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Performance Management

Notwithstanding the organisation's commitment to execute value management processes, performance management ensures that project outcomes are as expected and that inadequacies in project management are promptly identified and remedied.

PERFORMANCE EVALUATION APPROACHES

Currently the pragmatic/technical approach, aligned with project management performance, appears to have a high acceptance and perceived usefulness as it is well supported by project management bodies and consultants. The approach is used by project managers to demonstrate that projects are completed on time, within budget and at a high level of quality. It is projectcentric by measuring performance in project management and during project delivery processes.

The above approach has been criticised for not including an economic measure of project management performance. Aubry et al. (2007: 331) found that practitioners and researchers have not been able 'to convincingly demonstrate the economic value of investment in project management [and that] clear demonstration of the direct influence of project management on ROI [Return on Investment] is not easily accomplished'. With the economic/ business value-centric approach, performance is assessed by how closely projects (planned, under development and completed) achieve organisational goals. It is directly linked to performances that improve the 'bottom line' of the organisation, either quantitatively (e.g. increased profits) or qualitatively (e.g. increased innovation).

Organisations should find a good balance between project output and project management performance, comprising technical measures and business measures. Desouza and Evaristo (2006) suggested taking a PMO- centric view. This recognises the importance of the Project Management Office (see Chapter 5) as an organisational entity responsible for the performance of project management and projects. However, they warned that performance should be interpreted within a given context which involves history and the outside. History provides insights into how the organisation is currently performing compared to how it did in the past. Information from outside indicates how the organisation is performing against organisations in the same industry or with similar projects.

PERFORMANCE METRICS

To develop metrics means applying the theory of decomposition (see Fink 2006). Broad performance measures are decomposed into lower levels until a 'succinct statement' can be made about a particular performance variable. Decomposition therefore ends at the most 'primitive' level, which is achieved when a particular performance variable has been singled out and can be measured. At this, the lowest level, the performance variable should have 'functional integrity' in the sense that the method of performance measurement is achieved through the application of a formula or algorithm. According to the theory of decomposition, the variable should make sense to those seeking to use it to evaluate performance.

Metrics provide a factual representation of important project activities and enable greater preciseness in their execution. Metrics can be used in two ways. First, they are used to assess internal performance. In this way they provide feedback on achievements, for example to determine project management efficiency, and can be the basis for strategies and actions, for example to introduce change. Second, they can be used as benchmarks from which comparisons are made with industry and other norms. Furthermore, the emergence of metrics improves the perception of greater corporate transparency.

Tried and proven approaches to justifying and measuring the payoffs of project investments in the form of traditional accounting metrics - e.g. ROI, Net Present Value (NPV), Payback Period (PP) - are popular. They have become a convenient and familiar approach for most business executives but, because of their financial nature, they tend to have a short-term focus. Non-financial business metrics have more of a long-term focus. However, to apply them, they need to be dearly understood and defined. The saying 'you cannot manage what you cannot measure' is subject to the addendum 'you cannot measure what you do not define'.

While the use of metrics can have an empowering influence, it can be threatening to some. There is now an expectation that metrics will be met. As a result, there could be a reluctance to commit to achieving targets that are perceived to be unreasonable, or a resistance-to-change attitude could develop. Undesirable behaviour may result, such as seizing control over other business activities that are not performing well or using information as a means to exert broader influence in the organisation.

PROJECT RISK GOVERNANCE AND CORPORATE PERFORMANCE MANAGEMENT

There are, however, a number of key facilitators to the acceptance of the performance metrics approach. The most significant enabler is the existing business climate, which requires today's organisation to be lean, agile and adaptive to a rapidly changing environment. Metrics track their internal as well as external effectiveness. Second, the development of cross-functional metrics, in preference to a silo approach, has increased the level of communication within business, thereby providing the environment for engaging with other projects across business disciplines. Furthermore, metrics have the potential to facilitate business integration and deliver a value framework for the organisation.

Table 4.2 Integrated corporate/project risk governance performance framework

Corporate Performance Management

Demand management

Supply management

Support management

Performance constructs

Sales, markets

Suppliers, operations

Human resources, IT, finances, regulations

Performance variables

Customer satisfaction

Supplier reliability

Resource availability

Performance metrics

Metrics Integration

Risk profile below risk tolerance level

Number of strategies formulated

Number of risks included in register

Performance metrics

Acceptable overall portfolio risk profile

Risk strategies for value-creating and value-protecting

Project risk analysis and register

Performance variables

Business/project

integration

Investment

management

Value realisation

Performance constructs

Project portfolio management

Project programme management

Project management

PRG processes

Project Risk Governance

For PRG, an integrated corporate/project risk performance framework can be developed. Corporate Performance Management (CPM) is about 'connecting the dots' so that the various lower-level value metrics can be aggregated and made to work seamlessly together, reflecting the highest level of corporate performance. There are various organisational perspectives on what constitutes effective CPM. The Gartner Group (Koulbanis 2003) claimed that their Business Performance Framework™ holistically covers the controllable activities that occur within the typical organisation, namely demand management, supply management and support services. They are further broken down into what the Gartner Group referred to as aggregate measures, or 'performance variables', as shown in Table 4.2.

Table 4.2 consist of two parts. The top half indicates the development of corporate performance metrics in the areas of demand, supply and support management. They are termed performance constructs or broad descriptors of the areas where performance will be measured. They are initially 'decomposed' into performance variables. As an example, the construct of demand management can be perceived to consist of sales and markets. To each of the variables at least one performance metric is attached. For example, to determine the performance of sales, the metric 'customer satisfaction' was determined.

The metric is quantified by conducting a customer survey in which levels of satisfaction are indicated on a numeric rating scale.

The bottom half of the table is constructed in the same way to measure the PRG performance in project portfolio management, programme management and project management. Their performance constructs are identified and decomposed into performance variables and then 'quantified' as performance metrics as shown in the table. For example, investment management is judged by the formulation of strategies for value-protecting and value-creating for which a metric could be the number of strategies formulated.

Checklist: Project Risk Governance in Performance Management

• Are project-centric measures used to evaluate project performance?

• Are business value-centric approaches used to evaluate project performance?

• Is there a balance between project performance and project management performance?

• Is the Project Management Office involved in project performance management?

• Are performance metrics used?

• Are performance metrics understood and clearly defined?

• Does each performance metric measure only one particular aspect of project performance?

• Are both financial and non-financial performance metrics used?

• Is the use of performance metrics supported in the organisation?

• Is there a system of performance management for PRG?

• Does performance management consider PRG processes and performance constructs, variables and metrics?

• Is PRG performance integrated with corporate performance management?

Within the above framework, corporate and PRG performance are integrated at the metrics levels across the various performance constructs. It is recognised that further research is needed to increase the knowledge base of what actually takes place in practice. Baseline research should be conducted in which organisations are surveyed as to their knowledge of metrics, the perceived need for metrics and how metrics integrate. However, from the rapidly increasing interest in project performance and success, reflected in publications and conference proceedings, one can assume that the need for performance measurement is well accepted in practice.

Conclusion

This chapter defined the scope of PRG and thereby identifies its governance processes and structures. PRG processes provide the core of the interaction between corporate and project activities. They are focused on ensuring that projects achieve business outcomes and that project risk management is carried out effectively at the project level. Four PRG processes are identified: project portfolio, programme and project management; investment management; value realisation; and performance management. The objectives of PRG differ within each of the processes. For example, PRG requires risk considerations to be included in project investment decisions and during project development. The chapter concluded by recommending the use of metrics to determine performance in executing PRG processes.

 
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