As of January 12, 2016 the Project Management Professional (PMP)® exam has been revised. A new area of focus is business strategy and strategic alignment of projects. PMI® has conducted extensive research on the topic in recent years and the news isn’t good:
- Poor performance results in organizations wasting an average of US$109 million for every US$1 billion spent on projects. In other words, for every $1 spent, almost 11 cents is being wasted. A February 2016 report stated that the waste has gone up-to US$122 million for every US$1 billion investment (more than 12 cents per dollar!).
- On average only 56 percent of strategic initiatives undertaken by organizations are successful; the reverse of that sounds worse: 44 percent of strategic initiatives are failing.
- High performing organizations (76 percent) have twice as many successful strategic initiatives compared to the low performers (38 percent).
- High performing organizations (57 percent) are twice as likely to have strategic alignment of projects compared to the lower performing ones (28 percent).
- 92 percent of high performers in terms of project success and 91 percent in organization success align projects in the portfolio to strategic initiatives.
High performing organizations are the ones that achieve 80 percent or more of their projects on time and within budget and meet original goals and business intent. In low performing organizations 60 percent or fewer projects are on time or within budget or meet original goals.
And why do projects fail? The single biggest reason (58 percent) is because they’re not aligned with organizational strategy! Even if a project came in on time and on budget, it might not be what the organization needed anyway. Other dominating reasons are lack of organizational agility and lack of execution.
It’s obvious that strategic alignment of projects plays a crucial role for high performing organizations — or better put, successful organizations. Also, projects that are aligned to the organization’s strategy are completed successfully more often than the projects that are misaligned.
Linking a Project to Organizational Strategy
To understand a project’s link to the organization’s strategy, you need to understand certain terms and terminologies:
Vision: Every organization has a vision, which describes its future state. Vision provides long-term direction to the organization.
Mission or Mission Statement: Vision is accompanied with a mission statement, which describes the purpose. The mission statement explains why the organization exists and tells where it intends to go.
Goal: An organization establishes goals that will move towards its vision. Goals define what an organization will achieve over a multi-year period.
Strategy: This is an approach that you take to achieve a goal. Goals tell what an organization wants to achieve, whereas strategies tell how they will be achieved. Goals of strategic nature are called strategic goals.
Objective: Objectives are measurable steps to achieve a strategy. These are quantifiable. Objectives serving the strategy are called strategic objectives.
The Strategy Execution Stack
The figure below shows a strategy execution stack that lays out the relationship among the vision, mission and strategic goals and objectives and who cares about what.
At the top of the stack the first four layers set the target for the organization. Strategic planning of the organization considers the organization’s vision and mission. It has goals, strategy and objectives to achieve the vision. Organizational strategy and objectives show up in the shaded box of the stack and serve as the hinge connecting what’s being put forth by executive management and what needs to be delivered by the project, program and portfolio folks.
Portfolios of programs, projects and operations are created to achieve strategic goals and objectives. These constitute the bottom layers of the stack. Projects and programs within a portfolio create the value production capability of an organization. Operations create value with its ongoing nature. When they’re completed, projects are mostly operationalized. All of these components uses organizational resources to execute respective work.
Let’s examine this in the context of projects. First, some definitions from PMI.
- A portfolio is a collection of programs, projects, sub-portfolios and operations managed as a group to meet the organization’s strategic goals and objectives.
- Programs, which are the “children” within a parent-child relationship with a portfolio, contain a related set of projects, sub-programs or program activities. They’re managed in a coordinated way to obtain benefits and control.
- Projects, which are also children within the parent-child relationship with a program, are undertaken to create products or services or results that eventually become benefits at a program level. Projects can be part of a portfolio directly as well.
Hence, an organization’s strategic objectives are implemented by a portfolio of programs or projects. While nicely-worded strategy documents are important, it’s equally important that the projects undertaken are aligned to the organizational strategy and then properly implemented. Any strategy is only as good as the execution behind its projects.
We saw that projects are undertaken to achieve the business objectives of an organization’s strategic plan — directly or indirectly. The PMBOK® Guide also notes that projects are authorized as a result of one or more strategic considerations, such as market demand, business need or strategic opportunity, technological advance, customer request, social need, environmental considerations, and legal requirements.
The Business Side and the Execution Side
You may be wondering, how does all of this work out on the ground in real time for an organization? And what’s your role as the project manager?
Let’s look at another figure that shows end-to-end structure from business strategy to project activity.
Traditionally, the business side encompasses those portions of the strategy that extend to the level of the portfolio and sometimes even to the level of the program. However, I’ve extended it here to the project level. Why? Because for a proper alignment, projects should have a strategic plan and business needs as inputs while being chartered and authorized.
An organization’s vision and mission are translated into the strategic plan, which has strategic goals and objectives. The strategic plan of the organization is subdivided into a set of organizational initiatives. These initiatives are grouped into portfolios and create portfolios of programs, projects and operations that are to be executed in a pre-determined period.
It is the portfolio that links projects and programs to the organization’s strategic plan. Within programs and portfolios, projects are a means of achieving organizational strategy and objectives. Projects, in turn, will have deliverables and can have control accounts where the management control is exerted. A control account can have work packages with activities at the lowest level of the project. Thus, the projects with its deliverables (or results/outputs) of an organization provide the day-to-day implementation of the goals and execute the strategic objectives.
So, what do project managers have to do with it?
Many times, strategic intent and the business goals of the organization have to reach the level where the resources are executing. Also, technical resources shouldn’t only think about delivering high-end technical solutions, but consider how the project is helping the business by delivering benefits. For projects that are strategically aligned, the business benefits can be mapped to the strategic objectives. Without this mindset change, execution of strategy will continue to fail. And the responsibility falls on the shoulders of the project manager.
Bridging the Gap between Strategy and Implementation
In research sponsored by PMI, 89 percent of executives said strategy implementation is “essential” or “very important” to their organizations. Also 88 percent of executives said successful execution of projects in order to deliver strategic result is “essential” or “very important.”
However, six in 10 (61 percent) of executives also admit that there’s a continuous struggle to bridge the gap between the strategy formulation and its day-to-day implementation.
Projects, temporary by their very nature, provide the day-to-day implementation of the formulated strategies. Hence, the role and the mindset of project managers need to evolve to bridge this gap.
In its new exam PMI has placed strategic alignment of projects in focus along with strategic management as one of the knowledge and skills project managers should understand. As a professional aspiring to be a PMP, you need to know how and why projects are aligned toward strategic goals and objectives of an organization and how formulated strategies are executed by projects inside a program or a portfolio.
PMI Thought Leadership Series Report. 2015. “Implementing the Project Portfolio: A Vital C-Suite Focus.” http://www.pmi.org/~/media/PDF/Publications/implement-project-portfolio-c-suite.ashx
PMI Thought Leadership Series Report. 2015. “Winning through Project Portfolio Management: The Practitioner’s Perspective.” https://www.pmi.org/~/media/PDF/Publications/win-portfolio-management-practitioner-perspective.ashx
PMI’s Pulse of the Profession. 2016. “The High Cost of Low Performance: How will you improve your business results?” http://www.pmi.org/~/media/PDF/learning/pulse-of-the-profession-2016.ashx
PMI’s Pulse of the Profession. 2014. “The High Cost of Low Performance – A Snapshot.”