Archive for February, 2013

Risk and project sunk cost

Posted on: February 28th, 2013 by admin 1 Comment

I have been having a running discussion with one of my colleagues regarding project and cost, specifically the cost of a project that is under consideration for termination.  A project is going through a gate review. During this review we find that the objectives are not met by this phase and further action has little likelihood of subsequent success.

That seems like the end of the discussion, doesn’t it?  Not necessarily.  What happens when we decide to try to meet this same objective of the organization with another project?  Smart organizations base their project selection criteria on items that have connections to the business case. At least that is true of “for profit” organizations and we are sure the same applies to non-profits (if not more so).  What happens to our business case when we make a number of attempts to accomplish the objective?

Surely we have learned something in the previously described failed project.  This expenditure has shown us what does not work. What do we include in the business case if we start another project up, with the same objective as its scope?  Is this loss truly sunk cost? Or are we rationalizing away the expenditure to make the new business case seem palpable?

Remember, it was the business case that largely set the Six Sigma quality approach apart from the older, more all-embracing total quality management (TQM). If we override the business case, what are we really doing? Somehow, justification by faith alone does not seem to be a prudent business approach.

Risk and available talent

Posted on: February 27th, 2013 by admin No Comments

The longer a project is active, the more likely there will be interference with the other projects the organization undertakes. We believe this is one of the attractions of scrum or the other agile project management methods, which are designed to offset the fallacious multitasking approaches. In these agile models, we find the project team with more focus on the tasks at hand as the team is not typically pulled in numerous directions as they try to adapt to multiple projects.   This distraction often happens without the awareness of the project manager. Experience suggests that availability of talent is a major risk to a project.  As organizations go through right-sizing initiatives (layoffs, mass firings) in the face of shrinking profit margins, we see the available talent spread over a larger area.

Projects that consume more resources than planned not only affect that particular project but the adjacent projects as well.  The talent that was planned to start off the next project is now consumed by the most recent project. We see this happen when we developed our schedule while under the influence of opiate-like optimism.  Our scheduling prowess–or lack of–will have consequences for our entire project portfolio.  One solution is to quit pretending it is possible to predict several months into the future.  Plan, execute and monitor the status of the project and adjust the schedule as the measurements from the execution tell you; that is, recalibrate. This recalibration may include the start and end time for the next project.  React quickly and make the relevant stakeholders aware of the status rather than glad-hand them with half-truths, which only delude both you and them.

When is enough risk enough?

Posted on: February 26th, 2013 by admin No Comments

To highlight one more time how we often do ourselves more harm than good, we will have one more short case of how we can make an already risky situation even worse.

Consider the vehicle manufacturer that is working a project to meet a new and more stringent pollution emissions regulatory target from the government.  To meet the regulatory requirements requires hardware and software changes which will also have implications for the manufacturing processes.  There are risks with this project as with all projects to meet the delivery date with the obligatory quality and meeting these new regulatory targets. There is always risk until we have completed the project.

This company also had recently purchased another vehicle brand for their portfolio. The production sites of the newly acquired product were in other geographic regions distant from the purchasing company. The two companies had some similar product offerings and some divergent product offerings as well.

The company decides to simultaneously take on a merging of the common areas of the manufacturing sites along with the emission project which cannot be delayed.  We now have a whole scale change to the manufacturing processes and locations on top of the risks associated with meeting the regulatory requirements.  The probability of total success is the product of the probability of each of the projects.  We have tangled up our hard date emissions project with additional baggage that can impact success.

Part number change and risk

Posted on: February 25th, 2013 by admin No Comments

There is a saying: “if you change form, fit or function, you change the part number.” On the surface this seems like a good saying. People use this saying as rule of thumb to determine if a new part number is required.  Taking out new part numbers cost the company some administrative time and effort (also known as “money”), and it can be good to eliminate that burden. However there is more to this than the typical form, fit or function evaluation method.

Some companies use part numbers to track the quality of the product. In fact, many or most do. They monitor the parts returned by part numbers for signs that their quality is eroding.  Not changing part numbers makes distinguishing the failure and cause or even an improvement in quality and cause difficult.  For example, perhaps we make a small change to our manufacturing process. This change has no implication on form fit or function of the product.  However, this change may have some cascading impact on the quality of the product in the field.  By not changing the part number and linking this to the process change we are unable to readily see any dependent consequence on our product in the field. If the customer or the government demands a recall, such a response becomes extremely difficult without the ability to recover the offending part numbers. In fact, if we do not have this level of traceability, we may have to recall all of the product at great expense to all involved.

A more prudent action would be to consider the cost of creating a new part against being able to more readily discern changes in the product and symptoms witnessed in the field.  If you change anything in the product or the process (including a supplier of subassemblies) consider altering the part number. Perhaps the saying should really be, form, fit, function and quality.

Process Risk Management Story – let us skip a step

Posted on: February 24th, 2013 by admin 1 Comment

Every time we make a decision, we reduce the probability of some risks but may increase the probability of other risks. Consider where the following story may fit into our discussion.

We have a project that should have, in fact, started months ago to meet the desired production introduction date.  Unfortunately, that did not happen so we are now scrambling to make the desired introduction date.  To make the proposed delivery date, we must find a way to meet the project objectives in a shorter time.  We can do this by either reducing scope or reducing quality securing activities associated with the project.  Our prototype part development sequence is in fact a risk reducing activity (see our previous post http://www.valuetransform.com/prototype-parts-and-product-development-lifecycle).

The project manager decides the way to make the schedule work is to eliminate the first level of prototype parts.  Eliminating this step reduces the time to make corrections to faults found during the development work.  We are now pressed up against the tooling schedule and the subsequent creation and the final production part.   By selecting this as the alternative to reaching the production date, we have exposed the project and our company to risk. For example, by funding the tooling before learning about the design by analyzing the prototype parts, we are now at risk of losing or increasing the tooling cost for our project. In addition to the cost risk, we have a schedule risk in any tooling rework that may be required.  Lastly, if there is no additional loop added to account for the tooling rework, we have also introduced a quality risk.

Perhaps the appropriate solution could have been a reduction of the scope of the project while keeping the same prototype phases. It could have also been interesting to explore changing the production date. In the end, the actual project schedule did not fare too well.  The prototype phases, while called something different, still happened, and the scheduled introduction date was not the original release date.

Ishikawa (fishbone) diagrams and Risk Management

Posted on: February 23rd, 2013 by admin No Comments

There are a number of quality tools that can help to evoke the risks that may be associated with your project. One such tool usually associated with cause and effect is the Ishikawa diagram. We can use this tool to explore risks as well. We will explore what happens (cause) and how it will impact (effect) our project and product. In this regard this tool works also as a proactive exploration rather than the typical use of tracing problems that are already visible.

The problem can be expressed thusly: inability to achieve schedule target.  We then break that down into those things that would make achieving the schedule improbable. For example, people, processes, etc. and for each of those we can break them down even further. For our people subset, we may have insufficient people, the wrong skill set, inadequate training, poor planning and so on. Once we have identified areas of risk, we want to put some numbers to the result so that we can prioritize our counteractions.

We are using the Ishikawa tool to help direct our anticipatory considerations when reducing risk. We can either use the tool directly or take what we have developed and formalize it by putting the contents into a failure mode and effects analysis (FMEA). The FMEA can be used to reduce our risk as well as providing a handy tool for tracking anticipatory actions.

Readers of this blog will notice how similar this approach is to brainstorming. We can also connect with our configuration management activities and tools because uncontrolled change is generally a source of high risk. Some simple steps for doing what we are suggesting might look like:

  1. Determine the major issue
  2. Brainstorm related items using Ishikawa diagram
  3. Transfer items to FMEA or similar format
  4. Perform counteractions and update FMEA
  5. Keep FMEA itself (and the Ishikawa diagram) under configuration management
  6. Monitor results.

More can be found on the Ishikawa diagrams at our download area at http://www.valuetransform.com/downloads.

Product Lifecycle and Cost Improvement Part 2

Posted on: February 22nd, 2013 by admin No Comments

We can use value analysis and value engineering techniques to improve our product cost structure and ultimately our value proposition.  The analysis phase of this activity is called value analysis. The design phase of this activity is called value engineering.  We are a bit constrained during these activities since as we have a product already in existence. For example, a major tooling change may not be our most appropriate product adjustment due to the costs associated.  We have to work within the confines of the existing design and manufacturing methodology as well as customer expectation. Still it is an exercise that we must go through as the use of these techniques can stave off product or service “death” for some period. As long as we can maintain our margins, we can still produce the product or deliver the service. If we do not have competition in the market yet, we improve our profits. Even if we have competition in the market place, with these value improvement activities ongoing through the product lifecycle, we are better able to maintain our profit margins as we steadily reduce our product or service cost and associated price.

It may not seem obvious, but we can benefit from these exercises even if we do not have the cost pressures due to competition.  As we improve the value proposition we reduce any cost barrier to the customer for purchasing the product increasing the “take rate” for the product or service. The same can be true for competitive markets where the organization may have to use cost to attract or retain customers.

It is in our best interest to optimize the product cost from the start of the lifecycle, even during conception. However, all is not lost if that was not possible.  Even if we did spend time optimizing the design during the conception and development phase, there are ample opportunities to improve the product or service cost in any number of ways during the lifecycle. It should be clear the longer amount of time we spend optimizing the product or service margins, the better corporate stewards we are and the more probable the company will be profitable. We can also say that you can not “cost cut” your way to profitability as a long-term strategy. Generating new products and services is the other half of the equation for maintaining a profitable organization.

Risk Management and Rose Colored Glasses

Posted on: February 21st, 2013 by admin No Comments

There are times when the project manager will be subjected to the long list of potential risks brought to them by their team.  Handling these issues rather than summarily dismissing the item being brought to their attention as input from a hypercritical or doom-centric team member is important for project success and team morale.  If we consistently ignore team members that bring these potential problems to us while they are still potential catastrophes  we will find that the team member will be less informative with risks they see in the course of the project execution.

What we really want to see is cooperation from team members—they present us with risks they have discerned after some modest filtering to ensure we won’t be overcome by panicky noise. In all cases, we want to thank our responsible team member and make it clear that we are adding their discovery to our list of items to be managed. We may even ask them for their own recommendations for risk reduction or elimination. This approach will help us avoid the groupthink of believing we are risk-free and sailing safely when we are about to slip over the precipice of project management ignominy. Even a noisy understanding of the risk situation is better than no risk assessment whatsoever.

Risk Auditing

Posted on: February 20th, 2013 by admin No Comments

We perform risk audits on projects to ascertain whether we are deviating from the desired budget, schedule, and quality levels we specified at the start of the project. At the 50,000 foot level, risk auditing looks like the following:

  • Define the problem
  • Choose an audit team leader
  • Choose an audit team or let the leader choose
  • Establish a rubric for scoring the quality of the audit
  • Accumulate evidence, facts, information
  • Assess evidence, facts, information
  • Present a report

We should schedule our audits at least as frequently as major milestone and more often if we are having problems with the project. The audit team must be objective assessors of project or program issues. We recommend hiring an external auditor only if objectivity is likely to be compromised.

The rubric will primarily cover the triad of delivery, budget, and quality with some additional analyses for known historical issues; for example, we might look at adherence to the statement of work (SOW). Resource issues can also be an auditable item.

We accumulate evidence by analyzing documentation, especially the project time line, interviews, procurement, staffing, and budget among others. Once we have our evidence organized for analysis, we assess the project for risk, qualitative at least and quantitative when feasible, and produce a report.

The project risk analysis report can be delivered to the project management office or appropriate executive function. Once the team delivers the report, they may be given authorization to schedule further audits, which as we indicated, should occur at least as often as major milestones (reviews). In fact, we suggest that the risk audit be a part of the review agendas.

Risk Management – When We Forget To Monitor

Posted on: February 19th, 2013 by admin No Comments

Okay – so we have worked with our team and have documented a list of risks, and have performed a qualitative or quantitative assessment – perhaps even both of these. Now what?  One such risk management failure then happens when we place the risk register on a shelf somewhere and the subsequent planned actions are never invoked and nobody knows who should be monitoring.

This failure is one of the most egregious. We have invested time and our human capital to understand the risks to which we may be subject and then not follow up.  Without the follow up, the previous actions were a waste of time and rendered moot.  Moreover, we will probably pooh-pooh the value of risk management in general; after all, we performed the activities and we still find our project adversely affected by risk.

To be successful, all of the previous risk activities must culminate in an action that either reduces the risk impact or eliminates the risk altogether.   It is myopic to discredit the process when the most important part – the action to reduce or eliminate the risk is itself not performed.

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