Sunday, March 27, 2011

Stakeholder Management: Learned Lessons from BP Oil Spill

In the last post of earned-value.com (http://www.earned-value.com/2011/03/john-nashs-theory-applied-to-project.html), I have suggested that behavior of stakeholders explains the failure of a big number of projects and I have explained this from the perspective of Nash's Theory. I have decided to show an example in order to support that thesis in this post. The story of the Deepwater Horizon Oil Spill is well known by the majority of people. Let me use it.

There were at least three important stakeholders involved in this project: the BP administration, the employees of BP and Society at large. After the oil spill, it is clear to each one that the disaster could have been avoided and that the result wasn't good business for anybody. What have we painfully learned about stakeholder management and Nash's equilibrium?.

The project failed. The risk management was poor, the contingency plans were outdated and the costs have been enormous for everybody. The administration of BP tried to take on more that they should have, with a big risk of earning less than they could have. From the perspective of the employees of BP, I'm sure that many of them were victims but in certain ways they were victims of ambition and obedience of a few. There is no excuse to be part of a project team that is putting Society in that kind of risk. From the perspective of Society, BP has been feeding the monster of oil consumption. Society has been trying to take on more than they should, with a big risk of earning less than they could.

If the manager of this project had decided to invest more efforts in risk management, BP would have invested more money in mitigation and contingency plans. If the BP administration had focused on the long term earnings, they would not have risked so many lives and the ecosystem. Furthermore, they would have earned more money than they finally did. If Society had developed alternative energy sources, we could have avoided the extraction of oil from deepwater.
Learned Lesson: Each project has an equilibrium between stakeholders. If a stakeholder wants to break the deal and breaks it unilaterally, he/she will risk earning less than he/she would earn without breaking the deal.

Sunday, March 20, 2011

John Nash's theory applied to Project Management

There is an unexplored area related with Project Management that could be seen from the perspective of John Nash's theory. Any Project Manager with any experience knows how difficult it is to deal with the stakeholders of a project. This knowledge area is commonly named "Stakeholders Management". I don't have statistics about it but I'm pretty sure that the behavior of stakeholders explains the failure of a big number of projects. John Nash has told us why this happens and how we can develop a model to predict it.

First of all, we need to understand that a project is a conflict. Period. More than defining a project as something that can have a conflict, we can see a project as a conflict by itself. Let's remember that a conflict could be defined as a situation where two or more persons, or groups of persons, have interests perceived like opposites. The majority of projects are just like this. It starts at the moment when somebody pays and somebody receives payment. Who doesn't want a bigger payment?. Who doesn't want a bigger scope?. That's all, a project is a conflict.

A conflict is named "a game" for mathematicians. Nash's Equilibrium of a game is an agreement that nobody can break discretionally without losing. That means, if somebody wants to break the deal and breaks it unilaterally, he/she will risk earning less than he/she would earn without breaking the deal (See the Prisoner's Dilemma http://en.wikipedia.org/wiki/Prisoner's_dilemma). Nash said that every finite game has at least one Nash's Equilibrium.

Well, I have the intuition to say, and I often do, that the triple restriction (scope, cost, time) is a Nash's Equilibrium of a game formed by the relationship of the stakeholders of a project. Many times the failure of a project starts with the unilateral decision of a stakeholder trying to take more than he can without breaking the "deal". As a result, it is common that the group or society obtain less than they could obtain in Nash's Equilibrium. If a mathematician reads this, please help me develop the model to prove this and increase the probability of success in many future projects.  

Thursday, March 17, 2011

Practical estimation of Earned Schedule (ES)

The Earned Schedule (ES) concept is very simple. It's a time magnitude or a time measurement. It's the instant of time in the plan which corresponds to the actual progress. If the project is behind schedule, ES will be the instant (in the past) at which the current progress should have been achieved. If the project is ahead of schedule, ES will be the instant (in the future) at which the current progress was planned to be achieved.

The way of finding the ES instant in time is the following. Find the instant in time distinct to the current instant in time (T) when the Planned Value (PV) was or will be equal to the current Earned Value (EV). Another way to see it is to project the Earned Value (EV) horizontally over the curve Planned Value (PV). It's explained in the following video.

Maximize before viewing

Unfortunately, finding the Earned Schedule (ES) of a project would ocasionally be a problem because of the discrete nature of the time series. This means that the Planned Value (PV) and the Earned Value (EV) are discrete values. Therefore, PV and EV are not continous curves. For example: let the Planned Value at t1 be equal to 200. Let the Planned Value at t2 be equal to 250. It is possible that there is not an instant t when the Planned Value is exactly 230. In this example, if the Earned Value (EV) is 230, we will not find a pair of time instants t2 and t3 for wich EV(t2) = PV(t3), excepting the origin. The example could be viewed in the following image.

Click to maximize
Theorically the described problem doesn't exist. In theory, PV and EV have the same values or mathematically: they have the same range, because both are formed by the sum of the same increments that came from the same WBS, the same activities and the same measurement methods. Nevertheless, in practice, the measurement of EV and PV often have diferent range with disjointed discrete values. What can we do in this case?. The answer is simple: interpolate.

Click to maximize
Supposing that PV(t1) <= EV(t) and PV(t2) >= EV(t), then we can approximate:

Click to maximize
This is a good and practical approximation to ES that I widely recommend.

Monday, March 7, 2011

SPI is not a good index at the end of a project

The Schedule Performance Index, SPI = EV / PV, is commonly used as value to monitor how a project achieves the milestones in a timeline. However, this indicator is less effective when a project nears the end. It is clear that when EV is close to PV, the indicator tends to 1, which is the ideal value. Even when a project is completed late, the SPI indicator always ends in 1.

To understand the problem, consider what happens to the analog index Cost Performance Index, CPI = EV / AC. Clearly, when AC passes PV, ie, there is economic loss, then EV will never reaches or passes AC, and then, if a project ends with economic losses, the CPI indicator is always <1, even after completion project.

To solve the problem, the literature suggests to use a value called Earned Schedule ES. It is possible to find adequate information on the use of this indicator in http://www.earnedschedule.com/.