The Butterfly Effect in Project Management - How to Make Disciplined Decisions in Project-based Organizations

Small variations of the initial condition of a dynamical system may produce large variations in the long term behavior of the system.

The Butterfly Effect is a term used in Chaos Theory to describe how small changes can have a substantial impact on large complex systems, like weather patterns. The term has been used to suggest that the wing movement of a butterfly might have significant, often unpredictable, repercussions on wind strength and movement throughout the weather system.



This effect can be compared to the domino effect in that a small change (a domino falling) leads to a chain reaction (of all dominos falling). However, in the domino effect a simple linear row of dominos would cause an event to initiate another similar one, but in the butterfly effect a small change (a butterfly flapping its wings) amplifies the condition of a much larger system and instigates a significant disturbance (such as setting off a storm).

This article looks at how the day-to-day decisions by executives and project managers have a critical impact (positive or negative) on the individuals and the organizations they work with. It then describes how professional services automation (PSA or what Gartner calls Project Portfolio Management/PPM for Professional Services Administration) both as a set of best practices and a best of breed tool can structure, formalize and improve project decisions.

Introduction

How is it that some management teams are able to consistently choose and execute the right strategy while other management teams tolerate mediocre performance or merely go through the motions to survive another day?

What drives some companies to invest in high value initiatives while others get stuck with high maintenance ones that drain resources and result in significant opportunity loss?

Why do some companies get into resource conflicts and project execution crisis while others are able to make it through the crunch times?

When you examine such setbacks and try to understand the circumstances that led to the missteps you quickly realize that it really is about the alternatives that were considered and the choices that were made at a critical moment. We have all been there before, if only you could go back and get a chance to do it over … Of course, for most of us, second chances are pretty hard to come by. Instead, we have to make sure we learn from such disappointments and avoid making a similar mistake, again.

To prevent errors in judgment we must fundamentally change the way we view decision making. Today, in an overwhelming majority of organizations, decision making is akin to voodoo science. Executives and project managers make decisions haphazardly based on incomplete information, without considering all alternatives, with insufficient collaboration, and without carefully evaluating the consequences. Incredibly, the outcome of the decision depends on the mood of the executives involved, their intuition, personal circumstances, superstitions, “gut feeling”, even the time of day and other human factors.

To make matters worse, human beings, by their very nature, are highly influenced by current affairs and trends. For example, as the credit crisis showed, many Fortune 1000 companies invested in highly questionable initiatives and adopted faulty risk assessment methods that were in vogue at that time. How can AIG, Lehman Brothers, Bear Sterns, Washington Mutual, Countrywide… such huge and powerful organizations go from the height of success to bankruptcy almost overnight? How is it possible that so many smart, highly paid management teams at these companies could collectively go blind? … Are these failures due to a series of incredibly bad decisions by one person, bad luck, poor timing, intentional fraud or other extenuating circumstances…? Such errors in judgment can often be traced back to one major root cause. These companies were managing their decisions poorly. Due to the often non-existent or unstructured decision making processes, these companies and executives were destined for failure from the outset.

Decisions Decisions

Service organization and teams bid on engagements based on resource availability, skill set and profit expectations. The main challenges with project decisions for consulting companies are:

- Timing: When to start a project and which resources to allocate to it?
- Profitability: How profitable is a project once it is initiated? When to stop investing in a poor performing project? And if you

cannot stop projects then what can you do to turn it around.
- Customer expectations: Are the customer’s expectations in line with the service offering?

Timing

The company management must forecast every project’s cash flow requirements before any project is initiated. Even an engagement that promises to be highly profitable may result in cash flow pressure and place the company in a high risk situation with its creditors, suppliers and employees.

Profitability

While an original profitability assessment is done for every project, management rarely reviews and revises such forecasts once a project begins. Scope changes, resource and scheduling constraints/conflicts may all play a role in eroding the profit picture.

Expectations

The success of any consulting engagement depends on cooperation between the company and the customer both in the pre-sales process and once the project begins. Communication breakdowns, incomplete requirements, out of scope change requests, and unexpected project issues can damage the project and the customer/consultant relationship.

How We Can Make Better Decisions

Many organizations, large and small, have outdated decision practices and lack any systematic approach to decision making. While no silver bullet exists, one can take concrete steps towards creating and maintaining world class decision management practices and processes. First, we look at how companies can establish a collaborative workflow-driven decision making framework. Next, we discuss how one can manage project demand and resource allocation. We then examine how resources should be reallocated as new information is obtained or new risks and opportunities are identified. Finally, we address some of the reporting requirements around key decisions made by executives, project managers and other project participants.

At the Crossroads

Project demand management and resource allocation are critical points of failure for a majority of organizations. We spend so much energy and pay so much attention while executing a project and yet we invest very little time managing project demand and selecting project teams. Are we really working on the most profitable, highest value projects? And are the most appropriate resources booked on each of those projects?

Without a formal structured process and tool, project pipeline management and resource allocation decisions are often based on opinions, internal politics, and flawed information.

You often hear of project managers and executives who are frustrated due to lack of resources or that their resources are constantly being shifted to other projects/departments. These are symptoms of an unbalanced workload and project portfolio. The organization is either taking on too many projects, has not accounted for all of the types of services it needs to deliver, is not allocating resources in an optimal way or all of the above. The executive team has to standardize how it prioritizes projects, forecasts demand and utilization, and assesses project performance.

So how do organizations typically prioritize projects and allocate resources?

 As the above findings show, organizations that prioritize projects based on financial returns fare poorly. How can this happen? It is because calculating a project’s financial return is often based on invalid assumptions, optimistic projections, may not account for the impact of timing (a great project today can be irrelevant even a few weeks/months later) and many other factors/constraints that affect a project’s outcome.

Employing a structured project decision making process, leveraging dynamic configurable workflows, using project financial reports to evaluate past/present performance/margins/results, creating a collaborative inclusive project prioritization atmosphere, ensuring auditing, transparency and accountability for all approvals, result in an optimal demand management and resource allocation process.

Project Decisions

For a project to be successful it often requires rapid decision-making and collaboration among multiple individuals working in various locations and time zones. There are many decisions to make once a project is under way; such as selecting the project team, handling resource conflicts, managing scope change, customer expectations and other unanticipated events and constraints.

Typically, such decisions are made in an inconsistent manner. The project manager makes certain decisions using a consensus-driven approach while at other times decisions are made in private without any consultation of project team members or other stakeholders. In fact, the decision making process can be entirely different if another project manager with his/her own “decision style” is assigned to the project.

Furthermore, important decisions are often made on the spot in meetings or informally. As time passes, no one even remembers how the decision was reached, what alternatives were considered, what information was used as the basis for the decision, and in some cases we do not even recall who actually made the decision. In such an environment, it is easy for everyone to make mistakes or to forget to follow any corporate guidelines. As with project demand management and resource allocation, establishing a structured framework is the only way one can fundamentally improve project decision making.

How Workflow Driven PSA Improves Project Decision Making

Workflow-driven professional services automation serves as a set of best practices and system of record for all project decisions in your organization. Project workflows are as key decision support tool you can find in PSA tools. Project workflows integrate project request, approval and execution within one system object and enable you to collaborate with your executives and stakeholders to prioritize projects, identify poorly performing ones, and make effective project decisions.

Project workflows makes it easier for you to find the best course of action for your project challenges by defining your project approval workflow and collaborating with stakeholders to choose the best alternatives. Project workflow decision analytics enables you to spot recurring mistakes, define best practices and reward effective management by analyzing past decisions and decision outcomes. Reports, notifications, project views and dashboards allow executives to stay on top of all decision-making activity so that they can take preemptive action instead of after the fact repair and recovery operations.

Making decisions based on fancy charts that include metrics someone has put together based on totally arbitrary parameters serve no real purposes other than misguiding decision makers. Using real historical validated project forecasts and actuals you can improve forecasting, estimates and project decisions for current and future project demand. Capacity planning is also improved by assessing how similar projects and clients were handled previously, what types of skills were required, and who were the best resources for those past engagements; using this information to make better resource allocation decisions.

What Are Project Workflows Anyway?

 A project workflow starts with a visual representation of your project or service delivery lifecycle. But this is not just a pretty picture. A workflow-driven PSA solution actually tracks and enforces the project workflow for all your projects. The workflow and the project are the same object. Using a workflow driven process, all projects follow the same process; all project changes and approvals are tracked and audited. The workflow is dynamic; you can change it as your business changes without resorting to customization.
Project workflows provide views for managing and ranking projects based on specific attributes, KPIs, or user defined fields with dynamic filtering and sorting criteria. Project views you create (such as projects in the pipeline, active projects, troubled projects, sunset projects) are shared amongst project stakeholders and team members for project demand management, resource allocation, status reporting and change management.

The Butterfly Effect of a Cloud PSA

Here is a sampling of how small steps in optimization and workflow-driven standardization of project demand management, capacity planning, forecasting and reporting can help an organization make significant productivity gains.
 

 
Summary

We are always one decision away from success or disaster.

Project-based organizations are investing substantial resources to automate project and service delivery, budget tracking and billing. Remarkably, little investment is made to ensure that the organization is effectively managing project decisions, project pipeline management and capacity planning. With no formal project decision making process most organizations allocate resources inefficiently, underestimate or overestimate project returns, fail to ensure that projects are continuing to deliver value and remain relevant to the organization’s overall strategic direction. Project decision making and analysis in most organizations is such a poor and unstructured process that it often leads to fatal mistakes or crisis situations that could have been prevented or at least mitigated if the management team had established, formalized and communicated the company’s decision making processes and best practices.

Workflow-driven professional services automation, as a set of best practices and a best of breed tool, results in decisions making that is: consistent, transparent, accounts for the company’s objectives, rigorous, collaborative, inclusive and is based on validated project status information. These tools and techniques enable your project teams to formalize the decision making process and gain access to valuable information that substantially improves project demand management, resource allocation, and day to day decision making.