Project Value Management: Project Management for Economic Value Creation

By Diego Escobar

When I started my career as project manager, I was wondering why the project managers are not considered business men, and have always considered as technicians who know how to manage. After several years of experience and study, I have come to the conclusion that the gap between businesses and projects are the main cause of the so-called "failures in projects". And I asked myself: how there are still so many companies that survive, doing so disastrous projects?
Obviously in the creation of economic value chain, projects are part of the beginning of the cycle of investment and revenues are generated by products that projects begin to generate, once concluded. Companies that fail are those that cannot generate, with the project and the product, sufficient economic value, paying above the cost of capital used.
Separating the projects from production, losing the integrated business vision, working by "silos", without seeing the whole value chain and, additionally not measuring the economic value as we mentioned, the results of the projects will always be in doubt (even if considered successful!), because we won't know if they are really generating wealth.
In this book, the author goes from theory to practice, showing the way to create a bridge between projects and production, to see in what way, between both, we can maximize the economic value, analyzing the impact of projects from different points of view; from marketing, strategy, finance, production and risks, considering the most important risk: the risk of not generating wealth.

• Language: English
• Publisher: Diego Escobar
• Release date: Aug 14, 2016
• ISBN: 9781370834679

Diego Escobar

Diego Escobar, PMP certified since 2005, with more than 18 years of project management experience. Working as Head of Project Management Industry segment department at Telefonica Corporate Customers, he was leading projects for international companies, and also leading the PMO implementation to manage hundreds of corporate customers. Now he is leading international projects for mobile companies implementing 3GPP and LTE deployments over Latin America countries. He also works as a Project Management trainer, and working as a PMI Buenos Aires Chapter volunteer.You can read more at: http://diegohescobar.wix.com/blog

Book preview

Project Value Management

Project management for economic value creation

Diego H. Escobar, PMP

Published by Diego H. Escobar at Smashwords

Copyright 2016 Diego H. Escobar

http://diegohescobar.wix.com/blog

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Table of contents

Introduction

Part I - Projects and business

1.Some initial concepts

2.Basics of accounting and finance for Project Managers

3.Strategy and projects

4.The Marketing influence

5.Project costs and their relative importance

6.EVA - Economic Value Added

7.Projects and business decisions

8.Project success and the market value

Part II - EVA in production

9.Activity Based Costing

10.Product Activity-Capital-Dependence (ACD) Analysis

11.Analysis of an ACD case

Part III - The risk of not generating wealth

12.Project and business risks

13 A case of Business Risk analysis

Introduction

As the profession of Project Manager has been evolving, are also growing expectations around their contribution, partly already proven, to some business success.

In the first years of the Project Management, the project management task was to reach the triangle of scope, time and cost target. Today this concept seems to be not enough as a measure of the success of the projects and even less of the business as a whole.

A broader view of business changes the way to manage projects and how they are evaluated, taking as input the business case, and a business plan as a real basis for the project plan, taking into account all the factors of business and its risks.

In recent years, with the constant advances in technology and the speed of the markets, set the parameters of a successful project in scope cost and time, as something isolated from the market, can be a very large mistake, translated, in the best of cases, in lost opportunities. Customers and markets change very quickly and permanently and if our projects do not follow these changes, can be lead to lousy business.

In the course of this book, we will be developing these ideas and event culminates with an example through financial calculations and analysis of different alternatives that may occur in the market and therefore in the projects.

In the first part we will see the most general and comprehensive concepts corresponding to the relationship between projects and businesses, with some case studies.

In the second part, we will see how you can manage the creation of economic value linked to the cost of capital, when their productions and several projects interact with each other, where the capital expenditure should apply to each product, rather than to each project.

In the third part we will see how do project risks impact at the greatest risk of a company that is the risk of destroying wealth rather than create it.

Part I - Projects and business

1. Some initial concepts

Engines of change across enterprise, for the creation of value or its increase, are projects. The projects are the implementation of strategies that help companies improve, create value and thus survive, which is the largest of the objectives of a company.

In general, companies doing better business does not tend to be those with the best strategy, but those that best carry it out and the most effective are that understand that projects are a fundamental part of the business.

This last concept understanding leads to new ideas about the approach of the Project Manager, who must now think as CEO and act like an entrepreneur.

A holistic view of the business

One of the first premises that we have in this new model, is the vision of the business as a whole and comprehensively. Since the financing of the project, through the execution (meaning with this: initiation, planning, execution, control and closure, i.e., the typical areas of the PM) and the life cycle of the product of the project, stage in which the return on the investment is realized.

If today we say to a manager that we can make our project cheaper, almost sure he will tell us that it is a good news. But, who can assure that this cost reduction will be a benefit to the life cycle of the product of our project, so generate greater income in the future? The cost of a project is only one of the factors that influence across the business.

Here we will try to develop a framework in which we think projects based on concepts of business and projects contributing to the creation of economic value, taking as a measure of success the EVA ® or Economic Value Added. We will see that this scheme will enable us to make better decisions by taking into account comprehensive aspects of business, such as marketing, investment and finance, risks and the company's strategy.

The triple constraint

With this business vision from projects, there are other paradigms that change, such as the triple constraint, as a measure of success. If we think about projects from the business, we will see that there is no measure of success better than that obtained from the EVA.

Thinking in a comprehensive manner, for example, we would not understand why don't we call investment instead of costs, which ultimately is, in my opinion, the appropriate term. As investment, they expect a return, and as increasing investment, there is an increase in the return, why a CEO would refuse to do so with proper analysis and justification?

Although this type of changes, they can be analyzed and thus change scope and cost, to get a new base line and a new triangle (scope/cost/time), they normally require high levels of escalation and approvals which, for the time you have, make it unviable for many organizations. I