Individual Assignment

C H A P T E R

2

WHAT MAKES A

PROJECT SUCCESSFUL

The Sydney Opera House

One of the world's greatest tourist attractions is the Sydney Opera House, an architectural wonder visited every year by millions of travelers.1 The original project plan, as envisioned by the New South Wales government in the 1950s, included an estimated budget of about 7 million Australian dollars and a schedule of five years. But getting there was tough. The construction project experienced enormous difficulties—extensive delays, bitter conflicts, and painful budget overruns. Sixteen years passed before the opera house opened its doors, and its final price tag was more than 100 million dollars.

Judging it purely on time and budget performance, you might conclude that the Sydney Opera House project was a textbook example of project failure. But no one really cares any more how the project was managed, and almost everyone sees the Opera House as a success story. It provides continuous income and fame to the city of Sydney, and it remains one of the most fascinating buildings in the world.

We have seen similar projects that did not meet their time and budget goals or did not follow the standard project management procedures and yet, with time, were judged to be successful. And we have seen projects fail

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despite being well managed according to the traditional rules. Some were completed on time and within budget, yet they did not bring much value to their organizations or customers.

But if meeting time and budget goals is not the only criterion, what else is there? In an era when projects are among the most widespread phe- nomena in modern organizations, it is not so easy to answer this simple question. The traditional mind-set maintains that project success de- pends on satisfying the triple constraint—on time, within budget, and according to specifications. In the dynamic world of business-related projects, however, abiding by the triple constraint is no longer sufficient, and a new model is needed.

No matter what the motivation for a project, any assessment of proj- ect success must be linked to the parent organization's success and to its well-being in the long run. However, despite numerous arguments, there is still no universal way to measure and assess project success.2 This chap- ter suggests a business perspective on project success. Our aim is to help executives and managers better define their expectations during a pro- ject's planning phase and later assess real project success.

Beyond Time, Budget, and Performance

What does project success mean? Should the same rule apply to all proj- ects? Although time to market may be critical to a company's current competitive position, many other issues may have an impact on project success in the long run. Consider the following famous cases.

When the first generation of the Ford Taurus was introduced in 1986, it quickly became the best-selling car in America and one of the most successful cars in Ford's history. Its revolutionary design and exceptional quality created a new standard in the U.S. automobile industry, and customers simply loved the car. Yet when the develop- ment project was completed, its project manager was demoted be- cause the project was completed three months later than scheduled.3

The first Windows software launched by Microsoft suffered enor- mous delays, with continuous redirection of resources and people. But Windows turned out to be one of Microsoft's most profitable products and an enormous source of revenue.4

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Before introducing its big hit, the Macintosh, in 1984, Apple Computer completely failed with its predecessor, the Lisa com- puter. Apple's managers acknowledged later that without the lessons learned and technologies developed on the Lisa project, the Mac's success would not have been possible—bringing into question whether Lisa was indeed a complete failure.5

When it comes to project success, the key question is this: what do or- ganizations need to consider before they launch a new project, and how should they assess a project in retrospect?

Meeting time and budget goals is only a small part of the picture. Having achieved such goals suggests that the project was managed care- fully and efficiently and that the project team did a good job of planning, monitoring, and executing the plan. But adhering to a project plan tells us nothing about achieving the long-term business goals for which the project was initiated in the first place.

Most projects are part of the strategic management of their organiza- tions, and they should be assessed based on their contribution to overall business results, and not only on their ability to meet time, budget, or per- formance goals. Furthermore, project benefits can have many forms; some may be immediate, and others may be realized only later. An organ- ization must therefore set project goals in advance to reflect its expecta- tions, both in the short term and in the long term. Consequently, all project activities must be aligned with these expectations.

A Multidimensional Strategic Concept

Some scholars have suggested distinguishing between the success of the project and the success of the product. They argue that we should first assess the efficiency of project execution (was it completed on time and within budget?) and then later look at the product's success and its im- pact on the business (did it create the expected market impact and bring in the anticipated revenues?).6

We believe, however, that project and product success should not be separated. They are two sides of the same coin, and both must be ad- dressed by the project team during project execution. It all boils down to a simple question: how did the project contribute to the organization's success and effectiveness?

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Who Is Responsible for a Project's Success?

This perspective requires project managers to view project success in a wider sense and to take the responsibility for making it happen. Execu- tives, for their part, must convey to project teams the overall business perspective, define the business expectations in advance, and ask the questions pertinent to business expectations before a project plan is ap- proved and while a project's progress is reviewed.

With this mind-set, project managers manage their projects from day one in a different way. They are constantly aware of the business environ- ment and make sure that the team's activity is focused on the project's short- and long-term goals. The emphasis and importance of project goals may differ from project to project, but the total responsibility for overall project success rests on the shoulders of the project manager, the one who is running the project day-to-day.

Note, however, that some companies separate the role of the project "owner" from that of project manager. The owner takes care of meeting the business needs, and the manager is responsible for timely delivery. Yet even in this case, you cannot remove the team and its leader from their re- sponsibility to make sure that their day-to-day work leads to the long- term success of the end result.

Success: Multiple Dimensions, Multiple Viewpoints

We see project success as a multidimensional, strategic concept.7 Every project needs more than one dimension for assessing success, and those dimensions vary in importance and significance, depending on the project.

Measuring organizational effectiveness on different dimensions is not new. It has evolved in recent years at the corporate level, as companies have realized that assessment based on traditional financial and account- ing measures is not enough. Kaplan and Norton developed the corporate Balanced Scorecard concept to address these issues. It includes four major dimensions: financial measures, customer-related measures, inter- nal measures, and innovation and learning measures.8 Typically, organi- zations choose fifteen to twenty submeasures that reflect their specific needs and environments. Other studies have suggested adding yet another dimension, for a total of five: financial, market related, process quality, people development, and preparing for the future.9

But how does all this apply to projects and their success? Clearly, any collection of measures should address more than one need and should represent the concerns of more than one stakeholder group. But above

WHAT MAKES A PROJECT SUCCESSFUL 25

all, success measures must reflect the strategic intent of the company and its business objectives, for three reasons. First, if a project does not serve the organization, why do it at all? Second, it should encompass success at different times: what may seem well done in the short run may end later in disappointment, and short-term setbacks may turn into long-term re- wards. Project success should therefore be observed with different time frames in mind. Finally, success measures should reflect the interests of various stakeholders who will be affected by the project's outcome.

Consider, for example, the construction of a new office building. An architect may consider the project a success in terms of its aesthetics; an engineer, in terms of technical competence; an accountant, in terms of money spent under budget; a human resources manager, in terms of the team's satisfaction. Finally, a CEO will rate the building in terms of its ef- fect on the stock price, and an owner, in terms of return on investment.10

What may seem a great project to one community may not be appreciated by another. The following example represents a case that was considered world-class by the traditional project management mind-set, only to end up as a failure because it did not address the needs of its major stake- holders, the customers.

The Los Angeles Metro: A Subway System in an Automobile City

In January 1993, the Red Line—the first 4.4 miles of the Los Angeles Metro—opened its doors to passengers in downtown Los Angeles. This line had been commissioned as the first segment of a subway system that had been planned for years.

An underground railway in Los Angeles was first suggested in 1925, but city voters rejected it. In the urban environment of the 1980s, voters finally mandated funding for an integrated railway system. It would be implemented in stages, and, when completed, the planned twenty-three miles of the Red Line would fan out from downtown in three directions (east, west, and mid-city), creating the backbone of a new transportation system designed to serve the city for the next thirty years.

The project faced numerous technical and management chal- lenges: hydrocarbon gases in the ground, abandoned oil wells, contaminated underground water, and high seismic activity. But the greatest challenge was changing the attitudes of citizens by con- vincing them to leave their cars at home and use a subway system.

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The Rail Construction Corporation (RCC), the construction arm of the Los Angeles Mass Transportation Authority, set several yardsticks for assessing project success according to the project mission and vision: to build a world-class subway system for the Los Angeles community and become the model of excellence in public works design and construction. Success would mean com- pleting the first segment ahead of time and within budget, main- taining construction safety records that were 50 percent better than the national average, hiring local and minority businesses, main- taining on-time train operations at 98 percent, achieving formal industry recognition, and winning distinguished industry awards.

By all these measures, the project was successful. It was com- pleted eight months ahead of schedule, with no budget overruns. It was even selected as "Project of the Year" by the Project Man- agement Institute in 1993." However, the remaining phases of the project were dropped a few years later when the city realized that train usage was significantly lower than expected. The challenge of changing the citizens' attitudes about leaving their cars at home and using the subway system was never met. The most important part of the project's mission—building a world-class system that will be used by the community—was ignored in favor of "becoming a model of excellence in public works design and construction."

The Five Main Dimensions of Project Success

Based on our research, we suggest that a comprehensive assessment of project success in the short and the long term can be defined by five basic groups of measures:12

• Project efficiency

• Impact on the customer

• Impact on the team

• Business and direct success

• Preparation for the future

Other dimensions may also be relevant, but these groups represent a wide spectrum of project situations and cover a great majority of cases and time horizons. Each dimension includes several possible submeasures, as listed in figure 2-1. (Appendix 2 shows the research questionnaire used in our study.)

WHAT MAKES A PROJECT SUCCESSFUL 27

The first dimension, project efficiency (or meeting planned goals), repre- sents a short-term measure: whether the project has been completed accord- ing to plan. Was it finished on time? Was its spending within the budget? As we mentioned, meeting resource constraints probably indicates a well- managed, efficient project, but it may not guarantee that the project will ultimately succeed and will benefit the organization in the long term. However, with increased competition and shorter product life cycles, time to market may be a critical competitive component that cannot be ignored.

The second dimension, impact on the customer, represents the major stakeholder whose perception is critical to the assessment of project success. This dimension should clearly state how the project's result improved the customer's life or business and how it addressed the customer's needs. For example, if the customer is a service provider, success in this dimension might be defined as follows: "The product will enable the customer to cut in half the response time to its own customers, and reduce errors by 60 percent."

As figure 2-1 shows, this (and not project efficiency) is the dimension that includes product performance measures, functional requirements, and technical specifications. Who, after all, is most affected by product per- formance, if not the customer? This dimension typically also includes the level of customer satisfaction, the extent to which the customer is using

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the product, and the extent of customer loyalty: whether the customer is willing to purchase or order the next product.

The third dimension, impact on the team, reflects how the project af- fects the team and its members. Good project leaders energize and inspire their team members and make the project a memorable, exciting experi- ence. Other projects may be remembered as demanding and exhausting experiences. This dimension assesses the cumulative impact: team satis- faction, morale, the overall loyalty of the team to the organization, and the retention of team members after the project is completed. But this di- mension also assesses the indirect investment the organization has made in team members. It measures the extent of team learning and team growth and of team members' newly acquired skills and new professional and managerial capabilities.

The fourth dimension, business and direct success, reflects the direct and immediate impact the project has on the parent organization. In the business context, it should assess sales levels, income, and profits, as well as cash flow and other financial measures. In short, this dimension should relate to the project's commercial success and answer one simple question: did it help build the bottom line?

In many cases, this dimension is represented by a typical business plan that outlines future expected sales, growth, and profits from the resulting product. In other cases, this dimension may involve an investment benefit analysis plan, which ties the investment to expected returns. However, this dimension might also include business-related measures for internal projects not aimed at new products for external markets, such as reengi- neering projects for restructuring business work flows. In such cases, this dimension often includes measures of costs saved, improved production time, cycle time, yield, and quality of process.

This dimension may also apply to nonprofit organizations. For example, when a charity foundation initiates a project to improve its services, shorten its processes, and serve more customers more cost-effectively, assessing the success of such an improvement project should include measures de- signed to reveal the direct impact of the project on benefits to the public.

The final dimension, preparation for the future, addresses the long- range benefits of the project. It reflects how well the project helps the or- ganization prepare its infrastructure for the future and how it creates new opportunities. Future infrastructure may include new organizational processes and additional technological and organizational competencies. Typical measures might include creating a new market, creating a new product line, or developing a new technology.

As with Apple's Lisa, projects without immediate business benefits may still provide critical stepping-stones for future opportunities. To ana-

WHAT MAKES A PROJECT SUCCESSFUL 29

lyze this dimension, you can ask a number of questions. Did your project test new ideas that will result in further markets, innovations, and prod- ucts? Did you develop new technologies and core competencies? And are you prepared to initiate change and create the future in your industry or to adapt quickly to external challenges, unexpected moves of competi- tors, and surprises in markets and technology?

The five measures presented here provide a universal framework for assessing project success in most cases and environments, but sometimes it may be necessary to define additional success dimensions for specific projects. For example, in the pharmaceutical industry, one of the clear tests of project success is getting FDA approval for a new drug or treat- ment; in election campaigns, winning defines ultimate success.

Similarly, in public and government projects, success may be assessed by the image and perception of the government by the citizens, for which special measures may be developed, whereas in battle, success is not only winning the war but also minimizing casualties and civilian suffering.

Project Success as a Dynamic Concept

When using these main dimensions, project success becomes a dynamic concept with both short- and long-term implications. The first dimension, efficiency, can be assessed in the very short term—during project execu- tion and at the moment of project completion. The second and third di- mensions begin to take shape while the project is in progress, in the form of assessments of the aptness of the specifications for customer needs and of the quality of the team's interactions. They typically become clear within the first few months after project completion, after the product has been delivered to the customer and the impact on the team shows up in the larger organizational context.

The fourth dimension, business and direct success, can be assessed only after a substantial sales level has been achieved and when project re- turns break even, usually after one or two years. And finally, the fifth di- mension can be assessed only much later, probably after three, or even five, years, when the long-term benefits of the project start to pay off. In prac- tice, these assessments overlap, but the dimensions' time frames change, as illustrated in figure 2-2.

The Impact of Time

Which of our five dimensions is most important? As the nature of the di- mensions suggests, their relative importance also shifts depending on when you look at them. In the short term, and particularly during project

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execution, the project efficiency dimension is critical. In fact, it is the only one that can be measured in concrete terms at this stage. Meeting re- source constraints, measuring deviation from plans, and looking at vari- ous efficiency measures may be the best ways to monitor project progress and control its course.

After the project is complete, however, the importance of this dimen- sion diminishes. As time goes by, it matters less and less whether the proj- ect has met its resource constraints, and in most cases, after about a year it is almost irrelevant. While the second and third dimensions—impact on the customer and team—become relevant after project completion, the time to think about them (as well as all the other dimensions) is dur- ing the project itself, when you have the power to influence them.

The fourth dimension, business and direct success, becomes signifi- cant only later. It usually comes to the foreground after a while, when sales of the project's product start to bring in profit or establish market share. And finally, preparation for the future, which expresses the long- term benefits of the project, affects the organization only after years have passed. The relative importance of the five dimensions as a function of time is shown in figure 2-3.

Types of Projects and the Success Dimensions

Later chapters address the issue of various project types, discussing in de- tail how to adjust your management approach. For now, note that risk and opportunity typically vary together by project type—the higher the risk, the greater the opportunity—and success measures should reflect this situation. Low-risk, low-uncertainty projects normally create limited op- portunities, and most such opportunities can be pursued with a high level of confidence.

It follows that for low-risk projects, meeting resource constraints may be more critical and relevant than for higher-risk projects. The immediate success of low-risk projects relies on meeting time and budget constraints, and their expected profits can usually be determined in advance. In con- trast, for high-risk, high-uncertainty projects, poor performance in the short term, budget overruns, and even limited business success may be offset by longer-term benefits, such as creating new markets, developing expertise in new technologies, and preparing the infrastructure for more advanced products in the future. Clearly, customer and team satisfaction and direct success are important to all types of projects.u The relative importance of project success measures changes, therefore, with levels of risk and uncer- tainty, as shown in figure 2-4.

WHAT MAKES A PROJECT SUCCESSFUL 31

In summary, we must note again that although the dimensions of suc- cess may vary in importance over time and with project type, they none- theless need to be addressed throughout the life of the project. Next, we discuss how companies and managers can apply this approach.

Applying the Success Dimensions Framework to Your Projects

Companies need to establish a success-focused project environment that employs a multidimensional, flexible measurement approach and that pays attention to each success dimension during project planning and execu- tion. If no one cares during project execution whether the customer will buy the product, the chances of coming up with a profitable product are much lower. Organizations can therefore take several key steps from the outset to ensure a project's success.

Adapt Your Expectations to the Project Type

Managers' and team members' attention must be focused as early as pos- sible on the project's objectives, as specified by the company. If organiza- tions are planning to achieve strategic benefits from projects, managers should incorporate these benefits as predetermined measures of project

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WHAT MAKES A PROJECT SUCCESSFUL 33

success. They must look both at the short-term and the long-term bene- fits of the project and judge its performance along all dimensions.

Since no given set of dimensions can serve all projects, managers need to adapt their expectations to the project type and weight the various suc- cess dimensions based on the project. For example, a high-uncertainty, high-risk project will be assessed mainly on its business and long-term ef- fect, rather than on short-term measures of time and budget performance. Conversely, it is unlikely that a low-uncertainty, low-risk project, such as construction of a new building, will help the organization develop new technology or create new opportunities.

Make Project Success Dimensions Part of Project Planning

Project success dimensions must therefore become an integrated part of project planning, and a standard component in the strategic management of the organization. You should incorporate success measures into the decision-making process of top management when you initiate the proj- ect, and you should include them in the project team's charter. Manage- ment must commit the organization's resources to meet these measures. You need to document them in detail and make them a part of the project plan, and you need to monitor them during project reviews. Are they still relevant? And how is the project doing in achieving them?

Managers and project teams should be evaluated based on their per- formance in all dimensions, rather than only the short-term ones. Any specific project should be focused on the appropriate dimensions. Is it a short-term, low-risk project whose benefits are based on efficiency? Or is it a high-risk project, in which the organization is ready to suffer some overruns and even live with less satisfactory business success in the short run in order to enjoy the long-term benefits and infrastructure built for creating the future?

The adaptive and flexible project management style also applies to pro- ject success. If necessary, you should be ready to adapt your project's success dimensions in response to new information and changes in the environ- ment. During project reviews, executives should look at these success di- mensions and the progress that has been achieved and, if needed, approve changes in the measures according to the changes in the circumstances.

Accept Greater Responsibility

In our view, project managers are responsible for achieving success in all dimensions—first and foremost, for customer satisfaction and business

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results. When we presented these ideas to managers or other scholars, the typical response was supportive and enthusiastic. From time to time, however, we have heard another opinion—one best represented by the words of an anonymous reviewer of one of our research papers: "A proj- ect manager must make sure the project is completed in time, within budget, and it should meet its specifications. Everything else is irrelevant. If these are not congruent, it can be argued that there was a failure out- side of the project, not within it, and the project can be considered a legit- imate success."

We hope that such long-held beliefs are fading away. No one outside the project knows the project better than its manager, and no one can do more to guarantee its success. The extended and continuous period of work on the project should be devoted to creating a success-focused envi- ronment, beyond the triple constraint, in which each team member knows clearly what success means and acts purposefully to achieve it.

But what about rewards? How do we reward a project manager for a job well done when the business results will come (or not come) long after project completion? A portion of these rewards may come naturally dur- ing project execution in the form of customer reaction or initial business response. Ultimately, however, the adaptive approach will cause a culture change in organizations. Projects will be tied more closely to business re- sults, executives will be more attuned to project processes, and in the long run reward systems will become more flexible and adaptive to multiple in- dicators of project performance.

Dealing with the Possibility of Failure

Most of this chapter has focused on project success—how to measure it and how to plan your project for the greatest success possible. But what about failure? Unfortunately, as we have seen, failure is common in proj- ects, and project teams must deal with it during planning, just as they deal with planning for success. Many teams indeed use a risk management plan for their projects; however, we argue that you should define the suc- cess and failure criteria on various dimensions at the same time. Failure criteria state in advance what can go wrong with a project and form the basis for your detailed risk management plan. Projects may fail to meet their time and budget goals, fail to meet requirements or satisfy the cus- tomer, fail to meet the business objectives, cause harm or hazard, or even endanger human life. We provide more details on project risk in later chapters and deal specifically with risk management in chapter 9.

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Now that we've examined what determines a successful project, chapter 3 outlines the framework through which the adaptive project management approach can be applied to various kinds of projects in various situations and environments.

Key Points and Action Items

• Project success cannot be judged by the triple constraint alone. Time, budget, and performance are short-term dimensions that do not reflect longer-term success. Project success is a multi- dimensional, strategic concept that should consider both the short- and long-term success of the project and its product. It should focus on business success as well as the efficiency with which the project is run, and it should consider different stake- holders' points of view.

• Five dimensions are typically sufficient to plan and assess project success: efficiency, impact on the customer, impact on the team, business and direct success, and preparation for the future. Each of these dimensions is then reflected in detailed measures for each project. Additional dimensions may be needed in specific cases.

• Different projects have different success measures. These measures depend on the point of view, the time frame, the project uncer- tainty, and other variables. The relative importance of success dimensions depends on the time of the observation and the type of the project.

• Success dimensions are determined as part of the project plan and should drive project execution. They should be defined together with possible failure criteria for "what can go wrong." It is the responsibility of the project manager and team to make sure that a project is executed so that it meets all the success dimensions.

• Success dimensions may also change during the project's life cycle, as new information is gathered and as the environment changes.

• Executives should implement a system in which all projects, as a first step, define the relevant success dimensions in the project plan. Project reviews should include progress reviews along all success dimensions and, if needed, approve changes in success measures.

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• Your organization's culture should reward project managers and teams for more than meeting time and budget goals. Give greater responsibility to project managers, and make sure that they are rewarded when the product performs well in the market and when customers are really happy with the outcome.