Eight to Late

Archive for January 2010

Some pitfalls of contracts

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Introduction

Individuals or organizations who have agreed to work together often formalize their agreement through contracts. One of the main functions of such contracts is to reinforce trust between the two parties – i.e. to assure each other that they will do as they say. Another function is to reduce risk. In an article published in the May 2009 issue of the Harvard Business Review,  Deepak Malhotra argues that in some situations contracts end up destroying trust and/or increasing risk. In this post I present the pitfalls he discusses,  along with comments and observations drawn from other sources.

Three pitfalls of contracts

The first point Malhotra makes is that  overly detailed contracts can reduce trust by preventing spontaneous displays of good intentions. Here’s how the reasoning goes: extremely detailed contracts are a sign that the two parties do not trust each other fully (hence the need to write down every possibility that comes to mind). In such situations, the relationship between the two parties tends to be managed by contract, which acts as a disincentive to do things that aren’t written down.

More generally, it is obvious that trust cannot be created by writing it into a contract. At best, contracts might help in reinforcing trust that is built up by other means. How does one build up trust? Well, there are a couple of ways that come to mind;

  1. Through consistent actions that demonstrate good intentions.
  2. Through building relationships between individuals in the two parties.

Neither of these behaviours can be mandated by contract, but a detailed, hard-to-interpret contract can very easily discourage them.

The second point he makes is that rigid contracts can increase risk by discouraging adjustments down the line. Those who draw up contracts cannot be aware of all the possibilities that might unfold as a project progresses (a consequence of bounded rationality). For this reason, contracts should be flexible enough to permit changes as new information comes to light. Ironically, many organizations view rigid contracts as a means of reducing risk. Most often this is because the parties involved tend to underestimate the uncertainties in their environment.  The point here is to put off contractual decisions regarding uncertain elements of the agreement, but to put in place arrangements to deal with some of the foreseeable outcomes.  As  Malhotra puts it, “Wisely structured contracts postpone agreement on terms that would be more effectively handled after more information is available, and they include contingencies commensurate with the current level of uncertainty.

As I’ve written in my post on outsourcing and transaction costs, parties involved in contractual agreements need to take a farsighted view. Such a view would acknowledge the tension between the need for uncertainty in the face of an uncertain world.

The third point Malhotra makes is that incentives in contracts can signal mistrust. This often happens in contracts between high performing individuals and organizations, where a large portion of the individual’s compensation is tied to performance. Such an arrangement can actually end up demotivating the individual. How so? Well,  employee performance in knowledge-related work such as programming, is directly related to intrinsic motivation – i.e. the internal drive (or inclination) to do the assigned work.  Further, as I have discussed in this post, intrinsic motivation has more to do with interesting work than with tangible rewards or incentives.  More to the point, intrinsic motivation cannot be fostered or enhanced by contract. So, in cases where one is dealing with high performers, a better strategy might be to  empower them to make decisions on how their work gets done or , where possible,  matching assignments to  professional interests and aspirations.

Summarizing

Contracts are part and parcel of cross-organisational agreements. They are designed, among other things, to reinforce trust and reduce risk. If one isn’t careful, however, they may  do just the opposite:  contracts that  are overly detailed or  overemphasize monetary incentives can end up reducing trust and increasing risk.

Written by K

January 22, 2010 at 6:28 am

The influence of related disciplines on project management practice

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Introduction

Project management is a relatively new discipline; one that has been formalized only in the last half century or so. Consequently, both academics and practitioners routinely draw upon knowledge in allied (or related)  disciplines in order to advance the theory and practice of project management.  Given this, it is of interest to ask:  what is the (current and future) influence of other, related disciplines on the profession of project management? A paper by Yoong Kwak and Frank Anbari entitled, Availability-Impact Analysis of Project Management Trends: Perspectives From Allied Disciplines, looks into this question.  This post is a summary and review of the paper.

Some terminology and assumptions first. An allied discipline, in the context of this paper,  is any discipline that is related to project management-  examples of this include Human Resource Management and Information Technology.  Availability is the volume of ideas relating to project management in an allied discipline and impact refers to the influence of that research on project management practice.  Note that availability and impact are treated as independent variables in the study.

Objectives, methodology and approach

The questions that Kwak and Anbari seek to answer are:

  • What trends in allied disciplines could have a significant effect on project management theory and practice?
  • How would these trends change (the theory and practice of) project management?
  • How would project managers have to change their mind-set because of the impact of these  disciplines?
  • What actions can be taken to meet the challenges posed by trends in allied disciplines?

Note that I have paraphrased their questions for clarity.

To answer these  question Kwak and Anbari surveyed a selected group of project managers and project management researchers, seeking their input on a range of issues relating to the above questions.    The surveys also solicited qualitative information through respondents’ opinions on the impact, trends and future of project management.  The italics in the previous sentence are intended to highlight the conclusions are based on subjective data gathered from a relatively homogeneous sample – more on this later in the review.

Based on the survey data, the authors:

  • Derived and plotted availability-impact relationships for each of the allied disciplines in a 2×2 matrix (in which each of the two variables took on the values ‘High’ and ‘Low’)
  • Identified how trends in these disciplines influence project management.
  • Conducted a structured survey to solicit opinions on how the project management community can respond to (or take advantage) of these influences.

By reviewing project management research literature, the authors identified the following eight allied areas as being potentially relevant to the future of the discipline:

  1. Operations Research/Decision Sciences/Operation Management/ Supply-Chain Management (abbreviated as OR/DS/OM/SCM)
  2. Organizational Behavior/Human Resource Management (abbreviated as OB/HR)
  3. Information Technology/Information Systems (IT/IS)
  4. Technology Applications/Innovation/New Product Development/Research and Development (TECH/INNOV/NPD/R&D)
  5. Engineering and Construction/Contracts/Legal Aspects/Expert Witness(EC/CONTRACT/LEGAL)
  6. Strategy/Integration/Portfolio Management/Value of Project Management/Marketing (STRATEGY/PPM)
  7. Performance Management/Earned Value Management/Project Finance and Accounting (PERFORM/EVM)
  8. Quality Management/Six Sigma/Process Improvement (QM/6SIGMA/PI)

I’m not an academic, and don’t claim to be current with research literature, but I think that psychology and economics ought to have made it to this list.

In the survey questionnaire, the authors asked respondents to rank  the above disciplines on a 7 point scale, for the following criteria:

  • The availability of project management-related information/knowledge/research in the discipline.
  • The impact of the discipline on project management.

The rating was done on an ordinal scale of 1 to 7.  Respondents were also asked open ended questions regarding trends in allied disciplines and how the project management community should adapt to or take advantage of these trends.

The authors describe the demographics of the survey population – I won’t go into details of this; please see the paper for details.

Results and Discussion

The current availability and impact of allied disciplines on project management – as perceived by the surveyed practitioners and academics –  is summarized in Figure 1 and the predicted future availability-impact relationships are shown in Figure 2.  I’ll discuss the current situation first.

Current Situation

The current situation is as shown below:

availability-impact

Figure 1: Current availability-impact of allied disciplines

According to the survey data, disciplines in the lower left quadrant are lacking in novel project management-related information and thus have potential for more research. They also do not have much of an impact on the field. In my opinion, even though there may be a lack of research directly related to project management  in these areas, there are plenty of papers whose findings can be adapted to project management – see  this post from an example drawn from a recent paper on strategy execution. My point: even research that isn’t directly related to project management can be relevant to the field.

Disciplines in lower right quadrant have plenty of research related to project management, but most of this work tends to have a low impact on the field. This seems reasonable– there’s a stack of research dealing with project performance and engineering/construction projects (this observation is based on a quick survey of papers that have appeared in the Project Management Journal over the last two years). Most of this research tends to have little effect on the field – for example, there haven’t been many radically new practices in the area of performance and construction management.

Disciplines in the upper left quadrant lack research but could potentially have a great impact on project management practice.  To me this quadrant presents interesting possibilities because it refers to areas which currently have no (or very little) project management-related research but which could, nevertheless,  have a high impact on practice. As described in my discussion of the low-low quadrant – a lot of research in other, unrelated fields  can be adapted to  project management.  Based on my readings, I believe behavioural science/psychology (focusing on the individual rather than the group) and economics fall into this category – as examples see this post for an example drawn from psychology and this one for one drawn from economics.  Unfortunately these fields are not considered by the authors.

This brings us to the upper right quadrant, which includes quality/process management and information technology. There’s little doubt that in recent years there’s been deluge of project-related research papers published in these areas. It is also clear that these areas have had a high impact on project management practice. However,  in my opinion, it is far from clear that the effect of this research has been positive ;  if anything it has lead to an unhealthy obsession with process and technology based approaches to project management.

Future situation

Future trends, according to those surveyed, are as depicted in Figure 2.

availability-impact2

Figure 2: Future availability-impact of allied disciplines

Let’s look at the disciplines that have moved:

PERFORM/EVM and STRATEGY/PPM have moved up to the high-high quadrant reflecting their (perceived) future importance. However, is this really the case or is it a case of availability bias? The latter is plausible, given the recent flood of papers,  articles and talks on topics relating to STRATEGY/PPM  in  journals and conferences. Practitioners and academics exposed to this constant barrage of information (propaganda?) on the topic cannot but help think that it must be a field of great relevance  The anticipated increase in importance of PERFORM/EVM, on the other hand, reflects the belief that project management will become more “metricised” or measurement-oriented.  This is no bad thing, providing the metrics are meaningful. In this connection, it is worth looking at Douglas Hubbard’s book  on the measurement of intangibles.

OR/DS/OM/SCM has moved from the lower left to the lower right quadrant reflecting the respondents’ perceptions that there will be more project management related research in these areas,  but that this research will continue to be of limited relevance to the profession.  On the surface, this seems quite plausible – as one of the respondents put it, “The impact of decision sciences on project management was high until the 1960s. Project management had its genesis in Operations Research. However, since the 1970s the relative importance, knowledge and research in this area has been decreasing [in comparison to other fields]…”  However, I’m not entirely convinced:  case can be made that radical advances in decision sciences may cause a reversal of this trend. The portents are already there – see Hubbard’s work on applied information economics, for example.

EC/CONTRACT/LEGAL has moved from the lower right to the lower left quadrant. I think this is quite possibly correct. Why? Well, because project management, ever since its inception, has been borrowing and adapting much from these areas. It is therefore only natural to expect that this will plateau out (if it hasn’t already)  and decrease as time goes on.

A note on relative availability and impact or IT/IS

From an analysis of the raw rankings of the disciplines, the authors infer that  IT/IS has, and will continue to have, an availability and impact that is much greater than  any other discipline. Presumably this is a consequence of IT/IS being ranked much higher on the 7 point scale than any of the other disciplines.  I can’t help but wonder if this is due to a bias in the surveyed population: if one interviews IT project managers or academics specializing in IT, it should be no surprise if they rate the accessibility and importance of technology as being much higher than that of other disciplines. Unfortunately Kwak and Anbari do not give a discipline-wise breakdown of the survey respondents, so I’m unable to judge if this is so.

Opinions of selected respondents

The authors also present detailed opinions of selected respondents.  On reading these I found nothing strikingly new. Two academics pleaded  for project management to be treated with more respect by other academics – i.e. be “recognized in the management faculty and accorded an equal status to with other traditional management science disciplines.” That academics are concerned about the status of the profession is only natural; whether this “equal status” is desirable is another matter altogether. Another researcher waxed eloquent on the effects of globalization and technology – trends that I think are evident to most practitioners.

The practitioners, on the other hand, focused on currently fashionable areas of practice: quality management/process improvement and portfolio management. There was also a mention of how a “project-based world” was needed in order to respond to “increasing complexity.”   The problem is that these terms mean different things to different people, consequently they don’t mean much at all (see this post for more on the confusion regarding  the term “complexity” in the context of projects).

Conclusion

The authors end with some general statements that they claim to have derived from the  survey data. These can  be summarized as follows:

1. OB/HR is becoming increasingly important as much of project work is about managing internal and external relationships. There is a growing recognition (finally!) that projects are more about people than processes.

2.  There will be an increasing dependence on software tools to manage projects. (IS/IT)

3, There will be an increasing focus on measuring performance and compliance with regulations and standards (PERFORM/EVM)

4. Portfolio management and quality/process improvement (STRATEGY/PPM and QM/6SIGMA/PI) will continue to get a lot of attention in industry.

5. New tools and techniques will emerge from the intersection between traditional management disciplines (OR/DS/OM/SCM and PERFORM/EVM) and newer ones (IT/IS and TECH/INNOV/NPD/R&D)

It isn’t entirely clear on what basis the authors make the above statements:  are they based on: 1) survey responses, 2)  research literature or 3) the authors’ opinions?   And, if it is the first:  can one make the above broad generalisations based on small surveys involving less than 100 respondents ? Perhaps not,  I think.

Finally the authors end with this plea

The project management profession is continuously evolving, so the project management community should be receptive to new ideas and also be sensitive to the yearning (!?) of the public and professional community so as to model project management practices to meet their expectations. “

This is true: the project management “community” remains fixated on classical practices and techniques,  many of which have questionable value. A degree of openness to new ideas and practices wouldn’t be amiss.

The paper attempts to gauge the current and future influence of allied fields on the research and practice of project management. It does so by surveying a sample of project management academics and professionals and making inferences based on the collected data. The sample is drawn from a population that is steeped in current practice and theory. As a result the respondents may not be aware of  the possibilities offered by fields that are currently not on the “project management radar.”  This might explain why the upper left quadrant is empty in both matrices.  To get around this the authors could have solicited the opinions of practitioners/theorists from allied disciplines.

To summarise: The authors infer some interesting trends from their data, but there remain some questions about the robustness of the inferences and the generalisations made from them.

Written by K

January 14, 2010 at 10:47 pm

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