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Newsletter - Jan 2013

 
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PM Essence
DidYouKnow
Q. This can be used as a monitoring tool, but its measures non-financial metric along with financial metric to monitor progress. What is it?

A. The balanced scorecard is a strategic planning and management system that is extensively used in business and industry, government, and non profit organization to align business activities to the company strategic goals. It was originated by Dr. Robert Kaplan (Harvard Business school) and David Norton as a performance framework that added nonfinancial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of the organizational performance. The four perspectives that form the balanced score card are

1. The learning and growth perspective,
2. The business process perspective,
3. The customer perspective and
4. The financial perspective.

[source – Internet]

We like to hear what you think!!

Please complete the sentence below with your thoughts in 10-15 words and send them to. The best entry will win attractive goodies from PMI Bangalore India Chapter.

Trying to manage a project without a projectized approach is like . . . . . . . . . .

In our last edition, we had asked you to express your thoughts in 10-15 words to continue the following sentence

The structured approach to manage any project, as propounded in PMBOK, helps me to.....

And the best response is...

“plan unknowns in advance, control, minimize risks and hit the targets successfully on time with right quality.”

... and the Winner is Shikha Vaidh, PMP.
The Lighter Side of PM
LSPM Jan2013
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PM Essence

Point of Total Assumption

S.S.V. Raghavan, PMP

Recently, my attention has been drawn to this topic encountered in Project Procurement Management (often featured in the PMP Certification Examination, but never covered in PMBoK, either in the current or any of its previous editions). Invariably, all the references I have made on the subject state that it is a feature of 'Fixed Price Plus Incentive Fee' (FPIF) type of contract. To cite an example, a learned article I came across recently defines the Point of Total Assumption (PTA) thus:

“The Point of Total Assumption (PTA) is a point on the cost line of the Profit-Cost curve determined by the contract elements associated with a fixed price plus incentive-Firm Target (FPI) contract above which the seller effectively bears all the costs of a cost overrun. The seller bears all of the cost risk at PTA and beyond, due to a dollar for dollar decrease in profit beyond the costs at the PTA. In addition, once the costs on an FPI contract reach PTA, the maximum amount the buyer will pay is the ceiling price.”

The article also seeks to illustrate the principle graphically thus :
The Article further states: “For cost reimbursable contract, the Point of Total Assumption does not exist, since the buyer agrees to cover all costs. However, a similar incentive arrangement with similar components, called a Cost-Plus- Incentive Fee (CPIF) contract sometimes is used. The CPIF includes both a minimum fee and a maximum fee.”

The Article also gives a formula for calculating the PTA:
PTA = (Ceiling Price - Target Price) / Buyer's Share Ratio) + Target Cost
PTA

I have no issues either with the graph or with the formula given above. However, it is the inclusion of PTA under FPIF that I find myself unable to agree

with. At the risk of taking on the learned pundits, and exposing my limited knowledge on the subject, I would venture to pose certain questions:

1. If we are talking of cost “over-runs” and “under-runs”, and making payment to the Vendor depending on the cost incurred, what is “fixed” about the price, for PTA to be included as an aspect of FPIP type of contract?


2.
How are “target” and “actual” costs relevant in a “Fixed” Price contract?

3. Is the graph given above which shows a CONSTANT gap (upto PTA) between the Cost Curve (Blue) and Price Curve (Red) not indicative of a Cost Plus Fixed Fee (CPFF) contract, or rather, (taking into account also the fact that a Sharing Ratio is in operation), can it not be said that it represents a CPIF type?

One may argue then: How else do you explain the “incentive” in a FPIF contract? I would guess that the incentive in a FPIF contract would for the most part be for the SAVING IN TIME, rather than a saving in costs in procurement. A Price Ceiling in a FPIF contract would consequently mean a ceiling on the incentive.


I feel that as long as payments are made to the Vendor according to the costs incurred, the positive and negative risks inherent in cost savings and over-runs respectively being partly transferred according to a mutually agreed Sharing Ratio to the Vendor / Contractor, the deal would have to be considered a Cost Reimbursable Contract only, and it would be erroneous to group it under the FP type.

It is also my contention that it is not quite correct to make a sweeping statement that “For cost reimbursable contract, the Point of Total Assumption does not exist, since the buyer agrees to cover all costs”. I would say that this statement would hold good only for CPFF contracts. CPIF and CPAF (Cost Plus Award Fee) contracts tend to mitigate the risk incurred by the Buyer.


The former fixes the incentive according to a Sharing Ratio when cost savings occur, and transfers part of the risk to the Vendor in case of overruns, while the latter releases the fee in accordance with a subjective assessment by Buyer of milestone achievements by Vendor. (Fortunately PMBoK in its Fourth Edition has seen the absurdity of the proposition inherent in yet another variant CPPF - Cost Plus Percentage Fee - mentioned in the previous editions, and thought it wise to delete it).


My submission therefore is as follows :

1. PTA is a feature of CPIF, not FPIF contract.
2. It is relevant only in case of a cost over-run.
3. It occurs at the point of the price ceiling.
4. The Sharing Ratio ceases to be applicable beyond it.
5. Beyond PTA (i.e. the Price Ceiling), the Vendor TOTALLY ASSUMES all further risks associated with the over-run.

To illustrate, consider this problem :
Target Cost : ` 12000.
Target Fee : ` 1000.
Sharing Ratio : 80/20.
Ceiling Price : `14000.

Calculate actual cost and the Vendor's fee at PTA.

Solution : Since PTA is relevant only in case of over-runs (Pt. 2 above), let us assume that the over- run is ` x. It follows that the actual cost is `(12000 + x). The fee payable to the Vendor would be ` (1000 – 0.2x), because, for over-runs, a sum equivalent to the Vendor's share of the risk associated with the over-run would be deducted from the target fee. Price being Cost + Fee, and at PTA, the Price is the Ceiling Price (See Pt. 3 above), we have, at the Point of Total Assumption, the equation : (12000 + x ) + (1000 – 0.2x) = 14000. which gives x = 1250. Therefore Cost = ` (12000 + 1250) = ` 13250 and the Fee, which can be calculated either as (14000 - 13250 ) or as (1000 - 0.2 *1250), is ` 750. I was at first wary of taking on all available literature, and going against them, and hence tried to pick the brains of a couple of friends for whom I have a great respect for their knowledge of the subject.

One of them says:
“Notwithstanding what the textbooks say, ………... I have not encountered a Fixed Price contract where the client is concerned about the actual cost incurred by the contractor because of his decisions/competence, and adjusts the final sum payable, as you rightly said, what is the sanctity of “Fixed Price” then?” The other also concurs with me by stating: “Many links we see here refer to PTA being applied to FPIF contracts, while every element of the computation points to this being a CPIF contract.”

I too admit that all the literature I have referred to on the subject state that PTA is a feature of FPIF contract, but since I have not yet found any convincing argument as to why it should be part of a Fixed Price, and not a Cost Reimbursable Contract, I would be content to hold on to my view for the nonce.
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PM Essence
Seven practical tips for effective Project Monitoring and Controlling

Chetana Koulagi, PMP
From a process standpoint, monitoring and control of a project seems straightforward. Nonetheless, the implementation of this process calls for far more maturity and skill from the project manager. While a diligent plan and good execution makes monitoring and controlling a much simpler job, there are many aspects which if unattended to, can lead to pitfalls - such as not knowing the true status of project, not able to predict realistic timelines and in turn not meeting project objectives and losing the confidence of stakeholders.

Listed below are seven practical tips that come in handy during this exercise.

1. Hope is good
- but is not a strategyYou are working towards a stringent project timeline. You and your team are sincerely trying hard to meet those timelines. But there are things which have not worked out; there are things which may not work out. You are hopeful that you will make it. However, every time you are extending a timeline by 3-4 days, and not able to meet it again.

“Unless it is usable by the next step in the process, it is not complete. Define what means 'complete' for every deliverable.”

Stop – take a moment – take an honest accounting and fair assessment of the situation. How realistic are the timelines considering the current issues and risks? Do not assume the status quo as 'way of work'. Challenge the constraints - see if they can be relaxed or released. Negotiate. Communicate. Build a plan. Develop a realistic schedule.

2. Get into Details - Devil is in the details
Do you and your project team understand all the activities and their dependencies? There is a lot more to everything! Lack of clarity is what gets the project out of control. While a certain amount of lack of clarity is affordable at the beginning, many projects are unclear about the activities even during execution, monitoring and control. While there is something amiss during planning if you find yourself in this state, that's something that can be fixed with a little more attention to details.

Take your head out of laptop! Sit with a paper and pen, draw those charts, draw those dependencies, review that work breakdown structure. Talk to people. Get into details.

3. It's complete - Be sure what means 'complete’
Take some of your status reports out. See if some deliverables were mentioned as complete in the previous status report and in a subsequent status report, you see work in progress against the same one or another deliverable waiting for the one which was
reported complete couple of weeks earlier!

Unless it is usable by the next step in the process, it is not complete. Define what means 'complete' for every deliverable. Unless the deliverable is complete - the status is not 'green' - just because you have done your part. If the client or other party has not done their part, it is still not complete – it is 'red'. Likewise, a point discussed is not a point agreed. Make sure you have concurrence on all key decisions and agreements with key stakeholders. And if none of the activities in future is waiting for this deliverable, action or decision, check whether you really need it!

4. Don't let go - hit the nail on its head
During many status meetings, all you get to hear is work in progress, discussions are in progress, will get done, etc. Surprisingly, many people can get away with having unclear actions, past dates for closure of actions in the status reports and such updates without having to commit to a closure date.

When will it get done? Is there any bottleneck? What's required to get it done? How will it impact if it gets delayed? Ask those critical and tough questions. Get the answers. Get commitment.

5. Prioritize, Focus - but don't ignore future
When there are many things vying for your attention, it's just human to ignore the future challenges. Project teams tend to be short sighted – work on them if they are affecting the project now, more in a reactive mode rather than proactive. Even if a proactive soul tries to highlight some risks, those are ignored in the interest of the current issues. This loses the essence of risk management, planning, and proactive management, leading to yet another crisis situation and does not get you out of firefighting loop. The status should not become 'red' as we get closer to the deadline date. It should be identified as 'red' if it has the potential to affect the committed date and ideally get 'greener' as we near the date – with all the proactive actions that you have taken.

While you prioritize and focus on current issues, do not lose sight of future challenges. Do not miss an opportunity to plan ahead and manage better.

6. Try your best – but with a sense of timeliness

Another concern is 'waiting' – even if it means indefinitely! If you or any team member finds oneself wanting some clarification, action, help to get things done, do not wait until an opportunity for you all to get together – such as weekly meetings etc. Speak up. Call up. Get in touch. Escalate timely. Take decisions timely. Make sure you have the right stakeholders in discussion who can take decisions. Communicate to the team and customer timely.

7. It's about people finally – Lead them

Last on the list, but definitely not the least, do not ignore people factor. Especially during monitoring and controlling of project, especially if things are not going as per plan, there may be many reasons to point fingers at; there may be many reasons to misunderstand or to be misunderstood. Intention of discussing any problem is not to blame anyone. The objective should be to address the issue. Many a time you would find people in status meetings debating over a point for hours only to realize later that they were never in disagreement!

Seek clarification before debating on your interpretation. As much as it might sound a cliché, attack the problem rather than the person. Lead them to the solution rather than create another problem.


Conclusion

The right approach with a right attitude can help the Project Manager to gather and comprehend the true status of project and plan ahead considering the
realities on the ground.
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PM Essence

Competency Development as a Structured Process

By - Chandan Pahuja, PMP

Competence (or competency) is the ability of an individual to do a job properly. Some scholars see "competence" as a combination of knowledge, skills and behavior used to improve performance;

JanAImg3
There are Four Stages of Competency Development
JanAImg4 Unconscious Incompetence
"I don't know that I don't know how to do this." This is the stage of blissful ignorance before learning begins. The individual does not understand or know how to do something and does not necessarily recognize the deficit.
Conscious Incompetence
Though the individual does not understand or know how to do something, he or she does recognize the deficit, as well as the value of a new skill in addressing the deficit. The making of mistakes can be integral to the learning process at this stage. "I know that I don't know how to do this, yet”. This is the most difficult stage, where learning begins, and where the most judgments against self are formed. This is also the stage that most people give up.
Conscious Competence
The individual understands or knows how to do something. However, demonstrating the skill or knowledge requires concentration. It may be broken down into steps, and there is heavy conscious involvement in executing the new skill. "I know that I know how to do this." This stage of learning is much easier than the second stage, but it is still a bit uncomfortable and selfconscious.
Unconscious Competence
The individual has had so much practice with a skill that it has become “second nature” and can be performed easily. As a result, the skill can be performed while executing another task. The individual may be able to teach it to others, depending upon how and when it was learned." What, you say I did something well?" The final stage of learning a skill is when it has become a natural part of us; we don't have to think about it.

How to move from Unconscious Incompetence to Conscious Incompetence

KNOW YOUR IMPERFECTIONS: - Only by knowing our imperfections can we actually take steps to address them. The problem is, people rarely see their own flaws.

These three strategies can make the selfassessment process objective and informative:

1. Use a self-evaluation form. The easiest way to assess your skills is with a written selfevaluation, either downloaded from the Internet or created based on your job description But because true self-assessment is difficult, a selfevaluation should be used as a jumping-off point for the next two steps.

2. Have peers ask tough questions. Peer evaluations can be more effective than selfassessments. They can be formal, written or electronic surveys, or informal, face-to-face conversations between meetings. Reach out to the different people with whom you work—senior managers, day-to-day stakeholders, other project managers—and ask them hard questions like, 'Does my relationship with you work?' and 'How do you think I manage issues?’

3. Evaluate your projects. Self-assessment has to be connected to what actually happened on a project. If you're really trying to improve your skills, you have to ask yourself what parts of a project didn't go according to plan and how those can be traced back to your actions as a project manager.
How to move from Conscious Incompetence to Conscious Competence
Wisdom for those at Unconscious Competence Stage Failure to improve is a failure to adapt, and a failure to adapt will end up in very negative consequences for your projects, yourself and your company, proactively address your weaknesses by approaching them the same way you'd approach a project, complete with milestones, deliverables and deadlines.

If you don't take the next step and use your newfound self-awareness to actually improve your skills, you'll quickly fall behind the curve.

While a self-improvement plan can include any number of action items, some of the most effective are:

Ø Take a class. Some people like e-learning because they can get just-in-time training at their convenience. However, keep in mind that the interaction and peer-group learning experiences that come with faceto - face learning may be more effective in the long run.

Ø
Get credentialed.
The biggest gut check for anyone is preparing for and taking the Project Management credential exam.



Ø Find a mentor: Mentors and coaches can offer personalized instruction and immediate, real-time feedback. They understand where project managers are coming from, where they want to go and what it takes to get there.

Ø Practice new skills. Look for everyday opportunities to strengthen your weaknesses. No one is perfect, but that shouldn't stop you from pursuing perfection. We all have imperfections. We can't thoroughly rid ourselves of them, but as project managers, we must address and manage them.

Wisdom for those at Unconscious Competence Stage
You may need to remind yourself how difficult it was to reach this state, so that you are tolerant with people at the Conscious Incompetence stage!

Although this is the ideal state, you'll need to make sure that you avoid complacency, and stay abreast of their fields.



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PM Essence
MuraliSnap
Murali Santhanam, PMP
Murali Santhanam presently holds the position of Honorary Secretary & Treasurer of PMI Bangalore India Chapter. He has 32 years of experience in Banking, Technology, Project Management and Business Management. He presently works for IBM as a Senior Consultant. One of the earliest proponents of PMI and Project Management in India, he obtained PMP Certification in 1998 and also obtained additional Project Management Certifications from IBM. He played a key role in building the project management profession consisting of over 4000 project managers within IBM in India. He has been associated with the PMI Bangalore India Chapter as a volunteer right from its inception and had associated himself with some of the programs.

He is also a Photography Enthusiast and sets aside some time during the week for photographing nature, wildlife, architecture and landscapes. He along with his friends in a group called Vismaya, recently conducted a Photo Exhibition and Sale for raising funds for HCG foundation to treat cancer patients. His works can be seen on his web-site http://muralisanthanam.com

Where do you get your inspiration from?
I get energized whenever I find older people working with a high level of enthusiasm and purpose. It tells me that life needs to be lived purposefully till it ceases. Technical skills or project management skills. Which is important and why? This is like saying whether husband is important in family or the wife. They complement each other and projects will fail when either of the skills is absent.

What is your description of an effective team work?
When unstated tasks are completed without having to tell; When a team member gets willing help without asking for it; When team feels collectively and equally proud about the outcomes; When there is more 'We's than 'I's in communications.

PMI Volunteering, Professional commitment, Personal commitment - How do you balance the three?
Whenever I think that all these are commitments accepted by me on my own free will, the burden becomes less. When there is pressure on one side, I know that I can count on help from the others to fill the gap.

A good manager has to be also a good leader - your thoughts
Leadership is like a personal trait, your character. A good leader will have a more fulfilling experience in every walk of life, be it personal, professional or managerial.

The greatest project management lesson you have learnt
a) You, and you alone, as a project manager stand between success and failure of a project
b) To be able to see what is coming you must detach yourself from doing things yourself
c) Your actions are magnified by equivalent responses from the team An accomplishment, professional or personal that you cherish and like to share with us
By the time, this hits the press, the Vismaya team, which I am a part of would have held the first Photography Exhibition for the cause of helping cancer patients. This would stay with us for some time to come.

Tell us your hobbies, or things you are passionate about
Taking Photographs, Fixing what is broken, Listening to Music, Traveling to places and Reading Books

Murali Santhanam, PMP