Sunday, May 29, 2011

Externalities of Deepwater Horizon platform of BP and the Fukushima Daiichi nuclear plant

An externality is a positive or negative effect of some economic agents, not transmitted through any charge or payment, affecting consume or production of other agents. Pollution and risks generated by dangerous activities are some examples of negative externalities.

Many projects are economically feasible because of the lack of control over negative externalities. The Deepwater Horizon platform of BP and the Fukushima Daiichi nuclear plant have something in common: the time has showed that the externalities were underestimated.

How to estimate externalities of risks of a project?. A not graduated student of engineering can do it. The cost of externalities is the sum of different risks multiplied by the impact of those risks. The problem is not how to estimate risks; the problem is the lack of will to do it.

The overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved (the stakeholders). Simplifying, the society has to avoid participate in any way in projects with an overall expected cost bigger than expected benefit. A good way to do this is charging a bad project with the expected cost of externalities, converting that project in an economically unfeasible one.

Projects are my passion. I'm not proposing to stop doing projects. I'm proposing to work with social responsibility, performing a good Stakeholder Management.

Propose projects with clear negative externalities, is a matter of extremely incompetent engineers and bad persons. A good Project Manager has to be conscious of the externalities of his projects. The Code of Ethics and Professional Conduct of PMI declares that "We make decisions and take actions based on the best interests of society, public safety, and the environment".

Saturday, May 28, 2011

The Project CityTime at New York Shows Importance of Overseeing Projects

The CityTime Project has as main deliverable, an automated system designed to streamline employee timekeeping in New York City. Federal prosecutors in Manhattan charged some CityTime consultants with an $80 million fraud scheme that began in 2005. Gerard Denault, an executive of the company that is overseeing CityTime, was charged with receiving over $5 million in kickbacks for his work as the project’s senior manager. The project has had large cost overruns and delays. The administration of mayor Bloomberg is handling this situation as a big scandal that is threatening to sink their credibility.

In situations like this, I remember that one of the main objectives of following a recognized methodology is protecting the Project Manager. Another thing that comes to my mind is the importance of following an ethic code like the one of PMI. Finally, I remember something that I heard from a company's president: a good system deployment is not important, but a bad one could sink the company's president. My conclusion is that spending some money on a good system to oversee projects is always a good investment. Consider an EVMS in your core strategy to avoid this kind of risk.

Wednesday, May 18, 2011

Forecasting with EVM: the story of Dick Cheney and the A-12 Avenger



The A-12 Avenger II was a planned stealth bomber plane, proposed by McDonnell Douglas and General Dynamics. The development project of the A-12 was troubled by cost overruns and several delays, causing questions of the program's ability to deliver results upon its objectives. The development program was finally canceled in 1991 by Secretary of Defense Dick Cheney because of performance problems detected using EVM. This decision was widely considered to prove that EVM mattered to secretary of defense-level leadership.

The Secretary of Defense Dick Cheney said: “The A-12 I did terminate. It was not an easy decision to make because it's an important requirement that we're trying to fulfill. But no one could tell me how much the program was going to cost, even just through the full scale development phase, or when it would be available. And data that had been presented at one point a few months ago turned out to be invalid and inaccurate.”

How can we know how much money a project is going to cost?. In order to explain some concepts, variables and abbreviations are used in following formulas. You can find the definitions of these variables in this Blog.

In EVM, the final cost of a project is called Estimated At Completion (EAC). There are three main methods to calculate EAC depending on the nature of deviations. If there hasn´t been deviation, the formula is very simple:

Supposing there has been a deviation and it has been a good example of what is going to happen in the future, EAC would be calculated in the following way:


When a deviation has been something that is not going to happen in the future, EAC would be calculated in the following way:


When we realize that the estimation of the project was a totally wrong or new information arises that has not yet been considered, it would be better to calculate ETC as a new estimation of the remaining cost. In any case:


As you can see, the variables and indexes of EVM have the capability of forecasting the final cost of a project in an easy way. I hope the story of Dick Cheney motivates the decision makers to understand the importance of using EVM.

Monday, May 9, 2011

Protests against HidroAysen project at Chile

According with many studies about project management, some errors in Stakeholder Management are one of the most important reasons of project failure in the world. In a last post (http://www.earned-value.com/2011/03/john-nashs-theory-applied-to-project.html) I have presented a thesis about the use of the theory of Nash to explain the failure of some projects. I have seen recent protests in my country (Chile) against HydroAisen project that are showing bad practices in Stakeholder Management.

HydroAisen is a project of 5 hydroelectric power plants with an average generation of 18,430 GWh in the rivers Baker and Pascua at Aysén Region in the south of Chile. I’m sad to say that if the efforts in Stakeholder Management don’t increase, the project would be finished before starting.

Sunday, May 1, 2011

The Role of Web Based Project Management Systems

The statistics of failure of IT projects in the world are shocking. In the last ten years the success rate has improved from 16% to 32%. This means that 3 out of every 10 IT projects fail (chaos). There are many reasons but these are frequently mentioned:
  • User Involvement
  • Executive Management Support
  • Clear Statement of Requirements
  • Changing Requirements & Specifications

As you can see, two of these are related with Stakeholder Management and two are related to Integrated Change Control. It’s very common that Project Managers concentrate their efforts in Project Execution, forgetting to work enough in the areas that are frequently the origin of the failure of the project.

In the last few years, there has been a tendency of defining requirements in a more flexible and iterative way. New methods like Agile are focused on quick responses to change and continuous development. In my experiences, transforming projects in continuous operations is how the projects become a goal in and of themselves. A project is always a vehicle to achieve a more important goal. It has to be temporal by definition.  Nevertheless, a quick response to change is something that has to be considered seriously.

There are a few information technologies that point to the heart of the failure. The web as a whole and the ubiquity as one of the most important of their characteristics, convert web technology in a good way to manage communications in a project. Transactional Databases allow evolving every piece of a project, maintaining traceability and integrity, something that is very difficult with electronic documents or physical ones. As a consequence, a great recommendation to Project Managers: use a web based transactional system to manage your project and give access to every stakeholder. This tendency is quietly revolutionizing project management.