver the project. Within organizations, project managers have to balance between not running out of money and not underspending because many projects receive funds or grants that have contract clauses with a “use it or lose it” approach to project funds. Poorly executed budget plans can result in a last-minute rush to spend the allocated funds. For virtually all projects, the cost is ultimately a limiting constraint; few projects can go over budget without eventually requiring corrective action. We will cost management in Chapter 9 “Budget and Procurement”.
Quality
Quality is a combination of the standards and criteria to which the project’s products must be delivered for them to perform effectively. As quoted by the PMBOK Guide 6th Edition from ISO 9000 standards, “quality as a delivered performance or result is the degree to which a set of inherent characteristics fulfill requirements”. The product must perform to provide the functionality expected, solve the identified problem, and deliver the benefit and value expected. It must also meet other performance requirements, or service levels, such as availability, reliability, and maintainability, and have acceptable finish and polish. We will discuss quality management in Chapter 11 “Monitoring and Controlling”.
Resources
In order to carry out and complete project activities, the project manager should allocate various resources such as human resources for the project team and all other activities, physical resources (e.g., equipment, materials, facilities, software, testing environments, licenses, infrastructure, and supplies), and services (e.g., consulting and subcontractors). Resources can be determined and allocated when the activities are defined and scheduled. Then, the budget for each activity can be computed based on the allocation of all resources. We will discuss resource management in Chapter 8 “Resource Management”.
Risks
A risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or more project objectives. Negative risks are called threats, and positive risks are called opportunities[4]. Two main factors determine the severity of a risk: (1) Probability of the occurrence, and (2) impact on the project. Risk responses are planned based on the severity level. We will discuss individual and overall project risks and their management in Chapter 10 “Project Risks”.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2021). A guide to the Project Management Body of Knowledge (PMBOK guide) (7th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Project Management Institute. (2021). A guide to the Project Management Body of Knowledge (PMBOK guide) (7th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/01%3A_Introduction_to_Project_Management/1.04%3A_Project_Constraints.txt |
Project success and project management success are generally evaluated as different concepts. Project success deals with the impacts of a project’s final product or service on stakeholders. Projects aim to create a unique outcome. Project management success focuses on the processes of a project including the successful accomplishment of the scope, within budget (cost), within time (schedule), and quality aspects. In our grocery chain example, we can close the project when the self-checkout areas are inspected by the inspection committee that is composed of the representatives of the operational unit which is responsible for all fifty markets, and also several store managers. The evaluation and acceptance are conducted by the inspection committee by comparing the requirements with the final deliverables, validating that all the requirements have been implemented, and the self-checkout stations are ready to use by the customers. The inspection committee checks all fifty branches to confirm if the requirements in the project scope were met, and quality standards are complied with. Let’s assume that the project finished on time, and the budget was not exceeded. Therefore, we can consider this as a project management success. Eventually, we can close the project and disband the project teams.
After these self-checkout areas opened for the customers, we observed that most of the customers started to avoid these areas and continued to use checkout stations where cashiers and baggers are available even though customers waited in lines for more than ten minutes. This project was successfully managed but did not meet the client and customer expectations. Projects are initiated by organizations to address business needs (problems or opportunities) and create tangible and intangible benefits by creating an outcome that organizations can benefit from. Realized value of the project can be measured by the project stakeholders. However, our company couldn’t gain the expected value. When the underlying reasons were investigated, it was found that lack of human contact was the main reason. Most of the customers, especially Generation X and baby boomers, still wanted to maintain an interaction with employees to ask for the warranties, the quality of the items, or even have a short chat with the cashiers and baggers. Since it was not a problem due to the technology but affected the solution significantly, the COO and her team decided to add some employees in these areas to help the customers. After changes were done, it was observed that more customers started using the self-checkout areas. However, the operational team decided to monitor the performance of these areas to take further actions if needed.
It is evident that not all projects benefit from successful completion. Many factors influence the success of a project. PMI 2020 Pulse of the Profession[1] reported that 11.4% of investment is wasted due to poor project performance. What makes it worse is that this percentage spikes up to 67% in the organizations that undervalue project management as a strategic competency for driving change. PMI’s same study reported that the factors responsible for the failure were lack of clearly defined and/or achievable milestones and objectives to measure progress (37%), poor communication (19%), lack of communication by senior management (18%), employee resistance (14%), and insufficient funding (9%).
Another report by the Standish Group, “CHAOS 2020: Beyond Infinity”, indicated that 31% of projects were successful while 50% were challenged and 19% failed[2]. This report referred to three factors to improve project performance, that are good sponsor, good team, and good place.
Consequently, a project should be managed effectively by a project manager and the team. If not done so, projects may fail due to the factors listed below:
• Unrealistic and vague goals
• Uncontrolled expansion of the project scope (Scope creep)
• Absent or ineffective relations with the clients/customers and other stakeholders
• Cost overruns
• Schedule delays
• The insufficient amount and/or quality of resources
• Toxic organizational culture and politics (e.g., mistreatment, aggression, incivility, harassment)
• Organizational and/or team conflicts
• Poor communication with stakeholders
• Unsatisfied stakeholders
• Ineffective quality assurance and inspections, and/or poor quality
1. PMI (2020). Ahead of the Curve: Forging a Future-Focused Culture. Pulse of the Profession. https://www.pmi.org/learning/library/forging-future-focused-culture-11908
2. https://hennyportman.files.wordpress.com/2021/01/project-success-qrc-standish-group-chaos-report-2020.jpg | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/01%3A_Introduction_to_Project_Management/1.05%3A_Project_Success.txt |
Projects start their life by developing the project’s foundations (i.e., primary objectives, high-level scope, schedule, budget and risks, project team composition), continue with planning all the knowledge areas, executing all the activities, and producing the outcomes (i.e., products, services, or processes), and end by reaching a close-out by archiving all the documents, completing all administrative works, and disbanding the team. This is the life cycle of a project, which makes it temporary and unique. This life cycle is composed of stages or phases which are generically named as starting (initiating, conceptualization), planning (organizing and preparing), implementing (executing, carrying out), and termination (close-out, ending) (Figure 1.1). These phases can also be named differently based on the industry, product scope, project complexity and size, needs of management, legal or regulatory requirements, decision points such as go/no-go decisions, and milestone review. For example, if the project aims to create an information system such as a payroll system, project life cycle stages can be named as feasibility study, elicitation of customer requirements, development of solutions, design, creating prototypes, coding, testing, transiting, commissioning, milestone review, lessons learned, administrative closure, and archiving.
While project life cycle stages offer a step-by-step process to manage a project, practical issues require focusing on processes and their groups as described by the PMBOK Guide 6th Edition. The project life cycle is managed by executing a series of project management activities known as project management processes. These processes are prescriptive, which means that they explicate each process within an input-output diagram where various project management tools and techniques are utilized. Although they are very helpful for project managers, PMBOK Guide 6th edition always emphasizes the tailoring of processes and techniques based on each project’s own characteristics. This is why PMBOK Guide 7th Edition adopted a new approach through which the processes have been replaced by principles. Nevertheless, project managers can still benefit from the process-centered approach as processes provide a comprehensive guideline.
Each process makes use of inputs and produces outputs by using appropriate tools and techniques. These processes can be implemented globally across industries. For example, one of the processes, developing a project charter, is the starting point for all projects regardless of their industry, size, complexity, and location. This process uses business documents, agreements, enterprise environmental factors, and organizational process assets as inputs. It produces the outputs as a project charter and assumption log by utilizing tools and techniques such as expert judgment, data gathering, interpersonal and team skills, and meetings.
Different from project life cycle phases, but in line with them, these processes are grouped inside five project management process groups according to the PMBOK Guide 6th Edition. Names of these groups and their purposes are provided below:
1. Initiating
• To define a new project or a new phase of an existing project by obtaining authorization to start the project or phase.
1. Planning
• To establish the scope of the project, refine objectives, and define the course of action required to attain the objectives.
2. Executing
• To complete the work defined in the project management plan to satisfy the project requirements.
3. Monitoring and Controlling
• To track, review, and regulate the progress and performance of the project, to identify any areas in which changes to the plan are required, and to initiate the corresponding changes.
4. Closing
• To formally complete or close the project, phase, or contract.
An important factor that distinguishes these process groups from the life cycle stages is the addition of monitoring and controlling as a separate process group. Monitoring and controlling process group is performed throughout the project as it is of high importance and necessity to ensure that the project is on the track, and to intervene in problems when detected. As seen in Figure 1.2, these process groups overlap with one another, and the sharp boundaries in the project life cycle disappear, which makes it more realistic. For instance, planning continues with lower levels of process interaction and effort while executing process group is conducted since plans and product requirements are subject to changes due to the factors such as changes in stakeholder requirements, dynamic market conditions, and technological advancements.
1.07: Project Management Knowledge Areas
Another way of categorizing processes is through the knowledge areas according to the PMBOK Guide 6th edition. These knowledge areas are defined by knowledge requirements. They are:
1. Project Integration Management
2. Project Scope Management
3. Project Schedule Management
4. Project Cost Management
5. Project Quality Management
6. Project Resource Management
7. Project Communications Management
8. Project Risk Management
9. Project Procurement Management
10. Project Stakeholder Management
These knowledge areas constitute the basic layout of almost all project management textbooks. This also would be the main approach we are following throughout this book.
1.08: Key Takeaways
Key Takeaways
• A project is a temporary endeavor undertaken to create a unique product, service, or result.
• A project has two distinctive characteristics that distinguish it from ongoing and routine works – business operations. Projects are unique and temporary.
• Projects are confined to a variety of constraints. Triple (iron triangle) constraints are scope, schedule, and cost. Besides, and tightly linked with triple constraints, resources, quality, and risks are also evaluated as constraints.
• Project success deals with the impacts of a project’s final product or service on stakeholders. Project management success focuses on the processes of a project including the successful accomplishment of the scope, within budget (cost), within time (schedule), and quality aspects. A project may be successfully managed but not meet the client or customer’s expectations.
• The project life cycle is composed of phases which are generically named as starting (initiating, conceptualization), planning (organizing and preparing), implementing (executing, carrying out), and termination (close-out, ending).
• Different from project life cycle phases, but in line with them, processes are grouped inside five project management process groups according to the PMBOK Guide 6th Edition. They are named initiating, planning, executing, monitoring and controlling, and closing.
• Project management is also assessed in terms of knowledge areas that constitute the basic layout of most of the project management textbooks.
1.09: Questions and Exercises
There are 10 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=39
1.10: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/01%3A_Introduction_to_Project_Management/1.06%3A_Project_Management_Life_Cycle_and_Process_Groups.txt |
Learning Objectives
1. Define the business strategy and goals that constitute the basis of business cases and projects in an organization, and describe the strategy cycle.
2. Create SMART objectives that can be used in business cases, project charters, and project management plans.
3. Outline the content of a business case that would lead to the selection of projects.
4. Employ a variety of selection models to select projects.
Overview
Projects don’t start from out of anywhere. Before the organization’s project selection committee and/or executive management decides on which projects the organization can go with, the reasons to start a project must be delineated in a pre-project stage. This stage often consists of the preparation of a business case accompanied by a needs assessment and a benefits realization management plan. A business case is a document that helps an organization decide whether the project will have a positive economic, financial, and/or social impact. Business analysts, systems analysts, or product managers, or a team composed of them and relevant stakeholders can prepare a business case. In many cases which are not rare, project managers can be assigned with the task to create a business case during the initiation of a project if the project’s feasibility hasn’t been assessed before. Organizations produce plenty of business cases in which the organizational needs are detailed. However, due to the scarcity of resources, time, and budget, and also taking into consideration the boundaries determined by the organizational priorities and strategic objectives, organizations choose only some of the business cases and their solutions as projects to develop. Project managers may not participate in this process. Nevertheless, it is of utmost importance for the project managers and teams to be familiar with the process since business cases constitute the basis of projects and they include fundamental information about the projects. Business cases are used as input to conceptualize a project and lead directly to the preparation of a project charter through which project managers can receive the authorization to start the project.
2.02: Business Strategy and Goals
Organizations exist to fulfill a purpose. These purposes are analyzed through a process and ultimately expressed in an organization’s vision and mission statements. Vision statements are often very broad and they describe what the organizational leaders want the organization to accomplish. Mission statements are more specific: they describe how the organization is going to fulfill its vision. Recently, on many organizations’ websites, mission and vision statements have not been explained separately, but as one statement named “mission statement”. Organizations may also elaborate on their principles, values, culture, and goals to explicate their missions. Some examples of vision and mission statements as well as other information such as principles, values, and culture are provided below:
LinkedIn [1] :
Vision: Create economic opportunity for every member of the global workforce.
Mission: The mission of LinkedIn is simple: connect the world’s professionals to make them more productive and successful.
Facebook [2] :
Mission: Give people the power to build community and bring the world closer together.
Culture: At Facebook, we are constantly iterating, solving problems, and working together to connect people all over the world. That’s why it’s important that our workforce reflects the diversity of the people we serve. Hiring people with different backgrounds and points of view helps us make better decisions, build better products and create better experiences for everyone.
Ikea [3] :
Vision: Our vision is to create a better everyday life for the many people – for customers, but also for our co-workers and the people who work at our suppliers.
Business idea: While our vision tells us why we exist, our business idea tells us what we want to achieve. And for everyone that has visited IKEA, our business idea is pretty obvious – “to offer a wide range of well-designed, functional home furnishing products at prices so low, that as many people as possible will be able to afford them.”
Microsoft [4] :
Mission: Our mission is to empower every person and every organization on the planet to achieve more.
One way to consider the interrelated nature of Vision and Mission Statements, as well as other core components of an organization, is to think about them as part of what is called a Strategy Cycle. Figure 2.1 presents an orderly process for strategic management that helps us understand the process and the components of strategic analysis. The cycle ends with “vision and mission” statements which convey the executive summary of the whole process. We should also keep in mind that, most of the time, top managers deal with these steps simultaneously rather than following a stepwise approach.
Organizations create specific strategies that should be pursued in the long term. Projects are often used to help carry out those strategies. These long-term objectives help organizations to gain a competitive advantage and a higher market share, and eventually to acquire a variety of tangible and intangible benefits in line with organizations’ field of operations (e.g., businesses, government agencies, nonprofits). These strategies are directly linked to the objectives being pursued and will vary widely depending on the industry and maturity of the organization. Whereas nonprofits or government agencies pursue to offer a public and social benefit, companies would target to acquire financial benefits. Examples of strategies an organization may implement include the launch of new products and services, the introduction of new technology, the streamlining of operational processes, and employee development initiatives. The strategies are embodied in objectives where they are described in detail. The following section “SMART objectives” discusses how these objectives can be created in a way that makes sense to the organization and all the stakeholders
After the identification of strategic objectives, organizations choose strategies that will guide them for a period of time (i.e., one year, three, five, or ten years), and move into the strategy implementation stage. Depending on the complexity of the changes being introduced, the strategies may be implemented as individual stand-alone projects or programs consisting of multiple projects which are related to each other. Project and program managers apply their expertise to the implementation domain and play a vital role in helping organizations achieve their vision and mission. It is critically important that project and program managers understand an organization’s strategies and objectives. This knowledge allows them to ensure that the decisions being made in their projects and programs are aligned with the organization’s strategic direction. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/02%3A_Strategy_Objectives_and_Project_Selection/2.01%3A_Learning_Objectives_and_Overview.txt |
All the business cases, projects, project deliverables, activities, and milestones are characterized with objectives that describe what is expected to be achieved at the end. The information provided in this subsection can be used not only for business cases but also for projects and their components. Successful organizations are intentional about the actions they take to fulfill their vision and mission. These organizations analyze their external and internal environments to understand the opportunities and threats present in the environments in which they operate (see Chapter 3 – Project Initiation). An organization also must analyze and work within its own strengths and weaknesses. This analysis directly refers to a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. These analyses can be used to inform the decision-making that follows.
The primary goal of a business case and a project and their objectives must be clearly defined, must contain a measure of how to assess whether they have been achieved, and should be realistic. A commonly utilized guideline to create this kind of objective is to follow the SMART protocol. SMART is an acronym that represents the criteria of being specific, measurable, achievable, relevant, and time-based. SMART objectives also serve as performance metrics to monitor the progress of a project and decide whether the outcomes are successful and can be accepted by the client or customer. Thus, the project manager can monitor and control these performance metrics.
Let’s use a scenario to explicate each SMART criterion. Consider that our organization which is a regional office of a government agency (Department of Environment), named as Smalltown Office, has experienced some problems in providing quality service to the citizens in that region. We, as a team, were assigned to examine the problem and offer some solutions to overcome this quality problem.
Specific [1]
We should develop unambiguous objectives that all our stakeholders can understand what we want to achieve. Thus, these objectives should be well-defined, specific, and written in clear, concise, and understandable terms. While creating an objective, we should ask “What do we want to accomplish?”, “What do we intend to impact?”, “Why is this goal important?”, “Who is responsible for carrying out the action?”, and “Who is our target audience/population?”. Such questions would help us create specific objectives.
Based on our regional office’s quality service problem, the business analyst created one of the business requirements as follows:
“The Smalltown Office affiliated with the Department of Environment in the State X will provide quality improvement training to the staff.”
This objective can be considered specific as it addresses the primary objective by referring to the target population and responsible organization, and we want to achieve. However, it still lacks other elements of SMART.
Measurable
The success of a project relies on measurable quantitative criteria that must be met to achieve the objectives. If we don’t use any metrics to measure the progress and performance, we can never be sure if we are on the track and can accomplish the targets when we finish the tasks or a project. These quantitative measures can indicate a number, percentage, or any standard unit. By means of measures, we can know that change has occurred how much, and in what direction. Besides, we should consider the source of verification and the data to prove the target is met. In our example, we can quantify the objective by adding the percentage of employees who are expected to receive this training.
“The Smalltown Office affiliated with the Department of Environment in the State X will provide quality improvement training to at least seventy-five percent of the staff members who communicate and interact directly with the citizens.”
Sometimes, it is not possible to directly measure the performance or achievement. Quality improvement training could be an effective method to increase the quality of the services provided to the citizens. However, it is of high importance to ask directly the citizens using interviews or surveys about their satisfaction level with the services they receive. Therefore, we can support this objective with another objective as below:
“The satisfaction level of the citizens who receive service from Smalltown Office will increase by 25% according to a survey replied by at least 500 citizens.”
In order to measure the improvement of 25%, the average satisfaction level of the citizens before the training is delivered should be measured, which would constitute the baseline. We also make this objective specific by adding the target audience who are at least 500 citizens.
Time-based
The last letter of the SMART acronym refers to “time-based” objectives. The SMART protocol doesn’t necessarily impose an order of letters to follow while creating SMART objectives. However, discussing the time-based criterion can be more practical taking into consideration the nature of time as a measure itself. While assessing this criterion, we can address the issues such as how long to expect a project to take, and how much time for different success metrics to be met.
“The Smalltown Office affiliated with the Department of Environment in the State X will provide quality improvement training to at least seventy-five percent of the staff members who communicate and interact directly with the citizens by the end of July 2022.”
“The satisfaction level of the citizens who receive service from Smalltown Office will increase by 25% according to a survey replied by at least 500 citizens by the end of December 2022.”
While we create these objectives, we should also consider if the performance measures and deadlines are realistic (achievable).
Achievable
We should also consider the factors that may affect the achievability of objectives. These factors include the evaluation of resources, knowledge, and time that are available to carry out the tasks to achieve the objectives. Therefore, in order to clarify achievability, it may be helpful for our team to explain who will deliver this quality improvement training to Smalltown Office employees, the availability of funds that can be allocated to the trainers, and the availability of an adequate number of employees that can serve the citizens in a timely manner while others receive the training. We should also clarify if the time to achieve these objectives is realistic. Can Smalltown Office provide this training to at least 75% of the staff by July 2022? Or do we need to reassess the percentage and the deadline? Constraints that may affect the achievement of these objectives should also be taken into account.
As can be seen here, SMART is an iterative process through which each criterion should be evaluated constantly considering the impact of each of them on other criteria.
Relevant
The last criterion that needs to be considered is the relevance of these objectives with higher-level organizational goals such as strategic objectives, mission and vision statements, and the goals of programs or portfolios that the business need or project is affiliated with. This alignment can ensure that the business case or project would have a higher chance of approval from the organizational leadership and greater buy-in from the stakeholders.
In our example for Smalltown Office, we should check the strategic plan of the Department of Environment. We need to see if there is an objective for the quality management and improvement that is planned for the organization as a whole, or the departments and regional offices. The review should not be limited to the strategic plan, but also other projects, programs, and portfolios since there may be a planned or ongoing project regarding quality management. Therefore, we can also avoid duplications and redundancy, and save time and budget.
Case Study 2.1: SMART Objectives for Grocery LLC’s Mobile-Commerce Scenario
We started working on a case study in Chapter 1 as regards a grocery chain, Grocery LLC, with fifty branches across five states. There were two business needs for this scenario:
1. Long lines form in front of the current check-out stations where the cashiers work.
2. Declining sales in markets since the onset of the COVID-19 pandemic.
Let’s work on the second business need to develop SMART objectives. The primary objective is to create solutions for customers who purchase goods and services from our grocery stores through their smartphones. Based on the business case, it was decided to produce two solutions which are the optimization of the mobile website for Android and IOS, and a smartphone application. Objectives in line with these two solutions have been determined as:
1. To redesign the website in 2 months so it’s responsive and easier for the customers to place orders on their smartphones.
2. To create a new mobile application in 2 months that can work in both operating systems (Android and IOS).
These two objectives can be considered specific as both describe what is intended to achieve for which audience. Besides, both are time-based. So, we know when we can have both solutions operational for the online customers. But we need more to evaluate other criteria (measurable, achievable, and relevant). Let’s create another objective that supports these two objectives:
• In three months after the mobile website and the new mobile application go live, online sales will increase at least 25%, customer satisfaction will increase at least 20%, and we can retain our loyal customers.
This objective provides us with the quantitative measures to evaluate the effectiveness of the two solutions. Both help us understand if the customers do online shopping and if they are happy with their online shopping experience. Besides, we can ask our loyal customers if they also buy online, and thus they don’t often prefer other stores and e-commerce websites to substitute for the physical shopping they used to do in our grocery markets. To verify these measures, we should have reliable sources as detailed below:
• Online sales figures before the mobile solutions are introduced and three months after they go live will be compared.
• Two surveys (before the mobile solutions are introduced and three months after they go live) will be conducted by a market research company to measure the satisfaction level of customers.
• The customers who have bought items from our company for the last three years will be interviewed to understand if they still do their shopping at our grocery markets and on new mobile solutions.
We also should answer these questions to assess if these objectives are achievable and relevant?
• Does the grocery chain have the time, budget, and resources to conduct and finish the whole project?
• Are these objectives in line with the grocery chain’s mission statement, and strategic objectives?
• Are there any conflicts with other ongoing or future projects? Is there a need to cooperate with other projects to share and assign resources or to synchronize some activities and deliverables? | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/02%3A_Strategy_Objectives_and_Project_Selection/2.03%3A_SMART_Objectives.txt |
Organizations initiate projects to exploit business opportunities that are aligned with the organization’s strategic goals or eliminate business problems they encounter[1]. Projects are generally preceded by a business case that provides the economic, financial, and/or social feasibility and justification of the business need (Figure 2.2). However, some projects may be initiated in a short time with an order from the CEO or executive management team to address competitive measures, government mandates, or an exclusive inclination[2]. Hence, there may not be a formal business case that the project team can utilize to initiate the project. Nevertheless, in such situations, project managers are generally asked to conduct a needs assessment and feasibility study as well as a benefits management plan. Business cases aim to respond to a need, generally in the form of a problem or an opportunity, and they are generally prepared by business analysts in an organization in collaboration with relevant units and stakeholders.
A business case attempts to elaborate on the need for a project by providing an analysis of the current state, a description of the desired future state, and the actions to take to fill the gap between the current state and the desired future state. It also includes business, stakeholder, solution, and transition requirements, designs and recommended solutions generated according to these requirements, and the evaluation of solutions to understand the potential value of these solutions[3]. A business case is accompanied by a needs assessment and benefits realization management plan. A needs assessment often precedes the business case, and it is used to assess the current internal and external environments and current capabilities of the organization to determine the viable solution options that, when pursued, would help the organization meet the desired future state[4].
The value of a business case to the project is two-fold. First, it is used as an input in the development of a project charter during the initiation (starting, conceptualization) project life cycle stage. Additionally, it is utilized as input to identify stakeholders who may be affected by or may affect decisions, activities, or outcomes of a project[5]. Therefore, business cases are utilized as a basis for authorization of further project management activities.
A business case can also be described as an economic feasibility study documented to justify and establish boundaries for the project. The validity of benefits is established through two accompanying processes, which are business needs analysis and cost-benefit analysis. Therefore, the required investment to start a project to acquire the expected outcomes can be justified from a business standpoint.
While many business cases share common elements, each one is tailored to the organization in which it is used. A business case can be formatted based on the needs of the organization and/or the organization’s templates in its knowledge repository. The main components of a business generally consist of:
1. Need statement (Underlying problems or opportunities)
• The cause-effect diagram (fishbone diagram) is a useful instrument in this stage to identify the underlying issues rather than describing the surface-level issues.
• If it is an opportunity, the main contributors are investigated.
2. Statement of goals (Business requirements)
3. Stakeholders and their requirements
4. Analysis of current state and future state, and creation of a business change strategy
5. Constraints, dependencies, assumptions, risks, critical success factors, and decision criteria
6. Designs and alternative solutions
7. Potential value (benefits and costs)
Although preparation of a business case and its accompanying documents are considered a pre-project work, project managers may also involve in this process, in particular, if a PMO (Project Management Office) exists in an organization, or the project initiation is requested from the top level or if it is an urgent request from a client.
Project managers or project steering committees use the information available in a business case to initiate the project, identify stakeholders, and develop a project charter. A business case helps create performance metrics that are utilized to measure the project success against the objectives whenever a deliverable is produced and the project outcomes are generated at the end of the project.
Business cases play an essential role during project selection. Project selection committees or senior managers assess all the business cases and their recommended solutions as candidate projects. Due to various factors such as time, budget and resource constraints, internal and external factors, and organizational strategic priorities and plans, organizations cannot put all the projects into implementation. The next section discusses the project selection criteria.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2015). Business analysis for practitioners: A practice guide.
3. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
4. Project Management Institute. (2015). Business analysis for practitioners: A practice guide
5. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/02%3A_Strategy_Objectives_and_Project_Selection/2.04%3A_Business_Case.txt |
When selecting a project, both quantitative and qualitative analysis is useful in order to arrive at projects which have the greatest potential impact. Generally, more complex projects involve a greater amount of risk. They also require a longer implementation and business benefits realization period. Therefore, project selection decisions will weigh the benefits offered with the timeframe required to realize these benefits. Organizations will often consider the payback period, which refers to the amount of time it takes to recover the cost of an investment. Projects that offer significant benefits, and that can be realized in a relatively short time, are more likely to be approved. However, this is only one of the methods to evaluate if a project is favorable compared with other projects.[1]
In Chapter 1, we started evaluating the uniqueness and temporary nature of a project through which our grocery market chain, Grocery LLC, aimed at establishing self-checkout areas at all fifty markets across five states to solve the problem of more than usual traffic between 4 pm and 7 pm during the weekdays. Assume that we had two solution candidates for this problem. One is the self-checkout area to be established at all fifty stores (See Chapter 1, Case Study 1.1). Let’s name the “establishment of self-checkout areas” project as “Project B”. We also wanted to evaluate another solution through which we can increase the number of checkout stations where our cashiers work. This solution is named Project A.
Table 2.1 provides cash inflows and outflows of two candidate projects assuming that both project deliverables have a lifetime of five years. As can be seen in Table 2.1, the payback period for Project A would be three years, which means that our organization can recover the cost (\$100,000) of this project’s investment in three years.
-100,000 (year 0) + 30,000 (year 1) + 40,000 (year 2) + 30,000 (year 3) = 0
Table 2.1: Cash outflow and inflows of two projects (\$)
Project A Project B
(Traditional checkout stations) (Self-checkout areas)
Year 0 (\$100,000) (\$200,000)
Year 1 \$30,000 \$15,000
Year 2 \$40,000 \$50,000
Year 3 \$30,000 \$75,000
Year 4 \$10,000 \$105,000
Year 5 \$10,000 \$75,000
For Project B, the payback period would be 3.57 years (3 years + 60,000/105,000). As can be seen in Table 2.2, when we finished the third year, the net cash flow was still negative (-200,000 + (15,000 + 50,000 + 75,000) = – 60.000). Therefore, the breakeven point would be after the fourth year. Because Project A’s payback period (3 years) is shorter than Project B’s (3.57 years), we can prefer Project A over Project B only taking into account the payback period.
Table 2.2: Net cash inflows of two projects (\$)
Project A Net Cash Flow Project B Net Cash Flow
Year 0 (\$100,000) (\$100,000) (\$200,000) (\$100,000)
Year 1 \$30,000 (\$70,000) \$15,000 (\$185,000)
Year 2 \$40,000 (\$30,000) \$50,000 (\$135,000)
Year 3 \$30,000 \$0 \$75,000 (\$60,000)
Year 4 \$10,000 \$10,000 \$105,000 \$45,000
Year 5 \$10,000 \$20,000 \$75,000 \$120,000
However, this financial method ignores a crucial factor that may affect the real value of our cash inflows, which is the time value of the money, that is affected by two main annual rates: (1) Inflation rate (pt), and (2) required rate of return (r). Therefore, the discount factor needs to be incorporated into the computation to have real values.
In our example above, let’s take pt 0.02, and r 0.08. Our organization expects to earn a minimum of 0.08 annually on average when we invest. This can also be considered as the opportunity cost.
For each year, we should multiply the discount factor by each cash inflow to find the real value.
Table 2.3: Net cash outflow and inflows of two projects with discount factors (\$)
Project A Today’s Value Net Cash Flow Project B Today’s Value Net Cash Flow
Year 0 (\$100,000) (\$100,000) (\$100,000) (\$200,000) (\$200,000) (\$200,000)
Year 1 \$30,000 \$27,273 (\$72,727) \$15,000 \$13,636 (\$186,364)
Year 2 \$40,000 \$33,058 (\$39,669) \$50,000 \$41,322 (\$145,041)
Year 3 \$30,000 \$22,539 (\$17,130) \$75,000 \$56,349 (\$88,693)
Year 4 \$10,000 \$6,830 (\$10,300) \$105,000 \$71,716 (\$16,976)
Year 5 \$10,000 \$6,209 (\$4,091) \$75,000 \$46,569 \$29,593
As can be seen in Table 2.3, the payback period changed for both projects. The payback period for Project A cannot be attained in five years, which means that our organization cannot recover the cost (\$100,000) of this project’s investment even in five years. For Project B, it would be 4.36 years (4 years + 16,976/46,569). Eventually, after taking into account the time value of the money, we can choose Project B over Project A on the contrary of our first decision without the discount factor.
NPV (Net Present Value) is another way of showing the long-term profitability of a project. At the end of the expected lifetime of a project outcome, NPV indicates the profit (Earnings – Project investment costs). As seen in Table 2.4, NPV is negative for Project A while it is positive for Project B. Therefore, we can select B over A.
Table 2.4: NPVs for Projects A and B (\$)
Project A Today’s Value Project B Today’s Value
Year 0 (\$100,000) (\$100,000) (\$200,000) (\$200,000)
Year 1 \$30,000 \$27,273 \$15,000 \$13,636
Year 2 \$40,000 \$33,058 \$50,000 \$41,322
Year 3 \$30,000 \$22,539 \$75,000 \$56,349
Year 4 \$10,000 \$6,830 \$105,000 \$71,716
Year 5 \$10,000 \$6,209 \$75,000 \$46,569
NPV (\$4,091) \$29,593
Financial models such as payback period and NPV consider solely the financial indicators. Since little may be known about the specific solution at the time of project selection, financial evaluations are based on high-level estimates only. However, organizations need to consider other qualitative factors such as competitive advantage, future market potential, risk, legal and regulatory issues, and safety. Therefore, many organizations utilize project selection models where they can include criteria prioritized for the organization in general, and the projects and their affiliated programs and portfolios. In this chapter, we will discuss only one of the models commonly used by organizations, which is the weighted scoring model.
Non-financial reasons for selecting projects are often viewed as strategic considerations; they include everything from ending a dependency on an unreliable vendor to restoring the image of an organization. Once a project is selected, a more detailed financial analysis is often performed. Since decision-making models often consider numerous criteria when evaluating the change alternatives, tools such as the weighted scoring model are very helpful. Weighted scoring models introduce objectivity in what would otherwise be a very subjective decision-making process. A weighted scoring model allows decision-makers to structure the decision-making process by specifying and prioritizing needs by identifying decision-making criteria; evaluating, rating, and comparing different alternatives; and selecting the best matching solution.
Creating a weighted scoring model starts with careful consideration of decision-making criteria. In the case of project selection, many organizations refer to their strategic plans to identify important factors. These criteria are often a mix of financial and non-financial criteria. Once the criteria have been selected, we give each criterion a value, called a weight, in order to illustrate its relative importance. The more important the criterion, the higher its weight. Each of the potential change initiatives (e.g., business cases) is evaluated against the weighted criteria and given a score for each criterion. These models can help us introduce more objectivity into our decision-making.
Let us continue with our grocery market chain’s project candidates. Thereafter, let us increase the number of projects to four. The project selection committee will evaluate these four potential projects based on six criteria. We have already discussed two projects’ NPVs. The committee had scheduled a meeting today to discuss these four projects (Table 2.5). Project A targets to increase the traditional checkout stations in all the markets if their layouts allow for an expansion inside the markets. Project B aims to designate areas for self-checkout stations. In this project, we will need to reduce the number of traditional checkout stations. Project C’s goal is to create new ads for television and social media (e.g.. YouTube, Facebook, Instagram). Finally, Project D aims to create a new mobile (smartphone and tablet) application and make the current website compliant with the smartphones.
The organizational constraints (time, budget, resources, risks) allow the selection of a maximum of two projects. They are using a weighted scoring model. There are six criteria as shown in Table 2.5. They are strategic opportunity, competitive advantage in IT, the potential for higher market share, profitability (NPV), sustainability, and risk aversion. As can be seen here, we are not focusing on only the profitability, but also other factors that bring about a holistic approach to evaluating the feasibility and benefits of projects. The committee members will score each criterion. A score of 1 represents unfavorable, 2 satisfactory, and 3 favorable.
Although weights are provided out of 100 percent, in order to make the computation easier to follow, they are typed in Table 2.5 as two-digit numbers instead of decimals. Therefore, the total weight must not exceed 100. These weights may be decided after brainstorming meetings with subject matter experts and stakeholders. The subjectivity of these criteria’s weights and points can be mitigated to some extent with the brainstorming activity. Most of the time, the organizations or the external client may impose the weights according to the organizational strategy and priorities.
Table 2.5: Weighted Scoring Model
Projects
Category Weight A B C D
Strategic opportunity 25 1 3 2 3
Competitive advantage in IT 15 1 3 1 3
Potential for higher market share 20 2 2 3 3
Profitability (NPV) 10
Sustainability 10 3 2 1 1
Risk aversion 20 3 2 3 1
As you can see in Table 2.5, NPV is just one of the criteria that is used by the selection committee. The required rate of return is 0.08, and the inflation rate is 0.02. We have already computed the discount factors above. The committee should incorporate the NPV scores based on the estimated cash flows given in Table 2.6, and the decision table in Table 2.7.
Table 2.6: Estimated cash flows (\$)
Project Investment Year 1 Year 2 Year 3 Year 4 Year 5
A -100,000.00 30,000.00 40,000.00 30,000.00 10,000.00 10,000.00
B -200,000.00 40,000.00 60,000.00 75,000.00 105,000.00 100,000.00
C -30,000.00 20,000.00 15,000.00 10,000.00 3,000.00 1,000.00
C -125,000.00 25,000.00 40,000.00 50,000.00 55,000.00 65,000.00
Table 2.7: NPV score decision table
NPV SCORES
NPV < 0 1
0 ≤ NPV < 20,000 2
20,000 ≤ NPV 3
NPVs for four projects are, respectively, (1,046.07); 19,276.94; 8,284.08; and 42,182.60. Therefore, NPV scores are 1, 2, 2, and 3 respectively.
Table 2.8: Total Weighted Score (Computation of Total Scores)
Projects Weighted Scores
Category Weight A B C D A B C D
Strategic opportunity 25 1 3 2 3 25 75 50 75
Competitive advantage in IT 15 1 3 1 3 15 45 15 45
Potential for higher market share 20 2 2 3 3 40 40 60 60
Profitability (NPV) 10 1 3 2 2 10 30 20 20
Sustainability 10 3 2 1 1 30 20 10 10
Risk aversion 20 3 2 3 1 60 40 60 20
TOTAL SCORES 100 180 250 215 230
Based on the results, the selection committee should choose Project B (Self-checkout areas) since it has the highest score. Project D (M-commerce) has the second-highest total points (230 points). Since we can select two projects and initiate them, we can move forward for projects B and D. The project initiation will be discussed in Chapter 3. In that chapter and following chapters, we will focus on Project D.
However, it is always possible to modify the weights to favor another project. Therefore, this reminds us of the fact that these models are not free from subjectivity. For example, if we change the “strategic opportunity” weight from 15 to 10, the “competitive advantage in IT” weight from 25 to 10, the “profitability (NPV)” weight from 10 to 5, the “sustainability” weight from 10 to 25, and the “risk aversion” weight from 20 to 30, we can make Project A (Increasing the number of traditional checkout stations) the highest score. Hence, we can select Project A (Table 2.9). As can be seen in this example, this method is subject to substantial subjectivity.
Table 2.9: Total Weighted Score (Changed weights)
Projects Weighted Scores
Category Old Weight New Weight A B C D A B C D
Strategic opportunity 15 10 1 3 2 3 10 30 20 30
Competitive advantage in IT 25 10 1 3 1 3 10 30 10 30
Potential for higher market share 20 20 2 2 3 3 40 40 60 60
Profitability (NPV) 10 5 1 3 2 2 5 15 10 10
Sustainability 10 25 3 2 1 1 75 50 25 25
Risk aversion 20 30 3 2 3 1 90 60 90 30
TOTAL SCORES 100 230 225 215 185
Weighted scoring models are easier to use as they offer structurally simple models. These models allow organizations to prioritize criteria according to their strategic objectives and client expectations. Management can directly ask the committees to consider the weights they provide so that it can be a direct reflection of managerial policy. Additionally, the weights can be modified in order to accommodate any changes in management and program levels. One of the apparent drawbacks of these models is that they don’t allow a linear comparison among the projects. If a project gets 100 points, and another gets 200 points, it doesn’t necessarily mean that the second project is two times more important than the first project. Another drawback could emerge when the number of criteria increases to a level where weights become relatively small. Thus, this model becomes like a non-weighted model at which criteria weights don’t have an impact on the total scores.
This model is meant to add objectivity to our decision-making process; it is not meant to replace our own judgment. When the weighted scores are close, this indicates that a slight change in the weight of a criterion and/or a change in the subjective scores could significantly change the decision. For this reason, a weighted scoring model is often viewed as a tool that is meant to be revised as we learn more about what truly matters to us and/or the organization.
2.06: Key Takeaways
Key Takeaways
• Organizations create specific strategies that should be pursued in the long term. These long-term objectives help organizations to gain a competitive advantage and a higher market share, or to acquire a variety of tangible and intangible benefits in line with organizations’ field of operations (e.g., businesses, government agencies, nonprofits). Projects are utilized to accomplish these long-term strategic objectives.
• The SMART protocol is commonly utilized by organizations to clearly define achievable and relevant objectives that contain measures and time-bound targets of how to assess whether they have been achieved. A commonly utilized guideline to create this kind of objective is to follow the SMART protocol. The SMART acronym represents being specific, measurable, achievable, relevant, and time-based.
• A business case is a feasibility document that justifies a need for an organization. It consists of the need statement, analysis of the current state and the desired future state, requirements, designs, and recommended solutions, and the evaluation of the solution to understanding the potential value.
• Organizations cannot put all the business cases and ideas into practice due to the constraints such as lack of time, resources, and budget. Thus, they implement project selection models to evaluate candidate projects and select some of them which satisfy the criteria of the models. These models are assessed in two main categories, that are financial and non-financial models. While payback period and net present value (NPV) fall into the financial models, weighted scoring models are used as non-financial models.
2.07: Questions and Exercises
There are 10 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=133
2.08: Attribution
This chapter is a derivative of the following texts:
1. Project Management by Adrienne Watt. © CC BY (Attribution).
2. Project Management from Simple to Complex. © CC BY (Attribution).
3. Project Management by Florence Daddey. © CC BY (Attribution).
4. Project Management Fundamentals by Shelly Morris. © CC BY (Attribution).
5. Project Management by Merrie Barron and Andrew R. Barron. © CC BY (Attribution). | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/02%3A_Strategy_Objectives_and_Project_Selection/2.05%3A_Project_Selection_Process.txt |
Learning Objectives
1. Explain the process of developing a project charter to authorize the project, and describe the roles of the project sponsor and project manager.
2. Describe the project environment, and outline the internal and external factors that may affect a project.
3. Explain the formal and informal organizational structure, and compare three main organizational structure types based on the project manager’s authority level.
4. Describe the responsibilities of a Project Management Office (PMO).
All projects are undertaken for a reason. Some projects can be initiated for business reasons (i.e., strategic objectives) such as increasing profits, decreasing customer wait time, and improving employee working conditions. Other projects exist for social reasons such as a municipal recycling system or installing clean energy solutions. Often, the pressure to produce results encourages people to identify possible solutions without fully understanding the needs and purposes of the project. This approach can create a lot of immediate activity, but it also creates the likelihood that the change initiative will fail to deliver the proposed organizational value.
As detailed in Chapter 2, one of the best ways to gain approval for a project is to clearly communicate the project’s objectives and describe how the project provides a solution for an organizational need or how it capitalizes on a business opportunity. A needs analysis that accompanies a business case is often conducted to better understand the underlying organizational needs and how meeting these needs would help the organization achieve strategic objectives (e.g., increase profits, improve customer experience, develop new products). Once alternative solutions are identified, each solution is assessed to determine if it supports the organization’s vision and strategies. Issues of justification (“should we do the project?”) and feasibility (“can we do the project?”) are addressed for each solution. Finally, some projects are selected to initiate. It is important to note that project justification is a key part of the project initiation phase: a project must have a reason to exist and, if no such justification can be determined, then it’s best to stop the project before too much time, money, and resources are invested in it. If issues of justification are not adequately addressed, the project will lack the required organizational support and, therefore, will ultimately be unsuccessful.
3.02: Project Charter
Project justification starts when a business case is prepared which addresses the needs, and feasibility of solutions. Project managers may be involved during this phase though it is also common not to have a project manager in this pre-project work. In organizations having a Project Management Office (PMO) or a program department, project managers, or a team of project managers and their assistants, could participate in developing the business case with business analysts, subject matter experts, and representatives from relevant departments. A business case could be prepared during the initiation if it wasn’t made in the pre-project phase.
When a project selection committee decides to go with some of the projects proposed, the sponsor, business analysis team, relevant departments, or selection committee members can start the preparation of a project charter which will allow the formal authorization of the existence of a project. A project charter provides the project manager with the authority to apply organizational resources to project activities[1]. Developing a project charter requires inputs such as business documents (business case, needs analysis, and benefits management plan), agreements, enterprise environmental factors (discussed in Project Environment below), and organizational process assets. A project charter is necessary to initiate both internal projects at which a client is a unit in our organization and external projects at which the client is outside our organization. If we are conducting a project with an external client, the two parties (i.e., our organization and the external client) will also need a formal and legally binding contract to establish an agreement.
In the initiation stage (Figure 3.1), there are two main processes according to the PMBOK Guide 6th edition: Developing a project charter and identifying stakeholders. The former process will be discussed in detail in Chapter 5 “People Management: Stakeholders and Communication”. The initiation of the project is the process group to start developing the project infrastructure to support all the activities associated with planning, executing, monitoring, and closing the project. In this stage, project managers should give the priority to address stakeholders’ expectations and concerns in order to properly determine all the components (e.g., scope, schedule, budget, resources, risks, quality) of the project. Therefore, project managers conduct one or more kickoff meetings to align all the various stakeholders. The strength of the initial alignment will have a big impact on project success. At this early stage, project managers learn how to identify the appropriate means of communication with key stakeholders. Effective communication with project stakeholders is another critical success factor so this work must begin early (see Chapters 5 and 6).Initiation is the first project life cycle stage to begin team building and developing collaborative approaches for working together. During the kick-off meeting, the project manager, the team, or the sponsor should share the information below with the main stakeholders involved:
• The project’s objectives
• Known priorities and success metrics
• Organizational constraints and related trade-offs
• A high-level description of the project scope
• Key milestones
• An initial list of project risks
• Key stakeholders
After the initial kick-off meeting, subsequent meetings with primary stakeholders lead to more clarification and elaboration on the information above and the development of a project charter. Just like with project justification documents, low complexity projects may have very short project charters while higher complexity projects may require longer, more comprehensive project charters. In either case, there are two very important aspects of the project charter: key stakeholders including a detailed description of their roles and responsibilities, and project success metrics.
A project charter must be approved by the project sponsor. The project sponsor is the most powerful stakeholder and is usually an executive in the organization with the authority to assign resources and enforce decisions regarding the project. They often initiate the project and, as such, are often referred to as the “initiating sponsor.” A project sponsor has the authority to start and stop the project and will support the completion of project objectives by removing the barriers to success. They can be regarded as the “external champion” because they often serve as the last escalation point when the project team needs support bringing an off-track project back on track. Successful project teams know how to leverage the power and position of the project sponsor and will proactively ask them to deliver influencing communications throughout the organization in order to maintain the project’s momentum and high morale within the team. Many project sponsors can assign one or more sustaining sponsors to act as the “internal champion(s)” of the project. The sustaining sponsors are often leaders of the internal departments that are most affected by the project, such as a marketing manager or human resources manager. When the project sponsor selects the sustaining sponsor(s), one of their goals is to ensure that the project team frequently considers the organizational impacts of the changes being introduced. By keeping the sustaining sponsor(s) actively engaged in the project, they will ensure their teams are intently participating in the project and identifying the operational impacts that must be considered in order for the change to be sustained once the project has been completed. On a day-to-day basis, the sustaining sponsor(s) act as the first point of escalation as issues/risks are raised.
The project charter formally recognizes the existence of the project by presenting the project leader’s understanding and conceptualization of the project’s objectives. Most importantly, it authorizes the project leader to apply organizational resources to achieve the project’s objectives. Once the Charter is approved and formally signed off, it becomes an agreement between the project leader and the project sponsor. As such, some organizations prefer to refer to this document as a letter of agreement instead of a project charter. Approval of this document, whether a letter of agreement or a project charter, signals the transition into the planning phase of the project.
The Content of a Project Charter [2]
A project charter is a necessary document to initiate a project. Organizations may have different templates for a project charter. Below is a generic template for a project charter that would help students understand the main components and hence develop one in their individual and team (group) assignments, and when they are involved in project teams. Our template has thirteen sections. Case Study 3.1 below will elaborate on each section.
1. Project purpose
2. Measurable project objectives
3. High-level requirements
4. High-level project description, boundaries, and key deliverables
5. Assumptions and constraints
6. Overall project risk
7. Summary milestone schedule
8. Preapproved financial resources
9. Key stakeholder list
10. Project approval requirements
11. Project exit criteria
12. Project team
13. Name and authority of the sponsor authorizing the project charter.
Case Study 3.1: Project Charter of Grocery LLC’s Mobile-Commerce Project
In Chapter 1, we started evaluating the uniqueness and temporary nature of the two projects. The first project aimed to establish self-checkout areas at all fifty markets across five states to solve the problem of more than usual traffic between 4 pm and 7 pm during the weekdays (Case 1.1). The second project aimed to create a new mobile application and make the current website compliant with the smartphones (Case 1.2). In Chapter 2, we performed a weighted scoring model (Table 2.8) to compute the total scores of project candidates based on various criteria which are not only dependent on financial factors and chose projects A (self-checkout stations) and D (m-commerce). Project D addressed the problem of declining sales at Grocery LLC’s all fifty markets in general with the onset of the COVID-19 pandemic. Considering the priority of the project and the pessimistic trends forecasted regarding the pandemic as well as the increasing digitalization of companies and consumers, we will use this project in this chapter and the following chapters.
1. Project Purpose:
To create solutions for customers who purchase goods and services from our grocery stores through their smartphones.
1. Measurable Project Objectives:
1. To redesign the website in 2 months so it’s more responsive and easier for the customers to place orders on their smartphones.
2. To create a new mobile application in 2 months that can work in both operating systems (Android and IOS).
In three months after the mobile website and the new mobile application go live, online sales will increase at least 25%, customer satisfaction will increase at least 20%, and we can retain our loyal customers.
• Online sales figures before the mobile solutions are introduced and three months after they go live will be compared.
• Two surveys (before the mobile solutions are introduced and three months after they go live) will be conducted by a market research company to measure the satisfaction level of customers.
• The customers who have bought items from our company for the last three years will be interviewed to understand if they still do their shopping at our grocery markets and on new mobile solutions.
1. High-Level Requirements
• The mobile website and smartphone application shall:
• Include all the functions that a desktop website possesses.
• Be accessed with the same login username and password.
• Synchronize the customer profile and the cart with the desktop website.
1. High-level project description, boundaries, and key deliverables
Needs Statements are retrieved from the business cases if available.
There has been a steady decline for the last six months in online purchases. Our company lost many customers due to the pandemic. Customers prefer buying online instead of visiting a store in person since they have serious concerns to contract Covid-19. Our fifty stores in five states lost around 30% of regular customers, and the revenue declined by 25% since the start of the pandemic restrictions in March 2020. When our business analysts investigated the issue by conducting a root-cause analysis, they found that many customers use their smartphones to buy online rather than using their desktop or laptop computers. When the customers visited our company’s website, they could not complete their online transactions since the website has not been optimized for mobile. Besides, we haven’t had a mobile application that our customers can use on their smartphones. E-commerce websites such as Amazon, and brick and click stores such as Walmart and Target, and grocery chains such as Whole Foods (through Amazon) are strong competitors from which customers can do their online shopping conveniently.
Therefore, our project has been initiated to optimize the desktop website on both Android and IOS smartphones and to create a new smartphone application. In this project, we are not directly targeting tablets since their screen size would allow us to display the regular desktop website. Besides, the smartphone application can be used in tablets.
1. Assumptions and Constraints
• Assumptions:
1. A positive trend is expected in the long term that mobile e-commerce transactions will rise.
2. Our current website will continue to function during the project.
3. The owners and the top executives will continue to support this project.
• Constraints:
1. Some loyal customers who prefer in-person shopping may be resistant to change so that they may not want to use online shopping.
1. Overall project risk
• Shortage of web designers and mobile app developers
• Due to the COVID-19 pandemic, there is a higher demand for web designers and mobile app developers. Besides, these qualified employees may not be available if they contract COVID-19 when they are working on our project.
• During the execution of our project, customers may prefer to do their shopping on large e-commerce websites such as Amazon as they can find more varieties with lower prices and better deals. Therefore, our deliverables may not be utilized in the way that is desired.
1. Summary Milestone Schedule
The project starts on May 2, 2022, and finishes on July 1, 2022.
1. Kick-off: May 2, 2022
2. Finalization of requirements elicitation: May 10
3. Completion of analysis and design: May 25
4. Completion of coding and testing: June 15
5. Completion of alpha testing: June 20
6. Completion of beta testing: June 30
7. Customers can visit the mobile website and install the smartphone app: July 1, 2022
1. Preapproved Financial Resources
The initial budget for this project was determined as \$200,000. Two similar projects conducted and completed by two other companies were used. The itemized budget will be available and can be revised when the analysis and design are completed.
1. Key Stakeholder List
1. Project manager (Senior Systems Analyst)
2. Project team members (The core team)
3. Project sponsor (Chief Operations Officer – COO)
4. Product owner (The representative from the operational department who was assigned by the COO)
5. IT Department
6. Sales Department
7. Marketing Department
8. HR Department
9. Store managers and employees
10. Suppliers
11. Online customers
12. Customers who visit the stores in person
13. Government agencies that announce the pandemic restrictions
1. Project Approval Requirements
The mobile website and the smartphone app will be subject to alpha testing first. Then, beta testing will follow, where customers can install the beta version on their smartphones and do their online shopping. During the implementation of the beta version, all the feedback from customers and their mobile devices will be evaluated and the bugs and problems will be corrected. When the mobile website and the app are fully functional, customers should log in with their usernames and passwords, browse items, add them to their carts, proceed to checkout, and complete their payment.
The sponsor must approve the sign-off after they receive the inspection and acceptance report.
1. Project Exit Criteria
• The project will be closed successfully if both deliverables pass beta testing and all the human resources working on this project are paid.
• The project will be canceled if the financial situation of our company worsens significantly so that it is not possible to fund the project.
1. Project Team
1. Project manager: Senior systems analyst
2. Two systems (business) analysts
3. Two UI/UX designers
4. Three developers (including Android and IOS developers, and the backend developer)
5. Two testers (quality assurance engineers)
6. Two sales and marketing experts
1. Authority of the Sponsor
The COO (Chief Operations Officer) of Grocery LLC is the sponsor. The project manager will have the full authority to identify the necessary tasks and resources needed to complete all the project activities and deliverables. The sponsor shall authorize the project and assign the project manager when they approve this project charter.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Charter template from www.projectmanagement.com | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/03%3A_Project_Initiation/3.01%3A_Learning_Objectives_and_Overview.txt |
When the business case and the project charter, and later, the project management plan and its subcomponents are prepared, the project environment surrounding the project should be examined thoroughly to delineate the factors that may have a negative or positive impact on the project activities and its outcomes. In PMBOK Guide 6th Edition, this environment is composed of enterprise environmental factors (EEFs) and organizational process assets (OPAs). PMBOK Guide 7th edition refers to them as the project environment. The project environment is composed of two components – internal and external, which are described in detail in the following sections.
3.2.1 Internal Environment
The internal environment in which a project is developed consists of the factors that are internal to the organization, but outside the project itself. These factors include elements such as organizational culture, structure, and governance as well as security and safety measures. Other tangible elements include geographic location as well as distribution of facilities and resources, infrastructure, IT software and hardware, resource availability, and employee capability. The internal environment also includes organizational process assets, which are processes, policies, and procedures as well as organizational knowledge bases (e.g., financial data, historical information, lessons learned, project files from previous projects)[1].
Consider the project charter example above. While we are creating the business case as well as preparing the project charter and project management plans, it would be wise to incorporate all the factors that may affect the mobile app and website optimization project. We should enumerate the main properties of our grocery store chain, some of which are provided below:
• Strategic objectives, mission, and vision
• Organizational values and beliefs
• Cultural norms that influence the relationships among coworkers
• Code of conduct
• The number of employees
• Geographic locations and the size of the stores
• Variety of the products and services sold
• Financial situation
We should also take into account the organizational structure of the headquarters and all the branches. This also helps us identify internal and external stakeholders who are affected by our project and who may affect our project. Additionally, this helps us identify the dependencies among the departmental units, and also identify internal resources that might need to be utilized to complete the project. Reporting structure inside the organization could influence our project’s decision-making and change request processes. When our project needs to utilize hardware and software tools to facilitate the activities, we can obtain them in an expedited way directly from the assets of our organization, which also saves the budget. When we need resources such as human resources, materials, and equipment, since we have already delineated the organizational structure with tasks and responsibilities of each unit, we can benefit from the agreements which have already been made with approved providers and subcontractors. Another advantage of listing all the capabilities of our organizations would be when we establish the project team. If our organization employs business or systems analysts, developers, user interface designers, or testers, we can ask their managers or executive-level managers above these managers to provide these qualified employees with specialized knowledge for our project. This may also reduce the external risks that we may face if we hire them from outside our organization. We will elaborate on the organizational structure in the “Organizational Structure” section below.
3.2.2 External Environment
A project’s external environment consists of the factors that exist outside of the organization. It includes market conditions, social and cultural influences and issues, legal restrictions, commercial databases, academic research, government or industry standards, financial considerations, and physical environmental elements[2].
Figure 3.2 illustrates types of general macro environments and forces that are interrelated and affect organizations: sociocultural, technological, economic, government and political, natural disasters, and human-induced problems that affect industries and organizations. Macro environment refers to the outermost layer of elements in a firm’s external environment that can impact a business but are generally beyond the firm’s direct control, such as the economy and political activity. This environment can also affect projects conducted by organizations. For example, economic environmental forces generally include such elements in the economy as exchange rates and wages, employment statistics, and related factors such as inflation, recessions, and other shocks—negative and positive. Additional factors include hiring and unemployment, employee benefits, factors affecting organizational operating costs, revenues, and profits, all of which are affected by global, national, regional, and local economies. Politics and governmental policies, international wars, natural disasters, technological inventions, and sociocultural forces could directly affect our organization and the projects or may interact with other forces such as economic forces.
Besides the macro environment as explained above and illustrated in Figure 3.2, the micro environment is another external environment element that refers to the middle layer of elements in a firm’s external environment, primarily concerned with a firm’s industry situation. Harvard strategy professor Michael Porter developed an analysis tool to evaluate a firm’s micro environment. Porter’s Five Forces is a tool used to examine different micro-environmental groups in order to understand the impact each group has on a firm in an industry (Figure 3.3). In this textbook, we will not explain each factor (See the reference link[3]). However, these five factors, industry rivalry, the threat of new entrants, threat of substitutes, supplier power, and buyer power, could have a substantial influence on a project. Therefore, we should take these external factors into account while assessing the factors that may affect our project from outside the organization.
It is important to keep these external factors in mind when preparing for and managing a project since many if not most of these external factors and any changes in these factors may have negative or positive impacts on projects. They could lead to risks that may put the project activities and deliverables, and the overall project in jeopardy.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2021). A guide to the Project Management Body of Knowledge (PMBOK guide) (7th ed.). Project Management Institute.
3. Principles of Management. (2019). Retrieved from https://openstax.org/books/principles-management/pages/8-4-a-firms-micro-environment-porters-five-forces?query=micro%20environment&target=%7B%22type%22%3A%22search%22%2C%22index%22%3A0%7D#fs-idm537041840 | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/03%3A_Project_Initiation/3.03%3A_Project_Environment.txt |
Organizations have formal and informal subsystems that affect everything from big-picture strategic planning and execution to daily operations. Figure 3.4 shows internal organizational dimensions. Formal subsystems include leadership, strategy, management, goals, marketing, operations, technology, and structure. Informal subsystems consist of culture, norms, relationships, politics, and leadership skills. Understanding organizational dimensions – and how projects fit within them – gives project managers insights into managing projects more effectively and efficiently.
3.3.1 Formal Subsystem
An organization’s formal subsystems govern how various tasks are divided, resources are deployed, and how units/departments are coordinated in an organization. An organizational structure includes a set of formal tasks assigned to employees and departments, formal reporting relationship, and a design to ensure effective coordination of employees across departments/units with the help of authority, reliability, responsibility, and accountability, which are fundamental to developing organizational structures and workflow based on their clear understanding by all employees. In short, an organizational structure is the system of task and reporting relationships that control and motivate colleagues to achieve organizational goals. In discussing organizational structure, the following principles are important:
1. Authority is the ability to make decisions, issue orders, and allocate resources to achieve desired outcomes. This power is granted to individuals (possibly by the position) so that they can make full decisions.
2. Reliability is the degree to which the project team member can be dependent to ensure the success of the project with a sound and consistent effort.
3. Responsibility is an obligation incurred by individuals in their roles in the formal organization to effectively perform assignments or to work on the success of the project with or without guidance or authorization.
4. Accountability refers to the extent to which an individual or project team is answerable to the project stakeholders and provides visible evidence of action.
Authority and responsibility can be delegated to lower levels in the organization, whereas accountability usually rests with an individual at a higher level.
An organizational structure outlines the various roles within an organization, which positions report to specific individuals or departments, and how an organization segments its operations into a discrete department. An organizational structure is an arrangement of positions that is most appropriate for the company at a specific point in time. Given the rapidly changing environment in which organizations operate, a structure that works today might be outdated tomorrow. That’s why we hear so often about organizations restructuring—altering existing organizational structures to become more competitive/efficient once conditions have changed.
Organizational structures can be categorized in terms of a spectrum of a project manager’s authority. This spectrum includes three main types as below:
1. Functional (Centralized)
2. Matrix
3. Project-oriented / Projectized
As illustrated in Figure 3.5, the project manager’s authority is none or little in a functional organization whereas it is high to almost total in a project-oriented organization. However, each of the organization types has advantages and disadvantages, and some organizations can even be a mix of multiple types.
A functional organization has workgroups arranged by the tasks and jobs being performed by specialized departments such as manufacturing, marketing and sales, human resources, and finance as seen in Figure 3.6. Since there is not any project management department or office, a project manager or a coordinator is generally selected from the department that is primarily responsible for conducting a given project. However, this person may not have a designated project manager or coordinator role, and their service in this role is often temporary until the project is completed. This department is generally the main beneficiary of the project or it is the implementing department. For example, if the project’s goal is to improve customer service, a project manager can be selected from among senior or experienced employees, who is also considered as a subject matter expert in the topic of the project, from the “Customer Service” division under the “Marketing & Sales” department. This person may not work full time as a project manager as they may still carry out the routine tasks of their division and department. Additionally, this project manager would be under the supervision of the “Marketing & Sales” department manager. When they need human resources and other resources, they may not be able to directly obtain them but should negotiate with their manager (Marketing & Sales department in our case) and other department managers (e.g., Manufacturing, Finance). Thus, the project budget is managed by the functional manager, not the project manager. Moreover, the project team may not have administrative staff. Therefore, the project manager may use their department’s administrative staff on a part-time basis. The main advantage of this organization type is that the project manager can acquire qualified and experienced human resources from other functional departments.
When we move to the right on the spectrum (Figure 3.5), we can arrive at a weak matrix organization where functional units still exist but the role of project manager also becomes more well-defined, and might even be its own role within the organization. In a weak matrix, the project manager still works part-time in their department while they have more authority than they have in a functional organization, but at a low level (Figure 3.7).
As we continue across the spectrum, we now have a balanced matrix organization type in which we may have a designated project manager with a higher authority. The project manager may manage the project budget to some extent, not completely, although the functional manager has still more say.
As illustrated in Figure 3.8, in a strong matrix organization type, a Project Management Office (PMO) or a designated program management office is added besides functional departments. This department employs full-time project managers with a designated job role. They manage the project budget, and their authority becomes moderate to high. They can also have a full-time administrative staff. This organizational structure may be preferred by many project managers since they can acquire qualified and experienced team members from functional departments inside the organization while they have higher levels of authority.
In a project-oriented or projectized organization type, tasks are arranged by projects, not functions (Figure 3.9). Project managers work independently with a very high authority having full-time designated job roles. However, they may have some challenges while acquiring human resources and other resources since the organization doesn’t have specialized departments where skilled and experienced employees work.
3.3.2 Informal Subsystem
When working with internal stakeholders (those who are inside an organization) and external stakeholders (those who are outside an organization) on a project, it is essential to pay close attention to the hierarchy and authority relationships, relationships, context, history, and the corporate or organizational culture. Organizational (corporate) culture refers to the beliefs, attitudes, and values that the organization’s members share and the behaviors consistent with them (which they give rise to). Organizational culture sets one organization apart from another and dictates how members of the organization will see you, interact with you, and sometimes judge you. Often, projects also have a specific culture, work norms, and social conventions (see Chapter 6).
An organization’s culture is defined by the shared values and meanings its members hold in common and that is articulated and practiced by an organization’s leaders. Purpose, embodied in corporate culture, is embedded in and helps define organizations. Ed Schein, one of the most influential experts on culture, also defined organizational corporate culture as “a pattern of shared tacit assumptions learned or developed by a group as it solves its problems of external adaptation and internal integration that have worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.[1]” Some aspects of organizational culture are easily observed; others are more difficult to discern. We can easily observe the office environment and how people dress and speak. In one company, individuals work separately in closed offices; in another, teams may work in a shared environment. The subtler components of organizational culture, such as the values and overarching business philosophy, may not be readily apparent, but they are reflected in member behaviors, symbols, and conventions used. Organizational culture can give coworkers a sense of identity through which they feel they are an indispensable component of a larger and strong structure.
Some cultures are more conducive to project success than others. As a project leader, it is very important to understand the unique nature of the corporate culture that we operate in. This understanding allows us to put in place the processes and systems most likely to lead to project success.
Organizational culture is considered one of the most important internal dimensions of an organization’s effectiveness criteria. Peter Drucker, an influential management guru, once stated, “Culture eats strategy for breakfast.”[2] He meant that corporate culture is more influential than strategy in terms of motivating employees’ beliefs, behaviors, relationships, and ways they work since culture is based on values. Strategy and other internal dimensions of an organization are also very important, but organizational culture serves two crucial purposes: First, culture helps an organization adapt to and integrate with its external environment by adopting the right values to respond to external threats and opportunities. Secondly, culture creates internal unity by bringing members together so they work more cohesively to achieve common goals. Culture is both the personality and glue that binds an organization. It is also important to note that organizational cultures are generally framed and influenced by the top-level leader or founder. This individual’s vision, values, and mission set the “tone at the top,” which influences both the ethics and legal foundations, modeling how other officers and employees work and behave. A framework used to study how an organization and its culture fit with the environment is offered in the Competing Values Framework (Figure 3.10).
Assume that you are leading a project in an organization with a hierarchical culture. Projects are about changing the way an organization operates. Introducing change in an organization with this type of culture can be very challenging because they value caution, conservative approaches, and careful decision-making. If the project you are leading involves the introduction of innovative practices and technologies, it may be very difficult and time-consuming to get the approvals required to proceed with the project at its various stages. Innovative practices are not guaranteed to work; success requires a high degree of risk tolerance in decision-making processes. This may be difficult to achieve in organizations with this type of culture. Furthermore, the already aggressive schedule of employees in hierarchal organizations may not be able to accommodate the potential numerous and lengthy deliverable reviews required for innovative projects, causing project success to be viewed as unachievable. Project leaders in this type of culture are wise to speak openly and candidly about the project’s risks and plan for additional deliverable reviews as a way of setting the project up for success. If this very same innovative project was being delivered in an organization with a market culture, the decision-making approach and the schedule are likely to be fundamentally different.
1. Schein, E. (2017). Organizational culture and leadership, 5th ed., Hoboken, N.J.: John Wiley & Sons.
2. Hyken, S. (2015, December 5). Drucker said culture eats strategy for breakfast. Forbes. https://www.forbes.com/sites/shephyken/2015/12/05/drucker-said-culture-eats-strategy-for-breakfast-andenterprise-rent-a-car-proves-it/#7a7572822749 | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/03%3A_Project_Initiation/3.04%3A_Organizational_Dimensions_and_the_Structure.txt |
A project management office (PMO) is an organizational structure that standardizes the project-related governance processes and facilitates the sharing of resources, methodologies, tools, and techniques. The responsibilities of a PMO can range from providing project management support functions to the direct management of one or more projects.[1]
Many large and even medium-sized organizations have created a department to oversee and support projects throughout the organization. This is an attempt to reduce the high number of failed projects. These offices are usually called PMO. The PMO may be the home of all the project managers in an organization, or it may simply be a resource for all project managers, who report to their line areas. PMBOK Guide 6th Edition categorizes PMOs as supportive, controlling, and directive. Supportive PMOs provide a consultative role while controlling PMOs provide support and require compliance through various means. Directive PMOs have full-time project managers who participate in the projects and manage directly by taking full control of the projects.
In general, PMOs help ensure that projects are aligned with organizational objectives, provide templates and procedures for use by project managers, provide training and mentorship, provide facilitation, stay abreast of the latest trends in project management, and serve as a repository for project reports and lessons learned.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3.06: Key Takeaways
Key Takeaways
• The official selection of a project based on the alignment of its business case with project selection criteria is followed by the development of a project charter that authorizes the project manager to apply organizational resources in order to achieve the project’s objectives.
• A project charter consists of high-level content about a project such as a project purpose, measurable project objectives, high-level requirements, key deliverables, constraints, assumptions, overall project risks, summary milestone schedule, preapproved financial resources, key stakeholder list, project approval requirements, project exit criteria, project team members, and the information regarding the sponsor. A project charter provides the project manager with the authority to apply organizational resources to project activities. It is signed off by the project sponsor.
• A project is significantly affected by the environment comprised of internal and external factors. These factors should be taken into account while developing a business case, and while initiating, planning, executing and closing a project.
• Organizational structure, as an internal environmental factor, plays a critical role in projects as they are an indispensable part of the organization they belong to. The formal subsystem of the organizational structure consists of three main organization types, that are functional, matrix, and project-oriented. The informal subsystem includes the organizational culture which sets one organization apart from another with the beliefs, attitudes, and values the organization’s members share.
3.07: Questions and Exercises
There are 10 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=151
3.08: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/03%3A_Project_Initiation/3.05%3A_Project_Management_Office_%28PMO%29.txt |
Learning Objectives
1. Describe the importance and purpose of project planning.
2. Identify the basic processes and activities required in the planning phase.
3. Explain the main components of requirements elicitation.
4. List the main components of a project management plan.
5. Describe the process to develop a detailed description of the project.
6. Elaborate on the WBS structure to subdivide project deliverables and project work into smaller, more manageable components.
7. Practice on Microsoft Project to create a WBS.
4.0 Overview
After the project charter is approved by the sponsor, the project manager is appointed as the primarily responsible authority to utilize the budget and resources, define the primary components of the project such as scope, cost, schedule, quality, and risks, manage, control and monitor project activities, and finally close the project. From now on, the project manager is ready to enter the second phase in the project management life cycle. This is referred to as the planning phase, which directly follows the initiation phase. The planning phase involves creating a set of plans to help guide the team through the execution and closure as well as the monitoring and controlling which occurs throughout the whole project. The plans created during this phase help the project manager and the team manage triple (iron triangle) constraints, which are scope, schedule and cost, and other constraints such as quality, resources, and risks, and other related issues and knowledge areas (e.g., integration, procurement, stakeholders, communication). They also help the project manager lead the project team and work with external suppliers to ensure that the project deliverables can be delivered on time, within budget, and with the desired functionality.
4.02: Project Planning
Planning consists of the processes required to establish the scope of the project, refine the objectives, and define the course of action required to attain the objectives that the project was undertaken to achieve[1]. Although most of the project effort (i.e., making use of the workforce and other resources) is spent during the execution phase that occurs after the planning phase, project managers and their teams face the most challenging tasks and perform many processes during the planning phase. The project planning phase is often the most challenging phase for a project manager, as the project manager is often required to make educated guesses about the team members, resources required for all the activities, and the schedule and budget needed to complete the project. In addition, the planning includes communications and procurement activities, as well as planning contracts with any third-party suppliers.
Thorough and proper planning helps the team have a smoother execution process with a better prediction level. However, it is of high importance to keep in mind that predictability is at low levels in many projects in terms of scope (requirements and project activities), schedule, budget, and risks. This is why agile (adaptive) project management comes to the forefront, which started in the 1990s with software projects and extended to information systems projects over time, and other fields such as, but not limited to, new product development, high technology projects, and start-ups. Agile project management will be discussed in Chapter 12 “Agile (Adaptive) Project Management”.
Project planning is at the heart of the project life cycle and tells everyone involved where the project is going and how the team is going to get there. It involves creating a set of plans to help guide the team through the implementation and closure phases of the project. The plans created during this phase help the project team manage time, cost, quality, changes, risk, and related issues. The purpose of the project planning phase is to:
• Provide guidance and direction on how scope, schedule, cost, quality, resources, communications, risks, procurements, and stakeholders will be managed throughout the project[2],
• Refine and elaborate on the SMART (Specific, Measurable, Achievable, Relevant, Time-based) objectives, establish the business, stakeholder, solution, and transition requirements, and translate them to project activities by defining the scope and create WBS (Work Breakdown Structure),
• Develop project schedule by defining and sequencing project activities and milestones, and by estimating activity durations.
• Determine resources, identify risks based on the requirements and activities, and eventually estimate costs and determine project budget,
• Identify the methods to track, review, and regulate the progress and performance of the project (e.g., EVM – Earned Value Management),
• Communicate and collaborate with all the stakeholders, and obtain the approval of the sponsor and the client, and proceed to the next phase, which is the implementation (execution) phase.
Project managers identify the work to be done for the project in collaboration with the stakeholders including the project sponsor, team members, relevant functional departments of our organization, end-users, customers, regulatory organizations, and government agencies – in short, all the stakeholders that are affected by or are affecting the overall project or at least one activity, decision or outcome. Once the major components of the project are known, the project manager can assign those in the team who will carry out the detailed planning of the project’s sub-components. The lowest level manageable activities are called “work packages” in predictive (waterfall) methodology. We will discuss Work Breakdown Structure (WBS) which is composed of work packages in its section below. In agile methods and frameworks, especially in Scrum, which is the most common agile framework utilized by organizations worldwide, “sprints”, “timeboxes”, or “cycles” are used with compressed life cycle stages (see Chapter 12).
The planning phase refines the project’s objectives in the Project Charter, which were identified at higher levels during the initiation phase. This phase also includes planning the steps necessary to meet those objectives by further identifying the specific activities and resources required to complete the project. Once the project objectives have been fully recognized, they must be clearly articulated, specifically developing each of them according to the SMART protocol. These objectives would lead to the identification and elaboration of product requirements in line with the project deliverables. Often, the very act of describing a project’s objectives using detailed, precise language allows us to better understand the project’s scope. This articulation serves as the basis for the development of requirements. What this means is that, after an objective has been clearly articulated, it can be described in concrete (measurable) terms and the steps to achieve it are easier to identify. If a poor job is done of articulating the objectives, the requirements will be misdirected, and the resulting project will not represent the true need.
In general, the planning phase involves three fundamental components: Identifying the scope, preparing the schedule, and estimating the costs. These are triple constraints that also serve as our baselines throughout the project to measure the project’s success. After these activities are complete, it is a good time to identify and try to deal with anything that might pose a threat or an opportunity to the successful completion of the project. This is called risk management. In risk management, the threats and opportunities are identified along with the action that is to be taken as a response in order to optimize the likelihood of project success (see Chapter 10). In the initiation phase, a preliminary list of project stakeholders was identified. During the planning phase, the list is reviewed to ensure that it remains current and stakeholders continue to be prioritized. Stakeholder engagement is a critical success factor, and communication plays a key role in this engagement. Effective project leaders spend about 90% of their time on a project communicating with stakeholders[3]. An effective communication plan is one of the tools used to ensure stakeholders remain informed and supportive of the project’s objectives (see Chapters 5 and 6).
In some instances, organizations need to obtain products and utilize services from outside of the organization. Overseeing these transactions is known as procurement management. During the planning stage, procurement management involves identifying the type of vendors required and the selection criteria to be used. Finally, project managers ensure that the team understands the quality expectations of the stakeholders. In order to fulfill these expectations, a quality management plan is developed to identify quality targets, assurance, and control measures, along with an acceptance plan.
Throughout all these project planning activities, it is the job of the Project Manager to integrate the team’s planning efforts—a process known as integration management. Developing a project charter and a project management plan are two processes of seven processes carried out within the project integration management[4]. Project managers should assure that all the necessary processes and activities are included to identify, define, combine, unify, and coordinate the various process and project management activities. They should manage the interdependencies among all the project management knowledge areas. Consequently, a comprehensive project plan should be created to ensure all the various management plans identified above are cohesive and well-aligned.
In this chapter, we will elaborate on the development of a project scope management plan including requirements management. Other subcomponents of the project management plan will be explained in their respective chapters (e.g., project communications management plan in Chapter 6; project schedule management plan in Chapter 8).
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/04%3A_Project_Planning_and_the_Project_Scope/4.01%3A_Learning_Objectives_and_Overview.txt |
After all the deliverables are identified, the project manager needs to document all the requirements of the project. While PMBOK Guide 6th Edition refers to this process as “Collect Requirements”, BABOK Guide v3 refers to elicitation[1]. Elicitation is more than just collecting. As BABOK Guide states “It is the drawing forth or receiving of information from stakeholders or other sources. It is the main path to discovering requirements and design information, and might involve talking with stakeholders directly, researching topics, experimenting, or simply being handed information.” BABOK Guide defines a requirement as a usable representation of a need. The nature of the representation may be a document (or set of documents) but can vary widely depending on the circumstances.
The requirement is defined by the PMI Guide to Business Analysis as “a condition or capability that is required to be present in a product, service, or result to satisfy a contract or other formally imposed specification.” The responsibility for defining requirements should be assigned to resources that have sufficient business subject matter expertise and decision-making authority[2]. Project teams consist of business analysts who are involved in the elicitation of requirements. There may be other job titles that perform business analysis. These titles were enumerated by BABOK Guide as business architect, business systems analyst, data analyst, enterprise analyst, management consultant, process analyst, product manager, product owner, requirements engineer, and systems analyst.
A project manager must assure that requirements are defined in a way that project activities can be determined and sequenced, and hence, a schedule and budget can be created. As quoted by the Business Analysis for Practitioners: A Practice Guide, “inaccurate requirements gathering” was reported by 37% of organizations as a primary cause of project failure. Poor requirements management practices were identified as the second leading cause of project failure, second only to changing organizational priorities[3]. Therefore, project managers need to ensure that all the stakeholders have been identified so that requirements can be elicited thoroughly from all of them, and all the expectations and concerns can be addressed.
A requirement represents something that can be met by a product, service, or process, and can address a need of the business, person, or group of people. A requirement should be independent of the design of the solution that addresses it. A requirement may explain a feature that is to be met by a product or software component. The project’s requirements, defined in the scope management plan, describe what a project is supposed to accomplish and how the project is supposed to be created and implemented. Requirements may include attributes like dimensions, ease of use, color, specific ingredients, and so on.
When a specific type of requirement is under discussion, the term requirement is preceded by a qualifier such as stakeholder, business, or solution. The hierarchical relationship among requirements can be illustrated in Figure 4.1.
As illustrated in Figure 4.1, business requirements are developed based on the business needs (problems or opportunities) that an organization is striving to find a solution to overcome the problem or exploit the opportunity. As discussed with examples in Chapter 2, objectives should be SMART (Specific, Measurable, Achievable, Relevant, Time-based). Project Managers should also consider this SMART protocol while creating requirements, especially when getting into greater detail about business requirements. Requirements must be measurable, testable, related to identified business needs or opportunities, and defined to a level of detail sufficient for system design. Moving down, as illustrated in Figure 4.1, means that requirements are determined in a hierarchy starting from the business requirement at the top, and elaborating on them with stakeholder requirements, and solution requirements[4]. Besides these three requirement types which are structured in a hierarchy, there is a fourth type called transition requirements.
Business requirements are the needs of the internal or external client, always from a management perspective. They are the statements of goals, objectives, and outcomes that describe why a change has been initiated. They can apply to the whole of an enterprise, a business area, or a specific initiative[5]. Business requirements are statements of the business rationale for the project. They are usually expressed in broad outcomes, satisfying the business needs, rather than specific functions the system must perform. These requirements grow out of the vision for the product that, in turn, is driven by mission (or business) goals and objectives. We can define our business requirements as below:
• A mobile application shall be used by customers of our grocery stores.
• Customers should access the mobile website and applications on their smartphones and tablets, and complete the purchase.
In our Project Charter example in Chapter 3, the high-level requirements were as follows. They can be considered either business requirements or stakeholder requirements.
• The mobile website and smartphone application shall:
• Include all the functions that a desktop website possesses.
• Be accessed with the same login username and password.
• Synchronize the customer profile and the cart with the desktop website.
In order to elicit the requirements, a team should dig deep by implementing various techniques such as interviews, surveys, focus group meetings, observations, and document analysis. In organizations, business analysts or other positions performing the tasks of a business analyst perform these techniques to ensure that they can address the need from the perspective of stakeholders (e.g., customers, end-users). Stakeholder requirements serve as a bridge between business and solution requirements. In our m-commerce project initiated by Grocery LLC, we can write some of the stakeholder requirements as below:
• Business Requirement: A mobile application shall be used by customers of our grocery stores.
• Stakeholder Requirements:
• Customers shall log in to the application by using their usernames and passwords.
• Customers shall also log in to the application through biometrics identification.
• Customers shall use their usernames and passwords across all interfaces (mobile application, mobile website, and desktop website).
• Customer profile information including the name, shipping and billing addresses, and payment accounts shall synchronize across all interfaces (mobile application, mobile website, and desktop website).
• Customers shall browse the items of their choice after selecting the categories or typing on a search box.
After stakeholder requirements are developed, solution requirements can be derived from these stakeholder requirements. They describe the capabilities and qualities of a solution that meets the stakeholder requirements[6]. Thus, they can provide an appropriate level of detail for the development and implementation of the solution. These requirements are divided into two subcategories as functional and non-functional requirements.
Functional requirements describe the characteristics of the final deliverable in ordinary non-technical language. They should be understandable to the customers, and the customers should play a direct role in their development. Functional requirements are what you want the deliverable to do. They describe the capabilities that a solution must have in terms of the behavior and information that the solution will manage.
• Stakeholder Requirement: Customers shall log in to the application by using their usernames and passwords.
• Functional Solution Requirement: Customers shall receive a one-time password to their mobile phones as a text message or to their email addresses so that they can type this one-time password on the mobile application or the mobile application can recognize the text message and automatically transfer it to the mobile application.
• Stakeholder Requirement: Customer profile information including the name, shipping and billing addresses, and payment accounts shall synchronize across all interfaces (mobile application, mobile website, and desktop website).
• Functional Solution Requirement: The profile page consists of the fields “First Name”, “Middle Name”, “Last Name”, “Gender”, “Street Address”, “Apartment/Suite Number”, “City”, “State”, “Zip Code”, “Mobile Phone Number”, “Other Phone Number”, “Debit/Credit Card Number”, “Debit/Credit Card Expiration Date”, and “Debit/Credit Card Security Code”.
• Functional Solution Requirement: When customers type new information or edit existing information in their profile pages on only one of the interfaces, this information will be updated immediately on other interfaces.
Non-functional requirements or quality of service requirements do not relate directly to the behavior or functionality of the solution, but rather describe conditions under which a solution must remain effective or qualities that a solution must have[7]. End users cannot see directly on the mobile application how these requirements are met.
• Stakeholder Requirement: Customers shall view the total price of the items they added to their cart, and shall checkout by entering their addresses and payment information.
• Non-Functional Solution Requirement: The system shall confirm the validity of the payment tool (debit or credit card), and carry out the transaction securely by blocking any breach from outside the system.
The last requirement type is the transition requirements (Figure 4.1). These requirements describe the capabilities that the solution must have and the conditions the solution must meet to facilitate transition from the current state to the future state, but which are not needed once the change is complete[8]. They describe temporary capabilities such as data conversion, training and business continuity requirements. They are essential for the organizational readiness to make the project outcomes and deliverables operational. In our m-commerce project, some transition requirement examples can be outlined as below:
• Functional solution requirement: Customers shall be able to chat with and have a phone call with call center agents and customer service representatives when they need to contact due to any issues or demands related to the mobile application.
• Transition requirements: Before mobile application becomes operational, it shall be ensured that:
• Employees in call centers shall be trained to effectively find solutions to the customers’ requests through the mobile application.
• Call centers shall be equipped with the necessary hardware and software tools to support customers who do their shopping on the mobile application.
• Call centers shall be supported via a stable and fast network connection.
• The call center database shall be hosted in a cloud server with a backup option.
The effective specification of requirements is one of the most challenging undertakings project managers face. Inadequately specified requirements will usually lead to poor project results.
Documenting requirements is much more than just the process of writing down the requirements as the user sees them; it should cover not only what decisions have been made, but why they have been made, as well. Understanding the reasoning that was used to arrive at a decision is critical in avoiding repetition. For example, the fact that a particular feature has been excluded, because it is simply not feasible, needs to be recorded. If it is not, then the project risks wasted work and repetition, when a stakeholder requests the feature be reinstated during development or testing.
Once the project requirements are documented, the next step is for key stakeholders to sign off on the requirements to confirm that everyone is operating with the same set of expectations. While the project manager is responsible for making certain the requirements are documented, it does not mean that the project manager performs this task. The project manager enlists the help of all the stakeholders (business analysts, requirement analysts, business process owners, customers, and other team members) to conduct the discussions, brainstorming, and interviews, and to document and sign off the requirements. As with many aspects of project management, the project manager is responsible only for enabling the process and facilitating it. If the project manager feels that the quality of the document is questionable, their duty is to stop the development process.
The project manager reviews the requirements, incorporates them into the project documentation library, and uses them as input for the project plan.
1. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
2. Business Analysis for Practitioners: A Practice Guide (2015). Project Management Institute.
3. Business Analysis for Practitioners: A Practice Guide (2015). Project Management Institute.
4. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
5. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
6. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
7. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
8. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
4.04: Requirements Traceability Matrix
The project team should link the requirements to the activities and deliverables that satisfy them during the project. Requirements traceability matrix is a common structure that is used by project teams. It also shows each requirement’s relationship to other requirements. Traceability is used to help ensure that the solution conforms to requirements and to assist in scope, change, risk, time, cost, and communication management[1]. A formal traceability matrix is usually built hierarchically, starting with high-level requirements and filling in the details as the requirement is progressively elaborated. This hierarchy is similar to an outline that is filled in as more detail is known[2].
This matrix can include the information regarding:
• Requirement ID
• A unique identifier
• Associate ID
• A unique identifier for requirements associated with higher-level requirements
• Requirement category
• Requirement description
• A textual description of the requirement
• Current status
• E.g., active, canceled, deferred, added, approved, assigned, completed.
• Status date
• Business needs, goals, and objectives
• To address the rationale of inclusion
• Project objectives
• To address the rationale of inclusion
• WBS number
• The relationship of the requirement with project activities and milestones
• Design ID
• The relationship of the requirement with the design elements
• Build ID
• The relationship of the requirement with an implementation of a specific feature
• Test strategy and test scenarios (e.g., technical/system case tests, user/acceptance case tests)
• Test cases that will validate that the built features perform as required by the requirements.
Let’s create a small version of the requirements traceability matrix for Grocery LLC’s m-commerce project.
• ID (1): Customers shall log in to the application by using their usernames and passwords.
• ID (2): Customer profile information including the name, shipping and billing addresses, and payment accounts shall synchronize across all interfaces (mobile application, mobile website, and desktop website).
Table 4.1: Requirements Traceability Matrix
ID Associate ID Requirements Description Current Status WBS Design ID Build ID Test case
1 1.1 Customers shall receive a one-time password to their mobile phones. Active 2.2
3.2
D3
D6
B3
B8
Case 2
1.2 Customers shall be able to prefer signing in to the mobile application by swiping their fingerprints on their smartphones. Active 2.2
3.2
D3
D6
B3 Case 3
2 2.1 The profile page consists of the fields “First Name”, “Middle Name”, “Last Name”, “Gender”, “Street Address”, “Apartment/Suite Number”, “City”, “State”, “Zip Code”, “Mobile Phone Number”, “Other Phone Number”, “Debit/Credit Card Number”, “Debit/Credit Card Expiration Date”, and “Debit/Credit Card Security Code”. Active 2.2
4.4
5.2
D2 B2 Case 6
2.2 When customers type new information or edit existing information in their profile pages on only one of the interfaces, this information will be updated immediately on other interfaces. Active 2.2
4.4
5.2
D2
D9
B2 Case 7
1. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
2. Business Analysis for Practitioners: A Practice Guide (2015). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/04%3A_Project_Planning_and_the_Project_Scope/4.03%3A_Eliciting_Requirements.txt |
Before starting the implementation of any project activities, the project team needs to know exactly what work has to be done. Therefore, the team needs to plan first to provide guidance and direction on how the scope will be managed throughout the project[1]. In this very beginning process, the project team creates a scope management plan that documents how the project and product scope will be defined, validated, and controlled. Project managers should coordinate the responsibilities of each team member. In order to do so, they should know exactly what they’re going to do to meet the project’s objectives. Therefore, the scope planning process is the very first thing to be done. Project scope planning is concerned with the definition of all the work needed to successfully meet the project objectives. Project managers and teams should have a clear picture of all the work that needs to happen on their projects, and as the project progresses, they should ensure that the scope is up to date.
4.4.1 Defining the Scope
We already have a head start on refining the project’s objectives in quantifiable terms, but now we need to plan further and write down all the intermediate and final deliverables that we will produce over the course of the project. Deliverables include everything that we produce for the project (i.e., anything that the project will deliver). The deliverables for the project include all of the products or services that we are performing for the internal or external clients, and/or the end-users and customers. They include every intermediate document, plan, schedule, budget, blueprint, and anything else that will be made along the way, including all of the project management documents that are put together. Project deliverables are tangible outcomes, measurable results, or specific items that must be produced to consider either the project or the project phase completed. Intermediate deliverables, like the objectives, must be specific and verifiable.
All deliverables must be described in a sufficient level of detail so that they can be differentiated from related deliverables. For example:
• A twin-engine plane versus a single-engine plane
• A red marker versus a green marker
• A daily report versus a weekly report
• A departmental solution versus an enterprise solution
In our case of m-commerce project carried out by Grocery LLC, there are two main deliverables which are:
1. A mobile application that can be installed on Android and IOS smartphones.
2. A mobile website optimized for Android and IOS smartphones.
We should also define what is not included in the project’s scope. M-commerce project doesn’t directly target tablets since their screen size would allow them to display the regular desktop website. Besides, the smartphone application can be used in tablets. Besides, smartphones with operating systems other than Android and IOS are excluded.
One of the project manager’s primary functions is to accurately document the deliverables of the project and then manage the project so that they are produced according to the agreed-on criteria. Deliverables are the output of each development phase, described in a quantifiable way to assure measurability. In our case study, project objectives have been provided to ensure measurability:
1. To redesign the website in 2 months so it’s more responsive and easier for the customers to place orders on their smartphones.
2. To create a new mobile application in 2 months that can work in both operating systems (Android and IOS).
The process of defining scope generates a “Project Scope Statement”[2]. It is the description of the project scope, major deliverables, assumptions, and constraints. The project charter contains high-level information while the project scope statement contains a detailed description of the scope components. The project scope statement documents the entire scope, including project and product scope. Project Scope Statement is composed of the components as outlined below[3]. Readers should always keep in mind that they should create a long and detailed statement when they work as a project manager or a team member on a project in their organizations.
1. Product scope description
The mobile application and the mobile website will have the same functions that allow online customers to conveniently do their shopping by browsing, searching, and locating the items they want to purchase, adding them to the cart, specifying the number and weight of the items, choosing the delivery and shipping options, checking out via their payment option, and tracking the items they ordered. The mobile application will work on smartphones having Android and IOS. Customers will use the same username and password they use to access the desktop version. If they leave the application or the website, the items in their cart will not be removed and synchronized with all the interfaces (mobile application, mobile website, and desktop website). If an item’s price changes or this item is sold out, they will be notified of this when they access their carts.
1. Deliverables
• A mobile application
• Optimized mobile website
1. Acceptance criteria
The mobile website and the smartphone app will be subject to alpha testing first. Then, beta testing will follow, where customers can install the beta version on their smartphones and do their online shopping. During the implementation of the beta version, all the feedback from customers and their mobile devices will be evaluated and the bugs and problems will be corrected. When the mobile website and the app are fully functional, customers should log in with their usernames and passwords, browse items, add them to their carts, proceed to checkout, and complete their payment.
The sponsor must approve the sign-off after they receive the inspection and acceptance report.
1. Project exclusions
• This project doesn’t directly target tablets since their screen size would allow them to display the regular desktop website. Besides, the smartphone application can be used in tablets.
• Smartphones with operating systems other than Android and IOS are excluded.
4.4.2 Work Breakdown Structure (WBS)
After defining deliverables and requirements, and creating a Project Scope Statement, the next step would be to create a Work Breakdown Structure (WBS) that defines all the activities required to complete the project. The WBS defines the scope of the project and breaks the work down into components that can be scheduled, estimated, and easily monitored and controlled. The idea behind the WBS is simple: dividing a complicated task into smaller tasks until we reach a level that cannot be further subdivided. We stop breaking down the work when we reach a low enough level to perform an estimate of the desired accuracy. At that point, it is usually easier to estimate how long the small task will take and how much it will cost to perform than it would have been to estimate these factors at the higher levels. Each descending level of the WBS represents an increased level of detailed definition of the project work. A WBS also provides the necessary framework for detailed cost estimating and control, along with providing guidance for schedule development and control.
The purpose of developing a WBS is to allow easier management of each component, accurate estimation of time, cost, and resource requirements, easier assignment of human resources, and easier assignment of responsibility for activities.
WBS is a hierarchical decomposition of the project into phases, deliverables, and work packages. It is a tree structure, which shows a subdivision of effort required to achieve an objective. In a project, the WBS is developed by starting with the end objective and successively subdividing it into manageable components in terms of size, duration, and responsibility, which includes all steps necessary to achieve the objective. An example of this hierarchical decomposition can be starting from the highest level which is the project and moving downwards along the systems, subsystems, components, tasks, and subtasks, and stopping when we arrive at the lowest level which is work packages.
The WBS creation involves:
• Listing all the project outputs (deliverables and other direct results)
• Identifying all the activities required to deliver the outputs
• Subdividing these activities into subactivities and tasks
• Identifying the deliverable and milestone(s) of each task
• Considering the usage of all the resources (personnel and material) required to complete each task
WBS formatting can be made through various approaches such as the top-down approach, the use of organization-specific guidelines, and the use of WBS templates[4]. The WBS can be developed in different ways to represent the second level after the highest level, the project. The second level can represent the phases of the project life cycle or major deliverables. Below illustrates a WBS with major deliverables at the second level.
0 Project Name
1 Major Deliverable
1.1 Sub Deliverable
1.2 Sub Deliverable
1.3 Sub Deliverable
2 Major Deliverable
2.1 Sub Deliverable
2.1.1 Work Package
2.1.2 Work Package
2.1.3 Work Package
2.1.4 Work Package
2.2 Sub Deliverable
2.3 Sub Deliverable
3 Major Deliverable
3.1 Sub Deliverable
3.1.1 Work Package
3.1.2 Work Package
3.1.3 Work Package
3.2 Sub Deliverable
3.2.1 Work Package
3.2.2 Work Package
3.3 Sub Deliverable
4.4.3 Case Study 4.1: WBS of Grocery LLC’s M-Commerce Project
Based on the Project Charter we developed in Chapter 3 as well as the requirements and the scope detailed in this chapter for Grocery LLC’s M-Commerce Project, we can create a WBS for the mobile application as below[5]. Optimization of the mobile website is not included in this WBS. Different from the generic WBS above which has been developed based on the major deliverables and sub deliverables, the WBS below displays the phases of the project in the second level (e.g., scope, analysis/application requirements, deployment). This WBS has three levels including the highest level which is the project itself. In Chapter 7 “Scheduling”, we will have an exercise regarding the fourth level for “1.3 Preparation of Project Charter” in the “Defining Activities” section. Although some WBS components such as “1.6 Initiation stage complete” and “2.7 Analysis Complete” are on the Activities column, they are milestones with zero duration which show
Table 4.2: WBS for the Mobile App Development Project
WBS Activities
0 Mobile App Development
1 Scope
1.1 Clarify project purpose and determine project scope
1.2 Secure project sponsorship
1.3 Preparation of project charter
1.4 Approval of project charter by the sponsor
1.5 Secure core resources
1.6 Initiation stage complete
2 Analysis/App Requirements
2.1 Conduct needs analysis
2.2 Draft preliminary stakeholder specifications
2.3 Review specifications with team and stakeholders
2.4 Incorporate feedback on the specifications
2.5 Develop preliminary budget and delivery timeline
2.6 Obtain approvals to proceed (concept, timeline, budget, resources)
2.7 Analysis complete
3 Design
3.1 Review preliminary stakeholder specifications
3.2 Develop solution (functional and non-functional) specifications
3.3 Develop transition requirements
3.4 Develop design mockups based on specifications
3.5 Review specifications
3.6 Incorporate feedback into specifications
3.7 Obtain approval to proceed
3.8 Design complete
4 Development
4.1 Review solution and transition specifications
4.2 Assign development staff
4.3 Develop on SDKs (Software Development Kits)
4.4 Developer testing (primary debugging)
4.5 Development complete
5 Testing
5.1 Develop a test plan based on specifications and SDK
5.2 Conduct automated test plans
5.3 Conduct performance and stress tests
5.4 Conduct regression testing
5.5 Conduct localization testing
6 Training
6.1 Develop training specifications for end users
6.2 Develop training specifications for helpdesk support staff
6.3 Develop training materials
6.4 Finalize training materials
6.5 Training materials complete
7 Documentation
7.1 Develop Help specification
7.2 Develop Help system
7.3 Review Help documentation
7.4 Incorporate Help documentation feedback
7.5 Develop user manuals specifications
7.6 Develop user manuals
7.7 Review all user documentation
7.8 Incorporate user documentation feedback
7.9 Documentation complete
8 Pilot
8.1 Identify test group
8.2 Develop software delivery mechanism
8.3 Install/deploy software
8.4 Obtain user feedback
8.5 Evaluate testing information
8.6 Pilot complete
9 Deployment
9.1 Determine final deployment strategy
9.2 Develop deployment methodology
9.3 Get approval from Android and Apple stores
9.4 Train support staff
9.5 Deploy software
9.6 Deployment complete
10 Post Implementation Review
10.1 Document lessons learned
10.2 Archive all documents
10.3 Complete all pending payments
10.4 Create software maintenance team
10.5 Final meeting with stakeholders to close the project
10.6 Disband the team
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
5. Adopted from Microsoft Project Professional 2019 Software Development Plan Template | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/04%3A_Project_Planning_and_the_Project_Scope/4.05%3A_Project_Scope_Management.txt |
Microsoft Project is one of the most common software tools used in project management across the world. In this textbook, we use Project Professional 2019. Recently, Project Professional 2021 has been introduced. As the main functions remain the same in these versions, we will continue using the 2019 version. If new versions necessitate an update, the online version of this book will be updated. In this book, all our examples and screenshots are based on the 2019 version. At many universities in the USA, students may be allowed to access the Microsoft Azure website (https://portal.azure.com/) with their school credentials (username and password). Therefore, they can download Microsoft software programs on the “Education” webpage (Figure 4.2), such as Project Professional 2021 or 2019, Access 2016, 2019 or 2021, Visio Professional 2016, 2019 or 2021, and Visual Studio, as well as Windows 10 or 11.
If you have a MacBook, you cannot download MS Project directly. The only way to run MS Project on your MacBook would be to dual-boot Windows and macOS on your MacBook. You can visit https://support.apple.com/en-us/HT201468 for more information. Nevertheless, many school labs and libraries provide computers in which MS Project 2019 or earlier versions are installed.
When you open MS Project for the first time, you can open a “Blank Project” or you can select a template (Figure 4.3).
When you select “Blank Project”, the project page will open with a ribbon that includes tabs (in the same format we have on Microsoft Office programs such as Word, Excel, and PowerPoint) (Figure 4.4). While the default view is “Gantt with Timeline”, we changed it from “Options” to “Gantt Chart” view. Therefore, Figure 4.4 doesn’t display the timeline. In Figure 4.5, under Project View, default view is set as Gantt with Timeline.
In this chapter’s tutorial and the following chapters, we will use “Gantt with Timeline” as our default view. Besides, we are not changing the schedule options. It means that we are not working at the weekends, and our durations are automatically labeled as “days”. However, we can type another unit such as a week (wk or wks) or month (mon or mons) (Figure 4.6).
Under the “Format” tab, we should check “Project Summary Task” first. Therefore, our project’s total duration can be automatically calculated by MS Project. The row number becomes zero for the project summary task. If we insert a column titled “WBS”, the system also gives zero to this task. MS Project doesn’t use the name “Activity”, but “Task”.
For this MS Project tutorial, we will use letters and numbers for the activities. A is the project, and it is the highest level which is 1. The lowest level in our WBS is the third level.
Table 4.3: Activities
WBS Level Activity
1 A
2 a1
2 a2
3 a21
3 a22
1 B
2 b1
3 b11
3 b12
1 b2
After we type all the activities, we can select a1 and a2, and indent them as both are under A (Figure 4.8). WBS numbers are given automatically by MS Project when we indent and outdent. After we indent a1 and a2, these two activities can be subtasks of A which could be considered as a phase or major deliverable.
For a21 and a22 at the third level, we should click the “Indent Task” icon twice as they are under a2 which is at the second level. Figure 4.9 displays the WBS numbers after all the activities have been indented.
As can be seen in Figure 4.9, WBS numbers changed automatically when we indented the tasks. This tutorial served as an introduction to Microsoft Project and only discussed how a WBS can be created. Therefore, we have not typed the durations and predecessors. We will cover them in Chapter 7 “Scheduling”.
4.07: Key Takeaways
Key Takeaways
• The project planning phase is often the most challenging phase for a project manager, as the project manager is often required to make educated guesses about the team members, resources required for all the activities, and the schedule and budget needed to complete the project.
• Thorough and proper planning helps project managers and teams have a smoother execution process with a better prediction level and a higher probability of project success. Developing a project management plan involves creating a set of plans to help guide the team through the implementation and closure phases of the project.
• Project managers identify the work to be done for the project in collaboration with the stakeholders including the project sponsor, team members, relevant functional departments of our organization, end-users, customers, regulatory organizations, and government agencies.
• A project manager must assure that requirements are defined in a way that project activities can be determined and sequenced, and hence, a schedule and budget can be created.
• A requirement represents something that can be met by a product, service, or process, and can address a need of the business, person, or group of people. Business requirements are developed based on the business needs (problems or opportunities) that an organization is striving to find a solution to overcome the problem or exploit the opportunity.
• Requirements can be categorized as business, stakeholder, solution, and transition requirements.
• In order to elicit the requirements, a team should dig deep by implementing various techniques such as interviews, surveys, focus group meetings, observations, and document analysis.
• Requirements traceability matrix is used to link the requirements to the activities and deliverables that satisfy them during the project.
• Planning starts with developing a scope management plan that documents how the project and product scope will be defined, validated, and controlled.
• The project scope statement describes the project scope, major deliverables, assumptions, constraints, acceptance criteria, and project exclusions (what the scope doesn’t include).
• The WBS (Work Breakdown Structure) breaks the project scope down into components that can be scheduled, estimated, and easily monitored and controlled. The lowest level of a WBS is called a work package.
4.08: Questions and Exercises
There are 8 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=324
4.09: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/04%3A_Project_Planning_and_the_Project_Scope/4.06%3A_Microsoft_Project_Tutorial.txt |
Learning Objectives
1. Describe the process to identify stakeholders in a project and create a stakeholder register.
2. Explain the management of stakeholders to meet their needs and expectations, address issues, and foster appropriate stakeholder engagement involvement.
3. List the conditions when project managers need to update the stakeholder engagement plan.
5.0 Overview
A project is successful when it achieves its objectives and meets or exceeds the expectations of the stakeholders who are individuals, groups, teams, businesses, corporations, communities, government organizations, or non-governmental organizations who either care about or have a vested interest in a project. They may affect the whole project, its outcomes, some activities, or even only a decision, an activity, or an outcome of the project negatively or positively. Stakeholders may be actively involved with project activities or have something to either gain or lose as a result of the project. Project managers and their teams spent most of their time communicating and collaborating with the stakeholders. Indeed, project managers, themselves, spent 90% of their time communicating[1]. This chapter discusses stakeholder management and how project managers should pay attention to while they communicate with the stakeholders including their key stakeholders such as project team members, sponsors, internal or external clients, customers, end-users, and regulatory and government agencies.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
5.02: Identifying Stakeholders and Managing Their Expectations
A project starts with two processes – developing the project charter and identifying stakeholders[1]. Triple constraints (scope, schedule, cost) and stakeholders constitute the main pillars of a project. If stakeholders are not identified properly, the project and its outcomes cannot address all the stakeholders’ expectations and concerns. Incomplete elicitation of the requirements from stakeholders might leave some key requirements out of the equation, putting the project and its outcomes in danger.
Stakeholders are those who have a positive or negative influence on the project, or who are or might be positively or negatively affected by the project, or its activities, decisions, and outcomes. Stakeholders can be anyone including, but not limited to, individuals, groups, teams, businesses, corporations, communities, government agencies, not-for-profit organizations, international bodies, and non-governmental organizations. They may affect the whole project, or only one or some of the decisions or activities, or the outcomes of the project negatively or positively. Stakeholders may be involved actively or passively in the project, or its activities and decisions. When you manage a project to add lanes to a highway, motorists are stakeholders who are positively affected by the outcome of this project whereas they may be affected negatively during the construction due to the closed roads and detours. However, your project may negatively affect residents who live near the highway during your project (with construction noise) and after your project with far-reaching implications (increased traffic noise and pollution). Stakeholders can be inside the implementing or client organization (e.g., subcontractors who undertake the construction work of additional lanes) or outside it (e.g., motorists, residents).
Internal stakeholders which are inside the organization, but not limited to, are:
• Project sponsor
• Project manager
• Project team members
• PMO (Project Management Office)
• Program manager
• Project/Portfolio steering committee
• Board of trustees
• Company owners/founders
• Top management (e.g., C-level executives)
• Project managers of other projects in the organization
• Functional departments/units in the organization, their managers, and all employees (e.g., research & development, finance, accounting, human resources, sales, marketing, manufacturing)
• End users in functional departments, regional offices, and international offices of the organization
• Regional offices/branches of the organization
• International offices/branches of the organization
External stakeholders which are outside the organization, but not limited to, are:
• Customers
• End users outside the organization
• Suppliers
• Contractors and subcontractors
• Shareholders
• Regulatory bodies
• Government agencies (e.g., federal, state, local, county)
• Current and potential competitors
Often there is more than one major stakeholder in the project. An increase in the number of stakeholders adds stress to the project and influences the project’s complexity level. The business or emotional investment of the stakeholder in the project and the ability of the stakeholder to influence the project outcomes or execution approach also impact the stakeholder complexity of the project. In addition to the number of stakeholders and their level of investment, the degree to which the project stakeholders agree or disagree also influences the project’s complexity and outcomes.
While identifying stakeholders, in the initiation stage of a project, a project charter generally consists of key stakeholders whose power or interest levels are at a high level. Key stakeholders can make or break the success of a project. Even if all the deliverables are met and the objectives are satisfied, if your key stakeholders aren’t happy, nobody’s happy. This is why all the key stakeholders must be identified before proceeding with the preparation of the project management plan. However, identifying the stakeholders doesn’t finish in the initiation stage, but is an ongoing process through which project managers should review and analyze their interests, involvement, interdependencies, influences, and potential impact on project success regularly during the project life cycle[2]. Data representation techniques such as stakeholder power/interest grid/matrix help a lot to review where stakeholders are positioned based on the criteria used and be prepared and implement strategies to manage stakeholders. In the following subsection, we will discuss one of the common data representation techniques, power/interest grid (matrix) based on a scenario.
There are many project decelerators, one of which is the lack of stakeholder support. Whether the stakeholders support our project or not, if they are important to the project, we must secure their support. How do you we that? First, we must identify who our stakeholders are. Just because they are important in the organization does not necessarily mean they are important to our project. Just because they think they are important does not mean they are. Just because they don’t think they need to be involved does not mean they do not have to be. The typical suspects that we should consider would be our top managers, relevant departments’ managers, supervisors or key employees, and the project sponsor (champion), our internal or external client, subject matter experts (SMEs) we need to consult, and the selection or steering committee reviewing and approving our project. In some situations, some think they are stakeholders in our project. Even though they aren’t, as they perceive that they are affected by the project and its activities and decisions, we should consider them as stakeholders. From our perspective, they may not be, but we should be careful while handling them. They could be influential with those who have the power to impact our project. We shouldn’t dismiss them out of hand.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/05%3A_Stakeholder_Management/5.01%3A_Learning_Objectives_and_Overview.txt |
After the initial assessment has been completed, stakeholder prioritization can occur. A power/interest grid would be a very helpful tool for prioritization (Figure 5.1). It helps project managers categorize stakeholders and create effective communication strategies for each category of stakeholder on the project. This tool is one of the most common techniques utilized to group stakeholders according to their level of authority (power) and their level of concern about the project’s activities and outcomes (interest)[1]. Besides the power/interest grid, other techniques can be used such as power/influence grid, impact/influence grid, stakeholder cube, and salience model. In this book, we will not cover these techniques.
The stakeholder power/interest grid is a two-dimensional matrix with four quadrants. Power refers to the authority of stakeholders through which they can affect the course of activities and decisions and may block or facilitate and accelerate them. Interest refers to stakeholders’ level of concern about the project’s activities and outcomes, and how they are affected by them, either negative or positive. While carrying out the activities to identify stakeholders, we should make our research and investigation thoroughly to determine and prioritize the stakeholders. Some stakeholders would have more power and interest in our project. Therefore, we should identify them, and create a strategy to engage them during the project. These strategies have been indicated in Figure 5.1 for each quadrant based on the level of power and interest.
Properties of each quadrant with the potential stakeholder inside them have been described below:
1. High power – High interest: These stakeholders are decision-makers and have the biggest impact on the project’s success and hence we must closely manage their expectations[2]. We should work closely with them to ensure that they agree with and support the change[3]. The project sponsor, project manager, and the team can be included in this quadrant.
2. High power – Low Interest: These stakeholders need to be kept satisfied even though they aren’t interested because they yield power. This type of stakeholders should be dealt with cautiously as well since they may use their power in a not desired way in the project if they become unsatisfied. Government and regulatory agencies which inspect the quality of your work in compliance with legal provisions and standards can be included in this quadrant.
3. Low power – High interest: We should keep these stakeholders adequately informed and talk to them to ensure that no major issues are arising. They are likely to be very concerned and may feel anxious about a lack of control. They can often be very helpful with the detail of your project. Our customers or end-users who are willing to purchase the outcome of the project (e.g., a product or a service) can be included in this quadrant.
4. Low power – Low interest: We should monitor these stakeholders, but do not bore them with excessive communication. The public and the customers who are not willing to purchase our products can be included in this quadrant. We can send them newsletters once every month, but not every week. We should monitor their interest and power level in case they may change.
When considering a stakeholder’s interest, we should assess the following:
• How is their performance evaluated?
• Will their performance be impacted by the project and/or the project’s outcomes?
• Are they needed to help produce the project’s outcomes?
When considering a stakeholder’s power, we should assess the following:
• What position do they currently hold in our organization or their organizations?
• How much authority does this position afford them over the project?
• Can they influence people in positions of high power?
Tools such as stakeholder power/interest grid help project managers prioritize stakeholders. Some stakeholders have little interest and little power in a project and as a result, do not require as much contact from the project team. Understanding who these stakeholders are allows the project team to spend more time with the stakeholders that have a significant interest in the project and who exert significant influence over the project. Project teams assess the interest and power of project stakeholders by researching their current positions and their actions in previous change initiatives, and by directly speaking with them about the project.
Below, let’s consider a fictitious case study of a vehicle rental company to elaborate on the stakeholder power/interest grid.
5.2.1 Case Study 5.1: A Vehicle Rental Company’s Project for their Booking System
Our car rental company, Best Rental Company Worldwide (BRCW), has a serious problem. Our booking system crashes frequently. The employees working in the relevant departments, branches, and the call center cannot process the information properly. Besides, there are significant errors in scheduling and pricing while individual and corporate customers are renting vehicles on the company’s website, and when they reach the call center to book a vehicle. The company’s IT director, who is CTO (Chief Technology Officer), asked us to initiate a project that would address the problems, and solve them. First, we should create a business case that should investigate the problem thoroughly. We should figure out the underlying reasons. In order to dig into the reasons, we should first identify the stakeholders to whom we should consult to learn what they experience with the current system, and what their concerns and expectations are. Our team targets to develop a new booking module in the ERP system, a website, and a mobile application our customers will access and use to book vehicles. We identified the stakeholders as follows:
1. Project manager
2. Project team members
3. Project sponsor: IT Director – Chief Technology Officer (CTO)
4. Steering Committee (composed of car rental company managers)
5. IT Department
6. HR Department
7. Sales Department
8. Marketing Department
9. Maintenance / Repair Department
10. Call Center and its managers and employees
11. Branches across the USA (and their managers and employees)
12. Branches outside the USA
13. Individual Customers
14. Organizational Customers (Corporates that rent vehicles based on a contract with BRCW)
15. Insurance companies
16. Travel agencies (including e-commerce agencies such as Expedia)
17. Vehicle manufacturers
18. Suppliers of vehicle spare parts and consumables for offices at the central units and branches
19. Government agencies (e.g., Department of Transportation, US Environmental Protection Agency)
20. Google Play store (for Android phones and tablets) and App Store (for Apple phones and tablets)
21. Not-for-profit organizations (e.g., associations that were established to reduce carbon emissions)
Project sponsor, project manager, project team members, steering committee, IT, sales, marketing and maintenance/repair departments, call center, and branches all across the USA are our internal stakeholders that are inside our company, BRCW. Although it may look counterintuitive to include the manager and team members, they are also stakeholders. Indeed, they are the most important stakeholders who have a strong impact on project activities, milestones, decisions, deliverables, outcomes, and the overall project.
5.2.1.1 Project Sponsor
The project sponsor is typically the most powerful stakeholder. In our case, CTO is the sponsor. Sponsors have high power and high interest. They are the decision-makers and act as a supervisor and controller of the project. Sponsors often initiate the project by signing off and approving the project charter and authorizing the project manager to form and lead the team, start planning, define the scope, activities, schedule, and risks, and allocate and utilize the budget and resources. A sponsor is the authority superior to the project manager inside the organization and acts as a supervisor and facilitator during the project. A sponsor releases the budget for the team to use for the project activities. If the project client is one of the units of the organization, that is an internal client, the project sponsor also becomes the funder. If the client is outside the organization, this external client becomes the funder while the sponsor should be still inside the organization that is implementing the project. A legal contract is created between the organization (where the project sponsor, project manager, and team are), and the external client (funder). While the contract is a legally binding agreement, we still need a project charter that should be signed by the sponsor who is in our organization where the team resides. The charter should be based on the contract, and it regulates the requirements and resource allocations on the organization’s side. As discussed in Chapter 3 regarding the project charter, the project sponsor can be referred to as the “initiating sponsor.” They have the authority to start and stop the project and will support the achievement of project objectives by removing the barriers to success. They can be regarded as the “external champion” because they often serve as the last escalation point when the project team needs support bringing an off-track project back on track. Successful project teams know how to leverage the power and position of the project sponsor and will proactively ask them to deliver influencing communications throughout the organization in order to maintain the project’s momentum and high morale within the team. Project sponsors can assign one or more sustaining sponsors to act as the “internal champion(s)” of the project. These sponsors are often leaders of the internal departments that are most affected by the project, such as a marketing manager or human resources manager. When the project sponsor selects the sustaining sponsor(s), one of their goals is to ensure that the project team frequently considers the organizational impacts of the changes being introduced. By keeping the sustaining sponsor(s) actively engaged in the project, they will ensure their teams are intently participating in the project and identifying the operational impacts that must be considered in order for the change to be sustained once the project has been completed.
5.2.1.2 Project Manager and Project Team
The project manager and the team members have high power and high interest since they are responsible for conducting all the teamwork and project activities, and they define and sequence activities, estimate their duration, budget, and resources, identify resources and allocate them, identify and manage risks, and monitor and control all project activities. They are those who are held accountable in the first place for the success of the project. Project managers have to deal with stakeholders external to the organization as well as the internal environment, certainly more complex than what a manager in an internal environment faces. For example, suppliers who are late in delivering crucial parts may blow the project schedule. To compound the problem, project managers generally have little or no direct control over any of these stakeholders. Therefore, it is a challenging process for project managers and the team. We will discuss team management in more detail in Chapter 6.
5.2.1.3 Top Management and Steering Committee
Top management may include the president of the company, vice-presidents, directors, division managers, and the corporate operating committee. They direct the strategy and development of the organization. Project managers should have top management support, which means it will be easier to recruit the best staff to carry out the project and acquire needed material and resources. Moreover, visibility can enhance a project manager’s professional standing in the company. On the minus side, failure can be quite dramatic and visible to all, and if the project is large as is in our case and expensive, the cost of failure will be more substantial than for a smaller, less visible project. Therefore, while dealing with top management, project managers should develop in-depth plans and major milestones that must be approved by top management during the planning and design phases of the project. They should ask top management associated with the project for their information reporting needs and frequency. They should also develop a status reporting methodology to be distributed on a scheduled basis, and keep them informed of project risks and potential impacts at all times. In our case study, the steering committee which is composed of top managers and their representatives plays a crucial role during the project.
5.2.1.4 Functional Departments
In our case study, we have functional departments, which are the IT, sales, marketing, and maintenance/repair departments as well as branches all across the USA. In general, central functional units have more authority than the regional offices have. All these units have managers and employees at various hierarchical levels. Among the central units, the IT department is the one that we should work with more closely since the project is directly related to their responsibilities, and most of the human and physical resources we need for the project activities reside in the IT department. Therefore, the IT department has high power and high interest. The project also needs human resources from the sales, marketing, and maintenance departments. We need to consult subject matter experts in these departments. Therefore, these department heads control their resources, and we rely on them. If we have a good relationship with them, they may be able to consistently provide the best staff and the best equipment for our project. Employees from these departments may be in our core team, or they may attend the project activities. Since the booking system directly affects their day-to-day operations, they have a higher interest. However, their power level may not be very high all the time. It may fluctuate from moderately high levels to lower interest levels though it is generally not very low.
5.2.1.5 Internal Customers: Branches and Call Center
The branches in our case, and also the call center, are the internal customers of our project. They will be the end-users of the new ERP module when our individual customers and employers of our organizational customers visit the branches or call the call center to book a vehicle or to talk about another issue related to the booking (e.g., complaints, roadside assistance). These two categories of internal customers are those who hold the power to accept or reject the deliverables of activities and the overall project when completed. However, they are generally represented by their managers, a product owner, or an inspection and acceptance committee who have high power and naturally very high interest. Therefore, we should place them in the quadrant that makes us manage them closely. Early in the relationship, the project manager will need to negotiate, clarify, and document project specifications and deliverables. After the project begins, the project manager must stay tuned in to the customer’s concerns and issues and keep the customer informed. If call center agents don’t find the new system user-friendly and easy to use, they may resist using it. They must be kept informed frequently, and their feedback should be sought especially in critical decisions. Their resistance and dissatisfaction may lead to rework, which may cause the project to have budget overruns and schedule slippages. This is why continuous user involvement and feedback are crucial during the project to minimize the risk of unacceptance.
While dealing with internal customers, the project manager and the team should pay attention to ensuring clarity about what stakeholders, in particular customers, want precisely. This is a part of product and project scope management. Project managers should assign business and/or systems analysts who can elicit requirements utilizing techniques such as surveys, interviews, focus group meetings, workshops, root and cause analysis, and document analysis. Project managers should be aware of any issues regarding the lack of documentation for what is wanted, lack of knowledge of the customer’s organization and operating characteristics, unrealistic deadlines, budgets, or specifications requested by the customer, hesitancy of the customer to sign off on the project or accept responsibility for decisions, and changes in project scope. As explicated in Chapter 3 “Project Initiation” and Chapter 4 “Project Planning”, project managers should address the needs and expectations of stakeholders such as customers, clients, or owners, and be sure to do the following:
• Learn the organization’s organizational structure, culture, buzzwords, and business.
• Clarify all project requirements and specifications in a written agreement.
• Specify a change procedure clearly in change management and configuration management plans.
• Establish the project manager as the focal point of communications in the project organization.
5.2.1.6 External Customers
Providing clarity about what stakeholders want precisely, as explained above for internal customers, is true for external customers too. Business and/or systems analysts should also elicit requirements from external customers by utilizing techniques such as surveys, interviews, focus group meetings, workshops, root and cause analysis, and document analysis. External customers are outside our organization. Therefore, they are within the external stakeholders. In our case, external customers are individual customers (people who rent vehicles for leisure or work) and organizational customers (corporates that rent vehicles based on a contract). When we finalize our project, they can book the rental vehicles on our website and mobile app, call the call center to reserve a vehicle or talk about another issue related to the booking (e.g., complaints, roadside assistance) or they can visit a branch to reserve, pick up or return a rental vehicle. Organizational customers, in general, have a contractual relationship with our company as they regularly and frequently rent vehicles with better prices and conditions. They will be interested in our new booking system since a more effective system helps them have a smoother process with minimum flaws. Most of the individual customers may not be frequent customers. They may pursue lower prices by comparing the prices based on the vehicle type. Therefore, their interest in our new system may not be high most of the time. We can name them as occasional individual customers. However, the customers who rent their vehicles from our company regularly may be interested in our project, and they may be willing to receive newsletters, for example, once every month in their email accounts. The power level for both individual and organizational customers would be low since they don’t have the authority and decision-making authority to significantly affect the course of the project (Figure 5.2).
5.2.1.7 External Stakeholders
In our case, individual customers (see 5.2.1.6), organizational customers (see 5.2.1.6), mobile app stores, insurance companies, travel agencies (including e-commerce agencies), vehicle manufacturers, suppliers, government agencies, and not-for-profit organizations are our external stakeholders.
An important stakeholder group in our case would be two common mobile application stores – Android’s Google Play and Apple’s App Store. Our mobile app developers and testers will use their SDKs (Software Development Kits), and they should authenticate the app before it can be used by the customers on their smartphones. There will be also standards such as regarding privacy and security that we need to comply with. Thus, these two stores will have high power in our project. However, their interest level may not be high as they are not impacted by this project and its outcomes. We should keep them satisfied by complying with their standards, and terms and conditions.
Government and regulatory agencies are generally considered to have high power and low interest if they have an inspection and approval authority in the project. Project managers working in certain heavily regulated environments (e.g., pharmaceutical, banking, or military industries) will have to deal with government regulators and departments. These can include all or some levels of government from municipal, provincial, federal, to international. Besides, constructors are subject to permits and inspections from the local (city and county offices such as Public Works, Fire, and Health Departments) and federal agencies regarding the quality and legal standards they need to adhere to in their constructions (e.g., building permits, fire evacuation plan, fire and smoke equipment, safety). This is why these agencies’ power level is high. In our case, government agencies were listed as the Department of Transportation and the US Environmental Protection Agency. Although these agencies may perform controls and inspections, and release permits for our operations, they may not have power and interest in our booking system. Thus, they are inside the low-power and low-interest quadrant in Figure 5.2. If there is a function or condition that need to be added to our system, and these agencies should approve before we make the system available, then we can include them inside the high-power and low-interest quadrant.
In our booking system project, we also have not-for-profit organizations such as associations that were established to reduce carbon emissions. Similar to government agencies in our case, these organizations may not have power in our project. However, they may have a low or moderate level of interest since the system could include the fuel efficiency rates for each car. In Figure 5.2, they were placed within the low-power and low-interest quadrant.
Insurance companies and travel agencies may be interested in our new booking system since some of them have an ongoing contractual relationship with our company. When a customer wants to rent a vehicle, they can select an insurance plan during their rental time. Travel agencies, and/or travel websites (e.g., Expedia, Priceline) communicate with our company’s system to check the availability of our rental cars. Therefore, both insurance companies and travel agencies may be interested in our project. However, their power level would be at a low level as they don’t have the decision-making authority to affect the project activities.
Another stakeholder would be vehicle manufacturers from which our company, BRCW, purchases the vehicles to rent to the customers. Although they have a high interest in our vehicle portfolio, and they have an ongoing relationship with our company, they may not have a high-level interest in the booking system. Indeed, vehicle manufacturers prefer their vehicles to appear in the booking system with high-quality pictures and accurate technical information. This is why they may have a moderate level of interest in our booking system. They would be willing to see the same look and feel or the picture and information quality available in our current system. Therefore, they were placed in the low-power and high-interest quadrant in Figure 5.2. We can also use the maintenance and service points of these vehicle manufacturers. However, this wouldn’t be related to the booking system.
Another stakeholder, suppliers of vehicle spare parts and consumables for offices at the central units and branches, wouldn’t have a high interest in our booking system. They may have a moderate level of interest in the functions and conditions in our ERP module if spare parts and consumables are included. Neither do they have power in our project. Many projects heavily depend on goods provided by outside suppliers. This is true for example of construction projects where lumber, nails, brick, and mortar come from outside suppliers. If the supplied goods are delivered late or in short supply or of poor quality or if the price is greater than originally quoted, the project may suffer. Therefore, their interest level would be high. However, in our case, their interest level wouldn’t be high. Hence, they were replaced in the low-power and low-interest quadrant in Figure 5.2.
We didn’t include any contractors in our case study. However, there are times when organizations don’t have in-house expertise. Thus, available resources and work is farmed out to contractors or subcontractors for the whole project or some of the activities. In a construction project, these subcontractors may be consultants, electricians, carpenters, and architects. Managing them requires many of the skills needed to manage full-time project team members. We may have problems with them regarding the quality of the work, cost overruns, and schedule slippage.
5.2.2 Case Study 5.2: Grocery LLC’s Mobile-Commerce Project
In Chapter 3 of this textbook, we created a project charter in the initiation phase of Grocery LLC’s mobile e-commerce project. The stakeholders specified in this charter under “9. Key Stakeholder List” are below. Besides, project team members who are indicated under “12. Project Team” in Chapter 3 have been included in the list below.
1. Project manager (Senior Systems Analyst)
2. Project team members (The core team)
1. Project manager: Senior systems analyst
2. Two systems (business) analysts
3. Two UI/UX designers
4. Three developers (including Android and IOS developers, and the backend developer)
5. Two testers (quality assurance engineers)
6. Two sales and marketing experts
3. Project sponsor (Chief Operations Officer – COO)
4. Product owner (The representative from the operational department who was assigned by the COO)
5. IT Department
6. Sales Department
7. Marketing Department
8. HR Department
9. Store managers and employees
10. Suppliers
11. Online customers
12. Customers who visit the stores in person
13. Government agencies that announce the pandemic restrictions
14. Google Play and App Store for the mobile application
The stakeholders have been placed on the grid as illustrated in Figure 5.3. Different from Figure 5.2, this grid shows each stakeholder with dots inside their quadrants. We should always keep in mind that the location of each dot should be justified, and they don’t indicate a GPS location so that they provide a comparison of their locations with other stakeholders.
High Power – High Interest Quadrant
We have explained in Case Study 1.1 that the project sponsor, project manager, and project team are placed in this quadrant. The product owner in the m-commerce project of Grocery LLC is a representative from the operational department who was assigned by the COO. This person represents the interests of the internal client, and the priority of the product specification is managed and directed by this person. Therefore, the product owner has a high authority to affect the course of the project, and naturally, their interest is at a very high level from the very beginning to the very end of the project, extending beyond the completion of the project. Let’s assume that two store managers will be assigned to the inspection committee that will assess the performance measures of the mobile application to grant acceptance. In any case, whether they are at the committee or not, store managers are directly affected by the activities and outcome of this project. Finally, the IT Department will be the main functional unit that will coordinate this project’s technical activities (programming, testing, deployment), and assign systems (business) analysts, UI/UX designers, developers (including Android and IOS developers, and the backend developer), and testers if these human resources are available in this department. If they are not available, the IT department will start a recruitment process through the HR department.
High Power – Low Interest Quadrant
Similar to Case Study 1.1, mobile application stores, Android’s Google Play and Apple’s App Store, would have high power in this project. Developers and testers in this project will use their SDKs (Software Development Kits), and they should authenticate the app before it can be used by the customers on their smartphones. Thus, we should keep them satisfied by complying with their standards, and terms and conditions. During the project, we should keep an eye on the announcements made by the government agencies regarding the pandemic. Modifications or new restrictions may affect the ongoing activities, and challenge the allocation of human and physical resources. The fourth stakeholder in this quadrant would be the HR department. Although the HR department may not have high interest, their power level could be higher due to the fact that the recruitment process should be carried out through them as explained above in the “high power – high interest quadrant”.
Low Power – High Interest Quadrant
As indicated in the “high power – high interest quadrant”, store managers’ interest will be high as their stores will need to manage the online orders. They will also be interested in the features of this application and its store interface since the store employees will need a user-friendly application to process the orders smoothly. Therefore, employees are expected to have a high-level interest in this project. Although both managers’ and employees’ power to influence the project activities and outcomes wouldn’t be high, we can still expect a moderate level of power because of their key role in the process. In the headquarters of Grocery LLC, sales and marketing departments are expected to have a high interest in this project. Actually, both departments will provide human resources directly in the project team. Besides, the mobile application’s content and its marketing tools will be managed by these two departments. Finally, we can place online customers in this quadrant as the end-users of the mobile app. The project team should elicit these stakeholders’ expectations from the app while creating, validating, and finalizing the requirements of the app.
Low power – Low Interest Quadrant
In this case study, we have two stakeholder groups in this quadrant. Suppliers have a key and frequent relationship with the grocery chain. However, their interest would be mostly on the supply chain management system through which they communicate with the chain and the intermediaries to dispatch the items ordered by the stores. Increased sales by means of the mobile app would benefit suppliers. However, the relationship with the grocery chain depends on the agreements and contracts independent of the mobile application. Nevertheless, we can still expect a moderate level of interest in this project. The second stakeholder group in this project would be customers who prefer visiting the stores in person, and hence who don’t think of using the mobile app. Their interest level can be at a minimum level.
5.2.3 Stakeholder Register
In order to have a better picture of stakeholders, we should have a stakeholder register accompanied by the power/interest grid we delineated above. This register should include information about all our stakeholders, both key and those with low interest and low power. Table 5.1 illustrates an example of a stakeholder register based on our case study about a rental vehicle booking system implemented at BRCW.
Table 5.1. Stakeholder Register
ID Stakeholder Name, Title, and Contact Information Organization Name Power Level (H/M/L) Interest Level (H/M/L) Current Level of Support Level of Support Required Risk Rating (H/M/L) Related Stakeholders Issues & Concerns Engagement Strategy & Tactics
1 Project Sponsor
CTO
BRCW H H Supports Actively Supports Actively L
• Project Team
• Steering Committee
• IT Department
Committed to the project and wants to ensure the external resources the organization provides deliver on expectations. Should be managed closely.
Signs off the project charter and the plan, and authorizes the project manager.
Releases the budget and resources.
Very frequent communication.
2 Google Play Store Google (Android) H L Neutral Supports M
• App Store
• Project Team
Should authenticate our app before it can be used by our customers on their smartphones.
Google Play’s SDK will be used.
App features, privacy, and security issues should be complied with.
New apps must target at least Android 11 (API level 30).
Google Play guidelines must be followed for compliance.
3 Organizational Customer Company X L H Opposes Supports H
• Project Team
• Sales Department
• Call Center
• Branches
Company X managers raised some issues in the recent meetings to terminate the contract with BRCW.
They don’t think that BRCW can create a new effective app.
The project team and sales department must communicate with this stakeholder’s top management frequently to show BRCW’s commitment to this project.
Each increment of the website and mobile app should be shown to receive feedback.
4 Occasional individual customers NA L L Neutral Supports L
• Project Team
• Call Center
• Branches
They try to find the most affordable price among many rental companies’ offers. The new booking system should be optimized to show the best offers to these customers.
Level of support (either current or desired) can be evaluated in five levels[4]:
1. Supports Actively: Anticipates and feels the need for change, actively works with the project team.
2. Supports: Anticipates and feels the need for change, but does not involve in the project team.
3. Neutral – Neither supporting nor opposing.
4. Opposes – Neither feels the need for change nor tries to prevent the change.
5. Opposes Actively – Doesn’t see the need for change, actively working to prevent the change.
In some cases, it isn’t uncommon for project managers to be working with stakeholders that are not supportive of the project. They may feel the project is not going to benefit them or their organizations. They may also resist making the changes that are necessary to support the project’s outcomes. Some stakeholders are very upfront about their resistance and others are not. In these situations, the project sponsor may be integral to winning these stakeholders over. Knowing when to tactfully involve others in stakeholder management is another key success factor for effective project management.
Stakeholders are critical factors to be taken into account while identifying the risks. Their risk rating helps the team determine individual and overall project risks. The project manager and the team should use judgment in deciding how to handle each stakeholder by evaluating their current and desired support level, the potential impact on the project activities, decisions and outcomes, and their issues and concerns regarding the project and other stakeholders. The role of stakeholders in identifying and managing risks will be discussed in Chapter 10.
Stakeholders may convey their issues regarding the project explicitly or implicitly. Therefore, the team should attempt to analyze and list what kind of issues and concerns are available and may emerge during the implementation of the project. Based on all the inputs discussed, the team should carry out brainstorming sessions and come up with strategies for the stakeholders whose lack of support significantly might impact the project’s success, how to gain their support, and how to engage them effectively in the project. Table 5.1 includes issues and concerns with four stakeholders in the rental booking system project, and engagement strategy and tactics.
Furthermore, we should consider the relationship among stakeholders. Can we improve the project’s chances by working with those who support us to improve the views of those who oppose? Therefore, as indicated in Table 5.1, it would be helpful for the team to have information regarding the relationships among the stakeholders. For example, related stakeholders have been indicated as the project team, sales department, call center, and branches for organizational customers.
A stakeholder register is a living document that should be reassessed regularly as is done for other plans and documents such as risk register and issue log (see Chapter 10). Thus, the project team should assign some time in their weekly or monthly meetings to discuss whether revisions are required to do in the stakeholder register. Stakeholders’ power and interest levels, support levels, risk ratings, issues and concerns, and accordingly engagement strategies and tactics could change throughout the project. Besides, new stakeholders may be added later. This process is discussed in 5.3 “Managing and Monitoring Stakeholders”.
5.2.2.1 Stakeholder Engagement Assessment Matrix
Another data representation tool that can be used is a Stakeholder Engagement Assessment Matrix. It can also be incorporated into the stakeholder register. In Table 5.1 above, the level of support was indicated in five levels: (1) Supports actively, (2) supports, (3) neutral, (4) opposes, and (5) opposes actively[5]. Besides this, another matrix can be used as detailed in the PMBOK Guide 6th Edition. C indicates the current engagement level whereas D indicates desired level.
Table 5.2 Stakeholder Engagement Assessment Matrix (Adopted from PMBOK Guide 6th Edition)
Stakeholder ID Unaware Resistant Neutral Supportive Leading
1 C D
2 C D
3 C D
*C: Current, D: Desired
As indicated in Table 5.2, stakeholders are evaluated based on five levels of engagement. They may be unaware of the project and its potential impacts. They may be aware of the project and potential impacts but resistant to any changes that may occur as a result of the work or outcomes of the project. These stakeholders will be unsupportive of the work or outcomes of the project. When stakeholders are aware of the project but neither supportive nor unsupportive, we can classify them as neutral. When they are aware of the project and potential impacts and supportive of the work and its outcomes, we can classify them as supportive. Eventually, stakeholders are classified as leading when they are aware of the project and potential impacts and actively engaged in ensuring that the project is a success.
5.2.2.2 Responsibility Assignment Matrix (RACI Chart)
Another data representation technique that can be used to illustrate each team member’s and relevant stakeholders’ roles and responsibilities in each project activity can be a responsibility assignment matrix. It shows the project resources assigned to each work package (lowest level activities in a WBS). One of the common responsibility assignment matrices is RACI (responsible, accountable, consult, and inform) chart. A RACI chart is a useful tool to ensure clear assignment of roles and responsibilities when the team consists of internal and external resources[6]. As seen in Table 5.3, a RACI chart displays the activities associated with team members and stakeholders.
In order to avoid confusion about who is ultimately in charge of supervision and/or decision-making for an activity, there should be only one person associated with accountability[7]. A role that is “Accountable” has the final authority or accountability for the task’s completion. This role is generally assumed by the project sponsor, project manager, or a supervisor or team members delegated by the project manager for an activity. As seen in Table 5.3, for each activity, we have only one role that assumes an accountability role. For example, in the “Collect Requirements” activity, Jim is the team member who is responsible for coordinating the whole activity and/or performing the tasks directly. Jim can consult Jane and Anna who may be subject matter experts who have a substantial amount of experience and knowledge or those who are affected significantly by the activity and have an interest in this activity and the overall project. Thus, Jim can interview Jane and Anna, and learn about their needs, expectations, and concerns. Mary can be the project manager or the supervisor in the team that audits and approves the activity and its deliverables. Tom could be a stakeholder with high interest and low power. We should keep him informed about what is going on in this activity. We can also receive feedback from Tom to improve the tasks in this activity.
Table 5.3 RACI Chart
Team Member or Stakeholder
Activity Jim Mary Chris Jane Anna Tom
Plan Scope Management A R R I C C
Collect Requirements R A I C C I
Define Scope A R R I C C
Create WBS A R R R I
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. https://www.projectmanagement.com/wikis/368897/stakeholder-analysis--using-the-power-interest-grid
3. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK Guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
4. Anupam (n.d.). Stakeholder Analysis Register. Retrieved from https://www.projectmanagement.com/
5. Anupam (n.d.). Stakeholder Analysis Register. Retrieved from https://www.projectmanagement.com/
6. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
7. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/05%3A_Stakeholder_Management/5.03%3A_Stakeholder_Analysis.txt |
After we identify the stakeholders, analyze their positions in terms of interests, power, influence, involvement, interdependencies, and potential impact on the project success, and accordingly develop strategies to involve them in the project to make them supportive of the project (and at least not opposing the project), we can manage and monitor their engagement[1]. This engagement should be detailed in a stakeholder engagement plan which is a component of the project management plan that identifies the strategies and actions required to promote the productive involvement of stakeholders in decision making and execution[2]. The stakeholder power/interest grid, stakeholder register, and other data gathering and analysis techniques are included in this plan created to guide the project team throughout the project to identify the strategies and approaches for engaging stakeholders.
During the execution of project activities, the project manager allocates most of the workforce and resources required for activities and spends a substantial amount of the budget. Based on the stakeholder engagement plan and its components, project managers should communicate and work with stakeholders to meet their needs and expectations, address issues, and foster appropriate stakeholder involvement[3]. This plan helps us while eliciting stakeholders’ requirements, expectations, and concerns, having meetings, interviews, and workshops with them, sending them periodic newsletters to keep them updated about the progress of our project, carrying out the activities to create deliverables that can satisfy their needs, and closing out the project after the approval of the client.
Identification of stakeholders brings about another key aspect of stakeholder management – communication with them. The communication protocol must be incorporated into the stakeholder engagement plan. Communication methods can be adapted to suit the unique nature of the project. This adaptation will also strongly affect project success. Key questions the project team needs to address are:
• Which stakeholders will make the decision in the organization on a specific issue, and which of them should be involved in this process? In particular, to whom we should consult about an issue, and inform?
• What type of communication types and methods should we utilize? Do the stakeholders want lengthy documents? Formal or informal communication? Is “short and sweet” the typical standard?
• What medium of communication is preferred? What kind of medium is usually chosen for various situations? Check the lessons learned repositories to see what past projects have done.
Although project managers keep each stakeholder’s expectations and needs in mind throughout each conversation, report or email, we should always remember that the interests of both our company and the client are more important than any stakeholder’s interests. However, preferring our company’s or client’s interests over other stakeholders’ may lead to failure during the implementation or after the deliverables of the project are made available for the clients and customers in the market. Market demand is a critical determinant of the success of our project outcome.
No matter what stakeholders’ needs or wants are, all of them will respect the project manager who:
• always provides justification of the actions and results, even when telling them something they don’t want to hear,
• Takes ownership of the project,
• Is predictable and reliable,
• Stands by his or her decisions, and
• Takes accountability for mistakes.
Achieving a project’s objectives takes a focused, well-organized project manager who can engage with a committed team and gain the support of all stakeholders. Building strong, trusting relationships with interested parties from the start can make the difference between project success and failure. Managing stakeholder engagement helps to ensure that stakeholders clearly understand the project goals, objectives, benefits, and risks for the project, as well as how their contribution will enhance project success[4].
The project manager’s interpersonal skills are needed especially while communicating with the stakeholders (see Chapter 6 for more discussion of interpersonal and leadership skills). Project managers must rely on their soft skills to be effective. Effective project management spends a significant amount of time building relationships with stakeholders. It is of high importance for a project manager to obtain, confirm, and maintain stakeholders’ commitment to the success of the project. Project managers manage their expectations through negotiation and communication. Building trust and maintaining an open line of communication are critical in working with all stakeholders. Keeping stakeholders involved is essential and it requires more than simply sharing information. The project manager must ask for their input and demonstrate an understanding of a stakeholder’s unique business challenges. This level of understanding is often done through simple and regular check-ins with stakeholders. Project managers who are successful in relationship building understand each stakeholder’s capacity to participate and honor their time constraints. Then, addressing risks or potential concerns and anticipating future issues that may be raised by stakeholders would be less challenging for a project manager equipped with effective interpersonal skills. Finally, project managers can clarify and resolve issues that have been identified.
Besides managing stakeholder engagement, project managers should assure that they and their teams monitor stakeholder relationships, and modify engagement strategies and plans during the project when needed. As is the case for all knowledge areas, project managers have a critical responsibility to track, review and regulate the progress and performance of the project, and accordingly to identify areas where modifications are required in the plan, and to perform corrective and preventive actions if needed. Stakeholders’ interests and power levels may change during the project. This leads to a change in strategies to engage them. Moreover, a stakeholder’s support of the project objectives and outcomes may change in an opposite direction. It may move from supportive to resistant due to various factors. Supporting stakeholders may find new information that isn’t in favor of their interests, and even may give harm. In our rental vehicle booking case, assume that one of the insurance companies that we work with is not included in the new system as an insurance provider. This company’s representatives thought that their company’s partnership with BRCW would continue. However, they were informed that their company’s offer will be listed as an alternative to another insurance company’s offer. Therefore, their attitudes may change to oppose the project when they are informed about it.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
5.05: Key Takeaways
Key Takeaways
• Stakeholders are those who have a positive or negative influence on the project, or who are or might be positively or negatively affected by the project, or its activities, decisions, and outcomes. Stakeholders can be anyone including, but not limited to, individuals, groups, teams, businesses, corporations, communities, government agencies, not-for-profit organizations, international bodies, and non-governmental organizations.
• The stakeholder power/interest grid is a two-dimensional matrix with four quadrants. It helps project leaders categorize stakeholders and create effective communication strategies for each category of stakeholder on the project.
• Stakeholder register provides a snapshot about all the stakeholders in terms of their power and interest levels, current and required support levels, risk ratings, their relationship to other stakeholders, issues and concerns, and engagement strategy and tactics to keep them supportive of the project or keep their resistance in a very low level.
• One of the common responsibility assignment matrices is the RACI (responsible, accountable, consult, and inform) chart which is a useful tool to ensure clear assignment of roles and responsibilities when the team consists of internal and external resources.
• The project manager’s interpersonal skills are needed especially while communicating with the stakeholders. Project managers must rely on their soft skills to be effective. Effective project manager spends a significant amount of time building relationships with stakeholders. It is of high importance for a project manager to obtain, confirm, or maintain stakeholders’ commitment to the success of the project.
5.06: Questions and Exercises
There are 8 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=435
5.07: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/05%3A_Stakeholder_Management/5.04%3A_Managing_and_Monitoring_Stakeholder_Engagement.txt |
Learning Objectives
1. Evaluate the importance of good communication in project management
2. Create a communication management plan.
3. Describe the interpersonal and technical skills that project managers need to lead project teams and manage the projects effectively.
4. Explain the methods of how project managers can cope with conflicts by utilizing interpersonal skills.
5. List the leadership styles, and define the servant leadership that is favored for project managers.
6. Explain how project managers can create a culture pertinent to a project.
7. Describe the processes to develop and manage project teams.
8. Describe the virtual project teams that are exponentially utilized worldwide by all types of organizations, and compare in-person and virtual teams.
6.0 Overview
As highlighted in Chapter 5 “Stakeholder Management”, project managers and their teams spend most of their time communicating and collaborating with the stakeholders. Indeed, project managers, themselves, spend 90% of their time communicating[1]. Therefore, most of this chapter addresses the aspects of communication which is necessary to sustain a healthy relationship with all the stakeholders besides project team members. In this chapter, we are also focusing on the team management that elaborates on the relationships between the project manager and other team members as well the relationships among all team members. Working with people, inside and outside the project team, involves dealing with them both logically and emotionally. A successful working relationship between individuals begins with appreciating the importance of emotions and how they relate to personality types, leadership styles, negotiations, and setting goals.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
6.02: Communications Management
Projects require teamwork, and team members must communicate with each other in a variety of ways. The documents they produce must be collected, distributed, and stored in an appropriate manner to assure timely and accurate communication between team members. This process is often assisted by a variety of technologies including computer and smartphone software programs and applications. The advent of the Internet accompanied by various ICTs (Information and Communication Technologies), and the emergence of the COVID-19 pandemic by the end of 2019 accelerated the process of digitalization for people, and all organizations including the companies, multinational corporates, non-governmental organizations, governments, and international bodies. Thus, the adoption and spread of ICTs worldwide across organizations and countries increased exponentially. The utilization of global virtual teams in organizations increased to unprecedented levels. 94% of the respondents of CultureWizard’s Global Virtual Work Survey indicated that employees want to continue working from home—at least part time[1]. More virtual presence has brought about new challenges as detailed in the “Virtual Teams” section in this chapter.
ICTs can facilitate faster and better communication, or they can become a barrier if they are not well understood and applied appropriately. Besides, as detailed in Chapter 5, the project manager and the team should be in ongoing contact with all the stakeholders based on their power and interest levels, and other factors such as influence, involvement, support required, and interdependencies. This necessitates the manager to choose an optimal portfolio of communication technologies and methodologies. Therefore, these issues should be well-thought by the project manager while preparing the project plan and its subcomponent “Project Communications Management Plan”.
6.1.1 Communication Management Plan
Communications management is about keeping everybody in the loop. The communications planning process concerns defining the types of information we will deliver, who will receive it, the format for communicating it, and the timing of its release and distribution. Hence, it is of high importance to make sure everybody gets the right message at the right time.
As is the case for all knowledge areas (e.g., scope, schedule, cost, resource, risk, communication, stakeholder), the first step is to plan so that we can delineate the guidelines that we should follow during the execution of the project activities, and while we monitor and control them. This provides us a direction based on the information needs of each stakeholder, available organizational assets, and the needs of the project[2]. All projects require a sound communication plan, but not all projects will have the same types of communication or the same methods for collecting, analyzing, and distributing the information. The communication plan documents the types of information needs the stakeholders have, when the information should be distributed, how the information will be delivered with which frequency, who will receive it, and the format and technologies we will use to communicate.
First off, we should figure out what kind of communication our stakeholders (including the project team) need so they can make good decisions and they are well-informed. This is called the communications requirements analysis. Our project will produce a lot of information, so we don’t want to overwhelm the stakeholders with all of it. Our job is to figure out what they feel is valuable. Therefore, the stakeholder power/interest grid (matrix) and the stakeholder engagement assessment matrix would be very helpful to determine the priorities of each stakeholder, and how we can communicate with each of them (see Chapter 5), Communicating valuable information doesn’t mean we always paint a rosy picture. Communications to stakeholders may consist of either good news or bad news. The point is that we don’t want to bury stakeholders in too much information but we do want to give them enough so that they’re informed and can make appropriate decisions. ICTs have a major impact on how we keep people in the loop. Therefore, our analysis and the plan should include them.
We should answer the questions below in our communications management plan:
• What are the methods of communicating that we need to consider? Which methods can we choose to transfer information?
• It can take many forms, such as written reports, conversations, email, formal status reports, meetings, online databases, online schedules, and project websites.
• How should we arrange the timing of the information exchange or need for updates? What is the reporting frequency for each stakeholder according to the expectations and concerns of stakeholders?
• Based on the role and responsibilities of team members, and the interest and power levels of stakeholders, methods, and frequency should be identified for each stakeholder.
• In “Case Study 5.2” in Chapter 3 which created the stakeholder power/interest grid for Grocery LLC’s mobile-commerce project, we indicated store managers in the inspection committee and online customers who are willing to do their shopping through the mobile app. While we can communicate with these store managers more frequently (e.g., once a week) by in-person and online meetings, and emails during the project, we can communicate with the customers less frequently by sending them updates in a newsletter format every two weeks.
• Who is the person responsible for communicating the information? Who authorizes the release of confidential information? Who receives the information according to their needs, expectations, and concerns?
• Do we need to procure new technology or systems, or are there systems already in place that will work?
• This is also a part of enterprise environmental factors and organizational process assets to take into consideration while planning any knowledge areas in project management[3].
• The technologies available to us help plan how we will keep everyone notified of project status and issues.
• What is the experience of our staff with the technology? Are there project team members and stakeholders experienced at using this technology, or should we need to train them?
• How does the project team function? Are they located together or spread out across several locations in a country or the world?
• What are the resources, time, and budget allocated for communication activities?
The answers to these questions should be documented in the communication plan. Keep in mind that all the components of a project management plan are interrelated. A communication plan cannot be prepared independently of other components such as the plans for the scope, schedule, cost, risk, and stakeholders. For example, concerning ICTs, we should consider if the technology we are choosing would work throughout the life of the project or we should upgrade or update it at some point.
The types of information we will communicate typically include project status, project scope statements and updates, project baseline information, risks, action items, performance measures, project acceptance, and so on. We should also consider the language, format, content, and level of detail. The information needs of the stakeholders must be determined as early in the planning phase of the project management life cycle as possible so that as we develop project planning documents, we already know who should receive copies of them and how they should be delivered.
1. CultureWizard. 2020 Trends in Global Virtual Work: Metamorphosis of the Global Workplace. 2020. https://www.rw-3.com/virtual-teams-exec-report-2020
2. PMBOK 6th edition.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.01%3A_Learning_Objective_and_Overview.txt |
The communication management plan should address the needs, expectations, and concerns of the project team and the stakeholders by considering the communication types. Completing a complex project successfully requires good communication among team members. If those team members work in the same building, they can arrange regular meetings, simply stop by each other’s office space to get a quick answer, or even discuss a project informally at other places like meeting rooms and even in the kitchen and next to the coffee machine. Many projects are performed by teams that interact primarily through electronic communication and are, therefore, called virtual teams (see 5.7). However, virtual interaction has been exponentially prevalent for many organizations and collocated project teams. To avoid miscommunication that can harm trust and to include team members in a project culture, the project team needs a plan for communicating reliably and in a timely manner. This planning begins with understanding two major categories of communication – synchronous and asynchronous.
6.2.1 Synchronous Communications
If all the parties to the communication are taking part in the exchange at the same time, the communication is synchronous. The following are examples of synchronous communications:
• In-person meetings: This is the traditional meeting method utilized by collocated teams. Some virtual teams may also prefer in-person meetings several times (e.g., kick-off and closing meetings) during the project life cycle to socialize and build trust.
• One-on-one and conference phone (audio) calls: These calls would be effective if there is an urgent need to meet, and participants are not available for video calls.
• Video conferences: These meetings have prevailed with the widespread utilization of virtual teams and the emergence of the COVID-19 pandemic. Online tools such as Skype, Zoom, Google Meet, and WhatsApp are used for video conferences.
• Integrated solutions such as Microsoft Teams: Teams can use synchronous communication tools such as video conferences and instant messaging, and they can share the files with other team members (asynchronous).
• IM (instant messaging): Team members can exchange text or voice messages on computers and mobile devices. They can also have group pages on which more than two members can chat and share documents, pictures, and videos. IM may not be synchronous all the time, and it provides an opportunity for the team members to reply later, and keep the records of the chat logs.
6.2.2 Asynchronous Communications
Getting a team together at the same time can be a challenge—especially if they are spread out across time zones. Many types of communication do not require that the parties are present at the same time. This type of communication is asynchronous. There are several choices of asynchronous communications such as mails and faxes. Recently, asynchronous communication has also been transferred mostly to online communication. In many projects, there is a need to deliver mails and packages to other team members or sub-teams, and stakeholders in different locations. Physical signatures can be still demanded to comply with the legal requirements. However, online tools have been allowing people to sign electronically, which is also legally acceptable (e.g., Adobe Acrobat, DocuSign). Therefore, this provides time and cost-saving opportunities to the project teams. Electronic mail (email) is widely used to coordinate projects and for the communication and collaboration between team members and with stakeholders. Emails have several valuable characteristics for project management. Information can be sent to a list of team members. Messages can be saved to document the process in case of a misunderstanding or miscommunication. Files can be attached and distributed.
6.04: Communications Management Protocol
The communication management plan should include a protocol that delineates all the critical communication channels for the team and stakeholders, such as the purpose of communication, ICTs utilized, frequency of communications, and types of information to be communicated. An example of a Communications Management Protocol has been provided in Table 6.1 which includes only four purposes of communication.
Table 6.1. Communications Management Protocol
Purpose of Communication Schedule Frequency ICTs or Other Means Utilized Types of Information Participants: Team Members and Stakeholders
Planning Every week on Monday Microsoft Teams
Zoom
OneDrive
Emails
Requirements
Project activities
Schedule
Cost
Risks and issues
All the team members
Retrospective Every week on Friday Microsoft Teams
Zoom
OneDrive
Emails
Status updates
Lessons learned
All the team members
Emergency As needed Zoom or In-person Depends on the reason for emergency All the team members
Status updates Every week after the retrospective meeting
Or as needed
Emails
Zoom or In-person meetings
Progress report
Tracking Gantt Chart
Comparison of baselines with the latest situation
Project sponsor
Client
All team members | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.03%3A_Communication_Types.txt |
Project managers, as leaders, spend 90% of their time communicating with team members and stakeholders. Therefore, communication is the most important leadership skill a project manager should possess, but not the only one. Project managers need a large number of skills which include administrative skills, organizational skills, and technical skills associated with the technology of the project. The types of skills and the depth of the skills needed are closely connected to the size and complexity of the project. This is why each project needs tailoring according to various factors including the purpose, objectives, business field, size, complexity, and stakeholders. Although project managers always need to possess interpersonal skills to communicate and collaborate effectively with the team members and stakeholders, on smaller, less complex projects, they need a greater degree of technical skills. On larger, more complex projects, project managers need more organizational skills to deal with the complexity.
PMBOK Guide 6th Edition differentiates among three skill sets project managers should possess – technical project management, leadership, and strategic and business management. Contrary to the name as is referred to as technical, it doesn’t indicate the skills regarding product and industry expertise. This expertise is included inside strategic and business management skills. PMBOK Guide highlights this skill set as “technical project management skills”, and defines them as the skills to effectively apply project management knowledge to deliver the desired outcomes for projects and programs. Organizations look for project managers who are competent in implementing a systematic project management approach applying the right artifacts and methods to achieve the project objectives. Accordingly, project managers should be able to define critical success factors for the project, create plans for all the knowledge areas (i.e., integration, scope, schedule, cost, quality, resource, communications, risk, procurement, stakeholders), create, manage and monitor the project team, conduct all project management processes, monitor and control all the project work, close out the project, and disband the team. Besides, project managers should have the capability to decide which development approach would be the best for the project. Therefore, they should know the development approaches including traditional (waterfall or predictive) and agile (adaptive) tools, techniques, and methods. As indicated, strategic and business management skills include developing and applying pertinent product and industry expertise. They involve the ability to see the high-level overview of the organization and effectively negotiate and implement decisions and actions that support strategic alignment and innovation. This ability may include a working knowledge of other functions such as finance, marketing, and operations. This business knowledge is also known as domain knowledge[1].
The third skillset, leadership skills, involves the ability to guide, motivate, and direct a team. Leadership is defined as a social (interpersonal) influence relationship between two or more persons who depend on each other to attain certain mutual goals in a group situation. Effective leadership helps individuals and groups achieve their goals by focusing on the group’s maintenance needs (the need for individuals to fit and work together by having, for example, shared norms) and task needs (the need for the group to make progress toward attaining the goal that brought them together)[2]. These skills include negotiation, resilience, communication, problem-solving, critical thinking, and interpersonal skills.
Projects have become increasingly more complicated as more businesses execute their strategies through projects. Project management is more than just working with numbers, templates, charts, graphs, and computing systems. Though they can be counted, a common denominator in all projects is people. But they are not just numbers. A large part of the project manager’s role involves dealing with people. Hence, project managers should study people’s behaviors and motivations. Project managers must be perceived to be credible by the project team and stakeholders. They should detect and clarify the ambiguities effectively to remove the obstacles. On projects, the environment changes frequently, and the project manager must apply the appropriate leadership approach for each situation. They must have good communication skills. Lack of communication skills and team-building skills as well as organizational skills would cause problems in a project and could lead to failure.
PMBOK Guide 6th Edition makes an analogy of a music conductor for the project managers. This analogy is a perfect example describing the responsibilities and skills of project managers. An orchestra conductor coordinates a variety of performers who play different instruments and should ensure that the audience enjoys the music on the day of the performance. It may be a chamber orchestra composed of 25 musicians, or a large one like a symphony orchestra with up to 100 members. The conductor cannot know how to play all the instruments in an orchestra, but only one of them or a few of them. However, the conductor must assure that all the performers playing the instruments including but not limited to violins, violas, cellos, double basses, flutes, oboes, clarinets, kettledrums, and harps must create a piece of music in harmony that the audience can enjoy. Conductors perform many rehearsals with all the performers to achieve this harmony. During these rehearsals and the performance, most of the work of the conductor would be regarding communication with all the performers.
The project manager leads the project team during a project life cycle. As explained in Chapter 2, project managers may start working in the pre-project phase (preparation of a need statement, business case, and benefits realization management plan) to assess the feasibility of candidate projects, especially when the organization has a dedicated PMO (Project Management Office) or has a strong matrix or project-oriented structure. However, in general, project managers are assigned in the initiation (starting, conceptualization) phase, or the planning phase after the project charter is approved by the project sponsor. A project manager may be involved after the project is closed out to evaluate the performance of the outcome, and more importantly to evaluate if the outcome can generate the expected value (both tangible and intangible values as detailed in measurable project objectives). Although we use the term “project manager” in this textbook, you can come across a variety of concepts such as project leader, project lead, and project coordinator in other resources and also in this textbook in different sections. We assume in this textbook that a project manager is also a project leader, and should possess interpersonal leadership skills.
In the following subsections, we will focus on leadership and interpersonal skills a project manager should possess.
6.4.1 Listening
One of the most important communication skills of the project manager is the ability to actively listen. Active listening is placing oneself in the speaker’s position as much as possible, understanding the communication from the point of view of the speaker, observing and paying attention to the body language and other environmental cues, and striving not just to hear, but to understand. Active listening takes focus and practice to become effective. It enables a project manager to go beyond the basic information that is being shared and to develop a more complete understanding of the information.
Example: Client’s Body Language [3]
We work with a client on a project. The person in charge of the project in the client company just returned from a trip to Australia where he reviewed the progress of the project with his company’s board of directors. Then, he visited our office for a meeting with our project team. The project manager listened and took notes on the five concerns expressed by the board of directors to him during his visit to Australia.
Our team’s project manager observed that the client’s body language showed more tension than usual. This was a cue to listen very carefully. The project manager nodded occasionally and clearly demonstrated he was listening through his posture, small agreeable sounds, and body language. The project manager then began to provide feedback on what was said using phrases like “What I hear you say is…” or “It sounds like.…” The project manager was clarifying the message that was communicated by the client.
The project manager then asked more probing questions and reflected on what was said. “It sounds as if it was a very tough board meeting.” “Is there something going on beyond the events of the project?” From these observations and questions, the project manager discovered that the board of directors meeting in Australia did not go well. The company had experienced losses on other projects, and budget cuts meant fewer resources for the project and an expectation that the project would finish earlier than planned. The project manager also discovered that the client’s future with the company would depend on the success of the project. The project manager asked, “Do you think we will need to do things differently?” They began to develop a plan to address the board of directors’ concerns.
Through active listening, the project manager was able to develop an understanding of the issues that emerged from the board meeting and participate in developing solutions. Active listening and the trusting environment established by the project manager enabled the client to safely share information he had not planned on sharing and to participate in creating a workable plan that resulted in a successful project.
In the example above, the project manager used the following techniques:
• Listening intently to the words of the client and observing the client’s body language
• Nodding and expressing interest in the client without forming rebuttals
• Providing feedback and asking for clarity while repeating a summary of the information back to the client
• Expressing understanding and empathy for the client
Therefore, as can be seen in the example above, active listening was important in establishing a common understanding from which an effective project plan could be developed.
6.4.2 Negotiation
When multiple people are involved in an endeavor, differences in opinions and desired outcomes naturally occur. Negotiation is a process for developing a mutually acceptable outcome when the desired outcome for each party conflicts. A project manager will often negotiate on different aspects of a project (e.g., scope, schedule, budget, quality, purchases, conflicts with stakeholders) with the client, team members, vendors, and other project stakeholders. Negotiation is an important skill in developing support for the project and preventing frustration among all parties involved, which could delay or cause project failure. Negotiation is used to achieve support or agreement that supports the work of the project or its outcomes and to resolve conflicts within the team or with other stakeholders.
Negotiations involve four principles:
1. Separate people from the problem:
• Framing the discussions in terms of desired outcomes enables the negotiations to focus on finding new outcomes.
2. Focus on common interests:
• By avoiding the focus on differences, both parties are more open to finding acceptable solutions.
3. Generate options that advance shared interests:
• Once the common interests are understood, solutions that do not match with either party’s interests can be discarded, and solutions that may serve both parties’ interests can be more deeply explored.
4. Develop results based on standard criteria:
• The standard criterion is the success of the project. This implies that the parties develop a common definition of project success.
For the project managers to successfully negotiate issues on the project, they should first seek to understand the position of the other party. They should figure out the concerns and expectations of team members or stakeholders with whom they will negotiate, as well as the business drivers and personal drivers that are important to them. Without this understanding, it is difficult to find a solution that will satisfy them. Project managers should also seek to understand what outcomes are desirable to the project. Typically, more than one outcome is acceptable. Without knowing what outcomes are acceptable, it is difficult to find a solution that will produce that outcome.
6.4.3 Conflict Management
Conflict on a project can be expected because of a variety of reasons such as the level of stress, lack of information in particular during the early phases of the project, personal differences, role conflicts, and limited resources. Although good planning, effective communication, and healthy team building can reduce the amount of conflict, the conflict will still emerge. How the project manager deals with the conflict results in the conflict being destructive or an opportunity to build energy, creativity, and innovation.
One of the well-known conflict management models is the Thomas-Kilmann Conflict Mode Instrument (TKI) which assesses an individual’s behavior in conflict situations when the concerns of two people appear to be incompatible[4]. This model is based on two dimensions that describe a person’s behavior in conflict.
1. Assertiveness: The extent to which the individual attempts to satisfy his or her own concerns.
2. Cooperativeness: The extent to which the individual attempts to satisfy the other person’s concerns.
According to different levels of these two dimensions, the model defined five methods of dealing with conflict (Figure 6.1).
Competing (forcing) is assertive and uncooperative. It is a power-oriented mode. An individual pursues his or her own concerns at the other person’s expense, using whatever power seems appropriate to win his or her position.
Collaborating is both assertive and cooperative. An individual attempts to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify the underlying concerns of the two individuals and to find an alternative that meets both sets of concerns.
Compromising is intermediate in both assertiveness and cooperativeness. The objective is to find an expedient, mutually acceptable solution that partially satisfies both parties. Compromising might mean splitting the difference, exchanging concessions, or seeking a quick middle-ground position.
Avoiding is unassertive and uncooperative. When avoiding, an individual does not immediately pursue his or her own concerns or those of the other person. He or she does not address the conflict. Avoiding might take the form of diplomatically sidestepping an issue, postponing an issue until a better time, or simply withdrawing from a threatening situation.
Accommodating is unassertive and cooperative, which is the opposite of competing. An individual neglects his or her own concerns to satisfy the concerns of the other person. Therefore, there is an element of self-sacrifice in this mode.
Each of these approaches can be effective and useful depending on the situation. Project managers will use each of these conflict resolution approaches depending on the project manager’s personal approach and an assessment of the situation. Most project managers have a default approach that has emerged over time and is comfortable. For example, some project managers find the use of the project manager’s power the easiest and quickest way to resolve problems. “Do it because I said so” is the mantra for project managers who use competing as the default approach to resolve conflict. The competing approach often succeeds in a situation where a quick resolution is needed, and the investment in the decision by the parties involved is low. Some project managers find accommodating with the client the most effective approach to dealing with client conflict.
Two examples have been provided below in order to elaborate on the conflict resolution methods in projects.
Resolving an Office Space Conflict [5]
Two senior managers both want the office with the window. The project manager intercedes with little discussion and assigns the window office to the manager with the most seniority. The situation was a low-level conflict with no long-range consequences for the project and a solution all parties could accept. Therefore, the project manager applied the competing (forcing) method. Sometimes office size and location are culturally important, and this situation would take more investment to resolve.
Conflict Over a Change Order [6]
In another example, the client rejected a request for a change order because she thought the change should have been foreseen by the project team and incorporated into the original scope of work. The project controls manager believed the client was using her power to avoid an expensive change order and suggested the project team refuse to do the work without a change order from the client. This is a more complex situation, with personal commitments to each side of the conflict and consequences for the project. The project manager needs a conflict resolution approach that increases the likelihood of a mutually acceptable solution for the project.
One conflict resolution approach involves evaluating the situation, developing a common understanding of the problem, developing alternative solutions, and mutually selecting a solution. Evaluating the situation typically includes gathering data. In this example, gathering data would include a review of the original scope of work and possibly of people’s understandings, which might go beyond the written scope.
The second step in developing a resolution to the conflict is to restate, paraphrase, and reframe the problem behind the conflict to develop a common understanding of the problem. In our example, the common understanding may explore the change management process and determine that the current change management process may not achieve the client’s goal of minimizing project changes. This phase is often the most difficult and may take an investment of time and energy to develop a common understanding of the problem.
After the problem has been restated and agreed on, alternative approaches are developed. This is a creative process that often means developing a new approach or changing the project plan. The result is a resolution to the conflict that is mutually agreeable to all team members. If all team members believe every effort was made to find a solution that achieved the project charter and met as many of the team member’s goals as possible, there will be a greater commitment to the agreed-on solution.
6.4.4 Trust
Building trust in a project begins with the project manager. On complex projects, the assignment of a project manager with a high trust reputation can help establish the trust level needed. The project manager can also establish the cost of lying in a way that communicates an expectation and a value for trust in the project. Project managers can also assure that the official goals (stated goals) and operational goals (goals that are reinforced) are aligned. The project manager can create an atmosphere where informal communication is expected and reinforced.
Informal communication is important to establishing personal trust among team members and with the client and other stakeholders. Allotting time during project start-up meetings to allow team members to develop a personal relationship is important to establishing team trust. The informal discussion allows for a deeper understanding of the whole person and creates an atmosphere where trust can emerge.
Small events that reduce trust often take place on a project without anyone remembering what happened to create an environment of distrust. Taking fast and decisive action to establish a high cost of lying, communicating the expectation of honesty, and creating an atmosphere of trust are critical steps a project manager can take to ensure the success of complex projects.
Project managers can also establish expectations of team members to respect individual differences and skills, look and react to the positives, recognize each other’s accomplishments, and value people’s self-esteem to increase a sense of benevolent intent.
6.4.5 Emotional Intelligence (EQ)
Emotions are neither positive nor negative. Emotions are both a mental and physiological response to environmental and internal stimuli. Project managers need to understand and value their emotions to appropriately respond to the client, project team, stakeholders, and project environment. Daniel Goleman (Goleman, 1995) discussed emotional intelligence quotient (EQ) as a factor more important than IQ in predicting leadership success[7]. Emotional intelligence is the ability to sense, understand, and effectively apply the power and acumens of emotions as a source of human energy, information, connection, and influence (Cooper and Sawaf, 1997)[8].
Emotional intelligence includes the following:
• Self-awareness
• Self-regulation
• Empathy
• Relationship management
Emotions are important to generating energy around a concept, building commitment to goals, and developing high-performing teams. Emotional intelligence is an important part of the project manager’s ability to build trust among the team members and with the client. It is an important factor in establishing credibility and open dialogue with project stakeholders. Emotional intelligence is a critical ability for project managers, and the more complex the project profile, the more important the project manager’s EQ becomes to project success.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Retrieved from the OER titled “Principles of Management” on https://openstax.org/books/principles-management/pages/13-1-the-nature-of-leadership
3. Retrieved from the OER titled “Project Management” by Adrienne Watt on https://opentextbc.ca/projectmanagement/chapter/chapter-11-resource-planning-project-management/
4. Thomas, K. W. (2008). Thomas-Kilman conflict mode. TKI Profile and Interpretive Report, 1-11.
5. Retrieved from the OER titled “Project Management” by Adrienne Watt on https://opentextbc.ca/projectmanagement/chapter/chapter-11-resource-planning-project-management/
6. Retrieved from the OER titled “Project Management” by Adrienne Watt on https://opentextbc.ca/projectmanagement/chapter/chapter-11-resource-planning-project-management/
7. Goleman, D. (1996). Emotional intelligence. Why it can matter more than IQ. Learning, 24(6), 49-50.
8. Cooper, R. K., & Sawaf, A. C. (1997). Executive EQ: Emotional intelligence in leadership and organization (No. 658.409 C7841c Ej. 1 000003). | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.05%3A_Leadership_Skills.txt |
Leadership is a function of both the personal characteristics of the leader and the environment in which the leadership must occur. Several researchers have attempted to understand leadership from the perspective of the characteristics of the leader and the environment of the situation. These researchers described leaders as either autocratic or democratic (Tannenbaum & Schmidt, 1958)[1], as pathfinders (visionaries), problem solvers (analytical), or implementers (team-oriented) (Leavitt, 1986)[2], and as either transactional (focused on actions and decisions) or transformational (focused on the long-term needs of the group and organization) (Burns, 1978)[3].
Fred Fiedler introduced contingency theory and the ability of leaders to adapt their leadership approach to the environment (Fiedler, 1971)[4]. Most leaders have a dominant leadership style that is most comfortable. For example, most engineers spend years training in analytical problem solving and often develop an analytical approach to leadership. A leadership style reflects personal characteristics and life experiences. Although a project manager’s leadership style may be predominantly a pathfinder (using Leavitt’s taxonomy), most project managers become problem solvers or implementers when they perceive the need for these leadership approaches. The leadership approach incorporates the dominant leadership style and Fiedler’s contingency focus on adapting to the project environment.
PMBOK Guide 6th Edition provides a list of leadership styles as below:
1. Laissez-faire: Leaders allow the team to make their own decisions and establish their own goals. It is also referred to as taking a hands-off style.
2. Transactional: Leaders focus on goals, feedback, and accomplishment to determine rewards.
3. Servant: Leaders demonstrate a commitment to serve and put other people first. They focus on other people’s growth, learning, development, autonomy, and well-being. They concentrate on relationships, community, and collaboration.
4. Transformational: Leaders empower followers through idealized attributes and behaviors, inspirational motivation, encouragement for innovation and creativity, and individual consideration.
5. Charismatic: Leaders are able to inspire with high energy. They are enthusiastic and self-confident and hold strong convictions.
6. Interactional: This leadership style is a combination of transactional, transformational, and charismatic leadership styles.
Among them, the “Agile Practice Guide” accompanying PMBOK Guide Sixth Edition highlights the servant leadership style in particular for the agile project management approach. Although servant leadership isn’t unique to agile, project managers and organizations can observe and experience that this leadership style integrates into the agile mindset value. As the name refers, servant leaders serve those on the team by promoting self-awareness, listening, helping team members and stakeholders improve themselves, coaching rather than controlling, facilitating coordination, removing obstacles and organizational impediments in front of the team, the members, and the project, promoting safety, respect, and trust, and promoting the energy and intelligence of others[5]. We will discuss this leadership style more in Chapter 12 “Agile Project Management”.
No particular leadership approach is specifically appropriate for managing a project. Each project has a unique set of circumstances because, by definition, projects are unique endeavors. The leadership approach and the management skills required to be successful vary depending on the complexity profile of the project. The Project Management Institute published research that studied project management leadership skills and concluded that project managers needed good communication skills and the ability to build harmonious relationships and motivate others (Shi & Chen, 2006)[6]. Beyond this broad set of leadership skills, the successful leadership approach will depend on the profile of the project.
A transactional project manager with a strong command and control leadership approach may be very successful on a small software development project or a construction project, where tasks are clear, roles are well understood, and the project environment is cohesive. This same project manager is less likely to be successful on a larger, more complex project with a diverse project team and complicated work processes.
Each project phase may also require a different leadership approach. During the start-up phase of a project, when new team members are first assigned to the project, the project may require a command and control leadership approach. Later, as the project moves into the conceptual development phase, creativity becomes important, and the project management takes on a more transformational type leadership approach. Most experienced project managers can adjust their leadership approach to the needs of the project phase. Occasionally, on very large, complex projects, some companies will change project managers after the conceptual phase of the project to bring in a different project leadership approach or change project managers to manage the closeout of a project. Changing project managers may bring the right level of experience and the appropriate leadership approach but is also disruptive to a project. Senior management must balance the benefit of matching the right leadership approach with the cost of disrupting the project.
1. Tannenbaum, R., & Schmidt, W. (1958). How to Choose a Leadership Pattern. Harvard Business Review 36, 95–101.
2. Leavitt, H. (1986). Corporate Pathfinders. New York: Dow-Jones-Irwin and Penguin Books.
3. Burns, J.M. (1978). Leadership. New York: Harper & Row.
4. Fiedler, F.E. (1971). Validation and Extension of the Contingency Model of Leadership Effectiveness. Psychological Bulletin, 76(2), 128–48.
5. Project Management Institute, & Agile Alliance. (2017). Agile practice guide.
6. Shi, Q., & Chen, J. (2006). The Human Side of Project Management: Leadership Skills. Newtown Square, PA: Project Management Institute, Inc. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.06%3A_Leadership_Styles_and_Servant_Leadership.txt |
Project managers have a unique opportunity during the start-up of a project. They create a project culture, something organizational managers seldom have a chance to do. In most organizations, the corporate or organizational culture has developed over the life of the organization, and people associated with the organization understand what is valued, and what behaviors are expected. Edgar Schein defined culture as a pattern of basic assumptions formed by a group on how to perceive and address problems associated with both internal adaptation and external integration (Schein, 1990)[1]. While organizational culture constrains, stabilizes, and provides structure to the organization, it is being constantly enacted, created, and shaped by leadership behavior.
A project culture represents the shared norms, beliefs, values, and assumptions of the project team. Understanding the unique aspects of a project culture and developing an appropriate culture to match the project are important project management abilities. Culture is developed through the communication of the priority, the given status, and the alignment of official and operational rules. Official rules are the rules that are stated, and operational rules are the rules that are enforced. Project managers who align official and operational rules are more effective in developing a clear and strong project culture because the project rules are among the first aspects of the project culture to which team members are exposed when assigned to the project. In addition to official and operational rules, the project leadership can communicate what is important by the use of symbols, storytelling, rituals, rewards or punishments, and taboos.
6.6.1 Operational Rules on a Project in India [2]
During the initiation of a project in India, members of the project team were given a policy that stated all travel expense claims must be submitted within three days of completion of travel. During the first few weeks, the administrative team began to understand that this was a difficult policy to enforce without creating moral problems on the project. Instead of changing the official rule, it was seldom enforced. The official rules and operational rules differed.
Later in the project, a worker was injured after crossing an area that was marked as unsafe. Workers indicated that they knew the official rules but it took too much time to go around the unsafe area. They assumed that official rules could be ignored if they were difficult to obey. The difference between official rules and operational rules of the project created a culture that made the communication of the priorities more difficult.
6.6.2 Creating a Culture of Safety [3]
A project manager in South America who wanted to create a strong safety culture on a construction project with significant safety concerns used several methods to create the desired culture. The very first meeting that project team members attended was a safety orientation. Members were issued a card—a symbol—after the meeting granting permission to participate in the project. The project leadership team told stories of previous projects where people were fired for breaking safety rules and often warned that the fastest way to get fired on the project was to break a safety rule—an example of storytelling. Every project meeting started with a discussion of a safety topic—a ritual—and any discussion of lessening the safety rules was forbidden—taboo—and was quickly and strongly cut off by the project leadership if it occurred.
As can be seen in both examples above, culture guides behavior and communicates what is important and is useful for establishing priorities. On projects that have a strong safety culture, team members feel free to challenge anyone who breaks a safety rule, even managers. The safety aspects of culture are stronger than the cultural aspects of the power of management.
6.6.3 Culture of Stakeholders
When project stakeholders do not share a common culture, project management must adapt its organizations and work processes to cope with cultural differences. Three major aspects of cultural difference that can affect a project are communications, negotiations, and decision-making. Communication is perhaps the most visible manifestation of culture. Project managers encounter cultural differences in communication in language, context, and candor. Language is clearly the highest barrier to communication. When project stakeholders do not share the same language, communication slows down and is often filtered to share only information that is deemed critical. The barrier to communication can influence project execution where quick and accurate exchange of ideas and information is critical. The interpretation of information reflects the extent that context and candor influence cultural expressions of ideas and understanding of information. In some cultures, an affirmative answer to a question does not always mean yes. The cultural influence can create confusion on a project where project stakeholders share more than one culture. It is of high importance to keep in mind that not all cultural differences are related to international projects. Corporate cultures and even regional differences can create cultural confusion on a project.
6.6.4 Culture Affects Communication in Mumbai [4]
A project management consultant from the United States was asked to evaluate the effectiveness of a U.S. project management team executing a project in Mumbai, India. The project team reported that the project was on schedule and within budget. After a project review meeting where each of the engineering leads reported that the design of the project was on schedule, the consultant began informal discussions with individual engineers and began to discover that several critical aspects of the project were behind schedule, and without a mitigating strategy, the project would miss a critical window in the weather between monsoon seasons. The information on the project flowed through a cultural expectation to provide positive information. The project was eventually canceled by the U.S.-based corporation when the market and political risks increased.
1. Schein, E. H. (1990). Organizational culture (Vol. 45, No. 2, p. 109). American Psychological Association.
2. Retrieved from the OER titled “Principles of Management” on https://openstax.org/books/principles-management/pages/13-1-the-nature-of-leadership
3. Retrieved from the OER titled “Principles of Management” on https://openstax.org/books/principles-management/pages/13-1-the-nature-of-leadership
4. Retrieved from the OER titled “Project Management from Simple to Complex” on https://open.lib.umn.edu/projectmanagement/chapter/5-3-creating-a-project-culture/ | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.07%3A_Creating_a_Project_Culture.txt |
A team is “a group of individuals who interact interdependently and who are brought together or come together voluntarily to achieve certain outcomes or accomplish particular tasks” (Berry, 2011, p.136)[1]. Teams are utilized in organizations to establish novel combinations of people who would work on unique problems and generate critical decisions as outcomes (Gersick, 1988)[2]. Much of the work that is performed today in organizations requires a focus on teamwork. The ability to work successfully as a team member, as well as the ability to lead teams, is an ultimate advantage within the workforce. Teams themselves must be managed, in addition to managing just the individuals, to be successful. We’ve all heard the quote originally coined by Aristotle that states that “the whole is greater than the sum of its parts.” This captures the nature of the team perfectly—there is such a synergy that comes from a team that the individuals alone are not able to create.
A team is a collaboration of people with different personalities that is led by a person with a favored leadership style. Managing the interactions of these personalities and styles as a group is an important aspect of project management. The project team is made up of people dedicated to the project. These people, team members, are generally borrowed from other departmental units in an organization or are recruited from outside the organization. They may work full-time, part-time, or in some of the activities when their skills are needed. As discussed in Chapter 3 “Project Initiation”, the formal organizational structure would have a substantial impact on how project teams are created and managed. In a functional organization, project managers may have low authority and control over the resources and budget. Besides, they may not work full time as a project manager as they may still carry out the routine tasks of their functional unit. The main advantage of a functional organization type is that the project manager can acquire qualified and experienced human resources from other functional departments. In a strong matrix organization type, a Project Management Office (PMO) or a designated program management office is added besides functional departments. This department employs full-time project managers with a designated job role. They manage the project budget, and their authority becomes moderate to high. They can also have a full-time administrative staff. This organizational structure may be preferred by many project managers since they can still acquire qualified and experienced team members from functional departments inside the organization. Among functional, weak matrix, strong matrix, and project-oriented organization types, a strong matrix structure may suggest more opportunities for a project manager. However, it is of high importance for a project manager to keep in mind and consider various internal and external factors as well as organizational politics.
In particular, in the functional, weak matrix, and balanced matrix organization types, there may be some difficulties for project managers while dealing with project team members. Since these members are borrowed from other units, they may work at the project less than 100% of their working time, and project managers may not be their direct supervisors. Their priorities may be elsewhere. Thus, their dedication to the project objectives and activities couldn’t reach the level project managers expect from them to accomplish their tasks and responsibilities as desired. They may be juggling more than one project as well as their full-time job and have difficulty meeting deadlines.
Project managers need to provide leadership, direction, and above all, support to team members as they go about accomplishing their tasks. Working closely with the team to solve problems can help project managers learn from the team and build rapport. As some of them have been explained above in the “Leadership Skills” section, managing project team members requires interpersonal skills. Here are some suggestions that can help with more effective team management:
• Involve team members in project planning.
• Arrange to meet privately and informally with each team member at several points in the project, perhaps for lunch or coffee.
• Be available to hear team members’ concerns at any time.
• Encourage team members to pitch in and help others when needed.
• Complete a project performance review for team members.
6.7.1 Team Development Stages
One of the models used to describe team development is the Tuckman ladder. According to Tuckman (1965), small groups go through four stages of development which are forming, storming, norming, and performing[3]. As a result of a literature review of fifty-five articles, Tuckman (1965) proposed a model of developmental stages for group settings over time. In respect to the group structure, he labeled these stages as (1) testing and dependence, (2) intragroup conflict, (3) development of group cohesion, and (4) functional role relatedness. Accordingly, he labeled the stages of task activity as (1) orientation to task, (2) emotional response to task demands, (3) open exchange of relevant interpretations, and (4) emergence of solutions. An essential correspondence between the perspectives of group structure and task activity caused Tuckman to summarize the group stages as “forming,” “storming,” “norming,” and “performing.” These four stages covered both group interpersonal and task activities. Tuckman and Jensen (1977) added the fifth stage as adjourning after they reviewed twenty-two studies[4].
The first stage, forming, is characterized by orientation to the group setting, testing the boundaries of interpersonal and task behaviors of other members, and a dependency relationship with the leader. The storming stage following the forming stage is characterized by conflict and polarization around interpersonal issues, with concomitant emotional responses in the task sphere. These behaviors with hidden agendas and prejudices serve as resistance to group influence and task requirements. In the third stage, norming, resistance to authority is overcome, in-group feeling and cohesiveness develop, new standards evolve, and new roles are adopted. In the performing stage, group energy is channeled into the task after the structural issues are resolved and the structure becomes supportive of task performance. The last stage, adjourning, indicates the completion of the project where groups disband, and team members are reassigned to other projects or tasks.
Although these classic stages in group development may not be apparent for all groups, and not all groups may follow them, they would be useful for predicting team performance (Mannix and Jehn, 2004) as well as conflicts and harassment cases within an organized framework[5]. Besides, not all the teams could experience all stages and they may spend different times in stages (Ayoko et al., 2012)[6]. Some teams may also face challenges in the transition process from one stage to another, such as moving toward the norming stage from the storming stage. Nevertheless, all teams can find themselves in the performing stage while some of them would spend substantially longer times which could lead them to a higher achievement rating in the end. Johnson et al. (2002) proposed an iterative group development model based on Tuckman’s model[7]. In their model based on student virtual learning teams, there was no evidence of the storming stage for all student teams due to rapid movement between each stage given the limited time in accomplishing assignments. Thus, teams moved along forming, norming, and performing stages and they resolved the conflict when it arose among team members. After the conflict was resolved, teams continued the process of forming, norming, and performing.
6.7.2 Virtual Teams
Advances in ICTs have enabled the creation and utilization of virtual teams (VTs) within organizations in the last three decades (Alsharo et al., 2017)[8]. The advent of the Internet accompanied by various ICTs, and the emergence of the COVID-19 pandemic by the end of 2019 accelerated the process of digitalization for people, organizations, and governments. Thus, the adoption and spread of ICTs worldwide across organizations and countries increased exponentially. The utilization of global virtual teams in organizations increased to unprecedented levels. 94% of the respondents of CultureWizard’s Global Virtual Work Survey indicated that they want to continue working from home—at least part time[9]. These advances ensured the organizations to design their teams composed of members from different geographic locations and organizations virtually beyond a setting of the same location (Berry, 2011)[10]. Nevertheless, even though ICTs are prerequisites of VTs, other factors were also prominent in the process of shifting from traditional face-to-face teams to VTs. Some of these factors could be listed as increased use of horizontal organizational structure, the emergence of environments that require inter-organizational cooperation, continued shift from production to service and knowledge-intense work environments, and increasing globalization of trade and corporate activity (Townsend et al., 1998)[11].
Virtual interactions and virtual teams cannot be considered identical concepts. Virtual interactions also occur in collocated teams extensively, such as the widespread exchange of emails in the same office (Berry, 2011). A VT can be distinguished from a face-to-face team in terms of several factors. The most prominent factor would be the use of ICTs as the primary communication and collaboration media. Taking into consideration the utilization of ICTs, VT members are less likely to observe physical behaviors (e.g., gestures and intonation), which face-to-face team members rely upon to establish and sustain trust (Alsharo et al., 2017)[12]. Virtual teams have various benefits such as task, resource and schedule flexibility, access to and bringing specialized skills and diverse experiences together in a relatively short time, enhanced knowledge sharing and repository, easier documentation of performance outcomes, and opportunities for accelerated problem solving and solution finding (Jimenez et al., 2017)[13]. Virtual teams employ experts who have acquired more flexibility in temporal and spatial aspects since they save time by not traveling to meet their teammates. These time and cost-saving effects and flexible work schedule benefits are also commonly observed for the teleworkers who work outside of the office by means of virtual communication tools such as teleconferences, videoconferences, and intranets with remote log-in (Coenen and Kok, 2014)[14]. The ability to bridge time and space provides the team with the capability to respond and adjust to new tasks more rapidly, and human resources can be distributed more efficiently without physical relocation of employees thus leading to better utilization of human resources. Although flexibility is assumed to generate positive outcomes, it may cause inherent obstacles for virtual teams. The lack of shared work history among team members as well as less face-to-face interaction could bring about trust issues in virtual teams (Coenen and Kok, 2014).
While virtual teams can be confined to a region in a country or the entire country, they can extend beyond national and continental borders when members of VTs work and live in different countries (Pinjani and Palvia, 2013)[15]. One of the advantages of flexibility in Global Virtual Teams (GVTs) is easier access to skilled experts all around the world. This ensures the availability of resources in other parts of the world when scarcity exists in the organization’s or project’s geographical area. The dispersed structure of GVT members around the globe allows a 24-hour relay workflow (Carmel et al., 2010)[16]. For instance, members located in Asia and Australia can work on the project during their business hours. They can pass the work on to their colleagues in Europe and Africa for further processing, and then, they can pass it on to the colleagues in the Americas, who can work on it while their more eastern team members are asleep. This follow-the-sun approach creates a cycle of work through which GVT members pass the work on to the members in Asia and Australia, where 24-hour relay starts again (Carmel et al., 2010).
Despite the unprecedented benefits mostly owing to the developments in ICTs, the virtual nature of these teams is not immune to the challenges to effective collaboration and team outcomes (Alsharo et al., 2017). One of the essential challenges in virtual work is the elimination of face-to-face meetings that would otherwise help team members build interpersonal relationships (Cummings and Dennis, 2018)[17]. Lack of first impressions of other team members might have a substantial impact on the formation and functioning of the team, and the outcome of the teamwork. Cummings and Dennis (2018) contended that virtual team members examine each other’s profiles on enterprise social networking sites to get acquainted with them, otherwise not possible in a dispersed team. Some of the problems that GVTs and their members might encounter can be enumerated as lack of trust, language and time barriers, cultural differences, lack of onsite monitoring, lack of tone and body language, and different interpretations by the members due to the lack of cues. Eventually, if these likely challenges are not addressed by the GVT leaders and upper hierarchical levels in the organization, virtual teams may cause disadvantages to the team members’ well-being and job satisfaction, and team performance.
Team diversity or heterogeneity might have either a positive or negative impact on a team’s performance. Although team diversity could exacerbate the conflict and emotional reactions in GVTs (Ayoko et al., 2012)[18], and team members can build higher trust and cohesiveness in homogeneous teams (Drescher and Garbers, 2016)[19], team diversity, on the contrary, could improve GVT effectiveness (Jimenez et al., 2017). The diverse backgrounds of team members could provide representation and exchange of different opinions and perspectives within the team. Hence, this process can create value by providing a more extensive range of information sources and thus aiding creativity and problem solving, and a higher level of organizational learning and synergy (Berry, 2011; Jimenez et al., 2017).
CultureWizard’s Global Virtual Work Survey pointed to complications in global virtual teams such as difficulty in building relationships (37%), managing conflict (33%), and lack of responsiveness from team members (20%). The survey also highlighted an issue with the technology as it cannot completely erase the barriers of miscommunication. The survey indicated that 75% of respondents use webcams to compensate for lack of face-to-face contact, but webcams come with their complications, such as ambient noise, feeling pressure to look attentive and professional on camera, and technical issues such as insufficient bandwidth or difficulty in operating new software.
1. Berry, G. R. (2011). Enhancing effectiveness on virtual teams: Understanding why traditional team skills are insufficient. The Journal of Business Communication (1973), 48(2), 186-206.
2. Gersick, C. J. (1988). Time and transition in work teams: Toward a new model of group development. Academy of Management Journal, 31(1), 9-41.
3. Tuckman, B. W. (1965). Developmental sequence in small groups. Psychological Bulletin, 63(6), 384.
4. Tuckman, B. W., & Jensen, M. A. C. (1977). Stages of small-group development revisited. Group & Organization Studies, 2(4), 419-427.
5. Mannix, E., & Jehn, K. A. (2004). Let’s norm and storm, but not right now: Integrating models of group development and performance. In Time in groups (pp. 11-37). Emerald Group Publishing Limited.
6. Ayoko, O. B., Konrad, A. M., & Boyle, M. V. (2012). Online work: Managing conflict and emotions for performance in virtual teams. European Management Journal, 30(2), 156-174.
7. Johnson, S. D., Suriya, C., Yoon, S. W., Berrett, J. V., & La Fleur, J. (2002). Team development and group processes of virtual learning teams. Computers & Education, 39(4), 379-393.
8. Alsharo, M., Gregg, D., & Ramirez, R. (2017). Virtual team effectiveness: The role of knowledge sharing and trust. Information & Management, 54(4), 479-490.
9. Culture Wizard. 2020 Trends in Global Virtual Work: Metamorphosis of the Global Workplace. 2020. https://www.rw-3.com/virtual-teams-exec-report-2020
10. Berry, G. R. (2011). Enhancing effectiveness on virtual teams: Understanding why traditional team skills are insufficient. The Journal of Business Communication (1973), 48(2), 186-206.
11. Townsend, A. M., DeMarie, S. M., & Hendrickson, A. R. (1998). Virtual teams: Technology and the workplace of the future. Academy of Management Perspectives, 12(3), 17-29.
12. Alsharo, M., Gregg, D., & Ramirez, R. (2017). Virtual team effectiveness: The role of knowledge sharing and trust. Information & Management, 54(4), 479-490.
13. Jimenez, A., Boehe, D. M., Taras, V., & Caprar, D. V. (2017). Working across boundaries: current and future perspectives on global virtual teams. Journal of International Management, 23(4), 341-349.
14. Coenen, M., & Kok, R. A. (2014). Workplace flexibility and new product development performance: The role of telework and flexible work schedules. European Management Journal, 32(4), 564-576.
15. Pinjani, P., & Palvia, P. (2013). Trust and knowledge sharing in diverse global virtual teams. Information & Management, 50(4), 144-153.
16. Carmel, E., Espinosa, J. A., & Dubinsky, Y. (2010). " Follow the Sun" Workflow in Global Software Development. Journal of Management Information Systems, 27(1), 17-38.
17. Cummings, J., & Dennis, A. (2018). Virtual First Impressions Matter: The Effect of Enterprise Social Networking Sites on Impression Formation in Virtual Teams. MIS Quarterly, 42(3), 697-717.
18. Ayoko, O. B., Konrad, A. M., & Boyle, M. V. (2012). Online work: Managing conflict and emotions for performance in virtual teams. European Management Journal, 30(2), 156-174.
19. Drescher, G., & Garbers, Y. (2016). Shared leadership and commonality: A policy-capturing study. The Leadership Quarterly, 27(2), 200-217. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.08%3A_Developing_and_Managing_a_Project_Team.txt |
Key Takeaways
• Project managers spend 90% of their time communicating with team members and stakeholders.
• ICTs (Information and Communication Technologies) can facilitate faster and better communication, or they can become a barrier if they are not well understood and applied appropriately.
• The communication management plan documents the types of information needs the stakeholders have, when the information should be distributed, how the information will be delivered with which frequency, who will receive it, and the format and technologies we will use to communicate.
• If all the parties to the communication are taking part in the exchange at the same time, the communication is synchronous. Many types of communication do not require that the parties are present at the same time. This type of communication is asynchronous.
• PMBOK Guide Sixth Edition differentiates among three skill sets project managers should possess – technical project management, leadership, and strategic and business management.
• Working with other people involves dealing with them both logically and emotionally.
• Active listening is placing oneself in the speaker’s position as much as possible, understanding the communication from the point of view of the speaker, listening to the body language and other environmental cues, and striving not just to hear, but to understand.
• Negotiation is a process for developing a mutually acceptable outcome when the desired outcome for each party conflicts.
• Thomas-Kilmann Conflict Mode Instrument (TKI) defines five methods of dealing with conflict on a scale of assertiveness and cooperativeness: (1) Competing, (2) Collaborating, (3) Compromising, (4) Avoiding, and (5) Accommodating.
• Emotional intelligence is an important part of the project manager’s ability to build trust among the team members and with the client. It is an important factor in establishing credibility and open dialogue with project stakeholders.
• Servant leaders serve by promoting self-awareness, listening, helping team members and stakeholders improve themselves, coaching rather than controlling, facilitating coordination, removing obstacles and organizational impediments in front of the team, the members, and the project, and promoting the energy and intelligence of others.
• Project culture is developed by communicating priority, status, and the alignment of official and operational rules. It is enforced through the use of symbols, storytelling, rituals, rewards or punishments, and taboos.
• A team is a collaboration of people with different personalities that is led by a person with a favored leadership style. Managing the interactions of these personalities and styles as a group is an important aspect of project management.
• According to the Tuckman Ladder, teams pass through five stages – forming, storming, norming, performing, and adjourning.
• One of the essential challenges in virtual work is the elimination of face-to-face meetings that would otherwise help team members build interpersonal relationships.
6.10: Questions and Exercises
There are 6 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=459
6.11: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/06%3A_Communication_Management_Leadership_and_Project_Team_Management/6.09%3A_Key_Takeaways.txt |
Learning Objectives
1. Describe the process to create a project schedule.
2. Define activities based on Work Breakdown Structure (WBS).
3. Describe how activities can be sequenced.
4. Elaborate on the techniques to estimate activity duration.
5. Create a network diagram by identifying the early start and early finish times, late start and late finish times, floats (slacks), and the critical path.
6. Practice on Microsoft Project to create a Gantt Chart and an Activity Network Diagram.
Overview
The project schedule is one of the triple project constraints besides scope and cost (budget). A project manager is responsible for planning, developing, managing, monitoring, and controlling the project schedule to ensure that project objectives can be achieved, and project outcomes can be delivered to the client and customers on time. Effective schedule management is integral to overall project success. The objective is to create a schedule that effectively and efficiently uses allocated resources to complete the project in the shortest amount of time possible. In order to develop a schedule, we first need to create a plan that will guide us during the project. Afterward, we should define the activities based on the WBS, sequence them in the right order, estimate the time it will take to complete these activities, and develop a schedule by creating a network diagram and Gantt chart.
7.02: Project Schedule Management Plan
As described in Chapter 4, project planning is at the heart of the project life cycle and tells everyone involved where we are going and how we are going to get there. It involves creating a set of plans to help guide our team through the implementation and closure phases of the project. The project schedule management plan is one of the sub-plans of our overall project plan. It provides the guidelines to project managers on how to develop a project schedule by defining and sequencing project activities and milestones, and by estimating activity durations. It is the process of establishing the policies, procedures, and documentation for planning, developing, managing, executing, and controlling the project schedule[1].
A project schedule management plan can consist of the following:
• Unit of measurement
• Work hours, days, weeks, months
• Daily working hours and shifts
• Weekends and/or off-days
• Local, national, and federal holidays
• Creation of the activity list and attributes
• Describe how activities and their attributes will be defined, and who will be involved in this process.
• Level of accuracy
• Acceptable range to ensure realistic activity duration estimates
• Evaluation of the impact of risks on the overall project duration and each individual activity durations based on the project risk management plan
• Methods describing how the schedule contingencies will be assessed.
• Activity duration estimates
• Estimation methods (e.g., analogous, parametric, three-point, bottom-up)
• Methods, tools, and software utilized to develop, manage, and monitor project schedule
• Specify the organization’s procedures, policies, and resource calendars if they should be utilized.
• Methods and tools such as Gantt Chart, WBS, project baseline, master and milestone schedule, Earned Value Management, and critical path method
• Software such as Microsoft Project Professional, Excel, Visio, and Jira (for Kanban and Scrum), and online collaboration tools such as Monday, Trello, and Basecamp.
• Rules and concepts to sequence activities and create an activity network diagram
• Critical path method (Forward pass, backward pass, slacks)
• Critical chain method
• Predecessor dependencies (e.g., finish-to-start, start-to-start)
• Rules for monitoring schedule performance
• Earned Value Management (EVM)
• Control thresholds for deviations from the parameters in the schedule baseline
• Using software such as Microsoft Project
• Reporting formats
• Reporting formats and frequency should be in alignment with other project plans.
• Approval of the schedule baseline
• Who will be responsible for preparation and control?
• Who will approve the schedule baseline?
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/07%3A_Scheduling/7.01%3A_Learning_Objectives_and_Overview.txt |
In line with the project schedule management plan, we should start scheduling the whole project by defining activities based on the WBS (Work Breakdown Structure). The activity definition process is a further breakdown of the work package elements of the WBS. It documents the specific activities needed to fulfill the deliverables detailed in the WBS. These activities are not the deliverables themselves but the individual units of work that must be completed to fulfill the deliverables. Activity definition uses everything we already know about the project to divide the work into activities that can be estimated. We might want to look at all the lessons learned from similar projects our organization has done to get a good idea of what you need to do on the current one.
Detailed planning begins by identifying all the tasks to be completed. The project team begins by reviewing the scope of the project which is found in the project scope statement (predictive/waterfall projects) or the product backlog (see Chapter 12 for agile projects). A WBS allows the team to have a visual representation of the forthcoming work. As discussed in Chapter 4, the WBS is a powerful planning tool. By breaking the project down into smaller, more manageable components, the WBS assists project managers in identifying the specific tasks. The team then determines how long it will take to complete the required tasks.
Expert judgment from project team members with prior experience and from stakeholders that can be consulted can help us define activities while developing project scope statements and WBS. If we are asked to manage a project in a new domain, we could use subject matter experts in that particular field to help define tasks so we can understand what activities are going to be involved. We may want to create an activity list and then have the expert review it and suggest changes. Alternatively, we could involve the experts from the very beginning. Please see “7.3: Estimating Activity Durations” for more explanation regarding expert judgment.
Sometimes we start a project without knowing a lot about the work that we will be doing later. Rolling-wave planning lets us plan and schedules only the portion that we know enough about to plan well. When we don’t know enough about a project, we can use placeholders for the unknown portions until we know more. These are extra items that are put at high levels in the WBS to allow us to plan for the unknown.
When we identify activities for the work packages, we can detail the activities in a project activity list which is a list of everything that needs to be done to complete the project, including all the activities that must be accomplished to deliver each work package with activity attributes. This list can consist of, but is not limited to:
1. Activity identifier
2. WBS number
3. Activity title
4. Scope of Work
5. The person responsible (RACI chart can be used. See Chapter 5)
6. Related activities
1. Higher level activities (WBS number)
2. Lower level activities (WBS number)
3. Predecessors (including dependencies, that are FS, FF, SF, SS)
4. Successors (including dependencies, that are FS, FF, SF, SS)
7. Resource requirements
8. Activity location
9. Level of effort required
10. Activity assumptions
11. Activity constraints
The example in Table 7.1 is based on the project charter we developed in Chapter 3 (Case Study 3.1: Project Charter of Grocery LLC’s Mobile-Commerce Project), and the WBS we developed in Chapter 4 (Case Study 4.1: WBS of Grocery LLC’s M-Commerce Project). In Table 7.1, we focus on Activity 1.3 “Preparation of Project Charter” in the WBS. Under Activity 1.3, we determined six activities that can serve as the lowest level of activities, which are work packages. That would make it possible for us to allocate resources in Chapter 8.
Table 7.1: Activity List Template (Adapted from a template on www.projectmanagement.com)
Activity List for Project “Grocery LLC’s M-Commerce Project”
Activity
identifier
Activity title Scope of Work Person Responsible Predecessors
1.3 Preparation of Project Charter The project charter that will
authorize the project manager to
undertake the responsibility of the
project and apply the resources to
project activities will be prepared.
Project
Manager
1.1
1.2
1.3
1.3.1 Develop high-level
scope
The high-level scope consists of the
project purpose, measurable project
objectives, high-level requirements,
project description, boundaries, key
deliverables, and assumptions and
constraints.
Team
Member 1
1.2
1.3.2 Identify overall
project risks
This includes the identification of
the risks that affect the project in
general.
Team
Member 2
1.3.1
1.3.3 Develop high-level
schedule
This includes the estimation of the
overall schedule with summary
milestones.
Team
Member 1
1.3.1
1.3.4 Identify main
resources and develop
a high-level budget
This includes the initial estimation
of all resources (human resources,
physical resources, and services),
and the budget.
Team
Member 2
1.3.3
1.3.5 Identify key
stakeholders and
project team member
roles
Stakeholders with high-interest
levels and/or power levels will be
identified.
The project team’s composition will
be created. The qualifications required should be detailed.
The project sponsor’s authority will
be detailed.
Team
Member 3
1.3.1
1.3.2
1.3.6 Develop project
approval
requirements and
project exit criteria
Based on the project scope and
other sections of the project charter,
project approval requirements and
exit criteria should be detailed.
Exit criteria include the conditions
that describe the early termination
of the project.
Team
Member 1,
2, 3
1.3.1
1.3.2
1.3.3
1.3.4
1.3.5
We can explain each column available in Table 7.1 as below:
Activity Identifier: Once the WBS is created for the project, the list of activities required to complete each work package needs to be developed by the project team. Each activity then needs to be assigned an Activity ID, which is placed in this column. The activity ID serves as a reference identification number during planning, developing, and controlling the project schedule.
Activity List: The name/unique label for the activity (in brief) is placed in this column.
Scope of Work: The description of work required to be done to complete the activity is placed in this column (in as much detail as possible).
Person Responsible: One person or more than one who will be responsible for delivering the activity must be mentioned in this column. It is always good to have a primary and an alternate team member assigned to this responsibility. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/07%3A_Scheduling/7.03%3A_Defining_Activities.txt |
After we define the lowest level of activities in an activity list, each activity is reviewed and evaluated to determine the duration (how long it will take to accomplish from beginning to end) and what resources (e.g., human resources, materials, facilities, and equipment) are needed. An estimate is an educated guess based on knowledge, experience, and inference—the process of deriving conclusions based on assumptions. The accuracy of the estimate is related to the quality of the knowledge and how that knowledge is applied. The person with the most knowledge may not be the most objective person to provide duration estimates. The person responsible for the work may also want to build in extra time. Therefore, multiple inputs into the duration estimate and a more detailed WBS help reduce bias—the making of decisions based on a prejudged perspective.
It is of high importance here to highlight how a milestone is different from an activity. A milestone is a significant point or event in a project. Milestones have zero duration because they represent a significant point or event. A milestone list identifies all project milestones and indicates whether the milestone is mandatory, such as those required by contract, or optional, such as those based on historical information[1].
The unit of time used to develop the activity duration is a function of the level of detail needed by the user of the schedule. The larger and more complex the project, the greater the need for detail, which usually translates into shorter durations for activities. However, it is common to use two types of units – one is days or weeks for activities, and hours to display the work hours.
In this textbook, we can elaborate on five types of estimation methods:
1. Expert judgment: The project team consults domain and implementation subject matter experts who have technical knowledge and experience in the areas the project activities are related to. If we are developing a new mobile application, we can consult software engineers, developers and testers, and systems analysts who were involved in activities to develop other mobile applications. They can provide us with the information regarding scheduling estimates for each activity we are planning to carry out.
1. Appropriation method (Analogous estimating): Actual durations from similar projects are reviewed, and the same proportions are applied to the current project. However, internal and external factors that affected the previous projects, and those that may affect the current project should be taken into account. Identified risks with their probability and impact considered could have a significant influence on duration estimates for the current project.
1. Parametric estimating: In this estimation technique, we can use equations and algorithms to calculate the duration based on the resources we use and how many hours they need to work, or how many of them we need to use. This method is quantitative. We can multiply the quantity of work to be performed by the number of hours per unit of work. If we can estimate the amount of the work, we can divide it by the work that can be done in an hour. For example, let’s assume that, in our m-commerce project, we estimated that software developers need to create 200 lines of code for a module. Based on the previous projects and the feedback we received from the subject matter experts, we have estimated that a developer can finish 40 lines in an hour. Therefore, a developer needs 5 hours to finish all 200 lines. We can also add a one-hour break and two-hour review for this task. Therefore, the total work hours amount to 8 hours which is translated to one day in our schedule. Another example can be regarding the installation of cables in an infrastructure project. If workers can install 100 feet of cable per hour, the duration required to install 1,000 feet would be 10 hours (1,000 feet divided by 100 feet per hour). This technique can produce higher levels of accuracy depending on the sophistication and underlying data built into the model. Parametric schedule estimates can be applied to a total project or segments of a project, in conjunction with other estimating methods[2]. Entering data about the project into a formula, spreadsheet, or computer program produces a duration estimate by extrapolating information from a database of actual durations from past projects.
1. Three-point estimates: Duration estimates are done based on three scenarios:
1. A realistic estimate (most likely to occur – m)
2. An optimistic estimate (best-case scenario – o)
3. A pessimistic estimate (worst-case scenario – p)
In the three-point estimation method, two distributions are possible – triangular and beta. In triangular distribution, all three duration estimates get the same weight. In a beta distribution, the realistic estimate gets four-sixths of the weight whereas the other two estimates have one-sixth of the weight.
Triangular distribution:
Beta distribution:
Let’s estimate the duration of the “1.3 Preparation of Project Charter” sub-activities. Our team gathered together in a meeting to review and discuss alternative durations. We also consulted subject matter experts who work in relevant departments in our organization and also external stakeholders who have an interest and/or power. Our organization and the team had implemented software and website development projects as well as several mobile application development projects. Therefore, we have reports including information regarding the realized durations and lessons learned. So, we can start with analogous estimating first. As we have already worked on similar projects, that would facilitate the estimation process both for schedule and budget. We can place the historical information on the Most Likely column. Based on the expert judgment, lessons learned, and discussions during our team meeting, we determined pessimistic and optimistic durations in Table 7.2.
Table 7.2: Estimating Activity Duration by Applying Three-Point Estimate Method
Duration Estimation (in business days)
Activity
identifier
Activity title Optimistic Most Likely Pessimistic Duration
1.3.1 Develop high-level scope 3 4 6 4.17
1.3.2 Identify overall project risks 3 5 9 5.33
1.3.3 Develop high-level schedule 4 6 10 6.33
1.3.4 Identify main resources and develop a high-level budget 1 2 5 2.33
1.3.5 Identify key stakeholders and project team member roles 5 7 12 7.50
1.3.6 Develop project approval
requirements and project exit
criteria
3 5 9 5.33
The computation of the duration for Activity 1.3.2 is shown below:
We can roll the duration estimates down or up to the nearest integral number.
1. WBS method (Bottom-up estimating): In this method, we start from the lowest level activities in the WBS – work packages. After we estimate the duration for all six activities (Table 7.2), we can find the duration of the parent activity, 1.3 “Preparation of Project Charter”. The addition of duration for all six activities wouldn’t be an operation of adding all numbers (4+5+6+2+8+5), which is equal to 30 days. We must consider the dependencies between the activities, which are detailed in sections numbered 7.4 and 7.5 of this chapter. Hence, we can find 22 days for 1.3. The same bottom-up estimating is applied to the activities (1.1., 1.2, 1.3, 1.4, 1.5), and the duration for “1. Scope” is found as 35 days. “1.6 Completion of the Scope Phase” is a milestone and has a duration of zero. The overall duration for “1. Scope” is computed as 35 days as seen in Table 7.3.
Table 7.3. Schedule for Scope activities with durations rolled up in the higher levels
WBS Activity Name Duration Start Finish Predecessors
1 Scope 35 days Mon 5/2/22 Mon 6/20/22
1.1 Clarify project purpose and determine project scope 5 days Mon 5/2/22 Fri 5/6/22
1.2 Secure project sponsorship 1 day Mon 5/9/22 Mon 5/9/22 1.1
1.3 Preparation of project charter 22 days Tue 5/10/22 Wed 6/8/22
1.3.1 Develop high-level scope 4 days Tue 5/10/22 Fri 5/13/22 1.2
1.3.2 Identify overall project risks 5 days Mon 5/16/22 Fri 5/20/22 1.3.1
1.3.3 Develop high-level schedule 6 days Mon 5/16/22 Mon 5/23/22 1.3.1
1.3.4 Identify main resources and develop a high-level budget 2 days Tue 5/24/22 Wed 5/25/22 1.3.3
1.3.5 Identify key stakeholders and project team member roles 8 days Mon 5/23/22 Wed 6/1/22
1.3.1
1.3.2
1.3.6 Develop project approval requirements and project exit criteria 5 days Thu 6/2/22 Wed 6/8/22 1.3.1
1.3.2
1.3.3
1.3.4
1.3.5
1.4 Approval of project charter by the sponsor 2 days Thu 6/9/22 Fri 6/10/22 1.3.6
1.5 Secure core resources 5 days Mon 6/13/22 Fri 6/17/22 1.4
1.6 Completion of the scope phase 0 days Mon 6/20/22 Mon 6/20/22 1.5
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/07%3A_Scheduling/7.04%3A_Estimating_Activity_Durations.txt |
After we define the activities and estimate their duration, we are ready to create an activity network diagram which is a graphical representation of the logical relationship (i.e., dependencies) among the project activities[1]. Duration estimation can also accompany the creation of an activity network. The process can be iterative, and the project team can move back and forth to refine the activities, durations, and their relationships with other activities.
Activities are carried out in order. Therefore, they have predecessors and successors. They have logical relationships or dependencies which show the sequence in which the activities are to be performed[2]. There are four relationships between activities, which can be indicated as “Finish-to-Start” (FS), “Finish-to-Finish” (FF), “Start-to-Start” (SS), and “Start-to-Finish” (SF). The most common relationship is Finish-to-Start at which we start a successor activity once we finish the predecessor activity. Microsoft Project also uses FS as the default relationship. In the MS Project tutorial below, this topic has been also discussed. A start-to-Finish relationship is very rarely used.
Showing the activities in rectangles or circles, and their relationships (dependencies) as arrows is called a precedence diagramming method (PDM). This kind of diagram is also called an activity-on-node (AON) diagram (Figure 7.1). Another way to show how tasks relate is with the activity-on-arrow (AOA) diagram (Figure 7.1). AOA diagram is traditionally drawn using circles as the nodes, representing the beginning and ending points, and the arrows representing activities. AON is more commonly used and is supported by all project management programs. In this textbook, as is also used by PMBOK Guide Sixth Edition, we are using AON diagrams for creating activity network diagrams. Although we used circles in Figure 7.1 for AON, the most common implementation is to use rectangles. Microsoft Project uses rectangles as well.
7.4.1 Logical Relationships / Dependencies
As explained above, four logical relationships can be used in the precedence diagraming method while creating activity network diagrams. Besides these relationships, we will also discuss lags and leads.
Finish-to-Start (FS) Relationship
In this relationship, a predecessor activity should be finished in order to start the successor activity. This is the most common relationship between activities. As seen in Figure 7.2, Activity A must be finished to start Project B.
Examples:
• We need to assemble all hardware and network components of a laptop (predecessor) to install the operating system on this laptop (successor).
• We must finish cooking all our meals (predecessor) to start serving them in the dinner (successor).
• We should finish packing all the luggage to start driving to the airport for the holiday.
Lag
A lag is the amount of time a successor activity can be delayed with respect to a predecessor activity[3]. Consider that we should paint one room in our house. We need to apply plaster to walls first (predecessor). When the walls dry, we can paint them (successor). It is an FS relationship. However, we need to wait for two days for the walls to dry. This causes a two-day delay between two activities which is called a lag (Figure 7.3).
Lead
A lead is the opposite of a lag. A lead is the amount of time a successor activity can be advanced with respect to a predecessor activity[4]. In Figure 7.4, Activity B (successor) can start three days before Activity A (predecessor) finishes. For example, in the project, we should elicit the requirements of stakeholders first. Then, we can start designing the product based on the requirements. If we have ten stakeholder groups, and five of them are key stakeholders, we can start the design before we finish all the elicitation.
Finish-to-Finish (FF) Relationship
In this relationship, we cannot finish a successor activity (Activity B) if we don’t finish a predecessor activity (Activity A). Therefore, Activity A must be finished to ensure that we can finish Activity B as well (Figure 7.5). These tasks can be carried out in parallel. It is common to have a lag between the predecessor and successor.
Examples:
• We are writing a new textbook, and it has 15 chapters. When we finish writing Chapter 15, we can complete the book.
• The contractor is finishing the installation of gas lines and plumbing in our new house (predecessor – Activity A). Another contractor who will install the kitchen appliances can finish the installation of these appliances (successor – Activity B) when gas lines and plumbing are done. The second contractor will finish the installation of appliances five days after the predecessor activity is completed. So, there is a lag of five days (Figure 7.5).
Start-to-Start (SS) Relationship
In this relationship, a successor activity (B) cannot start until we start the predecessor activity (A). Like a finish-to-finish relationship, it is possible to see a lag between these two activities. In Figure 7.6, the relationship on the right illustrates a 5-day lag. Activity B can start five days after Activity B starts.
Examples:
• When developers start coding in a software project, testers may not need to wait until they finish all the coding. They can start testing after the coding starts. However, they may need to wait for several hours or days to start testing since some of the coding should be done so that the testers have an adequate number of lines to test. This delay is named “lag” as explained above and also in the “Finish-to-Finish” relationship.
• We are drafting a user manual for our product (predecessor). This manual must be also reviewed to make it ready for publishing (successor). In order to start this review, we should start drafting the manual.
Start-to-Finish (SF) Relationship
This is the rarest relationship between project activities. Activity B (successor) cannot finish until Activity A (predecessor) activity has started (Figure 7.7). Consider that we developed a new order processing software. In the meantime, we still need to use the current software not to cause any interruptions in our operations. Activity A is “Shutting down the current software” while Activity B is “Making the new software operational”. We can finish Activity B when we start Activity A.
7.4.2 Exercise to Create an Activity Network Diagram
Our exercise to create an activity network diagram starts with Table 7.4 below. We are assuming that all the dependencies are finish-to-start, and there are no lags or leads in this exercise. We will add other types of dependencies as well as lags and leads in the 7.6 Microsoft Project Professional tutorial.
Table 7.4: Activities
Activity Duration (week) Predecessors
A 1
B 2
C 2 A
D 4 A
E 1 B
F 2 C, D
G 3 E
H 1 G
I 4 G
J 1 F
K 3 J, H
L 4 I
M 1 K, L
We are using rectangular nodes for each activity with labels on them. Different software programs can be utilized to create these nodes. In this exercise, we are using Microsoft Visio. When we click “New” and search “PERT Chart” on Visio, we can select “PERT Chart” to open a new sheet. PERT stands for “Program Evaluation Review Technique”. It was developed by Booz-Allen and Hamilton as part of the United States Navy’s Polaris missile submarine program. PERT is a method for analyzing the tasks involved in completing a project, especially the time needed to complete each task, the dependencies among tasks, and the minimum time needed to complete the total project. Another method, CPM, the critical path method was developed in a joint venture by DuPont Corporation and Remington Rand Corporation for managing plant maintenance projects. The critical path determines the float, or schedule flexibility, for each activity by calculating the earliest start date, earliest finish date, latest start date, and latest finish date for each activity. This will be discussed in detail in the following sections (7.4.3 and 7.4.4). Rather than dealing with both methods separately, project managers use these methods together as they have been treated as a single method over time.
On Microsoft Visio, from PERT Chart Shapes, we drag PERT 1 shape (node) to the blank page. Activities are named as tasks here as is the case with Microsoft Project. We can choose the black color to fill and make the text white color for a good contrast. We can copy this shape, and paste it as needed. In our exercise, we have 13 nodes in total.
An activity node includes the labels as seen in Figure 7.8.
• Early Start (ES): The earliest time we can start an activity.
• Duration: How long it takes to finish all the tasks in an activity. It can be hours, days, weeks, or months.
• Early Finish (EF): The earliest time we can finish an activity.
• Late Start (LS): The latest time we can start an activity. Some activities may have some flexibilities (slacks or floats) that allow us to have some delay to start without affecting the overall project duration and other activities.
• Late Finish (LF): The latest time we can finish an activity. Based on the slacks (floats), we can finish an activity later than its scheduled completion time.
• Slack (Float): It is the difference between LS and ES, or between LF and EF. Both subtractions generate the same result.
In order to connect nodes, we can drag a line connector to the Visio page and connect two activities (Figure 7.9).
Figure 7.9. Connecting a Predecessor to its Successor (FS dependency)
We should place each activity node on the diagram by adhering to their precedence relationships with other activities (Table 7.4). After we connect all the nodes, we can type the duration for each activity as can be seen in Figure 7.10. All other parts in the nodes are zero for now. Besides, as all the dependencies are finish-to-start, the arrows (connectors) start from the right side of a predecessor activity and finish on the left side of a successor activity. For instance, when we finish Activity A, we can start both Activity C and Activity D. When we finish both, we can start Activity F.
7.4.3 Forward Pass:
Now, we can start with a forward pass to determine the early start and early finish dates, and on the last activity, the overall time to finish the whole project. It is an additive move through the network from start to finish.
1. For two starting activities (A and B), ES is marked zero, which means that it is the very first day of the project (Figure 7.11).
1. We add ES to the duration for each activity to find EF. For A, EF is (0+1) = 1 week, and for B, it is (0+2) = 2 weeks. It means that we can finish A at the end of the first week, and finish B at the end of the second week (Figure 7.11).
2. Then, we carry the EF time to the nodes immediately succeeding the recently completed nodes (predecessors). C and D inherit 1 (EF) from A, and it becomes ES for both successor activities. For E, we pass 2 (EF for B) to E as the ES time. Then, we add new ES times to the duration of activities to find the EF for new successors (Figure 7.12).
1. At a merge point, as is the case when C and D merge at F, we pass the highest EF time of predecessors (C and D) to the successor activity (F) (Figure 7.13). EF time of D becomes ES time for F.
1. When the forward pass is done, we can generate all ES and EF times for all the activities. The EF of the last activity (M) gives us the overall duration of the project which is 15 weeks (Figure 7.14).
7.4.4 Backward Pass
Before starting the backward pass process, we should explain the critical path which is the path through the network that results in the latest completion date of the project. If any activity on the critical path is delayed, the completion of the project will be delayed by an equal amount. It is the path with the greatest total duration. Therefore, we can add the amount of time estimated for the duration of each activity to the previous activity to determine which path through the network has the longest total duration. As we will explain below, slack will be zero for all the activities on the critical path.
After we complete the forward pass process for all the activities, we can start backward pass by moving from the last activity to the starting activities. It is a subtractive move through the network from finish to the start. In our exercise, the last activity is M with a one-week duration, an ES of 14 weeks, and an EF of 15 weeks which also indicates the overall duration of the project.
1. Late Finish (LF) for the last activity M is passed from EF (15 weeks). Then, we subtract LF from the activity duration to find the Late Start (LS). It is (15-1) = 14 weeks (Figure 7.15).
1. Now, it is possible to compute slacks for each activity. It is the difference between LS and ES, or between LF and EF. Both calculations will generate the same result. For Activity M, it is (14-14) or (15-15), which is zero. Therefore, there are no slacks for this activity. We don’t have any flexibility for this activity. We cannot have any delays to start the activity or to finish it. The activities where slack is zero are critical.
2. Then, we carry back the LS time to the nodes immediately preceding the successor node. K and L inherit 14 (LS) from M, and it becomes LF for both predecessor activities. Then, we subtract LF times from the duration of activities to find the LS for these predecessors (Figure 7.16). The slack for L is (10-10) or (14-14), which is zero. Therefore, L is also a critical activity. The slack for K is (11-8) or (14-11), which is 3. It means that we can wait for an additional three weeks to start K because we need to wait until week 14.
Figure 7.16: Passing LS times to successors as LF times
1. At a burst point, as is the case when G is followed by two successors, H and I, we pass the lowest LS time of successors (H and I) to the predecessor activity G as its LF time. Therefore, 6 becomes the LF for Activity G (Figure 7.17).
1. When the backward pass is done for all the activities, we can generate all LS and LF times as well as slack times for all of them (Figure 7.18). Thus, we can determine the critical path where the total slack is zero.
The critical path of this project is B – E – G – I – L – M. It is also the longest path. We need to start and finish all these six activities on their scheduled time not to cause any delay in the overall project. Non-critical paths are:
1. A – C – F – J – K – M: 1+2+2+1+3+1=10 weeks
2. A – D – F – J – K – M: 1+4+2+1+3+1=12 weeks
3. B – E – G – H – K – M: 2+1+3+1+3+1=11 weeks
We should always keep in mind that the WBS is not a schedule, but it is the basis for it. The network diagram is a schedule but is used primarily to identify key scheduling information that ultimately goes into user-friendly schedule formats, such as milestone and Gantt charts. The network diagram provides important information to the project team. It provides information about how the tasks are related, where the risk points are in the schedule, how long it will take as currently planned to finish the project, and when each task needs to begin and end.
Schedules must be communicated to project stakeholders. Generally speaking, stakeholders want to know when the work will be completed. Once the completion date is determined, it is important to confirm whether this date can meet the expectations of the stakeholders, in particular the project sponsor, and internal or external clients. Once timeline commitments have been made, stakeholders must be kept up to date on any delays that will cause deviation from the agreed-upon schedule.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/07%3A_Scheduling/7.05%3A_Creating_an_Activity_Network_Diagram.txt |
A Gantt chart is a type of bar chart, developed by Henry Gantt, that illustrates a project schedule. Gantt charts are easy to read and are commonly used to display scheduled activities. These charts display the start and finish dates of project activities. Gantt charts also show the dependency relationships (i.e., precedence network) between activities.
Gantt charts show all the key stages of a project and their duration as a bar chart, with the time scale across the top. The key stages are placed on the bar chart in sequence, starting in the top left corner and ending in the bottom right corner (Figure 7.12). A Gantt chart can be drawn quickly and easily and is often the first tool a project manager uses to provide a rough estimate of the time that it will take to complete the key tasks. The detailed Gantt chart is usually constructed after all WBS activities are identified, an activity list is created, activity durations are estimated, and predecessors are determined.
Let’s continue with our example in table 7.3. The Gantt Chart for the Scope activities was created by using MS Project (Figure 7.19).
Figure 7.19: Gantt Chart for the “Scope” activities
In the Gantt chart in Figure 7.19, red bars show the critical tasks whereas blue bars illustrate the non-critical tasks. Dependencies between all the activities are Finish-to-Start, which is the most common dependency and the default relationship in MS Project.
7.07: Microsoft Project Tutorial
The exercise in Table 7.5 has the same activities, durations, and predecessors as the exercise we used to develop a network diagram. In this exercise, we have added different dependencies (not only F-S), lags (a positive number showing a delay), and leads (a negative number showing an earlier start).
Table 7.5: Activities
Activity Duration (week) Dependencies Lag Predecessors
A 1 F-S 0
B 2 F-S 0
C 2 F-S 0 A
D 4 S-S 0 A
E 1 F-S 0 B
F 2 F-S 0 C, D
G 3 F-S 0 E
H 1 F-S 2 weeks G
I 4 F-S 0 G
J 1 F-F -1 week F
K 3
F-S for H
S-F for J
5 days for J J, H
L 4 F-S 0 I
M 1
F-S for K
F-F for L
1 week for L K, L
When we start a new project on Microsoft Project, it is useful to check “Project Summary Task” under the “Format” tab. MS Project gives the row number zero to the project summary task. The question mark at the end of the duration shows that the duration is estimated.
Besides, just in the very beginning, it is of high importance to check “Critical Tasks” and “Slack” under the “Format” tab (Figure 7.21). When we type the tasks (activities), the Gantt Chart will start to highlight the critical and non-critical tasks in red and blue colors respectively.
As the durations are in weeks, we should change the settings in the Options under the “File” tab. “Duration is entered in” is changed to “Weeks” (Figure 7.22).
First, we should type each activity on the “Task Name” column and durations on the “Duration” column. Then, we can select the predecessors from the dropdown menu on the “Predecessors” column (Figure 7.23).
When we finish typing all the activity predecessors, Gantt Chart will be completed on the right side of the window (Figure 7.24). As indicated above, red bars show critical tasks (with zero slack) and non-critical tasks (with slacks). MS Project allows the users to change the colors of the bars.
For this exercise, we are not changing the “Task Mode”, which is either automatically scheduled or manually scheduled (Figure 7.25). Project summary task is automatically scheduled since it adjusts the duration, and start and finish dates automatically when activity durations and predecessors are typed.
When we double-click a task, the “Task Information” window opens (Figure 7.26). The dependency type is “Finish-to-Start (FS)” as default. Now we can change dependencies as indicated in Table 7.5.
When we are done with predecessor types (dependencies), the predecessors with dependencies different from FS will appear on the “Predecessors” column for the relevant activities (Figure 7.27). These dependencies are shown inside a red circle in Figure 7.27.
After we change the dependencies, it is important to click “Respect Links” under the “Task” tab since the task mode is manually scheduled and the new dependencies may affect the precedence relationships. As can be seen in Figure 7.28, MS Project highlights the boxes in light blue if there is a change.
As can be seen in Figure 7.29, the dependency between A and D is not FS anymore D. It is Start-to-Start (SS). Therefore, the arrow starts from the left side of A’s bar on the Gantt Chart and connects to the left side of D’s bar. When it is FS, the arrow starts from the right side of the predecessor and connects to the left side of the successor as can be seen in Figure 7.29 between A and C.
In order to see the slacks for each activity, we can add a new column named “Free Slack” (Figure 7.30). The black underline attached to the left of Activity C in the Gantt Chart also shows the slack (Figure 7.29).
Now we can create an activity network diagram by selecting “Network Diagram” on the dropdown menu that appears when we click the Gantt Chart located on the far-left part of the “Task” tab (Figure 7.31).
Figure 7.32 displays the network diagram in a non-collapsed format. We should scroll toward the right to see other activities.
In order to see the whole diagram without details, we should click “Collapse Boxes” and check “Straight Links” under the “Network Diagram Tools – Format” tab (Figure 7.33). The network diagram in MS Project illustrates the links in FS dependency. Therefore, it is convenient to see other dependencies on the Gantt Chart view.
7.08: Key Takeaways
Key Takeaways
• The project schedule management plan is one of the sub-plans of the overall project plan. It provides the guidelines on how to develop a project schedule by defining and sequencing project activities and milestones, and by estimating activity durations.
• The activity definition process is a further breakdown of the work package elements of the WBS which was created while planning the scope.
• After the lowest level activities are defined in the activity list, each activity is reviewed and evaluated to determine the duration. An estimate is an educated guess based on knowledge, experience, and inference. Five types of estimation methods are expert judgment, analogous estimating, parametric estimating, three-point estimates, and bottom-up estimating.
• Showing the activities in rectangles or circles, and their relationships (dependencies) as arrows is called a precedence diagramming method (PDM). This kind of diagram is also called an activity-on-node (AON) diagram.
• Four types of logical relationships (dependencies) are “Finish-to-Start” (FS), “Finish-to-Finish” (FF), “Start-to-Start” (SS), and “Start-to-Finish” (SF). The most common relationship is Finish-to-Start at which we start a successor activity once we finish the predecessor activity.
• The process to create an activity network diagram is composed of two main steps: (1) Forward pass, and (2) backward pass. When these steps are completed, the critical path can be identified.
• A Gantt chart is a type of bar chart that displays the start and finish dates of project activities, and their dependency relationships with one another.
7.09: Questions and Exercises
There are 8 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=584
7.10: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/07%3A_Scheduling/7.06%3A_Creating_a_Gantt_Chart.txt |
Learning Objectives
1. Describe how to create a project resource plan.
2. Define the resources that will be utilized in a project, including the project team members.
3. Elaborate on resource loading, leveling, and crashing to conduct resource allocation effectively.
4. Practice on Microsoft Project to determine and allocate the resources, and solve resource overallocation and conflict problems as well as scheduling issues.
Overview
A project manager is responsible for planning, developing, managing, and monitoring and controlling the resources to ensure that project objectives can be achieved. Effective resource management is integral to overall project success. The objective is to identify and allocate resources effectively and efficiently to project activities to complete the project to the satisfaction of the stakeholders, in particular, clients and customers. Whereas scope, time, and cost are the main constraints of a project, they are tightly linked to the resources. After the scope and schedule are delineated, the project manager can continue with the identification and allocation of resources based on the scope (product requirements and project activities) and the schedule (how project activities are sequenced on a timescale). Allocation of resources allows the project manager to determine the overall project budget most of which is spent on resources.
8.02: Resource Management
Resource management is the efficient and effective deployment of an organization’s resources when they are needed. We can classify the resources into three main categories:
1. Human resources (HRs)
1. Project team members (core team)
2. HRs outside the core team required for project activities
2. Physical resources
1. Equipment
2. Materials (Raw materials, supplies, consumables)
3. Inventory
4. Facilities
5. Infrastructure
6. IT hardware
7. IT software
8. Cloud computing resources
3. Services
1. Contractors and subcontractors
2. Consulting
Every activity in our activity list needs to have resources assigned to it. Before we can assign resources to the project, we need to know their availability. To assess resource availability, a project manager needs information about what resources we can use on our project when they’re available to us, and the conditions of their availability. This is why a WBS (see Chapter 4) and an activity list (see Chapter 7) are critical in our project to plan for the resources.
The most important resource to a project is its people—the project team. We discussed the development and management of project teams in section 6.7 of Chapter 6. Projects have a core team that includes a project manager and key members with functional expertise. There may be also administrative personnel and members who assist the project manager. Core team members provide continuity and “corporate memory” throughout the project, particularly to external hires who may not be as familiar with the strengths and weaknesses of the organization’s previous projects. Projects require specific expertise at specific moments in the schedule, depending on the milestones being delivered or the given phase of the project. An organization can host several strategic projects concurrently over the course of a budget year, which means that its employees can be working on more than one project at a time. Alternatively, an employee may be seconded away from his or her role within an organization to become part of a project team because of particular expertise. Moreover, projects often require talent and resources that can only be acquired via contract work and third-party vendors. Procuring and coordinating these human resources, in tandem with managing the time aspect of the project, is critical to overall success. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/08%3A_Resource_Management/8.01%3A_Learning_Objectives_and_Overview.txt |
As described in Chapter 4, project planning is at the heart of the project life cycle and tells everyone involved where we are going and how we are going to get there. It involves creating a set of plans to help guide the project team through the implementation and closure phases of the project. The project resource management plan is one of the sub-plans of the overall project plan. It provides the guidelines to project managers on how to estimate, acquire, manage and utilize physical and team resources[1]. It is the process of establishing the policies, procedures, and documentation for planning, developing, managing, executing, and controlling the project resources[2].
The resource management plan can consist of the following:
• Project Organization Charts
• Project team members and their reporting relationships are displayed in these charts.
• A team charter is prepared to establish team values, agreements, communication guidelines, decision-making criteria and processes, and operating guidelines for the team[3].
• Resource requirements
• Types of resources (e.g., human resources, physical resources, services)
• Human resources (Core team members and people for all project activities)
• Required skills and competencies
• Roles and responsibilities
• Authority level (e.g., decision-making, inspecting, and accepting deliverables)
• Effort in hours (e.g., daily working hours – full-time or part-time, the total amount of work hours)
• Source (e.g., PMO – Project Management Office, other functional units, regional offices, outsourcing, offshoring)
• WBS activity link
• Required features for physical resources (e.g., equipment, materials, facilities, infrastructure, supplies)
• Project team resource management
• Methods for developing and managing the project team
• The decision criteria when to use project team human resources and the human resources outside the team.
• Resourcing strategy
• How will resources be acquired and released from the project?
• Resourcing assumptions
• Are there any assumptions about the resource requirement estimates?
• Vacations, holidays, training, meetings, interruptions, sick leave.
• Rewards and recognition
• Define the criteria for rewarding project team members for the work that they have done.
• Which rewards will be given and when?
• How much money is set aside for the project?
• Resource control
• Which methods will be used to monitor and control the project resources?
• Health and safety
• Are there specific health and safety practices that will be followed on the project?
In the resource management plan, including a Resource Breakdown Structure would help the team substantially to illustrate the needs in a hierarchical structure. An example is given in Figure 8.1 based on the case study regarding Grocery LLC’s M-Commerce Project.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
8.04: Estimating the Resources
The goal of activity resource estimating is to assign resources to each activity in the activity list. In order to estimate resources, we can use the similar techniques that we utilized to estimate schedule (see Chapter 7) and cost (see Chapter 9). In this book, we will describe four tools and techniques for estimating activity resources.
1. Expert judgment: The project team consults domain and implementation subject matter experts who have technical knowledge and experience in the areas the project activities are related to. When we are developing a mobile application, we can consult software engineers, developers and testers, and systems analysts who were involved in activities to develop other mobile applications. They can provide us with information regarding resource requirements.
2. Alternative analysis: We can consider several different options for how we can assign resources. This includes varying the number of resources as well as the kind of resources we use. Many times, there’s more than one way to accomplish an activity and alternative analysis helps decide among the possibilities.
3. Analogous estimating: Information and lessons learned from previous projects, standards provided by the regulatory agencies, government organizations, and occupational associations, and the data that rely on articles, books, journals, and periodicals can be utilized to help us figure out what kind of and how many resources we need in our project activities.
4. Bottom-up estimating: We decompose our project activities by utilizing WBS. We break down complex activities into pieces. Therefore, we can work out the resource assignments for each piece. It is a process of estimating individual activity resource needs and then adding these up together to come up with a total estimate. Bottom-up estimating is an accurate means of estimating, given that the estimates at the lower levels are accurate. However, it takes a considerable amount of time to perform bottom-up estimating because every activity must be assessed and estimated accurately to be included in the bottom-up calculation. The smaller and more detailed the activity, the greater the accuracy and cost of this technique. An example is provided in the sections “8.4 Resource Allocation” and “8.5 Solving Resource Conflicts”.
Project management software programs such as Microsoft Project often have features designed to help project managers estimate resource needs and constraints and find the best combination of assignments for the project. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/08%3A_Resource_Management/8.03%3A_Project_Resource_Management_Plan.txt |
Based on the Resource Management Plan and according to the estimation methods, the project team should identify the resources necessary for the project activities and should allocate them to execute the project activities. Allocation of resources is named “Resource Loading”. Then, the project team can have a resource usage calendar that exhibits the amounts of resources assigned to each activity during the project. Let’s continue with “Table 7.1. Activity List Template” from Chapter 7, and load resources to the activities of “1.3 Preparation of Project Charter”.
Table 8.2: Resource Loading for 1.3 “Preparation of Project Charter”
Activity List for Project “Grocery LLC’s M-Commerce Project”
Activity identifier Activity title Scope of Work Person Responsible Predecessors Resources
1.3 Preparation of Project Charter The project charter that will authorize the project manager to undertake the responsibility of the project and apply the resources to project activities will be prepared. Project Manager
1.1
1.2
1.3.1 Develop high-level scope The high-level scope consists of the project purpose, measurable project objectives, high-level requirements, project description, boundaries, key deliverables, and assumptions and constraints. Systems Analyst 1 1.2 Systems Analyst 1
1.3.2 Identify overall project risks This includes the identification of the risks that affect the project in general. Systems Analyst 2 1.3.1 Systems Analyst 2
1.3.3 Develop high-level schedule This includes the estimation of the overall schedule with summary milestones. Team Member 1 1.3.1 Systems Analyst 1
1.3.4 Identify main resources and develop a high-level budget This includes the initial estimation of all resources (human resources, physical resources, and services), and the budget. Team Member 2 1.3.3 Systems Analyst 1
Systems Analyst 2
1.3.5 Identify key stakeholders and project team member roles Stakeholders with high-interest levels and/or power levels will be identified.
The project team’s composition will be created. The qualifications required should be detailed.
The project sponsor’s authority will be detailed.
Team Member 3
1.3.1
1.3.2
Systems Analyst 1
Systems Analyst 2
Sales & Marketing Expert 1
Sales & Marketing Expert 2
1.3.6 Develop project approval requirements and project exit criteria Based on the project scope and other sections of the project charter, project approval requirements and exit criteria should be detailed.
Exit criteria include the conditions that describe the early termination of the project.
Team Member 1, 2, 3
1.3.1
1.3.2
1.3.3
1.3.4
1.3.5
Systems Analyst 1
Systems Analyst 2
In Table 8.2, we only assigned human resources. We also assume that all the people work full-time, which is 8 hours a day. They work during the weekdays, which makes the weekly total work hours forty. In Table 8.3, we can see how human resources are distributed to the tasks by week.
Table 8.3: Resource Usage Calendar
Resource Name Work May 2 May 9 May 16 May 23 May 30 June 6
Systems Analyst 1 240 hrs 40 32 40 64 40 24
Clarify project purpose and determine project scope 40 hrs 40
Develop high-level scope 32 hrs 32
Develop high-level schedule 48 hrs 40 8
Identify main resources and develop a high-level budget 16 hrs 16
Identify key stakeholders and project team member roles 64 hrs 40 24
Develop project approval requirements and project exit criteria 40 hrs 16 24
Systems Analyst 2 200 hrs 40 0 40 56 40 24
Clarify project purpose and determine project scope 40 hrs 40
Identify overall project risks 40 hrs 40
Identify main resources and develop a high-level budget 16 hrs 16
Identify key stakeholders and project team member roles 64 hrs 40 24
Develop project approval requirements and project exit criteria 40 hrs 16 24
Sales & Marketing Expert 1 104 hrs 40 0 0 40 24 0
Clarify project purpose and determine project scope 40 hrs 40
Identify key stakeholders and project team member roles 64 hrs 40 24
Sales & Marketing Expert 2 104 hrs 40 0 0 40 24 0
Clarify project purpose and determine project scope 40 hrs 40
Identify key stakeholders and project team member roles 64 hrs 40 24
Resource usage calendars help project teams evaluate whether resources are assigned without conflicts. As can be seen in Table 8.3, System Analyst 1 (SA1) and 2 (SA2), both, have resource overallocation problems on May 23rd week. SA1 works 64 hours on that week while SA2 works 56 hours. Both work more than 40 hours (8 hours per weekday) assuming that overtime work is not allowed. In the next section, we will discuss how to solve this overallocation by means of resource leveling. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/08%3A_Resource_Management/8.05%3A_Resource_Allocation.txt |
One of the techniques to solve resource conflicts is implementing resource leveling which is used to examine the unbalanced use of resources (usually people or equipment) over time and for resolving overallocation or conflicts. When performing project planning activities, the manager will attempt to schedule certain tasks simultaneously. When more resources are needed than are available, or perhaps a specific person is needed in both tasks, the tasks will have to be rescheduled sequentially to manage the constraint. Resource leveling during project planning is the process of resolving these conflicts. It can also be used to balance the workload of primary resources throughout the project, usually at the expense of one of the triple constraints (scope, schedule, cost).
As we discussed briefly in the previous section, both systems analysts are overallocated. Therefore, we should correct this issue since they cannot work more than 40 hours a week. Resource leveling would be one of the techniques to eliminate this problem. In resource leveling, we still use the same resources without adding new resources. However, this comes with a risk of schedule delay. Gantt Chart for the weeks of May 16, May 23, and May 30 is shown in Figure 8.2. As can be seen in the figure, 1.3.3 and 1.3.5 overlap on May 23, and SA1 works full time in two activities on the same day, which is not possible. Besides, 2-day activity 1.3.4 overlaps with 1.3.5, and both SA1 and SA2 work on both of the activities.
Since resource leveling utilizes the same resources, it may create schedule delays as seen in Figure 8.3. Activity 1.3.4 had to be moved to June 2 from May 24 to prevent any conflicts with 1.3.3 and 1.3.5. Its duration was also increased to 3 days from 2 days. Activity 1.3.5 starts on the same day, May 23. However, its duration was also increased to 9 days from 8 days. Therefore, it finishes on May 2 instead of May 1. For these three activities, we have a three-day delay in total after resource leveling. Sometimes, splitting the tasks could be another option if the activities allow us to do so. This resource leveling could also affect the following activities, which may create a chain effect with more schedule slippages.
Another option to resolve conflicts would be assigning new resources to prevent schedule slippages. A third systems analyst can be assigned to activity 1.3.3 by removing SA1. With the new SA3, we can reallocate SA1 and SA2 in 1.3.4 and 1.3.5 by replacing them with SA3 for the days when SA1 and SA2 have conflicts with other activities. Apparently, this situation would impose additional costs on the project by adding a new systems analyst. However, we can avoid schedule slippages. Thus, the project manager should evaluate all the trade-off options between the schedule and the cost.
8.07: Schedule Compression Techniques
While resource leveling is mostly implemented during the planning stage of activities, schedule compression techniques such as crashing and fast-tracking are utilized during the execution of activities to accelerate the project. With crashing, the project manager adds additional resources to the critical activities (zero-slack activities) and saves time by spending more money on the additional resources. In this technique, existing resources can be asked to work overtime or we can add new resources. As seen in Figure 8.4, we assigned new resources to the three activities. With the added resources, and accordingly with more cost, we now had the opportunity to finish these activities in 8 days instead of 12 days.
Project managers should ponder all the alternatives and outcomes before deciding on crashing since adding new resources may not shorten the duration all the time. If overtime is approved, people who work overtime may be less productive after a while with increased tiredness and less satisfaction. Besides, there may be internal and external dependencies. For example, we may be still waiting for a material ordered from a supplier which cannot deliver earlier. Regarding the equipment, we may not be able to increase the operating time if the equipment cannot work more than a certain number of hours a day. If the activities in which we crash resources are not critical, we cannot shorten the duration. Let’s consider the project activity network diagram in Figure 7.14 from Chapter 7.
Let’s perform crashing in Activity D and Activity K. Each of D and K has a three-day slack. Let’s assume that with additional resources, we can finish D in 3 weeks instead of 4 weeks, and the K in 1 week instead of 3 weeks. The new activity network diagram is in Figure 8.6. The total duration of the project remains the same, 15 weeks. D and K, the both, have one more day slack while it hasn’t influenced the project duration. Therefore, we have just paid more for nothing.
If we crash critical activities, we can save time on the project. Let’s add new resources to Activity I and Activity L. The new duration for I and L is 3 weeks for each. As seen in Figure 8.6, the total duration of the project was reduced to 13 days from 15 days.
Another option to shorten the duration of a project is to implement fast-tracking. If some parts of the activities can be carried out in parallel, we can shorten the total duration. Let’s use the example in Figure 8.4. In fast-tracking, we don’t assign new resources. With the same resources, we can execute some parts of three activities in parallel. Let’s assume that the first activity is coding and HR1 is working in this activity. The second activity is testing and HR2 is working in this activity. We don’t need to wait for the first activity to be completed to start the second activity. We can add two-day leads (negative lags) between activities (Figure 8.8). After developers finish some of the codings, testers can start the testing. In this case, we can finish three activities in 8 days instead of 12 days as seen in Figure 8.8. However, using leads increases the coordination efforts. Therefore, the project manager should exert more concentrated efforts for coordination to prevent any quality risks. It may be still possible to increase the project costs although the probability is less when compared with crashing. It is of high importance to bear in mind that not all activities can be fast-tracked. The sequencing of the activities should be such that fast-tracking is permissible. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/08%3A_Resource_Management/8.06%3A_Solving_Resource_Overallocation-_Resource_Leveling.txt |
For the MS Project tutorial, let’s continue with our example of m-commerce project. Let’s focus on “1. Scope”. The WBS for the scope stage is in Table 8.4. This table also includes the duration, start and finish dates, and predecessors.
Table 8.4: WBS for the Scope of the M-Commerce Project
WBS Task Name Duration Start Finish Predecessors
1 Scope 35 days Mon 5/2/22 Mon 6/20/22
1.1 Clarify project purpose and determine project scope. 5 days Mon 5/2/22 Fri 5/6/22
1.2 Secure project sponsorship 1 day Mon 5/9/22 Mon 5/9/22 2
1.3 Preparation of project charter 22 days Tue 5/10/22 Wed 6/8/22
1.3.1 Develop high-level scope 4 days Tue 5/10/22 Fri 5/13/22 3
1.3.2 Identify overall project risks 5 days Mon 5/16/22 Fri 5/20/22 5
1.3.3 Develop high-level schedule 6 days Mon 5/16/22 Mon 5/23/22 5
1.3.4 Identify main resources and develop a high-level budget 2 days Tue 5/24/22 Wed 5/25/22 7
1.3.5 Identify key stakeholders and project team member roles 8 days Mon 5/23/22 Wed 6/1/22 5,6
1.3.6 Develop project approval requirements and project exit criteria 5 days Thu 6/2/22 Wed 6/8/22 5,6,7,8,9
1.4 Approval of project charter by the sponsor 2 days Tue 6/9/22 Fri 6/10/22 10
1.5 Secure core resources 5 days Mon 6/13/22 Fri 6/17/22 11
1.6 Initiation stage complete 0 days Mon 6/20/22 Mon 6/20/22 12
Let’s identify the resources that we can use for the scope. We should enter them in the Resource Sheet after we click “Resource Sheet” in the dropdown menu (Figure 8.9).
In the Resource Sheet window, we can type the resources. There are three types of resources in MS Project:
1. Work: Work resources are people and equipment. They have a standard rate per hour.
2. Material: Material resources are consumable supplies. They have a unit of measurement such as tones, boxes, and cubic yards.
3. Cost: Cost resources are independent costs we want to associate with a task such as a plane ticket.
Let’s type all the resources as seen in Figure 8.10. In this chapter, we won’t write standard rates, overtime rates, and cost/use. We will detail them in Chapter 9. We are only typing the human resources in this tutorial. Therefore, they are classified as “Work” type. We keep “Max” (Maximum units) 100% as they work full-time.
After we type the resources, we can assign them to their tasks in the Gantt Chart window on the dropdown menu (Figure 8.9).
After we assign all the resources to their relevant tasks, we can see the information below as in Figure 8.12.
The Gantt chart which is on the right side of the window would be as in Figure 8.13. The MS Project illustrates the Gantt chart with bars and the resources assigned to each task to the right of each task bar. As explained in Chapter 7, the red bar displays a critical path, and the blue bar displays a non-critical path.
As can be seen in Figures 8.12 and 8.13, there are three red people indicators in the first column. This is a warning for overallocated resources. We can investigate more to understand which resources are overallocated. On the dropdown menu in Figure 8.9, we can select “Resource Graph”. Figure 8.14 shows us that Systems Analyst 1 is overallocated on three days, which is more than 100%.
We can implement resource leveling for these three activities. On the “Resource” tab, we can select “Level Resource” or “Level All” (Figure 8.15). Leveling options can also be modified. For this tutorial, we are not changing the options.
When we click “Level All”, MS Project levels the resources in these three activities with resource overallocation (Figure 8.16). Therefore, our resource overallocation is resolved. The duration of 1.3 was 22 days before resource leveling. After the leveling, it is 25 days. Therefore, there is a 3-day slippage as we are using the same resources, and aren’t allocating new resources. However, the total duration of “1. Scope” didn’t change, and stayed at 35 days after leveling.
But we now experience a schedule slippage as seen in Figures 8.16 and 8.17. Besides, 1.3.6 and the following activities are affected. 1.3.6 has an underlined text for the Finish Date, which means that there is a scheduling problem. After resource leveling, it is common to experience schedule problems in the following activities. To solve the scheduling problem in 1.3.6 and the following activities, we can click “Respect Links” for 1.3.6 and all the following activities. Besides, MS Project gives some options when we right-click on an underlined date as seen in Figure 8.18. When we right-clicked on the underlined finish date (Mon 6/13/22) of 1.3.6, it gave us the options “Fix in Task Inspector”, “Respect Links”, and “Switch to Auto Scheduled”.
After all the scheduling problems are corrected, the total duration of Scope goes up to 39 days from 35 days (Figure 8.19).
8.09: Key Takeaways
Key Takeaways
• Resource management is the efficient and effective deployment of an organization’s resources when they are needed. These resources can be classified as human resources, physical resources, and services.
• Planning resource management is the process of establishing the policies, procedures, and documentation for planning, developing, managing, executing, and controlling the project resources.
• Resource Breakdown Structure helps the team to illustrate the resource needs in a hierarchical structure.
• The techniques to estimate the resources are expert judgment, alternative analysis, analogous estimating, and bottom-up estimating.
• Allocation of the resources to the project activities is called “Resource Loading”.
• Resource leveling is used to examine the unbalanced use of resources (usually people or equipment) over time and for resolving overallocation or conflicts.
• Schedule compression techniques such as crashing and fast-tracking are utilized to accelerate the project.
8.10: Questions and Exercises
There are 5 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=609
8.11: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/08%3A_Resource_Management/8.08%3A_Microsoft_Project_Tutorial.txt |
Learning Objectives
1. Define the project cost and explain its types.
2. Create a project cost plan to help guide the project team through the implementation and closure phases of the project.
3. Define the budget estimation techniques.
4. Describe the process of documenting project procurement decisions, specifying the approach, and identifying potential sellers. Define the resources that will be utilized in a project, including the project team members
5. Practice the allocation of resources and calculation of their costs with Microsoft Projec
Overview
While performing the planning of all the knowledge areas (e.g., scope, schedule, cost, quality, stakeholders, risks), the project manager should be aware of the fact that all knowledge areas are tightly linked to each other. That is, it is not possible to start with cost or quality first. The scope is the starting point when project managers with the help of business analysts, subject matter experts, clients, the project sponsor, and various stakeholders identify the project purpose, measurable objectives, requirements, deliverables, and WBS activities. Whereas scope, time, and cost are the main constraints of a project, all three are tightly linked to the resources, which are other constraints that include time and cost as critical resources. After the scope (see Chapters 3 and 4) and schedule (see Chapter 7) are delineated, the project manager can continue with the identification and allocation of resources based on the scope (requirements and project activities) and the schedule (how project activities are sequenced with duration for each of them). Allocation of resources provides the project manager to determine the overall project budget most of which is spent on resources (Chapter 8).
Every project boils down to money. If we had a bigger budget, we could probably get more people to do the project more quickly and deliver more. That’s why no project plan is complete until we come up with a budget. But no matter whether the project is big or small, and no matter how many resources and activities are in it, the process for figuring out the financial bottom line is always the same. This chapter starts with defining the project cost and its types, then elaborates on the cost management plan, continues with how to estimate costs and determine the budget, and ends with project procurement management. We will expand Microsoft Project exercises in chapters 4 (scope), 7, (schedule), and 8 (resources) by specifying the cost for all the activities and the overall project.
9.02: Project Costs
One of the criteria of project success is completing the project within budget. Developing and controlling a project budget that will accomplish the project objectives is a critical project management skill. Although stakeholders expect the project to be executed effectively and efficiently, pressures to remain within budget vary based on the unique constraints and priorities of the project. On some projects, the project completion date is the highest priority leading to a more flexible budget to accommodate the inflexible deadline. Moreover, the project’s scope may have to be scaled back if it is too ambitious to finish in time. On other projects, for example, ones with limited funding available, remaining within budget is the highest priority. When this is the case, effective cost management is imperative and trade-offs with scope, quality, and/or time may be required.
9.1.1 Boston’s Infamous Big Dig (Central Artery/Tunnel) Project
One of the notorious examples of project budget overrun is Boston’s Big Dig project[1] although its outcome had significant benefits to the Boston residents by lowering traffic jams and pollution. Central Artery/Tunnel Project, the official name of the project, was the largest, most challenging highway project in the history of the United States. This project’s objective was to reduce traffic and improve mobility in one of America’s oldest, most congested major cities. Although the project had been planned in the 1980s, it was completed in 2007. Its original completion was scheduled in the late 1990s, and its original cost was estimated to be about 3 million dollars[2]. However, including the interest to be paid, the total cost was estimated to be 24 million dollars[3]. As listed by Greiman and Warburton (2009)[4], common causes for cost escalation on the Big Dig included: the failure to include a cost for inflation in each contract; delays in project completion; and the actual rate of inflation being greater than the planned estimate. Other factors that impacted the Big Dig were financing shortfalls and interest rates, scope changes, shortages of materials and labor, price increases, and market changes, weak project managers, technical and design complexity, unexpected events and force majeure, and political and legal risks.
The Big Dig project is considered a mega project, and unfortunately, many mega projects suffered a substantial cost overrun as well as other problems regarding the scope, schedule, risks, and resources, which in turn, led to the cost overruns. However, smaller projects, even our personal projects such as moving to another house and going on a summer vacation, may experience problems with the cost. When problems start in a project, the sponsor, clients, and other stakeholders first realize the abnormality in the budget which is an explicit reflection of something going bad. The more money we spend over the estimated budget, the more it hurts the stakeholders since the financial assets of a project, organizations and individuals can be analogous to the blood of a living thing.
Some of the reasons why projects fail to keep themselves on track with regard to their budget can be outlined below:
1. Project activities may not be identified in accordance with the project objectives and product scope. For example, if the project manager doesn’t include the required travel and accommodation expenses that are required for the factory test in another city or country.
2. The duration of project activities may not be estimated correctly, thus leading to shorter or longer duration. For example, if an activity’s duration is determined as one week whereas it requires at least two weeks to complete all the tasks, an additional week would lead to more labor and material costs.
3. Underestimation of costs per activity and resource. Let’s assume that the minimum hourly wage of a systems analyst is \$30 currently, and it is difficult to find one who can accept a wage below \$30. However, we take into account the costs in a similar project which was completed two years ago. Thus, we estimated \$20 per hour for a systems analyst. If two analysts work for 100 hours in total, this underestimation could cause us to spend an additional \$1,000 in the best scenario.
4. Risk identification is an essential process during the planning phase. If risks cannot be identified properly (see Chapter 10), for instance, if a risk that may put the project in jeopardy is overlooked, we will need to allocate an additional budget in case the risk occurs. In a worse case, the project may fail, which cannot be even saved with an additional budget.
9.1.2 Project Cost Types
There are generally three different types of project costs:
1. Direct costs
2. Project-induced overhead costs
3. General administrative costs
The primary difference between these costs is how closely related they are to the specific activities of the project.
Direct costs are directly related to specific project tasks. These costs represent the labor, time, and materials associated with specific tasks. If a software developer works on our m-commerce project for 40 hours, each hour they work to code the mobile application will be incurred as a direct cost. These are generally variable costs as is the case for the software developer cost.
Project-induced overhead costs are incurred as a result of the project’s existence, but they are not directly related to specific tasks. These costs represent the compensation paid to individuals who are supporting the project in its entirety, such as the project leader and their support staff (project analysts, coordinators, etc.). These costs also represent materials, facilities, and related equipment that were purchased to support the project in general. The rental and maintenance of workspace for the project team members, as well as their computers and related information technology, supplies, and lunch (if provided), are all examples of overhead costs. If we rent an office for the developers and testers to work together, then this fixed cost would be also a direct cost.
Lastly, general administrative costs are indirectly related to a project, and they are incurred even if the project is not carried out. Examples of this type of cost include marketing, human resources, and accounting department-related expenses. These departments may provide ad-hoc and minimal support to the project teams and as a result, the project sponsors may want a portion of their costs to be allocated to all projects underway in the organization. Allocating a portion of the costs to the project provides the executive with a full picture of all costs incurred due to the implementation of strategic change initiatives in the organization. Since the allocation methods are often very subjective, many organizations exclude general administrative costs from the project budget.
It is important to note that some projects require the direct involvement of these administrative functions. This should be clearly identified in the project’s work breakdown structure. For instance, a project that involves the introduction of new technology will alter the way people work and this may require members of the human resources department to reevaluate existing job descriptions, compensation levels, and so forth. In this instance, the human resources function is a work package and the costs associated with their work are direct costs.
1. The Big Dig: project background. (n.d). Highway Division - Massachusetts Department of Transportation. Retrieved from https://www.mass.gov/info-details/the-big-dig-project-background
2. Retrieved from https://interestingengineering.com/7-big-facts-about-the-big-dig
3. Tran A.B. (2014). Federal spending on Massachusetts transportation over time. Retrieved from https://www.bostonglobe.com/2014/12/05/federal-spending-massachusetts-transportation-over-time/eIx7CAnnHS33eaIFbuinIM/story.html
4. Greiman, V. & Warburton, R. D. H. (2009). Deconstructing the Big Dig: best practices for mega-project cost estimating. Paper presented at PMI® Global Congress 2009—North America, Orlando, FL. Newtown Square, PA: Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/09%3A_Budget_and_Procurement/9.01%3A_Learning_Objectives_and_Overview.txt |
As described in Chapter 4, project planning is at the heart of the project life cycle and tells everyone involved where we are going and how we are going to get there. It involves creating a set of plans to help guide our team through the implementation and closure phases of the project. The project cost management plan is one of the sub-plans of our overall project plan. It provides guidelines to project managers on how to estimate, budget, manage, monitor, and control project costs[1].
A project cost management plan consists of similar items that we have in a schedule management plan. This plan can consist of the following[2]:
• Process descriptions [3]
• What processes will be used for cost management?
• These processes include planning, estimating costs, and establishing the overall budget.
• Unit of measurement
• Daily working hours and shifts for human resources and equipment
• Weekends and/or off-days for especially human resources
• Metric (e.g., meter, liter, kilogram) or imperial (e.g., inch, gallon, pound) system measurement units
• Level of accuracy
• Acceptable range to ensure realistic cost estimates (e.g., ±10%, ±20)
• Evaluation of the impact of risks on the costs of each activity and overall project based on the project risk management plan
• Methods describing how the cost contingencies will be assessed.
• Procedure to account for fluctuations in currency exchange rates
• Level of precision
• The degree to which cost estimates will be rounded up or down (e.g., \$95.55 to \$96; \$95.45 to \$95; \$495.75 to \$496 or \$500)
• Evaluated based on the scope, size, and complexity of the project.
• Cost estimation methods
• Estimation methods (e.g., expert judgment, analogous, parametric, three-point, bottom-up), and when they will be utilized.
• Methods, tools, and software utilized to develop, manage, and monitor project cost
• Specify the organizational procedures and policies if they should be utilized.
• Methods and tools such as control accounts, WBS, project baseline, Earned Value Management, and critical path method
• Reserve analysis to set aside some money for cost overruns due to risks in order to implement risk mitigation strategies.
• Software such as Microsoft Project Professional, Excel, Visio, and Jira (for Kanban and Scrum), and online collaboration tools such as Monday, Trello, and Basecamp.
• Rules for monitoring cost performance
• Earned Value Management (EVM)
• Defining the points in the WBS at which measurement of control accounts will be performed
• How strategic funding choices would be managed.
• Control thresholds for deviations from the parameters in the cost baseline
• Using software such as Microsoft Project
• Reporting formats
• Reporting formats and frequency should be in alignment with other project plans.
• When, how frequently, and to whom are we reporting?[4]
• Approval of the cost baseline
• Who will be responsible for preparation and control?
• Who will approve the cost baseline?
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Harrin, E. (2014) 7 Things for your cost management plan. Retrieved from https://www.projectmanagement.com/blog-post/7645/7-things-for-your-cost-management-plan
4. Harrin, E. (2014) 7 Things for your cost management plan. Retrieved from https://www.projectmanagement.com/blog-post/7645/7-things-for-your-cost-management-plan | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/09%3A_Budget_and_Procurement/9.03%3A_Project_Cost_Management_Plan.txt |
As detailed in Chapter 2, financial indicators are commonly utilized in business cases and their accompanying benefits management plan while selecting projects to continue with. Whereas financial indicators such as profitability, NPV (Net Present Value), and payback period are helpful in the selection process to understand the economic feasibility of the projects, we should emphasize again that there are multiple criteria besides financial indicators. During this selection process and when the project is conceptualized to create a project charter, business analysts and project managers usually don’t have an adequate amount of information to estimate an accurate cost. Therefore, estimation techniques such as expert judgment and analogous estimating could be more helpful during the earlier stages. Expert judgment of experienced managers can help make more accurate estimates with less detailed information. Estimates in the earliest stages also include information from previous projects (i.e., analogous estimating) that can be adjusted and scaled to match the size and complexity of the current project. Besides standardized formulas can be used (parametric estimating). When we make an estimate early in the project without knowing much about it, that estimate is called a rough order-of-magnitude estimate (or a ballpark estimate). This estimate will become more refined as time goes on and we learn more about the project. In a later stage, the planning phase, when we develop the WBS and activity list, bottom-up estimating accompanied by three-point estimates can generate cost estimates with better accuracy.
The goal of estimating costs is to determine the monetary resources required for the project[i][1]. In order to estimate costs for individual activities and the overall project, as explained above, we can use the techniques that we utilized to estimate schedule and resources. In this textbook, we will describe five tools and techniques for estimating costs.
9.3.1 Expert Judgment
As discussed in Chapters 7 and 8, the project team consults domain and implementation subject matter experts who have technical knowledge and experience in the areas the project activities are related. These experts are those who worked on previous similar projects, and/or those who have information in the industry, discipline, and application area[2]. Experts in organizations’ finance, accounting, and procurement departments are usually consulted. All these experts can be consulted during the pre-project work[3], and also during the initiating and planning.
9.3.2 Analogous estimating
As discussed in Chapters 7 and 8, information and lessons learned from previous projects, standards provided by the regulatory agencies, government organizations, and occupational associations, and the data that rely on articles, books, journals, and periodicals can be utilized to estimate costs. If a similar project cost a certain amount, then it can be reasonable to assume that the current project will cost about the same. However, many factors need to be taken into account since simply copying the costs from previous projects and pasting them on the new project’s cost tables wouldn’t work for most of the projects. Few projects have the same size and complexity. Therefore, estimates must be adjusted upward or downward to account for the differences. Inflation and currency rates as well as socio-economic conditions are important indicators that would entail an adjustment. The selection of projects that are similar and the amount of adjustment needed is up to the judgment of the person or the team who makes the estimate. It should include the lessons learned from previous projects, both at an organizational level and individual level. Therefore, this judgment is based on many years of experience comprised of successful and unsuccessful projects and their estimates.
9.3.3 Parametric estimating
As explained in Chapter 7, in this estimation technique, we can use equations and algorithms to calculate the costs. This method is quantitative. Estimates are calculated by multiplying measured parameters by cost-per-unit values. If the project consists of activities that are common to many other projects, average costs are available per unit. For example, if we ask a construction company how much it would cost to build a standard office building, they will ask for the size of the building in square feet and the city in which the building will be built. From these two factors—size and location—the company’s estimator can predict the cost of the building. Factors like size and location are parameters—measurable factors that can be used in an equation to calculate a result. The estimator knows the average cost per square foot of a typical office building and adjustments for local labor costs. Other parameters such as quality of finishes are used to further refine the estimate. Readers can visit Cost To Build’s website https://www.costtobuild.net/calculator.html to estimate the cost of their dream houses and garages. In Chapter 7, for Grocery LLC’s m-commerce project, we calculated the time software developers need to create 200 lines of code for a module. Based on the previous projects and the feedback we received from the subject matter experts, we have estimated that a developer can finish 40 lines in an hour, and hence 200 lines in 5 hours. We also added a one-hour break and a two-hour review for this task. Therefore, the total work hours amounted to 8 hours. If the average hourly rate of a software developer is \$50, for this activity, we will pay \$400 (\$50 x 8 hours). Project managers can also prefer deducting one hour of break time. This technique can produce higher levels of accuracy depending on the sophistication and underlying data built into the model. Parametric estimates can be applied to the whole project or segments of it, in conjunction with other estimating methods[4].
9.3.4 Three-point estimating
As is done for activity duration estimates (see Chapter 7), cost estimates can be also done based on three scenarios:
1. A realistic estimate (most likely to occur – m)
2. An optimistic estimate (best-case scenario – o)
3. A pessimistic estimate (worst-case scenario – p)
Please refer to the exercise inside the “7.3 Estimating Activity Durations” sections in Chapter 7. Furthermore, three-point estimating is detailed in “9.3.1 Case Study 9.1: Estimating the Cost for M-Commerce Project’s Scope Component”.
9.3.5 Bottom-up estimating
As discussed in Chapters 7 and 8, we decompose our project activities through WBS by breaking down complex activities into pieces – work packages. Cost estimation can be made more accurately after each activity duration is estimated, and the resources required for each activity are identified. It is a process of estimating individual activity costs and then adding these together to come up with a total estimate. It takes a considerable amount of time to perform bottom-up estimating because every activity must be assessed and estimated accurately to be included in the bottom-up calculation. The smaller and more detailed the activity, the greater the accuracy and cost of this technique. Parametric estimating and three-point estimating are commonly utilized together with bottom-up estimating.
9.3.6 Case Study 9.1: Estimating the Cost for M-Commerce Project’s Scope Component
Let’s continue with our example in Chapter 8. Table 9.1 is the revised resource usage calendar (Table 8.3) after resources are leveled.
Table 9.1: Resource Usage Calendar after Resource Leveling
Resource Name Work May 2 May 9 May 16 May 23 May 30
Systems Analyst 1 168 hrs 40 32 40 24 32
Clarify project purpose and determine project scope 40 hrs 40
Develop high-level scope 32 hrs 32
Develop high-level schedule 48 hrs 40 8
Identify main resources and develop a high-level budget 16 hrs 16
Identify key stakeholders and project team member roles 16 hrs 16
Develop project approval requirements and project exit criteria 16 hrs 16
Systems Analyst 2 144 hrs 40 0 40 24 40
Clarify project purpose and determine project scope 40 hrs 40
Identify overall project risks 40 hrs 40
Identify main resources and develop a high-level budget 16 hrs 16
Identify key stakeholders and project team member roles 24 hrs 8 16
Develop project approval requirements and project exit criteria 24 hrs 24
Sales & Marketing Expert 1 64 hrs 40 0 0 8 16
Clarify project purpose and determine project scope 40 hrs 40
Identify key stakeholders and project team member roles 24 hrs 8 16
Sales & Marketing Expert 2 64 hrs 40 0 0 8 16
Clarify project purpose and determine project scope 40 hrs 40
Identify key stakeholders and project team member roles 24 hrs 8 16
To conduct a parametric estimating, we should know the hourly rates of these four human resources. In this example, we assume that we only use these resources, and they work full-time in project activities. Their hourly rates are given in Table 9.2 below. Besides these four human resources, we have the project manager who is always involved in all project activities to coordinate them and ensure that all of them are smoothly performed and completed. Therefore, we won’t assign an hourly rate to the project manager, but a weekly rate of \$2,000. The duration of “Scope” is 6 weeks. Therefore, the cost of the project manager is \$12,000 for the “Scope”.
Table 9.2: Hourly Rates of Four Team Members
Human Resources Hourly Rate Total Work Hours Total Cost for the Scope
Systems Analyst 1 \$30.00 168 \$5,040.00
Systems Analyst 2 \$30.00 144 \$4,320.00
Sales and Marketing Expert 1 \$20.00 64 \$1,280.00
Sales and Marketing Expert 2 \$20.00 64 \$1,280.00
Project Manager \$2,000.00 (Weekly rate) 6 weeks \$12,000.00
TOTAL \$23,920
As can be seen in Table 9.2, parametric estimating has been used to calculate the total costs for the scope. For instance, systems analyst 1 will be paid \$5,040 which is the result of a multiplication of \$30 by 168 hours. We also added the project manager’s six-week cost making the total cost for the “Scope” \$23,920.
Table 9.3 details the costs by activity. As can be seen in this table, work packages under 1.3 are added to compute the total cost of 1.3, and all the activities are added to compute the total cost of the “Scope”.
Table 9.3: Bottom-Up Estimating for the “Scope”
WBS Activity Name Cost
1.1 Clarify project purpose and determine project scope \$4,000.00
1.2 Secure project sponsorship \$0.00
1.3 Secure project charter \$7,920.00
1.3.1 Develop high-level scope \$960.00
1.3.2 Identify overall project risks \$1,200.00
1.3.3 Develop high-level schedule \$1,440.00
1.3.4 Identify main resources and develop a high-level budget \$960.00
1.3.5 Identify key stakeholders and project team member roles \$2,160.00
1.3.6 Develop project approval requirements and project exit criteria \$1,200.00
1.4 Approval of project charter by the sponsor \$0.00
1.5 Secure core resources \$0.00
1.6 Initiation stage complete \$0.00
Project Manager’s Salary \$12,000.00
TOTAL COST OF SCOPE \$23,920.00
Let’s also assume that, first, we utilized a three-point estimation for the activities of 1.3 in the initiation phase, as seen in Table 9.4, but then we had details of each activity (e.g., requirements to be met, hours that team members should work to finish the activities) and recruited the people by signing contracts. Table 9.4 shows the three-point estimation in a beta distribution. The calculation below is for activity 1.3.1. After all the costs are estimated, we can add all of them to compute the total cost of 1.3 (Bottom-up estimating).
Beta distribution:
Table 9.4: Three-Point Estimating for 1.3 of the “Scope”
WBS Optimistic Most Likely Pessimistic Cost
1.3 \$7,913.33
1.3.1 735 890 1500 \$965.83
1.3.2 850 1150 1600 \$1,175.00
1.3.3 925 1550 1945 \$1,511.67
1.3.4 515 825 1600 \$902.50
1.3.5 1450 2035 3250 \$2,140.00
1.3.6 880 1165 1770 \$1,218.33
Project management software such as Microsoft Project will often have features designed to help project managers estimate resource needs and constraints, and accordingly compute the costs for each activity and the overall project. Please see 9.6 “Microsoft Project Tutorials”.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. International Institute of Business Analysis. (2015). A guide to the Business Analysis Body of Knowledge (BABOK Guide), version 3.0. Toronto, Ont: International Institute of Business Analysis.
4. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/09%3A_Budget_and_Procurement/9.04%3A_Estimating_Costs_and_Determining_Budget.txt |
Once the cost of each activity is estimated, it is possible to determine how much money is needed for each activity and component, and the whole project. The process of subtotaling costs by category or activity is called cost aggregation. PMBOK Guide Sixth Edition defines this process as “Determine Budget” which is a process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline[1]. This baseline is a time-phased budget that can be used to measure and monitor cost performance after it has been approved by the key project stakeholders. The aggregated budget is integrated with the project schedule in order to produce the time-phased budget. Costs are associated with tasks, and since each task has a start date and a duration period, it is possible to calculate how much money will be spent by any particular date during the project. Recognizing that all the money required to deliver the project is not needed upfront, allows the cash flow needs of the project to be effectively managed. For smaller organizations facing cash flow challenges, this can result in significant savings as the money required to pay for resources can be transferred to the project account shortly before it is needed.
Figure 9.1 illustrates the project budget components. While estimating the costs (see section 9.3), the project team should take into account the uncertainties that may affect the costs. This requires a reserve analysis which is conducted in line with risk management (See Chapter 10). Therefore, cost estimates are accompanied by contingency reserves for each activity and work package, if applicable. As can be seen in Figure 9.1, contingency reserve is included within the cost baseline. Therefore, these reserves must be incorporated into the baseline that ensures the monitoring and controlling of the project cost performance.
Let’s elaborate more on the reserve analysis. Contingency reserves are determined according to the risks that can be identified by the project team. Thus, they are called “known-unknowns”. In our m-commerce project, our team identified a risk regarding the shortage of software developers. The demand for developers increased recently since the demand for online games and mobile apps has been on a sharp rise after the emergence of the COVID-19 pandemic. Therefore, we may experience a shortage of developers in the market. This risk can directly affect the activities under “2. Analysis/App Requirements” and “4. Development”. Therefore, it would be appropriate to allocate contingency reserves to each affected activity. Unlike contingency reserve, management reserve is determined based on “unknown-unknowns” and applies to the whole budget. One obvious risk that emerged at the end of 2019 and has had a severe impact on all countries since March 2020 is the COVID-19 pandemic. This pandemic was an unknown-unknown for all the projects across the world.
The amount of a contingency reserve for each activity or a higher WBS level is determined after the risks and the strategies are identified and detailed (see Chapter 10). For instance, if an activity to test a website’s functions and security is estimated to cost \$10,000, the project team can put an additional budget of \$2,000 to ensure an effective response to the security gaps if occurs. Then, the cost baseline of this activity becomes \$12,000 (\$10,000 + \$2,000). It can be adjusted when more information becomes available as time passes and activities are conducted and completed. It is also possible that new risks may emerge which has not been forecasted while the project management plans were being prepared. This is why project teams have regular meetings at which all the project components, issues, and risks are reviewed, which allows the team to take timely actions.
If we turn back to Table 9.3, we can see that the contingency reserves are not determined, therefore, the cost baseline includes only the resource costs. Let’s assume that the project team agreed on contingency reserves for three activities as shown in Table 9.5. Therefore, the cost baseline increases from \$23,920 to \$24,920.
Table 9.5: Cost Estimates and Contingency Reserves for “Scope” component
WBS Activity Name Cost Contingency Reserve Cost Baseline
1.1 Clarify project purpose and determine project scope \$4,000.00 \$300.00 \$4,300.00
1.2 Secure project sponsorship \$0.00 \$0.00 \$0.00
1.3 Preparation of project charter \$7,920.00 \$0.00 \$7,920.00
1.3.1 Develop high-level scope \$960.00 \$0.00 \$960.00
1.3.2 Identify main resources and develop a high-level budget \$1,200.00 \$0.00 \$1,200.00
1.3.3 Develop high-level schedule \$1,440.00 \$0.00 \$1,440.00
1.3.4 Identify main resources and develop a high-level budget \$960.00 \$400.00 \$1,360.00
1.3.5 Identify key stakeholders and project team member roles \$2,160.00 \$300.00 \$2,460.00
1.3.6 Develop project approval requirements and project exit criteria \$1,200.00 \$0.00 \$1,200.00
1.4 Approval of project charter by the sponsor \$0.00 \$0.00 \$0.00
1.5 Secure core resources \$0.00 \$0.00 \$0.00
1.6 Initiation stage complete \$0.00 \$0.00 \$0.00
Project Manager’s Salary \$12,000.00 \$0.00 \$12,000.00
TOTAL COST OF SCOPE \$23,920.00 1,000.00 \$24,920.00
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
9.06: Managing Project Costs
A key aspect of ongoing cost management is monitoring cost estimates. Projects seldom go according to plan in every detail. Baseline budgets often change after they have been approved. Successful project leaders understand that estimates are just that, estimates. As new information and real experience occur, it may be necessary to revise an estimate. In some cases, the revision is minor and does not impact the achievement of the project’s total budget. In other instances, the necessary revisions are significant, and a new baseline needs to be created. Project managers need to discuss the ongoing management of the schedule with key stakeholders to understand their expectations of when/how they are informed of changes that need to be made. Stakeholders’ expectations for ongoing cost management can be documented in the Cost Management Plan.
The project manager must be able to identify when costs are varying from the budget and, thus, manage these variations. A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders. It is necessary to establish an understanding of how this progress will be measured and reported. Earned Value Management (EVM) is an effective tool used by project managers to monitor and control these variations. We will elaborate on EVM in Chapter 11.
If the total amount spent on a project is equal to or less than the amount budgeted, the project can still be in trouble if the funding for the project is not available when it is needed. There is a natural tension between the financial people in an organization, who do not want to pay for the use of money that is just sitting in a checking account, and the project manager, who wants to be sure that there is enough money available to pay for project expenses. The financial people prefer to keep the company’s money working on other investments until the last moment before transferring it to the project account. The contractors and vendors have similar concerns, and they want to get paid as soon as possible so they can put the money to work in their own organizations. The project manager would like to have as much cash available as possible to use if activities exceed budget expectations.
As explained in section 9.4, project managers keep contingency and management reserves in case risks occur and activities need more money. In practice, most projects face uncertainties that increase costs above the original estimates. Estimating the likelihood of such uncertainties is part of risk analysis, which is discussed in more detail in Chapter 10. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/09%3A_Budget_and_Procurement/9.05%3A_Establishing_the_Project_Budget.txt |
The procurement effort on projects varies widely and depends on the type of project. The “procurement cycle” reflects all procurement-related activities from when the decision is made to outsource equipment through to the payment of bills and closing of procurement contracts.
In less complex projects, the project team performs the work associated with procurement management. The procurement cycle includes:
• Identifying the required materials, equipment, and supplies
• Identifying the potential vendors
• Preparing requests for quotes (RFQs) and requests for proposals (RFPs), which include product/service specifications and a detailed delivery schedule
• Evaluating RFQs and RFPs to select the most suitable vendors
• Awarding and signing contracts
• Administering the contract and monitoring vendors’ performance
• Managing contract changes
• Closing out the contract upon work completion
On more complex projects, procurement professionals may be assigned to assist the team throughout the project’s lifetime.
9.6.1 Procurement Management Plan
In order to manage the process effectively and efficiently, we need to plan as we did for all the other knowledge areas (i.e., scope, schedule, cost, stakeholders, communication, resources). Therefore, we need to prepare a procurement management plan to document project procurement decisions, specify the approach, and identify potential sellers[1]. We need to think about all of the work that we will contract out before doing anything else. We will want to plan for any purchases and acquisitions. Here’s where we take a close look at our needs, to be sure that we need to create a contract. Therefore, we should figure out what kinds of contracts make sense for our project, and we try to define all of the parts of our project that will be contracted out. We work out how we manage contracts, what metrics contracts should meet to be considered successful, how we will pick a seller, and how we will administer the contract once the work is happening.
The procurement management plan details how the procurement process will be managed. It can include the following information:
• Roles and responsibilities of the project team and procurement professionals
• The types of contracts we plan to use, and any metrics that will be used to measure the contractor’s performance.
• The planned delivery dates for the work or products we are contracting.
• The organization’s standard procurement documents and processes that our project must use and comply with.
• How many vendors or contractors are involved and how they will be managed.
• How purchasing may impact the constraints and assumptions of the project plan.
• Coordination of purchasing lead times with the development of the project schedule.
• Identification of prequalified sellers (if known).
The procurement management plan like all other management plans becomes a subsidiary of the project management plan. Some tools and techniques we may use during the procurement planning stage include make or buy analysis and defining the contract type.
9.6.2 Make or Buy Analysis
This means figuring out whether or not we should be contracting the work or doing it ourselves. It could also mean deciding whether to build a solution for the organization’s or client’s needs or buy one that is already available in the market. Most of the same factors that help us make every other major project decision will help us with this one. How much does it cost to build it as opposed to buy it? How will this decision affect the scope of the project? How about the project schedule? Do we have time to do the work and still meet our commitments? As we plan out what we will and won’t contract, we need to have thought through our reasoning pretty carefully.
There are some resources (like heavy equipment) that our company can buy, rent, or lease depending on the situation. We need to examine leasing versus buying costs and determine the best way to go forward.
9.6.3 Contract Types
We should know a little bit about the major kinds of contracts so that we choose the one that creates the fairest and most workable deal for us and the contractor. Some contracts are fixed price. No matter how much time or effort goes into them, we always pay the same (Figure 9.2). The cost (or revenue to the vendor) is constant regardless of the effort applied or the delivery date. Some contracts are cost reimbursable also called cost plus (Figure 9.3). This is where the seller charges us for the cost of doing the work plus some fee or rate. In a cost reimbursable or cost-plus contract, the seller is guaranteed a specific fee. The third major kind of contract is time and materials (Figure 9.4). That’s where the buyer pays a rate for the time spent working on the project and also pays for all the materials used to do the work. In a time and materials contract, the cost (or revenue to the vendor) increases with increased effort.
Contractual agreements with vendors often require partial payment of their costs during the project. Those contracts can be managed more conveniently if the unit of measure for partial completion is the same as that used for cost budgeting. For example, if a graphic designer is putting together several pieces of artwork for a textbook, their contract may call for partial payment after 25% of their total number of drawings is complete.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/09%3A_Budget_and_Procurement/9.07%3A_Project_Procurement_Management.txt |
For the MS Project tutorial, let’s continue with our example of the project for developing a mobile application. Here, we are building upon the Chapter 8 tutorial. Therefore, we are working on “1. Scope” (Table 9.6). This table also includes the duration, start and finish dates, and predecessors.
Table 9.6: WBS for the Scope Activities of the M-Commerce Project
WBS Task Name Duration Start Finish Predecessors
1 Scope 35 Days Mon 5/2/22 Mon 6/20/22
1.1 Clarify project purpose and determine project scope 5 days Mon 5/2/22 Fri 5/6/22 2
1.2 Secure project sponsorship 1 day Mon 5/9/22 Mon 5/9/22 3
1.3 Preparation of project charter 22 days Tue 5/10/22 Wed 6/8/22
1.3.1 Develop high-level scope 4 days Tue 5/10/22 Fri 5/13/22 3
1.3.2 Identify overall project risks 5 days Mon 5/16/22 Fri 5/20/22 5
1.3.3 Develop high-level schedule 6 days Mon 5/16/22 Mon 5/23/22 5
1.3.4 Identify main resources and develop a high-level budget 2 days Tue 5/24/22 Wed 5/25/22 7
1.3.5 Identify key stakeholders and project team member roles 8 days Mon 5/23/22 Wed 6/1/22 5,6
1.3.6 Develop project approval requirements and project exit criteria 5 days Thu 6/2/22 Wed 6/8/22 5,6,7,8,9
1.4 Approval of project charter by the sponsor 2 days Thu 6/9/22 Fri 6/10/22 10
1.5 Secure core resources 5 days Mon 6/13/22 Fri 6/17/22 11
1.6 Initiation stage complete 0 days Mon 6/20/22 Mon 6/20/22 12
We identified the resources in Chapter 8. Now, in the Resource Sheet, we can type the standard rates of resources (Figure 8.8).
In the Resource Sheet, there are three types of resources:
1. Work: Work resources are people and equipment. They have a standard rate per hour.
2. Material: Material resources are consumable supplies. They have a unit of measurement such as tones, boxes, and cubic yards.
3. Cost: Cost resources are independent costs we want to associate with a task such as a plane ticket.
In Table 9.5 (Section 9.4), we determined contingency reserves for three activities. As seen in Figure 9.5 above, contingency reserves were indicated as a “Cost” type which is independent of hourly work. For activity 1.1, let’s double-click on the activity row. The “Task Information” window will pop up. Then, let’s click the “Resources” tab. For the work type resources (i.e., Sales and Marketing Experts and Systems Analysts), the cost is calculated automatically based on the hours worked. For the cost type, we must type the cost on this window. For activity 1.1, the contingency reserve is \$300 (Figure 9.6).
When we finish typing the contingency reserves for the other two activities, the Gantt Chart will be as in Figure 9.7.
In this tutorial, we ignore the project manager’s salary. As seen in Figure 9.8, we can insert a new column “Cost” to the left of Resource Names, and therefore, we can directly see the cost per activity on the main window (Gantt Chart view).
9.09: Key Takeaways
Key Takeaways
• Allocation of resources provides the project manager to determine the overall project budget most of which is spent on resources.
• Three types of project costs are direct costs, direct overhead costs, and general administrative costs.
• The project cost management plan is one of the sub-plans of our overall project plan, and it provides guidelines to project managers on how to estimate, budget, manage, monitor, and control project costs.
• The techniques to estimate costs are expert judgment, analogous estimating, parametric estimating, three-point estimating, and bottom-up estimating. Generally, project managers utilize some of the techniques together to estimate the activity costs.
• The process of subtotaling costs by category or activity is called cost aggregation. This process leads to the establishment of a cost baseline which is a time-phased budget that can be used to measure and monitor cost performance after it has been approved by the key project stakeholders.
• Funds allocated to deal with known-unknowns are called contingency reserves. The monetary amount of contingency reserves is determined after the risks and the strategies to mitigate risks’ impact are identified and detailed.
• Projects seldom go according to plan in every detail. Baseline budgets often change after they have been approved.
• A project procurement management plan documents project procurement decisions, specify the approach, and identify potential sellers.
• Project teams should figure out whether to build a solution for the organization’s or client’s needs or buy one that is already available in the market.
• The most common contract types are fixed-price, cost reimbursable or cost plus, and time and materials contracts.
9.10: Questions and Exercises
There are 7 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=893
9.11: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/09%3A_Budget_and_Procurement/9.08%3A_Microsoft_Project_Tutorial.txt |
Learning Objectives
1. Define project risks and differentiate between risk types.
2. Identify risks that may occur during the implementation of a project.
3. Describe the process to create a project risk management plan.
4. Conduct a qualitative risk analysis.
5. Develop and implement risk responses based on identification and analysis of risks.
Overview
Although project managers can prepare a well-thought-out and comprehensive project scope, schedule and cost management plans, they cannot ensure that all these plans are free of problems that may occur due to numerous reasons during the project. Even the most carefully planned projects can run into trouble. No matter how well we plan, our project can always encounter unexpected problems. Team members get sick or quit, resources that we depend on turn out to be unavailable, even the weather can throw us for a loop (e.g., a snowstorm). So, does that mean that we are helpless against unknown problems? No! We can use risk planning to identify potential problems that could cause trouble for the project, analyze how likely they are to occur, take action to prevent the risks we can avoid, and minimize the ones that we can’t. In this chapter, we will discuss both negative risks (i.e., threats) and positive risks (i.e., opportunities). A project manager must always keep in mind that risks mean uncertainties, not solely problems or threats all the time, since they are sometimes opportunities that we should consider exploiting. There are no risk-free projects because there is an infinite number of events that can have a negative or positive effect on projects. Project managers must be prepared to deal with uncertainties. Planning for events that can delay a project, decrease its quality, or increase its budget is a necessary part of project planning.
10.02: Project Risk
Risks are an aspect of uncertainty [1]. Therefore, an uncertainty is not equal to a risk. Risks can be measured while uncertainties cannot be. That is, potential outcomes of a risk can be described whereas it wouldn’t be possible to determine the outcomes for uncertainties. Risks can be controlled if response strategies can be defined and monitored during the project. Project team can respond to a risk if the risk triggers are identified and there is an owner of the risk who monitors the risk among other factors. Thus, when the project teams discuss all possible uncertainties in the initiation and planning stages, they determine the occurrence probability and the impact scale. For example, in our m-commerce project, testers may not determine some of the important code errors, which might lead to rework, schedule slippage and cost overruns. Considering the previous projects and lessons learned, we can predict the probability and how it may affect the project if the risk occurs. However, we can never be sure that this tester has malicious intentions to help a strong competitor. This would be an uncertainty, not a risk.
Project risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or more project objectives [2]. Risks exist in all projects. It is of high importance to keep in mind that a risk does not always create negative outcomes, but can lead to positive outcomes. The subsections 10.1.1 and 10.1.2 below elaborate on both types of risk with examples.
10.1.1 Negative Project Risks
It is the reality that project teams mostly encounter negative risks. These risks might jeopardize the well-being of a project’s progress and lead to failure if they occur. Some examples of a negative project risk are:
• Machines can fail in the middle of a critical activity.
• A vendor may not dispatch raw materials on time, or they may be damaged during a long journey from the vendor’s or supplier’s country to our project’s location.
• A key human resource for an activity may become sick or may find a better job and leave the organization.
• Projects that depend on good weather, such as road construction projects, face risk of delays due to exceptionally wet or windy weather.
• Safety risks are also common on construction projects.
• Changes in the value of local currency during a project affect purchasing power and budgets on projects with large international components.
A short example for negative risks:
A construction company is building a 20-storey building in a Northeastern state, and they are expected to finish it by February. However, the project team is aware of the fact that winter is not a preferred season to carry out construction works, and the adverse weather conditions may disrupt activities leading to schedule delays and cost overruns. This is why the project team should evaluate all the possible risks that may result from inclement weather such as snowstorms. Project team can obtain the long-term historical data and seasonal forecasts from the National Weather Service, and can monitor the daily and weekly weather forecast.
A short example for negative risks:
A construction company is building a 20-storey building in a Northeastern state, and they are expected to finish it by February. However, the project team is aware of the fact that winter is not a preferred season to carry out construction works, and the adverse weather conditions may disrupt activities leading to schedule delays and cost overruns. This is why the project team should evaluate all the possible risks that may result from inclement weather such as snowstorms. Project team can obtain the long-term historical data and seasonal forecasts from the National Weather Service, and can monitor the daily and weekly weather forecast.
10.1.2 Positive Project Risks
Some uncertainties that we are not 100% sure that they may be materialized can make it easier to achieve a project’s objectives. When this type of uncertain happens, the risk is positive and is therefore referred to as an opportunity. Some examples for positive risks can be described below:
• The potential of finding an easier way to do a task
• Acquiring some materials in exchange for lower prices than estimated
• A potential change in organizational process that can accelerate the procurement of some materials
• A new technology that has been developed and can be introduced to the market while we carry out the project
• A grant our organization had applied, which can provide more funds to our project if accepted
As for the five positive risks above, a project manager’s response strategy would be exploit or enhance (among five alternative strategies in total – see 10.5.2) when they occur.
A short example for positive risks:
Company XYZ is thinking of developing a new electric toothbrush which customers are asking for according to the consumer surveys across the USA. Project team prepared all the plans, and estimated that this project will take nine months to finish. At the end of the project, the new toothbrush can be introduced to the market. During the development and testing of various toothbrush types, project team will use a 3D printer to create prototypes. While working on the risk management plan, team has been aware of ongoing research on a new 3D printer that is faster and can print more durable items with more details. Based on the analysis, team found that this new printer can expedite the project. If this positive risk occurs during the project, it can expedite the project by one month resulting in a 8-month project duration. So, project team decided to allocate a contingency reserve for this opportunity. If the 3D printing company can make this new printer available to the market around the fifth month of the project at the latest, project team can purchase it. The estimated cost for this new printer was determined as \$25,000. Therefore, this money will be placed as a contingency reserve.
10.1.3 Known-Unknowns and Unknown-Unknowns
As discussed in Chapter 9 for contingency and management reserves, risks can be categorized as known-unknowns or unknown-unknowns. As regards known-unknowns, we can identify these risks in the planning stage, and estimate costs, and additional schedule and resources needed, if they occur. The costs allocated to compensate for managing these risks are named “contingency reserve”. However, it is not always possible for project teams to predict all the risks. Therefore, a management reserve is assigned besides the cost baseline (in which contingency reserves are accounted for). One obvious risk that emerged at the end of 2019 and has had a severe impact on all countries since March 2020 is the COVID-19 pandemic. This pandemic was an unknown-unknown for all the projects across the world. Some projects were able to overcome the issues by using their management reserves besides contingency reserves. However, numerous projects failed although they had contingency and management reserves since the impact of this pandemic exceeded the projects alone.
10.1.4 Individual and Overall Project Risks
Besides the categorization of risks as negative and positive, and as known-unknowns and unknown-unknowns, another categorization would be individual and overall project risks. Individual risks can affect the achievement of project objectives, and disrupt some activities, decisions, components, or deliverables. They can affect only one or some of the activities, but not always the whole project. If a risk has an impact on the project as a whole, this risk is considered an overall project risk. Let’s consider the case study of “Grocery LLC’s M-Commerce Project” (see 4.4.3 for the WBS). One project objective can be formulated as “to complete the elicitation of mobile app requirements as well as budget, schedule and resource estimates on which all the key stakeholders agree”. The activity 2.3 “Review specifications with team and stakeholders” is essential to identify the requirements that address all stakeholders’ expectations and concerns. However, some of the stakeholders may not agree on some of the requirements (see 5.2.2 for all the stakeholders in this project). Priorities of the top management, project sponsor, and product owner might not always overlap with one another. When the project team and team members review risks, they need to consider all possible risks that may affect the activity 2.3 and the overall project. If the conflict among stakeholders affects this objective, and therefore the activity 2.3, this would be counted as an individual project risk. Project team should create a contingency budget and schedule for this activity. If there is a risk of obtaining fund to conduct project activities, this would have an impact on the whole project, and will affect the overall project objective that aims at creating a mobile app. Project team must also develop risk response strategies to tackle with this risk. Besides, project team can determine an acceptable range of negative and positive variations for overall risks.
1. Project Management Institute. (2021) PMBOK® Guide (7th ed). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/10%3A_Project_Risks/10.01%3A_Learning_Objectives_and_Overview.txt |
The risk management plan is a component of the project management plan that describes how risk management activities will be structured and performed[1]. This plan tells us how we are going to handle individual and overall risks in our project. It documents how we will identify and analyze risks, who will be responsible for doing it, and how often we will review the risks (since we have to meet about risk planning with the project team throughout the project.)
This plan allows the project team to reduce the likelihood of negative surprises (problems, weaknesses, and threats), proactively take advantage of positive risks (opportunities), and ensure risk management is considered when schedules, budgets, and other management plans are developed. Creating and maintaining a risk management plan significantly increases the likelihood of project success. The risk management plan identifies the processes and procedures to be used in managing risk throughout the life of the project. It includes a number of key sections such as risk sources, categories, assessment definitions (e.g., very high to very low), probability/impact assessment (matrix), roles and responsibilities, budget and schedule estimates for risk-related activities, and the risk register. Like the other knowledge area (e.g., scope, schedule, stakeholder) management plans, the risk management plan is integrated into the project management plan, and must be aligned with all the subplans and the project management plan.
The risk management plan can consist of some or all of the following items:
• Methodology
• What kind of approaches, tools, and data sources will be utilized to perform risk management activities (e.g., risk identification, risk assessment, risk response strategies)?
• g., checklists, risk indicator scales, probability-impact matrices, informal direct risk assessment, probabilistic modeling.
• Risk strategy
• Roles and responsibilities
• The guidelines how identified risks will be assigned to team members, and how these risk owners will take care of risks, and monitor them.
• Risk categories
• Risks can be grouped into high-level categories to facilitate the identification of individual risks. Some of the categories can be technical, cost, schedule, client, contractual, weather, financial, political, environmental, and people.
• Similar to a WBS (Work Breakdown Structure), RBS (Risk Breakdown Structure) would be a very helpful tool (Table 10.1).
• Risk probability and impact
• Level and percentage of probabilities and impact of negative and positive risks
• Which project aspects will be included in the impact analysis (e.g., scope, quality, schedule, cost, safety, environment)?
• Risk register
• How will the risk register be structured?
• Components such as risk ID, description, risk owner, probability, and impact (see 10.3)
• Risk response plan
• How will risk response plan be structured?
• Strategies for negative and positive risks, and individual and overall project risks.
• Funding of reserves
• How will contingency and management reserves be determined and released?
• Reporting formats
• Reporting formats and frequency should be in alignment with other project plans.
Table 10.1: An Example of a Risk Breakdown Structure (RBS)
Adapted from Project Management Institute’s Learning website[2]
Level 0 Level 1 Level 2 Level 3
Project Risk Management Corporate History/experience/culture
Organizational stability
Financial
Team Management Poor team communication
Changes in the core team
Inadequate number of staff
Customer & Stakeholder Requirements
Communication issues
Contractual
External Environmental Physical environment
Facilities/site
Local services
Pollution risk
Community protests
Legal & Political Political
Legal/regulatory
Interest groups
Economic Labor market
Labor conditions
Currency
Inflation rate
Technical Requirements Scope uncertainty
Scope creep
Complexity
Issues with stakeholders
Performance Technical limits
Quality
Rework
Evaluation criteria
Application Organizational experience
HR skill sets and experience
Physical resources
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Retrieved from https://www.pmi.org/learning/library/risk-breakdown-structure-understand-risks-1042 | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/10%3A_Project_Risks/10.03%3A_Risk_Management_Plan.txt |
A more disciplined process involves using checklists of potential risks and evaluating the likelihood that those events might happen on the project. Some companies and industries develop risk checklists based on experience from past projects. These checklists can be helpful to the project manager and project team in identifying both specific risks on the checklist and expanding the thinking of the team. The past experience of the project team, project experience within the company, and experts in the industry can be valuable resources for identifying potential risk on a project.
When risks are identified, they are recorded in a risk register. It is a key tool that helps project teams keep track of the status of risks, ensure response plans are effectively implemented, and new risks are managed. The register is an output of the process of identifying project risks. The project charter can involve some of the risks, generally the overall risks. After the WBS and activity list are created, and the schedule, resources and cost are estimated for all the activities, the project team can identify the risks more easily. Project team must review this register periodically by assigning each risk to a team member.
Risk register can be composed of the items below:
• Risk ID
• Description
• Related WBS activity or activities
• Risk owner (Name of the team member who monitors the risk)
• Risk trigger (How do we know the risk is becoming an issue or has reached a point that requires action?)
• Risk category (based on RBS categories)
• Probability (How likely does the risk occur?)
• Impact (How will the risk affect the project if it occurs? E.g., schedule delay, budget overrun, quality issues)
• Probability-Impact Score (Multiplying probability percentage by impact percentage)
• Risk response strategy (see 10.5)
• Description of the response (see 10.5)
• Response owner (if different from the risk owner)
• Expected impact of the response (What result do we expect from the response?)
Table 10.2 illustrates a short version of a sample risk register for Grocery LLC’s M-Commerce Project. Only six columns have been included in this risk register.
Table 10.2: An Example of a Risk Register
ID Risk Category Related WBS Activity Description Risk Owner Risk Trigger
1.0 Financial Overall project Cost estimates may be exceeded considering the factors of inflation and foreign exchange currency rates. Systems Analyst 1 If the CPI (cost performance index) drops below 0.90, we will need to seek additional funding from management.
2.2 Management
2.1
2.2
2.3
2.4
2.5
The demand on the developers increased recently since the demand for online games and mobile apps have been on a sharp rise after the emergence of COVID-19 pandemic. We may experience a shortage of developers in the market. Systems Analyst 2 Ten days before the “Analysis/App Requirements” component starts, we must assure that Developer 1 starts working in project activities.
2.5 Management & Technical Overall project Risk of building an app that our target users don’t want. Project Manager Project manager should review each activity’s tasks and performance with the core team and the project sponsor to detect any potential risks.
Weekly risk review meetings | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/10%3A_Project_Risks/10.04%3A_Identifying_Risks.txt |
After the potential risks have been identified, the project team evaluates the risks based on the probability of occurrence and impact if they occur. This is a qualitative risk analysis method. In this textbook, we will not discuss quantitative risk analysis process. Readers can check “11.4 Perform Quantitative Risk Analysis” in PMBOK Guide Sixth Edition for an overview of quantitative risk analysis methods.
Not all risks are equal. Some risk events are more likely to happen than others, and the impact of a risk event can vary greatly. Therefore, project teams perform qualitative risk analysis in order to prioritize individual project risks by assessing their probability of occurrence and impact[1]. This assessment technique is conducted by the project team. Team members indicate their opinions regarding each risk. Therefore, this kind of process introduces bias into the assessment. However, project manager assumes the role of a facilitator or a moderator to minimize the bias by implementing techniques such as Delphi. Besides, in order to minimize the bias and provide a consensus, the project manager should clarify the underlying mechanism of how each team member and expert justify their perceptions as regards the probability and impact.
For the qualitative risk analysis, let’s use a five-scale measure: Very low, low, medium, high, and very high (Table 10.3). It is always possible to have more and fewer number of scales. Each level may correspond with different percentage values depending on the project, project manager, and organizational policies. Table 10.2 displays two different percentages of probability. Organizations may have an overarching policy to implement levels, percentages, and risk categories. In this case, project manager must comply with this policy.
Table 10.3: Risk Probability Levels
Level Names Level Values (%) Alternative Level Values (%)
Very low 5% 10%
Low 10% 30%
Medium 30% 50%
High 50% 70%
Very High 70% 90%
The probability, alone, wouldn’t make sense if we disregard the impact of the risk. Just think that our project is in an area where a large earthquake hits every thirty years. Since the frequency doesn’t look high, we can give a very low probability level (5%). However, we should consider the impact of an earthquake if it occurs. Although the probability may be 5%, the impact of an earthquake to disrupt project activities would be high. Even in our m-commerce project, an earthquake would have a number of negative effects such as power outages, water supply problems, transportation issues, supply chain problems, and in a worse scenario, destroyed buildings and infrastructure, and fatalities. This is also the case for an epidemic or pandemic. Therefore, we can decide on a very high impact value (0.9) while the probability is 0.05.
Table 10.4 displays the impact levels and values for the impact of risks on schedule. Project managers can use criteria for different areas such as schedule, cost, safety, environment and quality to determine the impact of level. For each area, description for each impact level should be described to eliminate ambiguities. According to Table 10.4, if an activity takes 10 days to finish, and we found that a risk may add an additional 1 day, it means that we have a delay by 10%. Therefore, the impact is low, and its value is 0.3.
Table 10.4: Description of Impact Levels Regarding Schedule
Impact Description Value
Very low Delay by 5% 0.1
Low Delay by 10% 0.3
Medium Delay by 20% 0.5
High Delay by 40% 0.7
Very High Delay by 50% 0.9
When we use several areas besides schedule, we should formulate how to generate an overall impact level. We can use a non-weighted or a weighted model to combine all areas’ values. Table 10.5 shows the impact levels regarding cost.
Table 10.5: Description of Impact Levels Regarding Cost
Impact Description Value
Very low Budget overrun by 5% 0.1
Low Budget overrun by 10% 0.3
Medium Budget overrun by 20% 0.5
High Budget overrun by 40% 0.7
Very High Budget overrun by 50% 0.9
Table 10.6 displays the risk severity score which is found by multiplying probability by impact percentages. In Table 10.6, there are three severity levels: (1) Green indicates low-level severity, which is between 0% and 15%, inclusive, (2) Orange indicates medium-level severity, which is between 16% and 40%, inclusive, and (3) Red indicates high-level severity, which is at 41% and above.
Table 10.6: Probability – Impact (Severity) Score
Probability
Very low Low Medium High Very High
0.05 0.10 0.30 0.50 0.70
Impact Very Low 0.10 0.01 0.01 0.03 0.05 0.07
Low 0.30 0.02 0.03 0.09 0.15 0.21
Medium 0.50 0.03 0.05 0.15 0.25 0.35
High 0.70 0.04 0.07 0.21 0.35 0.49
Very High 0.90 0.05 0.09 0.27 0.45 0.63
Not all project managers conduct a formal risk assessment on projects. There may be barriers to identifying risks. David Parker and Alison Mobey (Parker & Mobey, 2004)[2] found in a phenomenological study of project managers that there was a low understanding of the tools and benefits of a structured analysis of project risks. The lack of formal risk management tools was seen as a barrier to implementing a risk management program. The level of investment in formal risk management was also associated with managerial psychological dimensions.
Some project managers are more proactive and will develop elaborate risk management programs for their projects. Other managers are reactive and are more confident in their ability to handle unexpected events without prior planning, while some managers are risk averse and prefer to be optimistic and not consider risks or to avoid taking risks whenever possible.
In projects with low complexity, the project manager may informally track items that may be considered risk items. On more complex projects, the project management team may develop a list of items perceived to be higher risk and track them during project reviews. On projects with greater complexity, the process for evaluating risk is more formal with a risk assessment meeting or series of meetings during the life of the project to assess risks at different phases of the project. On highly complex projects, an outside expert may be included in the risk assessment process, and the risk assessment plan may take a more prominent place in the project execution plan.
On complex projects, statistical models are sometimes used to evaluate risk because there are too many different possible combinations of risks to calculate them one at a time. These are considered as quantitative risk analysis. One example of the statistical model used on projects is the Monte Carlo simulation, which simulates a possible range of outcomes by trying many different combinations of risks based on their likelihood. The output from a Monte Carlo simulation provides the project team with the probability of an event occurring within a range and for combinations of events. For example, the typical output from a Monte Carol simulation may reflect that there is a 10 percent chance that one of the three important pieces of equipment will be late and that the weather will also be unusually bad after the equipment arrives.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Parker, D., & Mobey, A. (2004). Action Research to Explore Perceptions of Risk in Project Management. International Journal of Productivity and Performance Management 53(1), 18–32. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/10%3A_Project_Risks/10.05%3A_Risk_Assessment.txt |
After the risks are identified, described, and assigned to a team member to keep track, and their probability and impact scores are produced, hence risks are prioritized, the project team can continue with planning the risk responses. Which strategy and the action does the team have in order to respond to the risk’s negative or positive impact? These strategies depend on factors such as whether the risk is negative or positive, and its severity or significance. Project managers can utilize mathematical optimization models or real options analysis as a basis for a more robust economic analysis of alternative risk response strategies in projects with a greater complexity[1].
10.5.1 Strategies Developed for Negative Risks (Threats)
The project team responds to negative risks in various ways:
1. Escalation
2. Avoidance
3. Transfer
4. Mitigation
5. Acceptance
Each of these responses can be an effective tool in reducing individual risks as well as the overall risk profile of the project. The risk response plan captures the risk management approach for each identified risk event and actions the project management team will take to manage the risk.
Escalation is implemented when the threat is outside of the scope of the project, and it is beyond the project manager’s control, that is the project manager isn’t capable of developing and implementing a response to this threat. Therefore, project manager should escalate the risk to a higher authority such as project sponsor, project steering committee, or the client. If there is a resource conflict with another project in our organization, it would be a wise move to escalate this issue to the sponsor or top management so that it can be solved at the program or portfolio level, or at the organizational level. Risks or issues related to project objectives, resource and inter-group conflicts, ambiguous roles and responsibilities, scope disagreements, third party dependencies are some known situations calling for escalations. Such issues require higher level intervention because many times the authority, decision making, resources or effort required to resolve them are beyond a project manager’s horizon. At times, the project manager may want to involve higher authorities for information-only escalations to keep them abreast of potential issues in the project. Escalation should be treated as a professional act and should be done in an effective way. Project managers should escalate timely if something is blocking the project and is beyond the project manager’s control. One should not hesitate to escalate within the performing organization and in the client’s organization as well. A proactive escalation and risk communication is far better than unpleasant surprises requiring costly fixes to the project[2].
Risk avoidance usually involves developing an alternative strategy with a higher probability of success, but, usually, the associated cost of task completion also becomes higher. A common risk avoidance technique is using proven and existing technologies rather than adopting new techniques, even though the new techniques may show promise of better performance and/or lower costs. A project team may choose a vendor with a proven track record over a new vendor that is providing significant price incentives to avoid the risk of working with a new vendor. Alternatively, a project team that requires drug testing for team members is practicing risk avoidance by attempting to evade damage done by someone under the influence.
Risk mitigation is a response to a risk that cannot be avoided or if it is unwise to avoid it (due to risk avoidance strategies being too expensive, too time-consuming, etc.). In this case, the project team is attempting to reduce the likelihood and impact of a risk. For instance, assigning highly skilled resources to an activity or performing more tests to detect irregularities and problems reduces the likelihood and impact of errors occurring. In product development projects, teams can develop prototypes to mitigate the risks by obtaining early feedback on requirements by providing a model of the expected product before actually building it. These prototypes can be small-scale products, computer generated 2D and 3D models, mock-ups, or simulations[3].
Risk transfer is a risk reduction method that shifts the ownership of a threat from the project to another party. The purchase of insurance on certain items is a risk-transfer method. The risk is transferred from the project to the insurance company by paying a risk premium to another party that takes on the risk. A construction project in the Caribbean may purchase hurricane insurance that would cover the cost of a hurricane damaging the construction site. The purchase of insurance is usually connected to risks that can significantly impact the project while being out of the project team’s control, such as weather, accidents, sharp fluctuations in currency, political unrest, and labor strikes. Using performance bonds, warranties and guarantee, and establishing agreements are also considered as responses to transfer the risks.
The fifth strategy, risk acceptance, involves doing nothing in response to the risk. The acceptance response is a good one when the likelihood and impact of a risk are low. In some cases, little else can be done about the risk, leading to acceptance being the only feasible option. When this response is chosen, an active strategy to deal with the risk would be to establish a contingency reserve that includes funds, time and/or resources to handle the threat.
10.5.2 Strategies Developed for Positive Risks (Opportunities)
As previously mentioned, positive risks (opportunities) are uncertainties that, if materialized, will have a positive impact on the project. The strategies to deal with positive risks can be listed as follows:
1. Escalation
2. Exploitation
3. Sharing
4. Enhancing
5. Acceptance
Escalation of positive risks has the same process as is for negative risks. When the client tells the project manager that they are considering adapting the product for a different market and asks if we are interested in bidding for the work, we can escalate this opportunity to the project sponsor[4]. Another escalation strategy can be implemented when a team member identifies an opportunity to create a new value stream for the business. This opportunity is escalated for senior management attention[5].
Risk exploitation can be considered analogous to risk avoidance strategy in negative risks. Risk exploitation strategy attempts to eliminate the uncertainty and ensure the occurrence of the opportunity. An example of this could be pursuing a bonus that is available only if an activity is completed early. In this case, the project team will reallocate resources in order to ensure the activity finishes early and the bonus is obtained. Project managers can use new technologies or technology upgrades to reduce cost and duration by means of this strategy.
Risk-sharing can be considered analogous to risk transfer strategy in negative risks. It involves partnering with others to share responsibility for the risk. Partnering with another company via risk-sharing partnerships or joint ventures to share the risk is advantageous when the other company has the expertise and experience that the project team lacks. This increases the likelihood of the opportunity materializing and, if it does, both organizations share the gains.
Risk enhancement can be considered analogous to risk mitigation strategy in negative risks. This strategy attempts to increase the probability and/or impact of an opportunity. However, it does not seek to ensure its occurrence. Project teams need to focus on the causes of an opportunity to take the advantage of it. For one component of our project, we were aware of that an investor is interested in the deliverables of this component since their non-profit organization can benefit from them. We can communicate with this investor and their non-profit organization to learn more about their objectives.
The fifth strategy is the risk acceptance which is also used for negative risks. This risk strategy involves doing nothing in response to the positive risk (opportunity). This acceptance response is a good one when the likelihood and impact of a risk is low, or taking action is too costly or it needs a disproportionate amount of effort compared to the size of the work in the project and the benefit we can have. For example, for an activity, we want to have two highly-skilled engineers who work at another project. If we can convince them, we believe that we can have a better quality in our new product development, and we can finish this activity earlier. However, their project manager isn’t willing to release them since they are key people in that project. Thus, we just accept this risk, and decide to do nothing.
10.5.3 Contingency Plan
The project risk plan balances the investment of the risk response implementations against the benefit for the project. The project team often develops an alternative method for accomplishing a project goal when a risk event has been identified that may frustrate the accomplishment of that goal. These plans are called contingency plans. The risk of a truck drivers’ strike may be mitigated with a contingency plan that uses a train to transport the needed equipment for the project. If a critical piece of equipment is late, the impact on the schedule can be mitigated by making changes to the schedule to accommodate a late equipment delivery.
Contingency funds are funds set aside by the project team to address unforeseen events that cause the project costs to increase. Projects with a high-risk profile will typically have a large contingency budget. Although the amount of contingency allocated in the project budget is a function of the risks identified in the risk analysis process, contingency is typically managed as one line item in the project budget.
Some project managers allocate the contingency budget to the items in the budget that have high risk rather than developing one line item in the budget for contingencies. This approach allows the project team to track the use of contingency against the risk plan. This approach also allocates the responsibility to manage the risk budget to the managers responsible for those line items. The availability of contingency funds in the line item budget may also increase the use of contingency funds to solve problems rather than finding alternative, less costly solutions. Most project managers, especially on more complex projects, manage contingency funds at the project level, with approval of the project manager required before contingency funds can be used.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Retrieved from https://project-management.com/a-guide-to-escalation-in-project-management/#:~:text=Project%20managers%20should%20escalate%20timely,the%20client's%20organization%20as%20well.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Retrieved from https://www.projectmanagement.com/contentPages/article.cfm?ID=350338&thisPageURL=/articles/350338/Risk-Escalation#_=_
5. Retrieved from https://www.projectmanagement.com/contentPages/article.cfm?ID=350338&thisPageURL=/articles/350338/Risk-Escalation#_=_
10.07: Key Takeaways
Key Takeaways
• Project risk is an uncertain event or condition that, if occurs, has a positive or negative effect on one or more project objectives.
• Contingency reserve is allocated for known-unknowns whereas management reserve is allocated for unknown-unknowns.
• The risk management plan is a component of the project management plan that describes how risk management activities will be structured and performed.
• When risks are identified, they are recorded in a risk register. It is a key tool that helps project teams keep track of the status of risks, ensure response plans are effectively implemented, and new risks are managed.
• Project teams perform qualitative risk analysis in order to prioritize individual project risks by assessing their probability of occurrence and impact.
• The strategies to respond negative risks are escalation, avoidance, transfer, mitigation, and acceptance.
• The strategies to respond positive risks are escalation, exploitation, sharing, enhancing, and acceptance.
• The project team develops contingency plans as an alternative method for accomplishing a project goal when a risk event has been identified.
10.08: Questions and Exercises
There are 11 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=1232
10.09: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/10%3A_Project_Risks/10.06%3A_Developing_and_Implementing_Risk_Responses.txt |
Learning Objectives
1. Explain the monitoring and controlling process and differentiate between monitoring and controlling.
2. Describe qualitative monitoring for project management knowledge areas except for schedule and cost.
3. Describe Earned Value Management (EVM), a quantitative monitoring tool, to monitor and control of the progress of project activities.
4. Define the change control process.
Overview
The monitoring and controlling process differentiates from other processes (i.e., initiating, planning, executing, and closing out), in that, it spans throughout the whole project. Project managers should ensure that everything is on track (e.g., scheduled activities are completed on time, there is no budget overrun), and take the project back on track if it deviates from its three main baselines, which are triple (iron) constraints, scope, schedule and cost, and other constraints such as quality and resources, and the satisfaction of the client and stakeholder eventually. Project managers implement a holistic approach by focusing on all the aspects of a project to keep the project on track and accomplish a successful closeout where the client and stakeholders are satisfied with the project outcomes. There are various techniques utilized to monitor and control the projects, which have been discussed in sections 11.2 and 11.3 in this chapter.
11.02: Monitoring and Controlling Project Work
Before the project gets approval to continue, business (or systems) analysts, or a team of analysts and product owners combined with representatives of business units and other relevant stakeholders create a business case and benefits realization management plan. Project managers may also participate in this process if the organization has a PMO (see Chapters 2 and 3). At the very beginning of the project, that is the initiation phase, the project charter is prepared, and with the approval of the project sponsor and the client, project plans are built upon those documents and processes in order to elaborate on the main pillars of the project (i.e., scope, schedule, cost, quality, risks, resources, and stakeholders). While establishing a strong baseline is a key factor in project success, ineffective monitoring and controlling can spoil all the efforts that were done to establish this strong baseline. Let’s remember the causes which lead to project failure to meet the project activities as discussed in Chapter 1 under “1.4 Project Success”. According to the PMI 2020 Pulse of the Profession report[1], the factors responsible for the failure were listed as a lack of clearly defined and/or achievable milestones and objectives to measure progress (37%), poor communication (19%), lack of communication by senior management (18%), employee resistance (14%), and insufficient funding (9%). The monitoring and controlling process relies on clearly defined milestones and objectives to measure progress. One of the key responsibilities of a project manager is to monitor and control all the project work and ensure that everything is on track. This process consists of tracking, reviewing, and reporting the overall progress to meet the performance objectives defined in the project management plan[2].
It is important to note that it is much easier to monitor project success on small projects. Due to far fewer team members, stakeholders, and complexities to consider, the project’s progress is more easily observed. However, on higher complexity projects that require many people, who are often spread out over different locations, project leaders are unable to use simple observation to assess progress. In these instances, it is important to have more robust tools and techniques (see sections 1.2 and 1.3 for qualitative and quantitative monitoring tools) that monitor the success of the full project team.
The project team evaluates its performance against the plans that have been developed. Every project requires a monitoring and control system. This system considers the following:
1. What information is needed and how should it be collected?
2. When (and with what frequency) should this information be collected?
3. Who should collect and analyze this information?
4. How should this information be represented from a reporting perspective?
5. Who should prepare the reports?
6. Who should receive the reports?
Monitoring and controlling project work allows stakeholders to understand the current state of the project, recognize the actions taken to address any performance issues, and have visibility into the future project status with cost and schedule forecasts[3]. It is important to note that it is much easier to monitor the progress and performance issues on small projects. Due to far fewer team members, stakeholders, and complexities to consider, the project’s progress is more easily observed. However, in more complex projects that require many people, who are often spread out over different locations, project leaders are unable to use simple observation to assess progress. In these instances, it is important to have more robust tools and techniques that monitor the success of the full project team (see Sections 11.1.2, 11.2, and 11.3 below).
11.1.1 The Difference between Monitoring and Controlling
Although the process is traditionally named “monitoring and controlling”, we should know that there are differences between these two concepts. Controlling cannot be carried out by the project team if monitoring has not been done properly or at all. Thus, monitoring leads to controlling while controlling may require more monitoring if controlling determines that sufficient information couldn’t be derived from the monitoring process.
Let’s clarify the distinction between monitoring and controlling.
Monitoring [4]
• Collecting project performance data
• Producing performance measures
• Reporting and disseminating performance information
Controlling [5] :
• Comparing actual performance with planned performance
• Analyzing variances
• Assessing trends to affect process improvements
• Evaluating possible alternatives
• Recommending appropriate corrective action as needed
As seen above, we collect the data and analyze them to create performance measures. For example, our project dashboard can indicate our current status regarding the schedule and budget. We can also have a detailed Excel file exhibiting our day-to-day activities and actual costs. If this data is produced properly, we can continue with the controlling first by comparing the actual performance with planned performance, that is the project baseline. After we evaluate the variances and trends, we can evaluate possible alternatives to recommend corrective actions.
Monitoring and controlling process involves regularly measuring progress on a project to ensure it continues meeting objectives and addressing current organizational needs. It involves determining what corrective action is required, when it must occur, and who must do it. Monitoring begins at the very beginning of the project (initiation) and increases in density in the planning phase because it is easy to get off track with planning efforts (Figure 11.1). Besides, the execution of project activities would need a considerable amount of attention from the project manager and team to monitor and control activities and performance measures (Figure 11.1). When the traditional predictive/waterfall development methodology is used, the team monitors performance against the timeline, budget, scope, and quality objectives for the entire project. When an adaptive approach is used, progress within the iteration is assessed (see Chapter 12).
11.1.2 Tools Utilized to Conduct Effective Monitoring
Effective monitoring requires an effective system that allows the project team to collect performance data accurately and with minimum errors. The commonly collected information includes the status of the project budget and the project schedule. The work completed to date, what has yet to be completed, and the likelihood of completing the project on time and within budget are of particular interest. How this monitoring is performed quantitatively will be detailed below in 11.3 “Earned Value Management”. In addition, it is important to identify the risks and issues that require attention. Whenever possible, information technology should be used to collect and analyze the information and distribute the reports. Different organizations require different roles to collect and analyze the project information. In organizations with a project management office (PMO), PMOs may be accountable for progress reporting in an “end-to-end” way, meaning they would be involved from information collection all the way to report distribution. Organizational policies (from a formal perspective) and organizational culture (from an informal perspective) influence who and how progress monitoring is performed.
One of the common methods used to monitor progress is team meetings. Team meetings are highly collaborative and serve many purposes, including information sharing and team development. Depending on the nature of the project, these meetings may be focused exclusively on sharing the status of tasks underway. It is also possible for status discussions to lead to team planning. The individuals who participate in these meetings vary depending on many factors, such as development methodology in use, organizational culture, project complexity, and status of the overall project. The frequency of team meetings is pretty higher in agile (adaptive) projects than the traditional (predictive/waterfall) projects in order to ensure agility, flexibility, on-time interventions, and timely feedback from team members and the product owner. For example, agile teams, in particular Scrum teams, have daily standups to discuss what has been completed since the last standup meeting, what is planned to complete until the next meeting, and what the impediments, risks, and problems that members may encounter are (see Chapter 12, Section 12.2.2).
Project teams typically develop different reports for different stakeholders. Stakeholders who have a high interest and high power/influence will receive more information, more frequently (recall the stakeholder power/interest grid presented in Chapter 5). Depending on the priority and duration of the project, the reporting frequency could be daily, weekly, monthly, or quarterly.
We can mention three different types of project reports as follows:
1. Status reports – where the project stands at a specific point in time
2. Progress reports – what the project team has accomplished during a certain period
3. Forecast reports – future project status based on current project status and known trends
Tables 11.1, 11.2, and 11.3 exhibit short examples of status, progress and forecast reports, respectively, based on our example of the overall case discussed throughout the book (see Section 1.2.4 “Case Study 1.2: Characteristics of Another Project Undertaken by Grocery LLC (M-Commerce Project)”).
Table 11.1: An Example of an Overview based on a Status Report [6]
Period May 27, 2022 – July 7, 2022
Team Name Grocery LLC M-Commerce Project Team
Status Report Prepared by: Project Manager
Overall Status: Green — On Track Yellow — Caution Red – Problem
Table 11.2: An Example of a Progress Report [7]
Activities/Deliverables Completed Since Last Reporting Period
WBS # Activity Name Duration Date Completed Comments
2.1 Review needs analysis based on the business case 3 days Tue 5/31/22 The review has some issues due to the missing key points in the preceding activities. However, the team worked very well to compensate for the delay. No delay was experienced.
2.2 Elicit requirements from stakeholders 10 days Sun 6/10/22 It finished two-day earlier than its planned 6/14 schedule.
2.3 Draft preliminary stakeholder specifications 7 days Tue 6/21/22 An additional two days were added from 2.2.
2.4 Review specifications with team and stakeholders 5 days Tue 6/28/22 Finished on time.
2.5 Incorporate feedback on the specifications 3 days Fri 7/1/22 Finished on time.
2.6 Develop a preliminary budget and delivery timeline 3 days Wed 7/6/22 The one-day delay was experienced due to the absence of a representative from the budget department.
2.7 Obtain approvals to proceed (concept, timeline, budget, resources) 1 day Wed 7/6/22 The meeting with the sponsor took 3 hours. The sponsor was convinced that we could proceed with the activities under the third component “Design”.
2.8 Analysis complete 0 days Thu 7/7/22 Milestone achieved.
Table 11.3: An Example of a Forecast Report [8]
Activities & Deliverables for the Next Reporting Period
WBS# Activity Name Duration Date to be Completed Comments
3.1 Review preliminary stakeholder specifications 3 days Mon 7/11/22 Stakeholder Z (high power, high interest) notified us of some serious conflicts in the preliminary stakeholder specifications. We may expect a 2-day delay. The sponsor should be informed immediately.
3.2 Develop solution (functional and non-functional) specifications 5 days Mon 7/18/22 Developer 1 may not be available during this activity. Therefore, a developer must be kept as a substitute to ensure attendance.
3.3 Develop transition requirements 2 days Wed 7/20/22 No delay is expected.
3.4 Develop design mockups based on specifications 5 days Wed 7/27/22 Stakeholder Z may have some objections. Project member 2 will be assigned to communicate with this stakeholder.
3.5 Review specifications 2 days Fri 7/29/22 The same issue with Stakeholder Z.
3.6 Incorporate feedback into specifications 2 days Tue 8/2/22 The same issue with Stakeholder Z.
3.7 Finalize project management plan 8 days Fri 8/12/22 Based on the stakeholders’ feedback, we may experience delays.
3.8 Design complete 0 days Mon 8/15/22 No comments.
1. PMI (2020). Ahead of the Curve: Forging a Future-Focused Culture. Pulse of the Profession. Retrieved from https://www.pmi.org/learning/library/forging-future-focused-culture-11908
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
4. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
5. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
6. Interthink. (n.d.). Project HEADWAY Project Team Status Report. Retrieved from https://www.projectmanagement.com/deliverables/235123/project-headway-project-team-status-report
7. Interthink. (n.d.). Project HEADWAY Project Team Status Report. Retrieved from https://www.projectmanagement.com/deliverables/235123/project-headway-project-team-status-report
8. Interthink. (n.d.). Project HEADWAY Project Team Status Report. Retrieved from https://www.projectmanagement.com/deliverables/235123/project-headway-project-team-status-report | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/11%3A_Monitoring_and_Controlling/11.01%3A_Learning_Objectives_and_Overview.txt |
Qualitative monitoring, as its name implies, involves measuring quality rather than quantity. In the context of project management, qualitative monitoring addresses the following questions:
• Scope: Is the team delivering on the intended scope in order to fulfill the project’s objectives and organizational needs?
• Quality: Is the quality of the deliverables meeting stakeholder expectations?
• Stakeholders: Are stakeholders engaged?
• Communications: Are project communications effective?
• Risks: Are risks and opportunities being effectively managed by the team?
• Resources: Are resources being effectively managed and available as expected?
• Procurement: Are the expectations outlined in procurement contracts being adhered to by vendors?
• Team Management: Has the team become high-performing and are individual team members meeting performance expectations?
11.2.1 Validating and Controlling Scope
The approach taken to monitor and control scope depends on the development methodology used. The predictive/waterfall approach involves a sequential definition of requirements and scope, which then leads to solution development. This approach is commonly utilized when the organization has a clear vision of the project’s end outcome. Given this, monitoring and controlling scope occurs with the premise that significant scope changes are not expected. Validating scope involves formal acceptance of the completed project deliverables by the project sponsor and their assigned designates. Acceptance often requires deliverable reviews where the quality of the work is inspected before sign-off is provided. Changes may be required. These changes can be a result of poor quality (which leads to re-work) or new requirements intended to improve the organizational value of the project’s outcomes. New requirements are carefully controlled. This is necessary because once solution development begins, the project’s resources, timelines, and budget were all defined with a specific scope in mind. A scope change may mean those resources, timelines, and budgets are now insufficient to deliver on the increased scope. Controlling scope in this situation requires the project team to assess the impact of the new requirement on all the project’s constraints. If necessary, the team will seek approval for additional funding, time, and/or resources to pursue the new requirement. Project leaders need to reserve judgment on scope changes until the impact and benefits are clearly understood. The term “scope creep” refers to the poorly controlled expansion of scope over time. This means that the scope expands, perhaps unintentionally, without an understanding of its impact on the project’s other constraints, such as time and budget. Therefore, utilizing an integrated approach for change management is a critical success factor for projects using the predictive/waterfall approach.
Projects that follow an adaptive development methodology, such as agile, view scope change very differently. Scope definition, as well as solution development and testing, occur in an iterative or incremental fashion. As new requirements are identified, they are evaluated from a cost/complexity and benefit perspective, and if worth pursuing, they will be scheduled into a future iteration. A continuous improvement mindset encourages scope definition to occur in cycles.
11.2.2 Controlling Quality
Quality is about ensuring the expectations of the project sponsor have been met. This involves ensuring the expectations of the end-user community are well understood. High quality is achieved by planning for it (proactive) rather than by reacting to problems after they are identified (reactive).
Standards are chosen and processes are established to achieve those standards in the planning phase. Project quality focuses on the end deliverables that reflect the purpose of the project. The project leader is responsible for developing a quality management plan that defines the quality expectations and for ensuring the specifications and expectations are met. In the execution phase, the project team attempts to prevent quality issues from occurring with the use of quality management techniques, such as checklists, assessments, and lean six-sigma tools. Lean six-sigma tools are focused on creating efficient and effective processes that involve error-proofing methods.
In the monitoring and control phase, the project team reviews the project deliverables to ensure they are ready for review and sign-off. Ideally, this review leads to deliverable acceptance. However, the team may encounter problems that they are unable to prevent. When this occurs, the team’s objective is to determine how to fix these problems. One of the most effective ways to address a problem is to begin by understanding its root cause(s). Cause-and-effect diagrams, which are also referred to as fishbone or Ishikawa diagrams, are very effective for this purpose.
11.2.3 Monitoring Stakeholder Engagement
Project teams cannot control stakeholders. However, they can significantly influence their level of engagement. During the planning phase of a project, the stakeholder register is created (see Chapter 5) which is an effective tool for keeping track of a project’s stakeholders, their relative interest in the project, and their level of power/influence over the project’s outcomes. The register provides an effective starting place for determining how to engage stakeholders according to their power and interest levels if a Power/Interest Grid is used.
During the monitoring and control phase, the project team looks for new stakeholders and monitors the engagement level of existing stakeholders. Engagement techniques will vary from one organization to another as their respective cultural norms and values influence how individuals work together. Some organizations prefer face-to-face interaction while others prefer the use of electronic messaging and project team websites. Whatever the methods are used to engage stakeholders, it is important to keep stakeholders informed of the project’s progress and to find the right approaches for meaningfully involving stakeholders throughout the life of the project.
A project leader’s interpersonal skills are critical in stakeholder management (See Chapters 5 and 6). Some stakeholders may have become unresponsive to the project team’s requests. When this occurs, the project leader’s relationship-building skills will be put to the test as they attempt to understand the stakeholder’s actions. Conflict resolution skills, such as negotiating, are vital because stakeholders are very likely to have differing priorities, and successfully navigating these conflicts can be the difference between project success and project failure.
11.2.4 Monitoring Communications
Communication is one of the most effective ways to keep team members and all other stakeholders engaged. In order for this communication to be effective, it must be developed and delivered in ways that consider stakeholder roles and communication preferences. During the planning phase, a communication plan would be created to guide the project team’s communication efforts throughout the project (See Chapter 6). It is important for project leaders to proactively determine if the selected communication methods will be suitable for the key stakeholders. This is done by directly asking them and monitoring their responsiveness to the communication delivered. Another important way to determine if project stakeholders are well-informed is to pay careful attention to the questions they ask. Questions about project progress that have been addressed in recent project communications are a good sign that the communication techniques may not be effective for a particular stakeholder. When this occurs, it is time to revisit the communication plan and make the appropriate adjustments.
11.2.5 Controlling Procurements
Monitoring procurement includes ensuring the vendors’ performance meets the agreed-upon, often contractual, requirements. The complexity of the project determines the number and type of vendors procured. This, in turn, determines the nature of the monitored activities. For instance, projects that only require supplies to be purchased externally will have much simpler vendor management processes than projects that had to outsource the completion of some of the work to external consultants.
Key tools and techniques that may be used in procurement management include inspections, audits, formal change control methods, vendor-produced performance reports, payment systems, and contract administration.
11.2.6 Monitoring Risks
Monitoring and controlling risks involves implementing a risk management plan. A key aspect of this plan is often the risk register, which helps the team keep track of the project risks, triggers (early warning signs), and risk responses (See Chapter 10). Risk responses can be implemented in any phase of the project as long as documentation is kept up to date.
Many project teams establish contingency plans and contingency funds to account for all types of risks (e.g., negative and positive risks, individual and overall project risks). When these risks materialize, the project team determines if the contingency plans and/or funds will address these risks and, if so, they will be implemented. If contingency plans/funds don’t suffice, the project team must identify workarounds. Contingency plans and workarounds are then monitored to determine if they were effective. Additional corrective action may be required.
11.2.7 Controlling Resources
Projects require human resources, physical resources, and services in order to produce the desired outcomes (See Chapter 8). During monitoring and controlling, the project leader assesses the effectiveness of all types of resources.
With respect to the project team, effective project managers continuously assess the performance of the team and its members. Effective coaching and mentoring skills are essential and can be the difference between project success and failure (See Chapter 6). In addition, a project leader must sometimes make the difficult decision to replace team members when they are not able to perform as expected or the ensuing conflicts cannot be resolved. Conflict management skills are important in this regard (See Chapter 6). Proactive conflict management requires the project leader to continuously monitor stress levels in the team in an attempt to anticipate the likelihood of rising conflict. Monitoring resource utilization levels in the project schedule and staying connected to project team members are also critical activities that the project leader must perform. Lastly, many projects require people with different skills at different times. Project leaders should be actively monitoring when these skills will be required and ensuring people join/transition off the project at the appropriate times.
The availability and effectiveness of physical resources are also closely monitored. In some instances, faulty or ineffective equipment has to be replaced. If the scope of the project changes, new equipment and technology may be required, which, in turn, may lead to additional work in procurement management.
Monitoring and controlling is about integrating all the teams while assuring that work is being completed at a steady rate to keep the project on track. This phase is vital to the overall success of the project. Thus, requiring additional, highly-skilled resources, is a key consideration during the planning phase. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/11%3A_Monitoring_and_Controlling/11.03%3A_Qualitative_Monitoring.txt |
A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to key stakeholders. In addition, project managers must also compare the progress of the actual work completed with the estimated durations in the project schedule. One of the quantitative monitoring techniques project managers utilize is Earned Value Management (EVM) which combines scope, schedule and cost baselines to determine the project’s well-being and to decide whether an action is required in case of problems. EVM is essential to project success. It is used extensively in many business fields and organizations such as the Department of Defense (DOD) and construction industries while the IT industry has not due to the reasons such as practicing agile (adaptive) project management and hence lack of a fixed baseline[1].
EVM is a quantitative monitoring technique that uses metrics and indexes to assess project performance. Earned value analysis compares the performance measurement baseline to the actual schedule and cost performance. EVM integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline [2][ii]. The application of earned value in the early initiation and planning phases of a project increases the validity and usefulness of the cost and schedule baseline and is an excellent verification of the project scope assumptions and the scope baseline. Once established, these baselines become the best source for understanding project performance during execution. A comparison of actual performance (both cost and schedule) against this baseline provides feedback on project status and data, not only for projecting probable outcomes but also for management to make timely and useful decisions using objective data[3]. EVM, known as “management with the lights on”, is based on the principle that past patterns and trends can indicate future conditions. EVM helps us clearly and objectively see where our project is headed compared to where it’s supposed to be[4].
EVM can help answer the questions below[5]:
• Are we delivering more or less work than planned?
• When is the project likely to be completed?
• Are we currently over or under budget?
• What is the remaining work likely to cost?
• What is the entire project likely to cost?
• How much will we be over or under budget at the end of the project?
• What is driving the significant cost and/or schedule variances?
In EVM, there is an important point that must be clarified. We will always see monetary amounts even though we are measuring the scope or schedule performance. The denominator for all of them is the currency we are using for our project. If we are using the US dollar, the denominator would be the US dollar. The analogy for EVM would be doing shopping in a market. We buy different items such as olive oil, cookies, milk, eggs, and laundry detergent. All these items are converted to a monetary value, and it allows us to compare the prices between different brands. In the end, we know the total amount in dollars. This is exactly what is happening for EVM. Therefore, when we see a result showing dollars, it doesn’t necessarily mean that it is related to the cost. It can indicate a problem in scope (e.g., not all planned activities have been completed) or schedule (e.g., the project is behind schedule).
11.3.1 Main EVM Parameters
To start with EVM, we should elaborate on three key dimensions. They are:
1. Planned Value (PV) is the amount of work that is estimated and planned to be done by a particular date in the project. This work is measured by the cost of planned work by a specific date. As explained above, EVM measures all the values with monetary units to create a common measurement scale. PV includes contingency reserve while excluding management reserve. Microsoft Project also uses the term BCWS (Budgeted Cost of Work Scheduled) besides PV. Total PV can be referred to as Performance Measurement Baseline (PMB) or Budget at Completion (BAC).
Let’s consider our Grocery LLC’s m-commerce project. Let’s assume that we outsourced the development component to a software company. Therefore, this component would be a project for this company. They divided the development of the mobile app interface and the backend part into ten activities (e.g., user profile and settings, items to purchase with pictures, features and prices, payment, order tracking, databases, etc.). There are ten activities to finish the development of the mobile app (scope baseline). Then, we can continue with the testing of the mobile app. Each development activity was scheduled to be three days. In total, the mobile app will be ready to test in thirty days (schedule baseline). Let’s also assume that we need to pay \$2,000 for each phase. Total cost baseline for all ten activities is \$20,000 (\$2,000 x 10). For earned value analysis, we consider \$20,000 as our total planned value which is also named BAC (Budget at Completion).
1. Earned Value (EV) is the amount of work that has been completed by a particular date in the project. This work is measured by the cost of work performed and completed by a specific date. Microsoft Project also uses the term BCWP (Budgeted Cost of Work Performed) besides EV.
Let’s assume that the company we outsourced the development component finished five activities at the end of the eighteenth day. The planned value by that day was 6 activities, which amounts to \$12,000 (\$2,000 x 6). However, only five activities were completed, which is 50% of the planned work. This is our earned value which can be measured as \$10,000 (\$2,000 x 5).
1. Actual Cost (AC) is the sum of the amounts which has been spent on the project so far. Microsoft Project also uses the term ACWP (Actual Cost of Work Performed) besides AC.
For the five activities completed, we paid \$11,200. This is the actual cost at the end of the eighteenth day (the status date).
11.3.2 Variance Analysis
After we calculate PV, EV, and AC, we can conduct variance analysis to figure out if we are on, over, or under budget, and if we are on, behind, or ahead of the schedule.
Cost Variance (CV) and Cost Performance Index (CPI)
The difference between EV and AC is the cost variance (CV).
CV = EV – AC
If the cost variance is negative, we can conclude that the project as of the status date is over budget. If the cost variance is positive, this indicates that the project is under budget. IF CV is zero, it means that the project is on track in terms of the budget.
In our example, at the end of the eighteenth day, we could finish five activities. EV is \$10,000, and AC is \$11,200.
CV = 10,000 – 11,200 = -1,200
It means that our project stands over the budget.
Instead of CV, we can also use CPI (Cost Performance Index) which gives us a ratio instead of an absolute number. CPI uses the same variables as CV but expresses them as a ratio. CPI is calculated as follows:
CPI = EV / AC
CPI = 10,000 / 11,200 = 0.89
CPI is a measure of the cost efficiency of budget resources[6]. When CPI is less than 1.0, it indicates a cost overrun. When CPI is greater than 1.0, it indicates a cost underrun for the work completed. If it is 1.0, it indicates that the project budget is on track.
Schedule Variance (SV) and Schedule Performance Index (SPI)
The difference between planned value and actual progress (earned value) is the schedule variance (SV).
SV = EV − PV
If less value has been earned than was planned, the schedule variance is negative, which means the project is behind schedule. If there is a positive variance, it indicates that the project is ahead of its planned schedule. If SV is zero, it means that the project schedule is on track.
In our example, at the end of the eighteenth day, we could finish five activities. EV is \$10,000, and PV is \$12,000.
SV = 10,000 – 12,000 = -2,000
It means that our project is behind its schedule. -\$2,000 does not indicate a number related to the cost. As mentioned above, the monetary unit is the common measure we are using for the schedule baseline and variance as well.
Instead of SV, we can also use SPI (Schedule Performance Index) which gives us a ratio instead of an absolute number. SPI uses the same variables as SV but expresses them as a ratio. SPI is calculated as follows:
SPI = EV / PV
SPI = 10,000 / 12,000 = 0.83
SPI is a measure of schedule efficiency. It measures how efficiently the project team is accomplishing the work[7]. When SPI is less than 1.0, it indicates that the project is behind schedule while an SPI that is greater than 1.0 indicates that the project is ahead of schedule. If it is 1.0, it indicates that the project schedule is on track.
11.3.3 Trend Analysis
After PV, EV, and AC values are generated, and variance analysis is performed, we can conduct trend analysis to predict how our project may perform during the rest of the project, and when the project is completed.
Trend Analysis for Schedule
We can estimate the new project completion time. In our example, the project is behind schedule. Let’s figure out if we may have a delay if the SPI remains the same. We had scheduled to finish the development component in 30 days. The current SPI is 0.83. If we cannot improve the SPI, we will end up with a delay.
Adjusted schedule estimate = Original schedule estimate (schedule baseline) / SPI
Adjusted schedule estimate = 30 days / 0.83 = 36.14 days
Therefore, we may have a delay of 6 days in this component.
Trend Analysis for Budget
We can estimate the new project budget. In our example, the project is over budget. Therefore, may we expect to spend more than what we estimated in our cost baseline (BAC – budget at completion which is the total PV)? If we assume that CPI won’t change during the rest of the project, we can use the formula below:
EAC (Estimate at Completion) = BAC / CPI
EAC = \$20,000 / 0.89 = \$22,472
Therefore, we can estimate that we may find ourselves spending \$22,472 instead of \$20,000 which was our cost baseline. The difference between BAC and EAC gives us VAC (Variance at Completion).
VAC = BAC – EAC
VAC = \$20,000 – \$22,472 = -\$2,472
Thus, if we cannot improve the current CPI, we may spend an additional \$2,427 when the project is completed.
Another parameter that we can generate is ETC (Estimate to Complete).
ETC = EAC – AC
ETC = \$22,472 – \$11,200 = \$11,272
Thus, we expect to spend \$11,272 during the rest of the project.
The third parameter we can use is TCPI (To-Complete Performance Index). Project managers use TCPI to calculate the CPI that is required to get back the project on budget.
TCPI = (BAC-EV) / (BAC-AC)
TCPI = (\$20,000 – \$10,000) / (\$20,000 – \$11,200) = 1.14
The project manager should assess the CPI (1.14) required to get the project back on track with its cost baseline. This assessment would be based on various factors such as the availability and quality of resources for the remaining activities, and the project team’s commitment and performance.
1. Ayers, J. (2021). Earned Value Management (EVM) Applied to Large IT Project. Retrieved from https://www.projectmanagement.com/videos/690277/earned-value-management--evm--applied-to-large-it-project
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2011). Practice Standard for Earned Value Management – Second Edition.
4. Retrieved from https://www.pmi.org/pmbok-guide-standards/framework/earned-value-management-2nd.
5. M. T. Cox MBA, D. (2013). Project Management at Work: Practical, Relevant Results. United States: iUniverse.
6. Project Management Institute. (2011). Practice Standard for Earned Value Management – Second Edition.
7. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/11%3A_Monitoring_and_Controlling/11.04%3A_Earned_Value_Management_%28EVM%29.txt |
The monitoring and controlling process is a constant process starting at the very beginning of the project, and it finishes when the project is closed out. As detailed in Section 11.1, monitoring and controlling involves regularly measuring progress on a project to ensure it continues meeting objectives and addressing current organizational needs. Project managers monitor the project work by collecting project performance data, producing performance measures, and reporting and disseminating performance information. Then, they compare actual performance with planned performance, analyze variances and assess trends to affect process improvements (see Section 11.3), and finally evaluate possible alternatives and recommend appropriate corrective action as needed[1].
In order to manage the control process effectively, projects must have a change management plan and a configuration management plan which are sub-plans of the overall project management plan. A change management plan provides the direction for managing the change control process and documents the roles and responsibilities of the approval authority or the change control board if available. The configuration management plan describes the configurable items of the project and identifies the items that will be recorded and updated so that the product of the project remains consistent and operable[2]. Therefore, these plans guide project managers and teams while they need to make a change in the project, and configure primarily the product scope.
When we find a problem, we can’t just make a change since we should evaluate possible alternatives and consider risk response strategies and the availability of contingency reserves (see Chapter 10). What if corrective actions exceed our schedule or budget constraints? We need to evaluate triple constraint elements (scope, schedule, and cost) and other constraints such as resources and quality. Compromising the quality of the outcomes and deliverables would endanger the approval process, and hence lead to a project failure. Therefore, we have to figure out if it is worth making the change. Change control is a set of procedures that let us make changes in an organized way.
Anytime we need to make a change to our project management plan, we need to start with a change request. This request is generally in the form of a document (Table 11.4). Any change to the project needs to be documented so we can figure out what needs to be done, by when, and by whom. Any stakeholder can request a change. Once the change request is documented, it is submitted to a change control board, in particular, if the project is within a program or portfolio, and this necessitates the submission of change requests exceeding a specified cost. A change control board is a group of people who consider changes for approval. Not every change control system has a board. The change control system is designed based on various factors such as the size and complexity of the project, organizational policies, business field, and contract requirements. The change requests are generally submitted to the project sponsor by the project manager for review and approval. The project manager is responsible to monitor the change process from the very beginning to the very end. Putting the recommended changes through change control will help us evaluate the impact and update all the necessary documents. Not all changes are approved, but if the changes and repairs are approved, we send them back to the team to put them in place.
Table 11.4: Change Request Form Template
Project Name:
Project Number:
Project Manager:
Requestor Name:
Request Date:
Resolution Requested
Description of Change:
Reason for Change:
Impact on Scope and/or Deliverables:
Impact on Resources and Quality:
Impact on Time and Cost:
Disposition of Change Resolution:
Accepted: Denied:
Project Manager
Name & Signature
Date:______________
Project Sponsor
Name & Signature
Date:______________
Change requests are made to modify documents, deliverables, and baselines. They are issued to expand, adjust, or reduce project scope, product scope, or quality requirements and schedule or cost baselines. They can include corrective actions, preventive actions, defect repairs, and updates[3]. Project teams may need to assess the product and project scope, and this may require the teams to discuss the issues with stakeholders to determine if there is a need to revise requirements or add new ones.
In order to keep the track of change requests and actions taken, a “Project Change Request Tracking Log” (Table 11.5) can be held along with an “Issue Log”.
Although monitoring and controlling process is performed throughout the project, most of the effort would be expended especially during the execution (implementation) phase. Resources outside the core project team are assigned, and costs are usually the highest during this phase. Besides, scheduling issues would arise in this phase as project activities are carried out and human and physical resources are assigned. Project managers experience the greatest conflicts over the schedule in this phase. Some activities may take longer than estimated. Some risks may occur creating schedule slippages. Project managers first apply techniques without the need for a change request if triple constraints aren’t affected. Nevertheless, project managers should implement a holistic approach by taking into account all constraints and knowledge areas.
Table 11.5: Project Change Request Tracking Log Template
Project Change Request Tracking Log
Project Name:
Project Manager
Submission Data Impact Analysis PM Review and Approval
Request# Submitted By: Date Date Assigned to Analyst Assigned to Date Analysis Completed Date Reviewed Committee Decision Date Approved Date Request Integrated into Project Plan
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
2. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
3. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/11%3A_Monitoring_and_Controlling/11.05%3A_Change_Control_Process.txt |
This MS Project tutorial will elaborate on how to conduct an EVM analysis. Table 11.6 provides a project with 15 activities.
Table 11.6: Project Activities
Activity Duration (weeks) Predecessors
A 2
B 3
C 1 A, B
D 3 C
E 2 C
F 2 D, E
G 3 E
H 4 F, G
I 2 H
J 6 I
K 4 J
L 3 J
M 2 J
N 2 K, L, M
O 1 N
In this project, the resources that are assigned to each activity are given in Table 11.7. All the resources are “Work” type resources which means that they are either people or equipment.
Table 11.7: Resources and Costs
Resource Name Standard Rate Activities
a \$20.00/hr A
b \$40.00/hr B
c \$30.00/hr C
d \$15.00/hr D
e \$35.00/hr E
f \$50.00/hr F
g \$30.00/hr G
h \$25.00/hr H
i \$40.00/hr I
j \$40.00/hr J
k \$25.00/hr K
l \$25.00/hr L
m \$20.00/hr M
n \$35.00/hr N
o \$50.00/hr O
Additional Cost 1 \$35.00/hr C
Additional Cost 2 \$25.00/hr F
Under the View tab, we click the “Resource Sheet”. Then, we can type the resource names and costs as seen in Table 11.7. The Resource Sheet on MS Project is given in Figure 11.3.
Let’s select all the resources except additional costs from the drop-down menu for each resource on the Gantt Chart view. Besides, we add a new column “Cost” to the left of “Resource Names”. As can be seen in Figure 11.4, the total estimated cost of the project is \$52,400. This figure would be also our BAC (Budget at Completion).
Under the “Task” tab, we can select “Tracking Gantt” from the drop-down menu (Figure 11.5).
In order to create schedule and cost baselines, we must create a baseline by clicking “Set Baseline” under the “Project” tab. We can click OK as shown in Figure 11.6.
The Tracking Gantt Chart is shown in Figure 11.7. As we haven’t indicated any progress yet, all the progress percentages are zero percent. Each bar is now composed of two horizontal parts. The lower part which is darker displays the baseline.
The project started on June 6, 2022. The estimated completion date is December 30, 2022. Let’s assume that some time passed in the project. Let’s make the current date September 18, 2022. Under the “Project” tab, click “Project Information”. Changing the current date won’t suffice (Figure 11.8). It will help us to see the date on the Gantt Chart. Rather, we need to change the status date to create a scenario as of September 18, 2022.
Now, we can change the completion percentages for each activity, and add “Additional Resources” to create the impression as if we made some progress on activities, and spent more money on some of the activities. As indicated in Table 11.7, additional costs are added to activities C and F (Figure 11.9). The project cost changed to \$55,800 with the additional costs from its cost baseline of \$52,400.
As shown in Table 11.8, we will also change the completion percentages for each activity.
Table 11.8: Completion Percentages for the Activities
Activity Completion Percentage
A 100
B 100
C 100
D 100
E 100
F 100
G 100
H 50
I 0
J 0
K 0
L 0
M 0
N 0
O 0
We can use the shortcuts for completion percentages (0%, 25%, 50%, 75%, 100%). Or double-clicking a task opens the “Task Information” window. From the “Percent complete” on this window, we can type any percentage (Figure 11.10).
Figure 11.10: Shortcuts for Completion Percentages
After we mark the completion percentages for each task, we can see the percentages to the left of each bar on the Gantt Chart (Figure 11.11). Besides, the upper horizontal section of each bar will get darker for 100% completion, and the “Indicators” column will place ticks for these activities. Activity H has a 50% completion. Therefore, its upper horizontal section turned darker red for half of the activity. We should remember that weekends are considered holidays on Microsoft Project (default setting). Therefore, the coverage area may not necessarily display a 50% area on a bar.
So, our scenario dictates that we finished 100% of activities A, B, C, D, E, F, and G, and 50% of activity H. Besides, we spent more money on activities C and F.
Now, we can open the EVM table. In the View tab, we click Tables and select More Tables. In the new menu window, we choose Earned Value. In the new sheet, we should insert SPI as a new column to the right of the existing “SV” column, and CPI as a new column to the right of the existing “CV” column. Figure 11.12 displays the Earned Value table view as of September 18, 2022. An SPI value of 0.92 indicates that our project is behind schedule. A CPI value of 0.88 indicates that our project has an overrun budget issue. Microsoft Project provides EAC, BAC, and VAC values (Figure 11.12). Our cost baseline was \$52,400. If we assume that the CPI value of 0.88 doesn’t change during the rest of the project, we can estimate to pay \$59,761 (EAC – Estimate at Completion) by the end of the project, which is \$7,361 (VAC – Variation at Completion) more than our cost baseline.
Our schedule baseline was 30 weeks (Figure 11.2). SPI is 0.92 as of September 18, 2022. If we cannot improve this SPI and it remains the same during the rest of the project, there may be a delay of 2.6 weeks [1 – (30 weeks / 0.92)].
11.07: Key Takeaways
Key Takeaways
• The monitoring and controlling process consists of tracking, reviewing, and reporting the overall progress to meet the performance objectives defined in the project management plan.
• Project managers monitor the project work by collecting project performance data, producing performance measures, and reporting and disseminating performance information. Then, they compare actual performance with planned performance, analyze variances and assess trends to affect process improvements, and finally evaluate possible alternatives and recommend appropriate corrective action as needed.
• Qualitative monitoring involves measuring quality rather than quantity, and it focuses on the scope, quality, stakeholders, communications, risks, resources, procurement, and team management.
• Earned Value Management (EVM) is a quantitative monitoring technique that uses metrics and indexes to assess project performance. Earned value analysis compares the performance measurement baseline to the actual schedule and cost performance.
• The main EVM parameters are planned value (PV), earned value (EV), and actual cost (AC).
• CPI is a measure of the cost efficiency of budget resources. When CPI is less than 1.0, it indicates a cost overrun.
• SPI is a measure of schedule efficiency. When SPI is less than 1.0, it indicates that the project is behind schedule.
• After PV, EV, and AC values are generated, and variance analysis (e.g., CPI and SPI) is performed, we can conduct trend analysis to predict how our project may perform during the rest of the project, and when the project is completed.
• In order to manage the control process effectively, projects must have a change management plan and a configuration management plan which are sub-plans of the overall project management plan.
• Any change to the project needs to be documented so we can figure out what needs to be done, by when, and by whom. Any stakeholder can request a change.
11.08: Questions and Exercises
There are 10 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=1235
11.09: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/11%3A_Monitoring_and_Controlling/11.06%3A_MS_Project_Tutorial.txt |
Learning Objectives
1. Recognize and describe the evolution and founding principles of agile project management approach.
2. List and describe the factors to consider when adopting an agile approach.
3. Identify the elements of an agile environment.
4. Recognize the most common agile methods and scaling frameworks.
5. Describe the recent trends in agile project management.
Overview
In the previous chapters, we discussed all the project management concepts and methods by mostly referring to the waterfall (predictive, traditional) project management approach implicitly or explicitly. Although all these concepts and methods are applicable to agile (adaptive) projects, these projects are developed on evolving requirements accompanied by an upfront planning which is not as comprehensive as it is in waterfall approach. Rather, the planning in agile approach is spread throughout the projects over separate iterations, sprints, or timeboxes. Each short iteration allows the project team to refine the requirements in accordance with the uncertainties, risks, technological changes, and stakeholder expectations and concerns. This chapter will first discuss the historical background of agile project frameworks and methods, and their key principles. Then, it will describe the factors to consider when adopting an agile approach, identify the elements of an agile environment, and elaborate on the most common agile methods and scaling frameworks. Finally, this chapter will address the recent trends in agile project management according to the 15th State of Agile Report[1].
1. Digital.ai. (2021). 15th State of Agile Report. https://digital.ai/resource-center/analyst-reports/state-of-agile-report
12.02: Introduction to Agile
1980s and 1990s were the years software development teams started to have serious problems with developing and finishing their software projects which were getting more complex with more computer power and digitalization of businesses and organizations[1]. Project managers and developers faced more and more problems when they were using the traditional waterfall approach (Figure 12.2 in the section 12.1.2). The development of software necessitated more collaboration among the project manager, developers, testers and users, and constant feedback from the users. Besides, new requirements were emerging while the software was being developed, and the client and end users were not always happy with the final product when they had the chance to see it after some time passed. Therefore, new methods started to emerge among software developers who lead this type of projects. Lean methodology created by Toyota for their production system, and utilized by many manufacturers was an inspiration for many of these software developers. In addition to the lean manufacturing process, just-in-time process and total quality management movement were other influencers of agile project management[2]. Furthermore, Kanban which is a process improvement method in manufacturing was adapted to the software development life cycle.
As indicated above, new methods began to emerge in the 1980s and mostly in the 1990s as a response to some of the challenges that developers faced when using a waterfall approach.
One of the first to become popular was Rapid Application Development (RAD). James Martin, an IT consultant, developed an approach through which he divided the process into four distinct phases, namely, (1) requirements planning phase, (2) user design phase, (3) construction phase, and (4) cutover phase[3]. It involved creating prototypes and using them to elicit requirements, validate designs and evolve toward usable solutions (Figure 12.1). RAD, itself, led to the development of alternative approaches as well.
Figure 12.1: Rapid Application Development (RAD) Phases[4]
Before Agile Alliance had their first meeting in 1999, there had been a diversification of agile methods which were called as lightweight methods as compared to the heavyweight waterfall models. The most popular methods were Crystal methods (1992), Dynamic Systems Development Model (DSDM) (1995), Scrum (1995), Feature Driven Development (FDD) (1997), Extreme Programming (XP) (1999), and Adaptive Software Development (ASD) (2000). Through the 1990s, a number of alternative ways to organize and structure the development of software products emerged as mentioned above, and they eventually evolved into the “agile” in 2001 with “Agile Manifesto”.
12.1.1 Agile Manifesto
At their initial meeting in 1999, the pioneers of agile methods discussed the similarity of XP with other methods and decided to meet again, with a broader range of people, to explore common ground. In 2001, a group of 17 people met at Snowbird Ski Resort in Utah to talk, ski, relax and try to find common ground between their thoughts on software development[5]. They represented the leading thinkers from XP, Scrum, DSDM, ASD, Crystal, FDD and Pragmatic Programming, along with others who wanted a viable alternative to traditional heavyweight and documentation-driven development processes. They published the “Agile Manifesto” that embodied the values they all believed in and a set of guiding principles (Figure 12.2). Thus, the Agile Alliance was born.
Twelve Agile Principles behind the Agile Manifesto are listed below[6]:
1. Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.
2. Welcome changing requirements, even late in development. Agile processes harness change for the customer’s competitive advantage.
3. Deliver working software frequently, from a couple of weeks to a couple of months, with a preference for the shorter timescale.
4. Business people and developers must work together daily throughout the project.
5. Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.
6. The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.
7. Working software is the primary measure of progress.
8. Agile processes promote sustainable development. The sponsors, developers and users should be able to maintain a constant pace indefinitely.
9. Continuous attention to technical excellence and good design enhances agility.
10. Simplicity – the art of maximizing the amount of work not done – is essential.
11. The best architectures, requirements and designs, emerge from self-organizing teams.
12. At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.
12.1.2 Differences between Waterfall and Agile Methods
As can be seen in Figure 12.3, in the waterfall (predictive, traditional) project management approach, the process is linear and sequential. Project teams should finish one stage to proceed with the following stage. As seen in Figure 12.3, the agile (adaptive) project management approach compresses the sequential phases in small timeboxes. Therefore, agile teams work on a limited number of requirements (i.e., user stories) at a time, and they can receive frequent stakeholder feedback at the end of each timebox when they create a partial working product.
The frequent interaction with the client and stakeholders offers an environment where the frustration level of stakeholders is minimized. Nevertheless, agile methods may not be appropriate for all projects. Waterfall project approach may work better when:
• Requirements are very well understood and can be fixed before the implementation begins.
• Client’s and customers’ expectations from the product is stable and substantial changes can be avoided.
• Technology and the tools utilized are understood very well by the stakeholders, and changes that may affect the project’s progress are not expected.
• The duration of the project is relatively short.
• The uncertainty is at a low level.
• Resources are available, and easy to acquire.
Therefore, we can implement a waterfall project when we expect low uncertainty and define the project and product scope, and project constraints easily with clear and unambiguous procedures. The production domain and processes involved are usually well understood and there are typically low levels of execution uncertainty and risk[7]. However, if we cannot define the product scope, and uncertainty level is high, an agile approach would be better to move gradually by clarifying the requirements and uncertainties with the active involvement of clients and stakeholders.
In agile projects, client and stakeholder involvement can be provided constantly since product owners are a part of the team, and the increments are reviewed by the product owner and the client frequently. In waterfall projects, the interaction with the client is deferred to the end of a phase, for instance, when the software coding and testing are complete. However, in real life projects, teams often implement a hybrid approach which is a blend of waterfall approach and some principles of agile such as client involvement and feedback.
12.1.3 An Example: Grocery LLC Decides on the Project Approach for the “Self-Checkout Stations Project”
As discussed in section 1.2.3 titled “Case Study 1.1: Characteristics of a Project Undertaken by Grocery LLC”, the grocery chain, Grocery LLC, considers establishing self-checkout station areas in all fifty branches to find a solution to long lines in front of the current checkout stations where the cashiers work. The project selection committee discussed the solution and decided to implement this project. As part of requirements elicitation, business analysis team surveyed managers and employees, and interviewed customers. Besides, the team visited the competitors’ markets and made market research to have a better understanding of possible solutions in the market. The team concluded that self-checkout has been increasingly deployed in many grocery store and pharmacy chains (e.g., Walmart, Target, CVS) across the United States, and the manufacturers and service providers are experience. Therefore, the sponsor, project manager, and relevant departments had a meeting to discuss the project management approach. They decided to implement a waterfall approach supported by continuous stakeholder interaction as is done in agile methods.
• Managers, employees, and customers conveyed their requirements. The analysis revealed that requirements are consistent with the current implementations and the research consultancy company’s report. Therefore, it was concluded that requirements are very well understood and can be fixed to a large extent before the implementation begins. However, in order to keep up with the technological advancements and to be prepared for the risks such as new waves of pandemic, it was decided to establish a continuous interaction and feedback system with the stakeholders.
• There are experienced companies which provide competitive prices to acquire the systems. They implemented numerous projects across the United States. They have comprehensive knowledge of the current and upcoming technologies.
• The duration of the project is 8 months.
12.1.4 An Example: Grocery LLC Decides on the Project Approach for the “M-Commerce Project”.
As discussed in section 1.2.4 titled “Case Study 1.2: Characteristics of Another Project Undertaken by Grocery LLC (M-Commerce Project)”, the grocery chain, Grocery LLC, considers having a better online presence by creating a mobile app and optimizing the website for mobile devices in particular due to the negative effects of pandemic on the number of in-store customers, hence significantly decreased revenue and profit. In the initiation stage, project manager prepared a report justifying the need for conducting an agile methodology, i.e., Scrum, during this project in order to accelerate the pace and achieve the outcome in a relatively shorter time, receive constant and timely feedback from the employees and customers, keep a healthy interaction with the stakeholders, and adjust the specifications to the fast and unprecedented changing technologies and socioeconomic conditions. Since it was not easy for the project manager and the team to oversee the near future in a turbulent environment (e.g., Covid cases and hospitalizations rocketing to the peak in a very short time), the sponsor and the project steering committee supported the project manager’s decision to implement an agile method. The Scrum cycles (sprints) were set as two weeks so that a working app and mobile website can be developed gradually with some of the requirements and functions at the end of each sprint, which can allow frequent end-user feedback and interaction.
1. Rothman, J. (2017). Create Your Successful Agile Project: Collaborate, Measure, Estimate, Deliver. Pragmatic Bookshelf.
2. Cobb, C. G. (2015). The project manager's guide to mastering Agile: Principles and practices for an adaptive approach. John Wiley & Sons.
3. Martin, J. (1991). Rapid application development. Macmillan Publishing Co., Inc.
4. Martin, J. (1991). Rapid application development. Macmillan Publishing Co., Inc..
5. Retrieved from https://agilemanifesto.org/history.html.
6. Retrieved from https://agilemanifesto.org/principles.html.
7. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/12%3A_Agile_(Adaptive)_Project_Management/12.01%3A_Learning_Objectives_and_Overview.txt |
12.2.1 A Case Study of the Penta Transformations
A Six-Month Cultural Transformation: The Penta Story [1]
Penta Technologies, a family-owned construction software company in Wisconsin, developed and provided customized accounting and finance ERP systems, labor productivity suites, and payroll tools for construction back-office services. However, the convenience of customization led to more complicated workload for the project teams and employees while it was a relief for the clients. Rather than focusing on the effectiveness of projects and their outcomes, the company dealt mostly with the contract negotiation and customer emergencies. The main issues were the implementation of a traditional project management approach that made the frequency of delivery slow and inconsistent. However, the solution was not that easy just by switching to an agile structure. The president and the COO figured out that there are organizational and cultural barriers that need to be overcome first. First of all, they reduced the number of executives to three, which simplified the decision making and allowed space for the team to identify the most urgent issue, optimizing the product development teams. But this was only the initial step to transition to a more agile structure. The COO announced that they were going to partner with everyone in the organization to figure out the best structure for the business. As a result, employees’ feedback was aggregated in five areas that need attention: (1) Remove functional silos, (2) more ownership in the work, (3) remove unnecessary and complex processes, (4) stop micromanagement and improve trust, and (5) more focus on value. Based on this valuable employee feedback, a team conducted research on different organizational structures. The team suggested a transition to the Scrum framework which a team-based and servant-leadership organizational structure. This was just the beginning for Penta. However, this case showed that organizations need to evaluate the current organizational structure and culture, and develop a novel background and mindset over which they can build the new agile structure. A new house cannot be constructed over an old and torn foundation. We need to ensure that the foundation is so strong that it can bear
12.2.2 Creating a Novel Mindset: Agile
As can be seen in the case study of Penta Technologies above, organizations don’t start creating, adopting and implementing an agile project approach in one day as is the case for all the actions organizations should take. A long and well-thought-out process is inevitable to generate ideas effectively, which can benefit the organization in the long term. As for the agile environment, the challenging process requires adoption of an agile mindset that spans throughout the organization including the executive team, managers, supervisors, and all other employees. At the very beginning, organizations and their project teams and leaders should answer many questions, some of which are provided below, to develop an implementation strategy[2]:
• How can organizations, their employees, and project teams and in particular, their members, act in an agile manner?
• Are there organizational impediments that we need take care of (e.g., issues in formal structure such governance and policies, and informal structure such as organizational culture)?
• What are the levels of acceptance and resistance that we may expect from the executives, managers, employees, project managers, and team members?
• How can we measure these levels (e.g. survey, interviews, focus group meetings) so that we can create an action plan?
• What kind of activities (e.g., seminars, webinars, training, social events) do we need to organize?
• What can our teams deliver quickly and obtain early feedback to benefit the next delivery cycle?
• Are our products appropriate for quick incremental deliverables?
• How can the teams act in a transparent manner?
• What works can be avoided in order to focus on high-priority items?
• How can a servant-leadership approach benefit the achievement of the team’s goals and project objectives?
12.2.3 Benefits and Challenges of Agile Project Management
When organizations start utilizing agile project management approach and principles, they can expect to see the benefits below:
• They can find opportunities to deliver business benefits at an early stage through addressing straightforward problems.
• They can shorten the time to introduce new products and services to the markets and customers.
• They can increase and maintain the adaptability to changing needs of customers.
• They can achieve an improved quality of products and services through short cycles and constant client and stakeholder interaction and feedback.
• Ultimately, they can maximize the return on investment.
Gustavsson (2016)[3] examined the literature to list the common benefits of implementing agile project management in a non-software development context. Top ten benefits indicated by Gustavsson (2016) are listed below:
• Better collaboration in the team
• Increased customer interaction
• Increased productivity and speed
• Increased flexibility in coping with the change
• Better understanding of goals/tasks/requirements
• Increased transparency and visibility
• Increased quality
• Customer-centered value adding priority process
• Increased knowledge sharing
• Increased cross-organizational collaboration
However, Gustavsson (2016) also examined the problems and challenges while adopting and implementing agile approach, and outlined eleven challenges as below:
• Changing mindset to allow flexibility
• Lack of process visibility
• Buy-in from managers
• Difficult to see benefits early in the project
• Inadequate knowledge sharing
• Individual work, lack of communication
• Long-term planning
• Lack of stakeholder engagement
• Scope creep (uncontrolled expansion of the scope with product requirements and project activities)
• Insufficient resource allocation
• Redundant work
These results demonstrate that no one system, approach, or methodology is alone perfect. Project managers and team members always need to take into account the coexistence of pros and cons of anything used in a project by incorporating the cost-benefit analysis. While increased knowledge sharing was indicated as a benefit, challenges presented a challenge of inadequate knowledge sharing. Thus, decision-makers and project managers should consider the factors that may cause inadequate knowledge sharing in an agile environment. This is also valid for other elements such as flexibility, communication, early delivery, and resources as well as triple constraints (i.e., scope, schedule, and budget).
Regarding the project success, Serrador and Pinto’s (2015) quantitative analysis of 1.002 projects across multiple industries and countries concluded that agile methods have a positive impact on two dimensions of project success which are efficiency and overall stakeholder satisfaction against organizational goals.
12.2.4 The Elements of an Agile Environment
Although the roles and the practices of each agile method and framework vary from one to another, there are common roles and practices across them. In this section, we will elaborate on these.
12.2.4.1 Common Agile Roles and How Agile Team Works
There are three main roles in agile teams.
1. Cross-functional and self-organizing teams and their members
2. Product owner
3. Team facilitator
Considering the self-organizing structure of agile teams and the role of project manager as a team facilitator and servant leader, we can first focus on the team members who form the agile teams. Cross-functional teams consist of members with various skills from different areas. If it is a software development team, it can be composed of designers, systems analysts, developers, testers, and business unit representatives. Team members discuss the tasks and pick the ones they think would fit the best. Team facilitator (or the project manager) doesn’t tell who should do what, but acts as an obstacle remover and a coordinator. Agile teams generally work during short cycles (i.e., iterations) to release a working product, an incomplete but a testable partial product, which is named as increments. Rather than creating the whole website with its all backend features in three months, these teams create a number of web pages with some of the properties and functions in a short time (e.g., a two-week iteration). In the end of each iteration, the team presents the increment in the form of a partial product (e.g., three web pages). The product owner representing the client and the end-users provide the feedback about what they think of these three web pages. They may say “We want the navigation bar at the top with that size and those colors” or “The pictures should not cover more than one third of the row while not zoomed in”. These increments help the team receive feedback constantly. Therefore, they can work on each increment based on the feedback, and they can improve the product. This provides the team with the opportunity to make timely and effective interventions which otherwise would cause serious problems at the end of the project. So, when the team receives the feedback as regards the navigation bar’s position and color, they apply the request to the current and future web page layouts. However, another feedback may still want the team to change the position and color. This is an ongoing process with constant interaction with the client, end users, and stakeholders. In a waterfall project management approach, the team finishes the development of the whole website, and submit it to the client for the inspection of the client and its end users. However, in the meantime, a three-month duration passes, and the possibility of receiving feedback from the client that can lead to a serious rework could be high.
As is discussed above, these teams are self-organizing teams, which means that team members decide on the tasks that each will work during an iteration, rather than a team facilitator tell them what they need to do. Agile teams are generally small teams smaller than 10 members. These teams use techniques to collaborate more effectively such as pairing, swarming, and mobbing. Pairing is generally utilized by XP (Extreme Programming) teams when software developers write codes. While one member works on coding, the second member checks the quality of the coding made by the first member. Another collaboration technique is swarming through which multiple team members focus collectively on resolving a specific impediment.
A second agile role is the product owner who is responsible for guiding the direction of the product. Product owners can be a representative of the internal or external client, or a person who represents the client and the stakeholders. Product owners keep a constant daily communication with the agile team. They provide the product backlog which includes the user stories (requirements), and prioritize the user stories. Product owners are the bridge between the clients (and their end-users, customer and stakeholders) and the agile team. The feedback conveyed by the product owner is used to develop the increments at each cycle. Product owners communicate with subject matter experts to produce good-quality user stories (requirements) and offer effective feedback. Recently, IIBA (International Institute of Business Analysis) have offered a new certificate, “Certificate in Product Ownership Analysis”, which integrates product ownership and business analysis[4].
The third and the final role is a team facilitator which can be also named as project manager, scrum master, project team lead, or team coach based on the method or framework utilized, and/or the organization’s guidelines. In agile teams, project managers’ role is different from the traditional role they play in waterfall (predictive) project management. Generally, in traditional approach, project managers are the ultimate authority in a team who decides which tasks are carried by which member. Their authority with respect to the control is high. However, in agile teams, project managers should be the facilitators and coaches, and they need to adopt a servant leadership approach. Team members organize the tasks that needs to be carried out during a cycle. Project managers help them in removing the impediments, overcoming the conflicts inside the team or with stakeholders, and coaching the members to allow them to improve their skills. For example, if team members find themselves in a conflict with a stakeholder and cannot solve the issue themselves, the project manager gets involved to resolve the conflict. Or developers in the team may ask the project manager to buy a license for a software which can help them produce a better quality IT solution or complete the activities earlier. Servant leaders empower their teams and facilitate their teams’ success by promoting self-awareness, listening, helping people grow, coaching, promoting safety, respect and trust, and promoting the energy and intelligence of others[5]. They practice their leading through service to the team focusing on understanding and addressing the needs and development of team members. Hence, interpersonal skills such as team building, motivating, communicating, influencing, decision making, political and cultural awareness, negotiating, facilitating, managing conflict, and coaching are more important than the technical skills[6].
12.2.4.2 Common Agile Practices
Agile teams utilize various artifacts and events to conduct their tasks and achieve project objectives. Although they are used in different agile methods with same or different names, the Scrum framework which is the most common agile method make use of all of these artifacts and events. They are:
1. Team charter
2. User stories and backlog
3. Planning of each iteration or cycle (Not a comprehensive upfront planning)
4. Daily standups
5. Demonstration or reviews
6. Retrospectives
7. Backlog refinement
A team charter is necessary for all types of projects. It consists of team values, working agreements, ground rules, and group norms. It is a social contract which indicates how the team members interact with each other. The primary objective of a team charter is to create an agile environment where project managers, team members, and product owner can work to the best of their ability. In agile projects, the team charter has to define what “ready” and “done” mean. In particular, when teams use a Kanban board (see Figure 12.5), tasks are organized on a timebox (i.e., cycle, iteration, Scrum sprint) to display and monitor their status such as to-do, doing (in progress), and done. Teams can assess the completeness of user stories and tasks according to the definition of “done”. Therefore, they can evaluate the completed tasks consistently.
User stories are requirements presented in a story form for the team to understand the needs of the client and stakeholders. They, together, establish the product backlog, the basis of the plan and each iteration. The structure of a user story is given below. These stories don’t only convey what a stakeholder expects from a product or service, but also includes the reason why that stakeholder needs. The project team can better understand why the stakeholder asks for a requirement. It can give a clue to the team if the requirement is a must or not, or if it is possible to incorporate into the product.
• As a “user/stakeholder”, I want to “perform a function / an action / an app feature” so that I can “acquire a benefit / an expected outcome”.
Let’s consider that our grocery chain’s m-commerce project is conducted as an agile project. Therefore, we have created some of the user stories. It is of high importance to keep in mind that product owner doesn’t need to list all the user stories since one of the advantages of agile projects is that a product evolves throughout the project based on the feedback of the end-users. Three user stories are provided below as examples that can be used in this m-commerce project:
• As a customer, I want to browse all the items under relevant categories (e.g., bakery, beverages, laundry and cleaning, electronics) so that I can find the items I am looking for and view all the related items on a single window or page, or more than one page with the page numbers displayed at the bottom of each page.
• As an administrator, I want to disable accounts which are not valid anymore so that we can manage the active accounts and archive the disabled accounts.
• As a shopper (or a store employee who is picking up the ordered items from the shelves), I want to view all the online orders assigned to me on my mobile device so that I can start shopping two hours before the delivery begins.
Table 12.1 exhibits four user stories selected from our m-commerce project. In order to keep the user story column shorter, we removed the “so that” part which provides the reasoning of why the stakeholder needs this requirement.
Table 12.1: A Backlog composed of Four User Stories
User Story Estimation Priority
As a customer, I want to log on the mobile app with the same username and password that I use to log on the website. 2 1
As a customer, I want to create an account in three minutes. 5 2
As an administrator, I want to see all the orders on my dashboards, and filter and sort them according to various criteria. 2 3
As a store shopper, I want to view all the online orders assigned to me in my mobile device. 3 4
Product owners prioritize the user stories. Before each cycle starts, sufficient numbers of user stories with the highest priority are pulled from the backlog so that the team can work on these user stories. Let’s assume that the user stories in Table 12.1 were selected for the first cycle / timebox since the team decided to pull the highest priority user stories for the first cycle. Priority is only one factor to consider while selecting the user stories. Teams also estimate the story size taking into account the estimated time to finish and other criteria such as the effort and resources required to complete these tasks. Analogous estimating technique that takes into account the information from other projects, experience of project managers and team members from previous projects, and lessons learned helps the teams to create these estimates. Estimations are very important to make a better planning if the team can complete them in one cycle or iteration. While scrum teams set a specific time to finish each iteration (e.g., 1 week, 2 weeks, 30 days), Kanban teams focus on the user stories by means WIP (Work in Progress) limits. Therefore, Kanban teams don’t necessarily set a timebox, but they commit to completing an increment of work by focusing on a limited number of manageable tasks.
Instead of carrying out an overall project planning and trying to predict all the aspects of a project (e.g., scope, requirements, schedule, cost) as is done in waterfall project before the implementation phase starts, agile projects work on a limited number of requirements. Thus, planning can be done at the beginning of each cycle, which allows the team to adjust itself according to the feedback from end-users, and changing requirements and conditions. As the project progresses, agile teams generally spend less time in the initial phases (e.g., requirements, planning, design as exhibited in Figure 12.4). Hence, they can focus more on implementation.
Another practice in agile projects is the daily standup meetings which occur mostly in the early morning before starting the daily tasks. They are called standup meetings since members generally stand up instead of sitting so that they can accelerate the meetings by avoiding the comfort of sitting. Although team members don’t meet in person at the collocated offices as it used to be due to the wider utilization of virtual teams recently and because of the Covid-19 pandemic measures that mandated to stay at home, agile teams continue holding these standup meetings, being the mostly utilized agile practice[7], in online platforms such as Microsoft Teams and Zoom. The project leader or a team member can take the lead in standup meetings. In general, team members discuss the three questions below:
1. What have I completed since the last standup meeting?
2. What am I planning to complete until the next standup meeting?
3. What are the impediments, risks and problems that I may encounter?
When teams create an increment (e.g., a website with three web pages, an EPR module for accounting with limited functions, a prototype of a machine that is intended to manufacture spare auto parts) at the end of a cycle, they can demonstrate how this increment works. The product owner assesses the demonstration and collects the feedback from end-users. Therefore, the team can continue building upon the increment according to the feedback. Although negative feedback from the product owner may lead to a frustration for the team, frequent feedback in earlier stages prevents the team from heading in a wrong direction. The team leader’s servant leadership role as a coach can help the team enable frequent delivery.
At the end of each cycle, agile teams discuss what worked and what could have been better in that cycle. These retrospectives help the teams learn from their previous work. The lesson learned process becomes more frequent in line with the review and feedback from the product owner and end-users. As one of the agile principles indicate, “at regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.[8]” Teams may also decide to retrospect at different times, not only limited to the end of the cycles. For example, the project manager may call for a retrospective meeting when the team is stuck and cannot complete the work. Therefore, this meeting can help the team determine the underlying reason of the bottleneck and find a solution with a facilitated brainstorming session.
The last common agile practice to mention is the backlog refinement process which occurs generally in the middle of iterations. In this refinement meetings, product owners present story ideas to the team and the team learns about the potential challenges or problems in the stories[9].
1. Scrum.org. (2020). A Six-Month Cultural Transformation: The Penta Story. Retrieved from https://www.scrum.org/resources/six-month-cultural-transformation-penta-story
2. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute.
3. Gustavsson, T. (2016). Benefits of agile project management in a non-software development context: A literature review. In Fifth International Scientific Conference on Project Management in the Baltic Countries, April 14-15, 2016, Riga, University of Latvia (pp. 114-124). Latvijas Universitate.
4. Information is available on https://www.iia.borg/business-analysis-certifications/certificate-in-product-ownership-analysis-iiba-cpoa/#get-cpoa-certified.
5. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute.
6. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.
7. Digital.ai. (2021). 15th State of Agile Report. https://digital.ai/resource-center/analyst-reports/state-of-agile-report
8. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute.
9. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/12%3A_Agile_(Adaptive)_Project_Management/12.03%3A_Adopting_and_Creating_an_Agile_Environment.txt |
Although there are many agile approaches, only several of them are utilized commonly by organizations. The Agile Practice Guide by PMI (Project Management Institute) lists the single-team agile methods as below:
1. Scrum
2. Extreme Programming (XP)
3. Kanban
4. Crystal methods
5. Scrumban
6. Feature-Driven Development (FDD)
7. Dynamic Systems Development Method (DSDM)
8. Agile Unified Process (AgileUP)
Besides single-team agile approaches, higher-than-single-team level (e.g., enterprise-level) scaling frameworks are provided below:
1. Scrum of Scrums
2. Scaled Agile Framework (SAFe®)
3. Large Scale Scrum (LeSS)
4. Enterprise Scrum
5. Disciplined Agile (DA)
12.3.1 Scrum
Scrum is the most utilized single-team agile method. It consists of roles, events, artifacts, and rules. Scrum events are sprints, sprint planning, daily scrum, sprint review, and spring retrospective. Scrum artifacts are product backlog, sprint backlog, and increments. It uses an iterative approach to deliver a working product (i.e., an increment) at the end of each timebox. These timeboxes are called sprints which last generally for one month, or four weeks, or shorter with consistent durations. When a two-week sprint duration is determined, all the sprints are set at two weeks. At the end each sprint, a potentially releasable increment of product is produced. A scrum team is composed of product owner, development team, and scrum master. The scrum master is responsible for ensuring the Scrum process is upheld and works to ensure the Scrum team adheres to the practices and rules as well as coaches the team on removing impediments[1].
12.3.2 Kanban
The Japanese word “kanban” means “visual board” or a “sign”. It was first developed and applied by Toyota as a scheduling system for just-in-time manufacturing[2]. The workflow is visualized on a Kanban (Figure 12.5). The Kanban board is also used by Scrum teams.
Figure 12.5: A task board in Kanban
(Retrieved from https://www.agilealliance.org/scrumban/)
The work is split into pieces, and each item is written on a card. Then, they are put on the wall, or it can be visualized in a software program or a website such as Jira. Explicit limits are assigned in Kanban projects so that each workflow state can have limited number of in-progress items (Work in Progress – WIP). The team tries to finish these tasks in the shortest possible time. This lead time is measured so that the team can optimize the process to make the lead time as small and predictable as possible.
12.3.3 Scrumban
Scrumban is an agile approach originally designed as a way to transition from Scrum to Kanban[3]. Scrumban teams use Scrum as a framework and Kanban for process improvement. It uses the prescriptive nature of Scrum to be agile, and uses the process improvement of Kanban to allow the team to continually improve its process. In Scrumban, the work is organized into small “sprints” and leverages the use of Kanban boards to visualize and monitor the work. There are no predefined roles in Scrumban as is the case in Kanban. However, the Scrumban teams generally retain the Scrum roles.
12.3.4 eXtreme Programming (XP)
As the name implies, XP is utilized by software teams. It is an agile software development framework that aims to produce higher quality software, and higher quality of life for the development team. XP is the most specific of the agile frameworks regarding appropriate engineering practices for software development[4]. This method does not only focus on project management like other methods and frameworks do, but also focuses on how teams actually build code. Like Scrum, it has practices and values that help teams get into an effective mindset. One of the primary practices of XP is pair programming through which coding process is conducted by two developers working together at a single computer[5]. While one member works on coding, the second member checks the quality of the coding made by the first member. Another unique XP practice is the coding the unit test first. Before writing the code, a unit test is created so that new codes are automatically tested[6].
12.3.5 SAFe® (Scaled Agile Framework)
The SAFe is the most common scaling framework according to the 15th State of Agile Report published in 2021[7]. Thirty-seven percent of respondents indicated that their organization applies SAFe while 9% uses scrum of scrums and 6% uses enterprise scrum. The SAFe focuses on providing a knowledge base of patterns for scaling development work across all levels of the enterprise (Figure 12.6). It also focuses on detailing practices, roles, and activities at the portfolio, program, and team levels[8]. SAFe organizes the enterprise around value streams that focus on providing continuous value to the customer.
Figure 12.6: SAFe 5 for Lean Enterprises
(Retrieved from https://www.scaledagileframework.com/)
1. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute.
2. Retrieved from https://kanbanize.com/kanban-resources/getting-started/what-is-kanban.
3. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute.
4. Retrieved from https://www.agilealliance.org/glossary/xp/.
5. Retrieved from http://www.extremeprogramming.org/rules/pair.html.
6. Retrieved from http://www.extremeprogramming.org/rules/testfirst.html.
7. Digital.ai. (2021). 15th State of Agile Report. https://digital.ai/resource-center/analyst-reports/state-of-agile-report
8. Project Management Institute. (2017). Agile Practice Guide. Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/12%3A_Agile_(Adaptive)_Project_Management/12.04%3A_Common_Agile_Framework_and_Methods.txt |
Organizations, whether they are multinational corporations, non-profits, government agencies, or international organizations, often make use of agile project methods and frameworks. Although agile started with the software development projects (see Section 12.1), its utilization has become common in other IT projects, and eventually non-IT projects such as new product development projects have practiced agile methods increasingly. A survey conducted by PMI (Project Management Institute) found that 23% of the organizations worldwide utilized agile techniques whereas 47% used predictive approach. However, another 23% also used hybrid approaches (e.g., using waterfall’s sequential and linear project life cycle stages while establishing a more frequent communication and feedback system with the client and stakeholders).
A recent study is the 15th State of Agile Report conducted in 2021 by digital.ai[1]. Their data is up-to-date and reflect the impact of COVID-19 pandemic. Their sample is dominantly composed of people who work in agile teams or in organizations which implement agile approach. This report highlights salient insights from the practice as detailed below:
• The most popular agile approach is Scrum. 66% of the respondents identified Scrum as the methodology they follow most closely. Besides, 9% indicated that they use ScrumBan and 6% blends the Scrum with XP. Therefore, Scrum’s share is 81% in total.
• The most popular scaling approach is SAFe with 37%. SAFe was followed by Scrum@Scale / Scrum of Scrums (9%) and Enterprise Scrum (6%).
• The top five agile techniques and practices used by the organizations are daily standups (87%), retrospectives (83%), sprint/iteration planning (83%), sprint/iteration reviews (81%), and short iterations (63%).
• The top five agile planning and delivery tools are Kanban boards (77%), taskboards (67%) spreadsheets (66%), agile project management tools (64%), and bug trackers (62%).
• The top five reasons to adopt agile are “enhance ability to manage changing priorities”, “accelerate software delivery”, “increase team productivity”, “improve business and IT alignment”, and “enhance software quality”.
• The top five challenges in organizations regarding agile practices are “inconsistent processes and practices across teams”, “organizational culture at odds with agile values”, “general organization resistance to change”, “lack of skills/experience with agile methods”, and “not enough leadership participation”.
• Eighty-one percent of the respondents recommended Jira as a software tool in agile planning and management. Jira was followed by Digital.ai agility (formerly VersionOne) and Azure DevOps. Thirty-five percent recommended Microsoft Project.
1. Digital.ai. (2021). 15th State of Agile Report. https://digital.ai/resource-center/analyst-reports/state-of-agile-report
12.06: Key Takeaways
Key Takeaways
• Agile project management approach has been utilized by project teams since 1990s when it started to emerge among software developers.
• In 2001, agile practitioners published a manifesto named “Manifesto for agile software development” that put forward a set of guiding principles for agile project management.
• Agile manifesto highlights the importance of “individuals and interactions”, “working software”, “customer collaboration”, and “responding to change” to distinguish itself with the traditional waterfall project management approach.
• While waterfall approach is linear and sequential, agile approach compresses the sequential phases in small timeboxes (iterations) to create increments at the end of each timebox.
• There main agile roles are cross-functional teams and their members, product owners, and team facilitators.
• Common agile practices are team charter, user stories and backlog, planning of each iteration or cycle, daily standups. demonstration or reviews, retrospectives, and backlog refinement.
• The structure of a user story is generally in a format as follows: As a “user/stakeholder”, I want to “perform a function / an action / an app feature” so that I can “acquire a benefit / an expected outcome”.
• The Agile Practice Guide by PMI (Project Management Institute) lists the single-team agile methods as Scrum, Extreme Programming (XP), Kanban, Crystal methods, Scrumban, Feature-Driven Development (FDD), Dynamic Systems Development Method (DSDM), and Agile Unified Process (AgileUP).
• The SAFe® (Scaled Agile Framework) is the most common scaling framework according to the 15th State of Agile Report published in 2021. It focuses on providing a knowledge base of patterns for scaling development work across all levels of the enterprise.
12.07: Questions and Exercises
There are 10 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=1238
12.08: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/12%3A_Agile_(Adaptive)_Project_Management/12.05%3A_Recent_Trends_in_Agile_Project_Management.txt |
Learning Objective
1. Explain the importance and benefits of the project closure.
2. Elaborate on the activities conducted by the project team while closing a project.
3. Explain the post-implementation review.
4. Describe how the benefits realization is monitored and validated following the closing phase of a project.
Overview
As discussed in Chapter 1 “Introduction to Project Management”, projects are temporary. They have a definite beginning and ending date. Projects finish when their unique outcomes (i.e., results, deliverables) are produced and become available for the client and its end users as well as the customers to use. Once the project deliverables are approved by the internal or external client (or an inspection and acceptance committee), the project manager can start the closing phase. Although closing a project might seem easier compared with the implementation phase, this process still requires delicate attention as detailed in the following sections.
13.02: Closing the Project
All projects end. Some of them are completed successfully when their triple constraints are within the acceptable ranges (e.g., budget is overrun by 7% when the range is 10%), project objectives are accomplished, and the stakeholders, in particular the client, are happy with the outcome. However, as discussed in Chapter 1 (see 1.4 Project Success), it is not uncommon for many projects to underperform due to various factors such as scope creep (i.e., uncontrolled expansion of product requirements and project activities), schedule delays, budget overruns, and miscommunication with stakeholders, or to fail that leads to early termination. In both cases, whether they are successful or not, projects need to be closed. Therefore, project managers must lead the process to formally close the project. This process helps project managers, teams, project sponsors, and internal and external stakeholders evaluate the project performance, and assess what went right and wrong. Figure 13.1, which is originally available in Chapter 1, exhibits the project life cycle if the project follows all the phases, and can make it to the end of the project by producing the deliverables.
Project completion is often the most neglected phase of the project life cycle. Once the project is over, it’s easy to pack things up, throw some files in a drawer, and start moving right into the initiation phase of the next project. Hold on. We are not done yet. When closing the project, the project manager reviews the project management plan to ensure that all project work is completed and that the project has met its objectives[1]. It is of high importance here to highlight that project closure cannot start unless the deliverables (e.g., a new mobile application for online shopping, a new data center for an insurance company, a newly developed diabetics medication, an apartment complex that is ready to accept new tenants, an improved business process, etc.) are ready to use. Therefore, the implementation phase in the project life cycle is completed with the acceptance of these deliverables (Figure 13.1) and signals that it is time to close the project.
13.1.1 Case Study: Closing out the Grocery LLC’s M-Commerce Project
Grocery LLC’s M-Commerce Project started on May 2, 2022, and the deployment was completed on November 3, 2022. The mobile app was subject to alpha testing first. Then, beta testing was carried out during the “Pilot” phase, where customers installed the beta version on their smartphones and did their online shopping. During the implementation of the beta version, all the feedback from customers and their mobile devices was evaluated and the bugs and problems were corrected. The inspection and acceptance committee was composed of Grocery LLC’s three representatives from the IT department, two representatives from the Operations department, and two store managers. The committee checked the final version and didn’t find a problem that may hinder the launch of the mobile app. The sponsor approved the sign-off after they received the inspection and acceptance report. Finally, the mobile app was introduced to Android and Apple online stores and is ready to use by online customers. Now, customers can log in with their usernames and passwords, browse items, add them to their carts, proceed to checkout, and complete their payments. We can start the closing phase since the deployment has been completed. As seen in Figure 13.2, “Closeout & Project Implementation Review” can start as the deployment is completed.
The project’s closeout activities are given in Table 13.1.
Table 13.1: Closeout Activities of Grocery LLC’s M-Commerce Project
WBS Number Activity & Pot Implementation
10 Closeout & Post Implementation Review
10.1 Document lessons learned
10.2 Archive all documents
10.3 Complete all pending payments
10.4 Final meeting with stakeholders to close the project
10.5 Disband the team
We will refer to this case study in the following sections when needed.
13.1.2 Key Activities to Consider while Closing the Project
The key activities when we close out the project can be listed below:
1. Ensuring that all tasks are completed, and the deliverables have been checked and approved by the client (or its inspection and acceptance committee).
2. Collecting project reports and documents and making sure that all project documents and deliverables are up-to-date.
3. Making sure that all issues (e.g., disputes with vendors, conflict with stakeholders, legal issues, issues in compliance with standards) are resolved.
4. Ensuring that all costs are charged to the project.
5. Releasing the final deliverables to the project sponsor, the internal and external client, and appropriate stakeholders.
6. Disseminating information to all the stakeholders to formalize acceptance of the project, and its deliverables (products or services).
7. Notifying all the stakeholders of the project completion.
8. Terminating supplier and vendor contracts.
9. Consulting with the legal department to ensure that there are not and won’t be any legal issues that may result from the contracts and legally binding documents.
10. Releasing project resources (e.g., team members, facilities, equipment, materials).
11. Conducting a post-implementation review including a discussion about the lessons learned.
12. Finishing the paperwork, archiving, and storing all the project information including the lessons learned document in an organizational repository.
13. Ensuring that all the project information can be accessed easily (e.g., cloud storage, physical files) by the current project team and future project managers and teams.
1. Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/13%3A_Closing_the_Project/13.01%3A_Learning_Objectives_and_Overview.txt |
The following sub-sections elaborate on the activities to close a project.
13.2.1 Ending the Implementation Phase
After we ensure that all the project activities are completed and the deliveries have been accepted by the client (the product owner and end users), we can start the activities to close the project. Once the project activities are completed in the implementation phase, we need to request the project sponsor to initiate a formal acceptance process through which the internal or external client (or the inspection/acceptance committee) is involved. They’re interested in knowing if the product or service of the project meets the objectives the project set out to accomplish. If our documentation is up-to-date, we will have the project results at hand to share with them.
In this phase, it is also of high importance to make sure that the implementation phase covered the post-project work composed of operation and maintenance. The project manager should ask the questions below to make sure that the project deliverables can be maintained and supported effectively after the deliverables are handed over to the client[1].
Let’s consider the questions below for our m-commerce project:
• Does the vendor offer 24/7/365 support for the mobile app? Are the rates for such support acceptable to the client?
• Has a formal service level agreement been developed and put into effect between the organization and vendor to maintain continued support and service?
• What provisions have been made for future upgrades and enhancements of the mobile app?
• Does the necessary cloud capacity and storage exist for the future expansion of the system?
• Has Grocery LLC’s IT support staff been trained in supporting the technology? Can they resolve technical issues, or are they able to contact the vendor or third-party suppliers for further support?
• Has the help desk staff been trained to identify and log calls from users of the solution?
• Is the help desk number clearly displayed on the mobile app, so our in-store shoppers and customers know whom to contact?
• Has the project manager provided the help desk with a script of possible problems that users of the new solution could encounter?
13.2.2 Contract Closure
Contracts come to a close just as projects come to a close. Contracts are different from project charters and project management plans (Figure 13.3). They are legally binding documents with the client and the contractors or subcontractors. If the client is internal which means that it is a functional unit of our organization, we won’t need a contract. In this case, the project charter and the plans will act as formal documents that keep the project sponsor and the project manager accountable.
Contractors and subcontractors may be still present if some project activities or the overall project is outsourced to them. Therefore, not all projects require a contract closure process. Contract closure is concerned with completing and settling the terms of the contracts. In M-Commerce Project, as mentioned in Chapter 11, we outsourced the development component to a software company. We assumed that we need to pay \$2,000 for each phase. Total cost baseline for all ten activities was \$20,000 (\$2,000 x 10). Therefore, our planned value was \$20,000. When we finished five activities, the actual cost was \$11,200. When closing the contracts, we should pay attention to the actual costs and the terms and conditions of the contract. The project manager should ask questions such as “Did the contractor finish all the activities and meet the requirements as indicated in the contract?”, “Are all the cost calculations correct?”, “Did we make all the payments?”, and “Do we need to wait for a while to make some payments as stipulated in the contract?”
The contract closure process supports the project completion process because it determines if the work described in the contracts was completed accurately and satisfactorily. Obviously, this process applies only to those phases, deliverables, or portions of the project that were performed under the contract. Contract closure updates the project records, detailing the final results of the work on the project. Contracts may have specific terms or conditions for completion. We should be aware of these terms or conditions so that project completion isn’t held up because we missed an important detail. If we are administering the contract ourselves, we should be sure to ask our procurement department if there are any special conditions that we should be aware of so that the project team doesn’t inadvertently delay contract project closure.
One of the purposes of the contract closure process is to provide formal notice to the seller, usually in written form, that the deliverables are acceptable and satisfactory or have been rejected. If the product or service does not meet the expectations, the vendor will need to correct the problems before we issue a formal acceptance notice. Before the contract is closed, any minor items that need to be repaired or completed are placed on a punch list, which is a list of all the items found by the client or team, or manager that still remain to be done. Hopefully, quality audits have been performed during the project, and the vendor was allowed to make corrections earlier in the process than the closing phase. It’s not a good idea to wait until the very end of the project and then spring all the problems and issues on the vendor at once. It’s much more efficient to discuss problems with the vendor as the project progresses because it provides the opportunity for correction when the problems occur.
The project team will then work on all of the items on the punch list, building a small schedule to complete the remaining work. If the number of items on the punch list is too large or the amount of work is significant, the project team continues to work on the project. Once the punch list becomes smaller, the project manager begins closing down the project, maintaining only enough staff and equipment to support the team that is working on the punch list.
If the product or service does meet the project’s expectations and is acceptable, formal written notice to the seller is required, indicating that the contract is complete. This is the formal acceptance and closure of the contract. It’s the project manager’s responsibility to document the formal acceptance of the contract. Many times, the provisions for formalizing acceptance and closing the contract are spelled out in the contract itself.
If we have a procurement department handling the contract administration, they will expect us to inform them when the contract is complete and will in turn follow the formal procedures to let the seller know the contract is complete. However, we will still note the contract completion in our copy of the project records.
13.2.3 Disbanding the Project Team and Reassigning All Project Resources
Project managers need to consider in an earlier stage what project team members would do after the project ends. If they are the employees of our organization, project managers should provide sufficient and early notification to the team members to relieve them of future concerns. They may go back to their functional departments to continue with their operational tasks or get assigned to a new project. If the organization has a Project Management Office (PMO), and these members work at this PMO, they will continue working on other projects. Project managers should keep their managers, or other project managers, informed as the project gets closer to completion, so that they have time to adequately plan for the return to their departments or transfer to other projects. Project managers should let them know a few months ahead of time what the schedule looks like and how soon they can plan on using the team members on new projects. This gives the other managers the ability to start planning activities and scheduling activity dates.
Besides the team members, we also need to consider other resources such as physical resources, facilities, materials, and equipment used by the team. If there are unused materials that cannot be returned to the supplier, and also consumables, they can be transferred to other projects or relevant departments so that they can use them and save some money. If the project team used office space, a manufacturing facility, or a lab, the facilities department of the organization must be notified. Timely notifications would help the organization plan in advance for the utilization of these resources by other projects and units, or if they need to be sold or released.
13.2.4 Final Payments
The final payments are usually more than a simple percentage of the work that remains to be completed. Completing the project might involve fixing the most difficult problems that are disproportionately expensive to solve, so the final payment should be large enough to motivate the vendor to give the project a high priority so that the project can be completed on time.
If the contractors, subcontractors, suppliers, and vendors have met all the contractual obligations, including fixing problems and making repairs as noted on a punch list, which lists the work that doesn’t conform to contract specifications, the project team signs off on the contract and submits it to the accounting department for final payment. They are notified that the last payment is final and completes the contractual agreement with the project. Besides, the performance of suppliers and vendors is reviewed to determine if they should still be included in the list of qualified suppliers or vendors.
In some cases, there may be a provisional acceptance instead of a final acceptance. Thus, the final acceptance may take place later (e.g., one year after the provisional acceptance). A small amount of payment may be held for the final acceptance. Or the contract may contain fines in case of problems that may occur until the final acceptance.
13.2.5 Administrative Closure & Archiving of Project Documents
The project manager must ensure that all the administrative tasks required to close the project have been completed. Thus, the project manager can use a checklist as shown in Table 13.2.
Table 13.2: A Checklist for the Administrative Closure [2]
Item Completed
Project Team
• Performance reports shared with functional managers
• One-on-one debriefs completed
• Coaching plans updated
• Resources released to functional units and/or other projects
• Project completion party completed
Project documents
• All inspection and acceptance reports received
• Lessons learned report filed, uploaded to the online repository for the access of all project teams
• Contract closure completed
• Final project report completed
• All project documents archived
Project manager
• Wrap-up meeting with the sponsor, client, key stakeholders, etc. completed
• Personal development plan updated
The following are some of the project documents that are archived:
• Business case, needs assessment, and project benefits management plan
• Project charter
• Project management plan and its sub-plans (e.g., plans for scope, requirements, schedule, cost, quality, resources, communication, risks, procurement, stakeholders, change, and configuration)
• Scope, schedule, and cost baselines
• Basis of estimates
• Team charter
• Risk register
• Issue log
• Quality reports
• Test and evaluation documents
• Inspection and acceptance reports
• All financial documents (e.g., pay stubs, invoices)
• Lessons learned register
• Final project report
The documents associated with the project must be stored in a safe location where they can be retrieved for future reference. Signed contracts or other documents that might be used in tax reviews or lawsuits must be stored. Organizations have legal document storage and retrieval policies that apply to project documents and must be followed. Generally, organizations and Project Management Offices (PMOs) store all the project documents in an electronic folder and/or a software program.
Care should be taken to store documents in a form that can be recovered easily. If the documents are stored electronically, standard naming conventions should be used so documents can be sorted and grouped by name. If documents are stored in paper form, the expiration date of the documents should be determined so they can be destroyed at some point in the future.
13.2.6 Sample Sponsor Project Closure Letter
A sample letter a project sponsor can write has been provided below[3]:
Dear <Salutation>,
Thank you for allowing us the honor of working on <Project X>. We found working with both yourself and your organization to be a fruitful experience and are pleased to present the following results:
• The successful outcome of <Project X>
• <Deliverable 1>
• <Deliverable 2>
• <Deliverable 3>
• The expected delivery date of<MM/DD/YYYY> was met
• The project came in at <percent over/under budget>
• Surveyed stakeholder approval was <#> out of <#>
At this time, we consider <Project X> to be completed and are submitting our final invoice for \$<XX,XXX> to your accounts receivable department under your purchase order number <P.O. Number>. Your help in securing payment for our services will be appreciated.
Additionally, during the project, we identified the following potential opportunities for your review:
• <Improvement A>
• <Improvement B>
• <Improvement C>
Should you be interested in pursuing any of these options and/or additional opportunities, please consider utilizing our organization so we can leverage our skills and experience with you. Again, thank you for selecting us to work on your project. If you have any questions or comments, please do not hesitate to contact me.
Sincerely,
Project Sponsor
1. ProjectManagement.com. (n.d). Checklist for Support After Project Closure. Retrieved from https://www.projectmanagement.com/checklists/216024/checklist-for-support-after-project-closure
2. Jordan, A. (n.d.). Project Closure Report. Retrieved from https://www.projectmanagement.com/deliverables/286683/project-closure-report
3. ProjectManagement.com. (n.d). Sponsor Project Closure Letter. Retrieved from https://www.projectmanagement.com/deliverables/173276/sponsor-project-closure-letter | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/13%3A_Closing_the_Project/13.03%3A_Activities_to_Close_a_Project.txt |
13.3.1 Lessons Learned
Regular reviews are made during the project in the presence of team members and other stakeholders if needed. These reviews help the project manager and the team review the current situation, determine if there is a need to revise the project documents and plans, and take timely actions to prevent any problems that may occur later in the project. After the implementation of project activities is finalized and the deliverables are inspected and accepted by the client, the project team reviews all the documents and meets to discuss what went well and wrong during the project, and what could have been done to avoid the problems that occurred. It is of great importance to remember here that the lesson learned process doesn’t start in the close-out phase. As can be recalled from Figure 13.4 (also see Chapter 1), the closing process starts before the closing phase of the project life cycle starts. The project team has already produced many documents, reports, logs, and registers, and they have been edited and numerous new records have been added in parallel with project activities in the implementation phase. Therefore, some aspects of the closing process such as keeping the lessons learned register can start during the implementation when the project team learns from their experience and add them into the lessons learned register after a thorough discussion and assessment.
If the project is considered a success, the discussion can center on why the project was successful and the challenges that had to be overcome in order to achieve success. Lessons learned meetings are often quite enjoyable when the project was successful. If the project was unsuccessful, the conversation centers on the causes of failure. Table 13.3 provides two lessons from the M-Commerce project.
Table 13.3: Lessons Learned Register for M-Commerce Project
Lessons Learned Recommendation for Future Projects
Although our Risk Register identified a risk stating that “Cost estimates may be exceeded considering the factors of inflation and foreign exchange currency rates.” the risk trigger was indicated as “If the CPI (cost performance index) drops below 0.90, we will need to seek additional funding from management.”, the Systems Analyst 1 did not notify the project manager and the team of the problem when CPI decreased to 85%. An unexpected spike in the inflation rate in the USA increased the activity costs. In future projects, it is of high importance to determine the risk owner as the project manager, not another member. Besides, a second person can be assigned to assist the project manager.
Our mobile app had serious issues regarding the bugs, and the app stores notified us of the deficiencies in the field of privacy. The developers and testers didn’t respond on time. In future projects, in the recruitment process, the developers and testers should be asked to include their experience in previous mobile app projects in detail in their job applications. A minimum of three years of experience should be required. Besides, they should explain how they solved problems.
Many project leaders request external facilitation in this situation so they can fully participate in the discussions. In addition, an external facilitator can help ensure the conversations remain objective and avoid tones of blame. A common approach is to identify, all in the context of the project’s objectives, what should be continued, what should be started, and what should be stopped. This is often referred to as the start/stop/continue approach.
Quality management is a process of continual improvement that includes learning from past projects and making changes to improve the next project. This process is documented as evidence that quality management practices are in use. Some organizations have formal procedures for changing work processes and integrating the lessons learned from the project so future projects can benefit. Some organizations are less formal in the approach and expect individuals to learn from the experience, take the experience to their next project, and share what they learned with others in an informal way.
13.3.2 Trust and Alignment Effectiveness
The project leadership reviews the effect of trust—or lack of trust—on the project and the effectiveness of alignment meetings in building trust. The team determines which problems might have been foreseen and mitigated and which ones could not have been reasonably predicted. Project stakeholder register, change log, issue log, and risk register can help the team in this assessment. Other questions that can be asked in this assessment are:
• What were the cues that were missed by the team that indicated a problem was emerging?
• What could the team have done to better predict and prevent trust issues?
13.3.3 Schedule and Budget Management
The original schedule of activities and the network diagram is compared to the actual schedule of events. Earned Value Management (EVM) tools can help the team a lot while making this comparison (see Chapter 11). Events that caused changes to the schedule are reviewed to see how the use of contingency reserves and slacks (floats) mitigated the disruption caused by those events. The original estimates of contingency time are reviewed to determine if they were adequate and if the estimates of duration and float were accurate. These activities are necessary for the project team to develop expertise in estimating schedule elements in future projects—they are not used to place blame. As discussed in Chapter 7, this can be significantly helpful in analogous estimating of activity durations in future projects. Besides, a review of budget estimates for the cost of work scheduled is compared to the actual costs. If the estimates are frequently different from the actual costs, the choice of estimating method is reviewed. In a similar vein, the results of the budget review would be an important input to future projects through analogous estimating (see Chapter 9). In this analysis, EVM is again an effective tool to compare the earned value to the actual cost.
13.3.4 Risk Response Strategies
After the project is finished, the estimates of risk can be reviewed and compared to the events that actually took place. The risk register, qualitative and quantitative risk assessment tools, risk response strategies, issue log, and stakeholder register will be of significant help to the project team to conduct this review. The following questions can help the team assess the risk management process during the project:
1. Did the risks identified in the planning phase occur?
2. If an identified risk occurred, was the response strategy sufficient to deal with the risk? Was the contingency reserve sufficient?
3. Did events occur that were unforeseen (e.g., unknown unknowns)?
4. What cues and triggers existed that may have allowed the team to predict these events?
5. Was the management reserve sufficient to cover unforeseen risks?
Let’s assume that, in our M-Commerce Project, the second risk with the ID number 2.2 in Table 10.2 “An Example of a Risk Register” occurred (Table 13.4). Systems Analyst 2 (SA2) monitored the risk effectively, and checked with Developer 1 if they can work on the five activities under “2. Analysis/App Requirements”. Developer 1 notified SA2 of their absence. Therefore, SA2 asked Developer 2 to attend the activities. While the hourly rate of Developer 1 was \$35, Developer 2 asked for \$45. This caused an additional cost of \$1,840. However, as can be recalled from Chapter 9 and the second question above, contingency reserve can be allocated in the budget within the cost baseline if the response strategy requires additional funds to deal with the risks. In this case, let’s consider that the project team included a \$2,000 contingency reserve to cover the absence of Developer 1 (Table 13.5). Thus, this contingency reserve was sufficient, and it didn’t hurt the project. Eventually, this situation is recorded as a lesson learned.
Table 13.4: Risk 2.2 of M-Commerce Project
ID Related WBS Activity Description Risk Owner Risk Trigger Contingency Reserve
2.2
2.1
2.2
2.3
2.4
2.5
The demand for developers increased recently since the demand for online games and mobile apps has been on a sharp rise after the emergence of the COVID-19 pandemic. We may experience a shortage of developers in the market. Systems Analyst 2 Ten days before the “Analysis/App Requirements” component starts, we must assure that Developer 1 starts working on project activities. \$2,000
Table 13.5: Costs of “Analysis/App Requirements” Stage of M-Commerce Project
WBS Activity Name Duration Cost
2 Analysis/App Requirements 29 days \$31,960.00
2.1 Review needs analysis based on the business case 3 days \$2,760.00
2.2 Elicit requirements from stakeholders 10 days \$10,000.00
2.3 Draft preliminary stakeholder specifications 5 days \$5,000.00
2.4 Review specifications with team and stakeholders 5 days \$8,600.00
2.5 Incorporate feedback on the specifications 3 days \$2,160.00
2.6 Develop a preliminary budget and delivery timeline 2 days \$1,440.00
2.7 Obtain approvals to proceed (concept, timeline, budget, resources) 1 days \$0.00
2.8 Analysis complete (Milestone) 0 days \$0.00
Contingency Reserve \$2,000
13.3.5 Client and Stakeholder Satisfaction
Relationships with the client are reviewed by the team and the relevant internal stakeholders such as the project sponsor, project steering committee, and functional departments. In the meetings held with the client, they are given the opportunity to express satisfaction and identify areas in which project communication and other factors could be improved. Often a senior manager from the organization interviews the client to develop feedback on the project team’s performance. An internal or external audit also helps the team and the organization evaluate the relationships with the client and stakeholders, and assess the overall satisfaction of the client.
A general report that provides an overview of the project is created to provide stakeholders with a summary of the project. The report includes the original goals and objectives and statements that show how the project met those goals and objectives. Performance on the schedule and budget are summarized and an assessment of client satisfaction is provided.
This report is also submitted to the senior management as an executive summary containing all the information provided to the stakeholders. The report identifies practices and processes that could be improved or lessons that were learned that could be useful for future projects. | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/13%3A_Closing_the_Project/13.04%3A_Post_Implementation_Reviews_and_Archiving_Documents.txt |
All projects are initiated as a way to create value for the organization. This value may be expressed in many different ways. For instance, it can be a tangible benefit such as incremental sales associated with launching a new product or service, or an intangible benefit such as increased employee satisfaction associated with introducing time-saving technology. Further, the project may result in streamlining business processes, which will ultimately result in less staff required to complete the work. There are many more possibilities.
Many organizations create a business benefits realization plan, whereas other organizations include the business benefits realization approach as part of their project management plan. Either way, the following should be considered:
1. What are the benefits? In stating the benefits, the SMART principle should be used (see Chapter 2).
2. How will the business benefits be tracked? This should be a consideration during solution design as it may be necessary to create the mechanisms for the collection of the required information.
3. Who is accountable for tracking and communicating the business benefits?
4. Who is accountable for taking the appropriate actions to realize the business benefits? For instance, in projects involving productivity improvements, if the business benefits involve the release of staff, who will be accountable for making this happen?
5. When are the business benefits expected to be fully realized?
13.06: Key Takeaways
Key Takeaways
• Projects finish when their unique outcomes (i.e., results, deliverables) are produced, and become available for the client and/or customers to use. Some projects are completed successfully, but it is not uncommon to see that many projects fail. In both cases, projects need to be closed, and the activities and procedures must be carried out in the closing phase.
• When closing the project, the project manager reviews the project management plan to ensure that all project work is completed and that the project has met its objectives.
• Once the project outcomes are documented, the project manager needs to request formal acceptance from the client (or the inspection/acceptance committee).
• The contract closure process supports the project completion process because it determines if the work described in the contracts was completed accurately and satisfactorily. One of the purposes of the contract closure process is to provide formal notice to the seller, usually in written form, that the deliverables are acceptable and satisfactory or have been rejected.
• Disbanding the project team and reassigning team members should be finalized in the closeout phase. Besides, project managers deal with releasing other resources such as physical resources, facilities, materials, and equipment used by the team.
• The documents associated with the project must be stored in a safe location where they can be retrieved for future reference.
• After the implementation of project activities is finalized and the deliverables are inspected and accepted by the client, the project team reviews all the documents and meets to discuss what went well and wrong during the project, and what could have been done to avoid the problems that occurred. This leads to the finalization of a lesson learned register.
• Post-implementation reviews include the lesson learned process, reviewing trust and alignment effectiveness, evaluating the schedule and budget management by utilizing various tools such as EVM, reviewing the risks, strategies, and responses, discussing client and stakeholder satisfaction, and producing a final report for the client, senior management, and other stakeholders.
• The performance of the project outcomes is monitored according to the benefits realization plan.
13.07: Questions and Exercises
There are 3 questions for this chapter. As you submit each answer, you will get immediate feedback and be taken to the next question.
An interactive or media element has been excluded from this version of the text. You can view it online here:
https://pressbooks.ulib.csuohio.edu/project-management-navigating-the-complexity/?p=1257
13.08: Attribution
This chapter is a derivative of the following texts: | textbooks/biz/Management/Project_Management%3A_Navigating_the_Complexity_with_a_Systematic_Approach_(Oguz)/13%3A_Closing_the_Project/13.05%3A_Validating_the_Realization_of_Business_Benefits.txt |
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