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IS YOUR GLASS HALF EMPTY?Lessons for Project Managers and Their Managers from Thirty Years in the Project Business
By JAMES ROY
AuthorHouseCopyright © 2011 James Roy
All right reserved.
Chapter OneOVERVIEW OF PROJECT DEFINITIONS AND VARYING COMPLEXITIES
Before I dive into my observations, lessons, and advice, the fun stuff, I believe that it is necessary to define several types of projects and project structures. Because these definitions vary from industry to industry, they may appear different from the ones you are used to. Nonetheless, the definitions match my experience. I will also comment, for the benefit of the project managers, on the variations in complexity and difficulty in projects, depending on many factors.
Projects vary basically in the way their contracts are written; they also vary dramatically in complexity based on scope, the number of disciplines needed to supply the scope, schedule requirements, relationships between the participants, capabilities of the participants, as well as the geographical and political conditions to be encountered. Because of their difficulty and unique challenges, I will devote chapters of this book to turnkey and fast track projects (chapter 8) and so-called international projects (chapter 7).
There are three common methods for establishing the final price of a contract or subcontract: cost type, lump sum (or fixed price) type, and unit priced type. Although most contracts use a single method, large contracts are often made up of scope elements contracted in a combination of these methods. Each method has its own set of dangers and lessons to be learned.
Cost type contracts and subcontracts: In this type of contract, you (or your subcontractor) are paid what you spend. I would use this type only when the scope of work cannot be defined at the outset. This situation can occur when there is no time to develop and estimate a detailed scope of supply. Payments are made as the expenditures are incurred. The prime issue for the contracting party is to ensure that the money is properly spent and that value is achieved for the payments made. For the contractor, an important issue is the amount of the overhead and margin the contractor is paid, depending on the cost of the final scope of work.
I have seen contractors abused under this arrangement when agreeing to fixed fees on a poorly defined cost type contract, in which the owner expected to and did direct significant scope/cost growth.
A second problem for the contractor is when the owner (or contracting party) is, in the name of cost control, allowed to become involved in day-to-day decisions as well as in operational and personnel matters. Be careful, most contractors have better capabilities than the interfering and often biased contracting parties.
Lump sum or fixed price contracts or subcontracts: In this type of contract, you (or your subcontractor) are paid an amount agreed at the outset for the scope contracted for. The price of agreed-to changes is then added. Payments are typically made as progress is demonstrated or in accordance with an agreed-upon set of milestones achieved. The contracting party must ensure the scope is accomplished without contract changes developed only because the contractor is in cost trouble, avoid scope changes and scope disputes, and ensure that excessive payments are not made earlier than necessary. The contractor must manage cost (schedule is cost) and ensure that there is a written agreement with the owner to pay for any scope changes before the work is done and to pay for changes in conditions that affect the contractor's ability to perform.
Unit priced contracts or subcontracts: In this type of contract or subcontract, there is an agreed-upon value for each unit of quantities manufactured, installed, built, or erected (cubic yards of material or concrete, tons of steel, feet of pipe or cable). Payments are made as the quantities are installed. The issue here is for both parties to ensure that there is carefully checked agreement on the as-designed quantities and that only these amounts are installed and paid for. The contracting party must ensure that payment is for what is on the drawings, not what the contractor installs.
Projects can then be categorized based on their complexities. The simplest projects deliver a product from a single discipline, such as designs, software packages, or manufactured products (without supporting supply by others).
The next step up includes one or more supporting work elements supplied by internal supporting groups, contractors, or vendors. These elements are sometimes in sequence, supporting the primary activity. Engineering, procurement, or supporting fabrications fall into this category. These elements of the work should ideally be completed to the maximum extent possible before the next activity starts. I will refer to this project type as "extended scope," particularly when one division/ department or company sells its product along with engineering, design, procured material, construction, or the like, supplied by others or a different part of the company.
Turnkey projects, the next step in complexity, include the multiple discipline scopes combined with whatever is necessary (testing, commissioning, and training) for the owner to immediately make productive and beneficial use of the product or system at project completion.
Managing these sequences and supporting work is made much more difficult when supporting activities overlap, for schedule acceleration. This brings greater opportunity for claims from or between the parties. This is typically called "fast tracking." I will address these two types of contracts in a later chapter.
Another variable in complexity is how detailed the definition of the project scope is. A conceptual scope or scope definition written around functional requirements has its own special risks. This approach is often used to accelerate the start of a contract when time cannot be taken to define the scope. While the functions to be satisfied can be agreed upon and accomplished, the detail in many design, engineering, or quality conditions will usually be the source of dispute, rework, and cost overrun. Neither party will have a strong contractual basis for its positions (unless the dispute involves one of the few detailed contract requirements).
This conceptual scope contract is particularly risky when used in a lump sum arrangement. The alternatives of unit pricing or cost type are certainly more compatible yet more risky for the contracting party.
I prefer a contract that defines the scope in detail. There is no uncertainty, and there will be minimal basis for dispute if either party seeks a legitimate change. The definition of detail in the design and engineering should not be troublesome or cause delays, as it often does when using a conceptual scope.
A project's complexity and difficulty can vary with location; language; social conditions; prevailing weather; accessibility; labor availability, cost, and organization; nature of the customer; and local business practices. These are only examples of variances to be managed. A construction project in Arkansas will have very different labor management issues than the same project in Boston. The weather issues of a project in Minnesota will usually require more cost and planning than one in Florida. Access to a construction site in Montana will present different challenges than one near the port of Houston, Texas.
Contracting with the US government or a highly structured corporation is usually more different than dealing with a small manufacturing company in rural Idaho. There are some differences in business practices within the United States that need to be understood, but these business practice complexities are usually apparent in the international arena.
I once visited an international construction site prior to the award of a contract to our company. I found no excuses for less than good performance. There was skilled low cost labor, good access, and adequate livingconditionsforourstaff,nolanguageissue,asophisticatedcustomer, and good year-round weather conditions. What more could we want? Surprise, our biggest local concern, by far, was the existence of a major "sin city" within driving distance. I missed it, and we routinely lost our staff, sometimes permanently, to whatever they did there. Providing recreation in remote locations is a costly necessity, but good judgments are critical.
In chapter 8 of this book, I will devote more time specifically to extended scope, turnkey, and fast track projects. In chapter 9, for Managers of Projects, I will discuss the complexities introduced in the structure of projects when deciding how to divide scope between different companies or parts of companies and how to relate these players contractually. Concepts of partnering, joint ventures, and simple subcontracting must be understood, particularly the risks and opportunities inherent in each.
These definitions are quite simple. "Extended scope" means multiple disciplines are involved. "Fast track" means that the work of the disciplines overlaps significantly and often have iterative processes between them. Turnkey projects have the added scope of turning the project over to the customer fully demonstrated, tested, and ready for immediate beneficial occupancy.
In closing this chapter on different types of project structures, let me comment on the issues I have observed with companies taking contracts for large multifunction projects. Project managers need to "watch out" when considering taking a project under these circumstances. Most companies taking contracts for larger multifunction projects are in it to make a profit on the scope of the project as a whole. Most of my experience is with companies who only take the large projects in order to sell the company's core engineering services, components, systems, or equipment, which would be a substantial portion of the project scope of work. Don't be fooled; the companies with this motive are as interested in the profit as anyone. On the other hand, they are generally less capable than the companies who specialize in larger multifunction projects. They are generally less capable because their culture, internal training, and internal systems, including sales, are oriented toward the supply of engineering, systems, or equipment and not the supporting scope necessary in larger projects. Additionally, the marketing and sales staffs of these engineering, equipment, or component companies are focused on the products or services that they primarily sell. They are generally not prepared to develop cost estimates and proper contract terms for the extended scope work. Moreover, they are generally willing to make concessions on cost and contract terms for the extended scope (the scope which is not their component, service or equipment) portion of the sale in order to sell their core product or service.
Another type of participants is what I call the opportunists. During periods of strong markets for projects in any field, these companies jump in, usually unprepared and inadequately staffed. This category includes those who seek to accumulate the necessary skills by forming a partnership with an entity that has not proven that it can either do the job or work together effectively. I would avoid taking project execution responsibility under such an arrangement.
Nonetheless, when the sale is made, all companies expect to achieve the margins and profit forecast when bidding the work. This leaves the responsibility with the project team, who will be measured by achievement of cost level in the company's initial estimate no matter what it was. My advice is to understand what you are taking on and not stake your future without a full understanding of the company's circumstances and their experience with the contract structure to be used.
Chapter TwoTRAITS OF A STRONG PROJECT MANAGER
Is Your Glass Half Empty or Half Full?
Do you find yourself hoping for an outcome in one area of your project? If so, you are in the "Hope Mode," and that is not good. Not in this business. Not unless you have a contingency plan ready to go in the event that the outcome you hoped for does not occur. If in your everyday life you are consistently optimistic about the outcome of most situations, kind of hoping for the right outcome, I believe that you will have difficulty as a project manager.
Being prepared for the unexpected or the wrong outcome in any routine, but important, situation is critical to your success. I have observed that that preparation comes naturally to many managers; why, I do not know. I have tried to develop that trait in some project managers, but I have found it to be difficult, with real success only in a few cases. The trait, I concluded, was inbred, developed early in their career or long before they came to work.
Ultimately, in many cases as part of the training process, I would resort to an approach that I will discuss later in the chapter on information flow systems for managers of project managers. I would insist that project managers and their teams identify what they saw as issues critical to the customer's satisfaction, the project schedule, or the cost situation. In turn, a contingency plan would be required. Our success, however, was dependent on the team's internal honesty and the degree of transparency the team would allow. Some would, for whatever reason, never acknowledge that there was a problem or risk. The kimono would never be opened.
Such characteristics are easy to detect and require much more oversight by managers at the project level or above. Frankly, this more intense oversight is exactly what the individual was trying to avoid.
Having used this discussion as my cover story, I should, I suppose, devote more time. On the other hand, it is quite simple. If you do not anticipate problems and plan for them, you will clearly be in trouble. If vanity, pride, or just fear keeps you from acknowledging the realistic potential for problems, you will eventually be in trouble. If projects always ran as smoothly as we hoped, project managers would not be paid as much. The dropouts that I spoke of in the preface could easily do the job and remain happy ever after.
This trait is the single most important trait for a project manager looking for success.
Can You Tolerate Detail?
We all know very bright and capable people who will avoid as much detail as possible in their daily work. Many of them are successful if they have chosen the right position or place in the organization. Alternately, a good project manager must be willing and able to "dive in," not into everything, but to have a sense of where to start peeling back the layers of detail. This attention to detail is necessary in order to analyze a problem or follow up where you think a problem might be.
Later in the book, I will speak to processes of gathering information and monitoring progress. This process involves receiving written data, oral comment and facts, and even body language. I will also devote substantial time to finding variances from a well-made plan.
Anyone can become terribly bogged down in repetitive details, but the successful project manager will learn to use the information gathered routinely to pick the areas where it is necessary to penetrate the detail or ask deeper and deeper questions. The key skill is in picking the areas to penetrate so as to not get bogged down, and the key trait is a willingness to look at the detail. The ability to identify variances to detailed plans is absolutely critical.
Can You Be Open and Transparent with Good and Bad News?
Let me restate my strong position that a project manager must take the attitude that surprises, even apparently good ones, are to be avoided. Bad surprises are much worse when they are covered up, for whatever reason.
Excerpted from IS YOUR GLASS HALF EMPTY? by JAMES ROY Copyright © 2011 by James Roy. Excerpted by permission of AuthorHouse. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
PREFACE....................IX CHAPTER 1. OVERVIEW OF PROJECT DEFINITIONS AND VARYING COMPLEXITIES....................1
CHAPTER 2. TRAITS OF A STRONG PROJECT MANAGER....................7
CHAPTER 3. CRITICAL ELEMENTS IN THE PROJECT MANAGER'S APPROACH....................13
CHAPTER 4. CONTRACT ADMINISTRATION AND PRIME CONTRACT MANAGEMENT....................37
CHAPTER 5. SUBCONTRACT ADMINISTRATION AND SUBCONTRACT MANAGEMENT....................49
CHAPTER 6. OTHER KEY TOPICS AND LESSONS FOR PROJECT MANAGERS....................55
CHAPTER 7. THE EXCITING INTERNATIONAL PROJECTS....................83
CHAPTER 8. EXTENDED SCOPE PROJECTS....................99
CHAPTER 9. FOR THE MANAGER OF PROJECTS....................103
CHAPTER 10. WRAP IT UP....................125