CHAPTER 1

Good Decision-Making: The Key to Project Success

Successful projects are everywhere—and so are failed projects. We are surrounded by thousands of successful projects. The cars we drive, the houses we live in, the buildings we work in, and the technology we use are all examples. We are also surrounded by numerous failed projects. The examples of failure presented in this book include the Segway personal transportation system, the Mars Climate Orbiter of the National Aeronautics and Space Administration (NASA), and the Minneapolis I-35W bridge, which collapsed in 2007. In each of these projects, the problem was not the quality of the available resources. Each project had highly talented and dedicated managers, the best professional teams, the best project management tools, and total support from top management. It is the decisions that were made—or not made—that account for their failure.

When decisions are of poor quality, untimely, or altogether absent, the result is frequently a failed project. That is, projects stand a far greater chance of succeeding when quality decisions are made. It can be stated with certainty, then, that good decision-making leads to successful projects. A project might survive without adequate resources, but it can never survive faulty decision-making.

Project managers must understand the importance of decision-making and then consider each of their decisions carefully. When they do so, they will encounter fewer surprises, handle challenges better, and keep the project management team focused on the project objectives, the organizational strategy, and the overall organizational mission.

This chapter presents the following sections:

 Good Decision-Making Begins with a Decision Context

 The Three Cornerstones of Decision-Making

 Why Projects Fail

 A Planned Process for Decision-Making

 A General Framework for Making Decisions.

Good Decision-Making Begins with a Decision Context

Projects traditionally have three overarching objectives—meeting the budget, finishing on schedule, and meeting client specifications (product performance). These objectives establish the control parameters and discipline by which a project is managed. When these three project objectives are achieved, the project is usually considered a success.

Meeting project objectives requires action. Decisions can be thought of as the action or momentum that enables project managers to move their projects toward success.

What Is a Decision Context?

A decision context is the setting in which decisions occur (Clemen and Reilly 2001). Each specific decision calls for a specific objective. Here, “setting” refers to the situation faced by the decision maker, including the decision maker’s current status in terms of resources, obligations, opportunities, and desires. The setting can also include the resources, obligations, opportunities, and desires of the decision maker’s organization, family, friends, and associates. From this setting, the decision maker develops a set of alternative courses of action, considers some objectives on which to evaluate these courses of action, and ponders issues such as uncertainty, time preference, and risk preference.

For example, a decision context might be the setting surrounding a decision of where to build a new residential subdivision. In this case, the objectives that relate to how much money can be made by the organization that is considering building the residential subdivision might include minimal commute time, educational needs, and accessibility to shopping areas for the homeowners.

The following example is a simple case involving the selection of a supercomputer.

Which Supercomputer?

Boeing Corporation is a large-scale manufacturer of sophisticated defense systems, commercial aircraft, and other assorted technology products, as well as a premiere research organization. As such, Boeing needs significant computing power for computer-aided design, inventory control and tracking, and manufacturing support. When key managers of the engineering department were considering various supercomputer alternatives, these managers found that organizing their concerns or objectives focused the task of collecting information needed to evaluate competing alternatives. Figure 1-1 shows the result of this process of organizing their concerns and objectives (Barnhart 1993).

In this case, Boeing was confronted with a decision to expand its high-power computing capacity. The decision was essentially about the acquisition of a supercomputer. In the decision context, several objectives associated with the decision. Based on the given scenario, the objectives include (1) satisfying user needs, (2) maximizing performance, (3) minimizing costs, (4) satisfying organizational needs, and (5) satisfying management issues. These objectives can be further broken down into different aspects, as shown in Figure 1-1.

FIGURE 1-1: Objectives for Boeing’s Supercomputer

An important issue in understanding the decision context is determining which comes first, the objective(s) or the decision. When objectives come first, the project manager is well prepared to make the decisions necessary for project success and to entertain new decision opportunities as they arise. When decisions come first, because every decision situation involves a specific context, the context helps the project manager determine what objectives need to be considered. The notion is that objectives and decisions go hand in hand.

In project management it is best to begin with objectives because projects are managed according to a set of predefined objectives. Therefore, it is important that all of the appropriate objectives are considered upfront. Appropriate objectives are those that are relevant to the success of the project. Inappropriate objectives are those that are tangential or irrelevant to the project’s success; inappropriate objectives will result in inappropriate choices for what could be key decisions. On the other hand, when appropriate objectives are developed, decisions can be aligned with the objectives. Clemen and Reilly (2001) have found that when the decision context is specified and appropriate objectives align with the context, decision makers know what the situation is and exactly why they care about making a decision in that situation. The project manager, as the decision maker, should view the decision context as one of the key cornerstones for project success.

The Three Cornerstones of Decision-Making

There are three cornerstones of decision-making: the decision, the decision process, and the decision maker or actor. For Bocquet, Cardinal, and Mekhilef (1999), a decision is “any action taken by an actor(s) that will consume resources and affect other actors in the pursuit of achieving objectives within constraints.” The decision process is the planned process that is followed when decisions are made. A decision maker (or an actor) is a person who participates in the making of decisions, such as the CEO, program manager, project manager, contractors, consultants, clients, workers, and customers. While every actor is responsible for making decisions, the emphasis in this book is on the project manager (the person who manages the entire project) and the decisions that person makes. Decisions made by project managers have a clear impact on the use of resources and on other project actors. More specifically, the decisions made by the project manager have a clear impact on project success.

Jim Johnson of Standish Group International identifies ten top reasons for project success, as follows (Hartmann 2006):

1. User involvement

2. Executive management support

3. Clear business objectives

4. Optimizing scope

5. Agile process

6. Project manager expertise

7. Financial management

8. Skilled resources

9. Formal methodology

10. Standard tools and infrastructure.

The third reason relates directly to objectives for evaluating decision alternatives and therefore is critical to good decision-making. User involvement, executive management support, optimizing scope, agile process, and financial management may all impact the definition of the objectives and will be critical in evaluating the alternatives in a proper and timely manner. Project manager expertise, skilled resources, a formal methodology, and standard tools and infrastructure relate to the decision process and the decision maker.

Why Projects Fail

As we have discussed, project failure can often be traced to poor decisions, which result more often than not from poor decision-making processes by the project manager and staff. In this section we review the more general reasons given for project failures and relate these general reasons back to decision-making.

Many projects end successfully, many fail, and a majority end somewhere in the middle. Cobb’s Paradox (Standish Group International 2001) asks, “We know why projects fail; we know how to prevent their failure— so why do they still fail?” Why is traditional project management training not resulting in greater success? And why do even well-managed projects fail? Consider the following (Shenhar and Dvir 2007):

We can assume these projects were run by experienced managers and highly regarded organizations. Yet they all still failed to meet expectations. When project managers understood what went wrong and why, it was too late to correct the problems. All of the projects failed because of poor decision-making.

Many projects fail because at least one of the following three overarching objectives, which were cited at the beginning of this chapter, has been missed: meeting the budget, finishing on schedule, or meeting client specifications (product performance).

Some project teams lose sight of the business rationale behind their projects—that they must satisfy a customer and achieve business results, and not just meet technical project requirements (Shenhar and Dvir 2007). Other projects fail because enterprises are driven by financial requirements—that is, return on investment, earnings, stakeholder value, and so on—and are, therefore, forced to make business decisions with limited knowledge (Clarke 2000). Project managers need knowledge to make decisions, but there will never be enough knowledge to totally prevent failure, and risk and uncertainty are always there to threaten a project.

The success of a project thus turns on the decisions that are made, not the knowledge and not the absence of risk. Regardless of the amount of knowledge available, it is the decisions that are made that keep the project moving in the right direction. The knowledge that does make a difference to a project is knowledge about what decisions are most critical to successful project management. In fact, this type of knowledge is essential.

In the software development industry, failure appears to be the norm for large-scale software system development projects. Data for the year 2000 reveal that the average failure rate of software system projects was 85 percent (Bronzite 2000). An assessment of 8,380 computer applications by the Standish Group International (2001) revealed similar results. This survey categorized projects by three types:

Resolution Type 1—project success: The project was completed on time and on budget, with all features and functions as initially specified.

Resolution Type 2—project challenged: The project was completed and operational but was over budget, was over the time estimate, and has fewer features and functions than originally specified.

Resolution Type 3—project impaired: The project was canceled at some point during the development cycle.

Of the projects surveyed by the Standish Group International in 2001, 16 percent achieved success, challenged projects accounted for 53 percent, and 31 percent were impaired or failed. Nearly 85 percent of the projects surveyed, as shown in Figure 1-2, fell short of achieving success. Data from another assessment in 2004 indicate that 71 percent of the projects did not achieve success (Hartmann 2006).

FIGURE 1-2: Project Resolution Types

An earlier assessment of software system development projects in various countries carried out in the 1990s yielded interestingly similar results. Table 1-1 presents a composite of those results (Bronzite 2000). The average system development failure rate, based on this survey, is also about 85 percent.

TABLE 1-1: Summary of Survey Results

In the 1990s, the focus in project management was placed on managing projects faster, better, and cheaper. The idea was that providing products to market faster would give companies a competitive edge. Many projects during that time period, however, were failing at an alarming rate. Why? One reason is this: Making the decision to starve projects of time and resources is seldom helpful in meeting project objectives. This lack of time and resources is a common threat faced by many project managers. Some projects will naturally take more time and possibly more resources. In some cases, the success of a project directly correlates to the availability of the required resources. Thus, the decision to starve a project should not be made without extensive knowledge of the side effects of such an action.

A Planned Process for Decision-Making

Objectives provide the logical basis for the decisions that occur in managing a project (Powell 2002); decisions provide the basis for guiding and controlling the management process in reaching defined objectives. A project manager’s management process includes (1) planning, (2) organizing, (3) directing, and (4) monitoring project work. The most consequential of these is planning, a process that permeates all the other processes—that is, organizing the project is planned, directing the project is planned, and monitoring the project is planned as well.

Successful planning depends on effective decision-making, and to make effective decisions, a decision process—a planned process for decision-making—must also exist. Such a planned decision-making process helps the project manager to make successful decisions while planning, organizing, directing, and monitoring projects. The many decisions made during project execution rely on high-quality planning, and it is clear that project objectives cannot be successfully achieved without a decision process.

But why is a planned process necessary? A process is needed because making decisions can be very complex. Decisions involve many stakeholders; require consideration of competing objectives, risk, and uncertainty; and may involve large financial investments with the returns having a long time horizon before success can be determined. Furthermore, not all decisions require only common sense. Of the 10,000 hypothetical decisions posited by Keeney (2004) and shown in Figure 1-3, approximately 7,000 have such small consequences that they require very little thought. Another 2,000 can be classified as “No Brainers.” The remaining 1,000 decisions require the application of some systematic process. Due to the complex nature of such decisions, the expertise of a trained decision analyst would be very helpful to the project manager in most circumstances.

The sequence of decisions and associated choices available to the project manager at the beginning of a project has a nearly uncountable number of paths (Powell and Buede 2006). Buede (2000) makes the following argument:

FIGURE 1-3: Resolving Decisions

Assuming that many decisions are going to be made in the course of a project, a random or unplanned and unstructured decision-making process correlates to a random pathway into the future rather than a well-planned one. A decision pathway or sequence that is random is more likely to lead to failure than to success. Achieving success requires that a rational and explicit or structured decision process be developed and used. When a rational and explicit process is absent, decisions are not well structured, not discussed widely, and not well documented.

The project manager is likely to emphasize cost in some decisions and schedule or performance in others. When this type of decision-making occurs, dysfunctions occur and success is elusive. A colleague of ours once said that a good sign of a well-managed project is clear evidence that all of the staff know the key project objectives and use them to guide their daily activities.

Decision-making should occur as part of a dynamic process, but not a random one. When a planned process is used, mistakes are minimized because there are opportunities built into the process to correct errors. Projects thus stand a greater chance of succeeding when a process provides for self-correction. Because many decisions in the real world are made in an unstructured way, this notion of a process-oriented approach might seem quite novel. It is, in fact, very true that it is different from traditional ways of arriving at a choice, but the very difference a structured approach entails seems certain to improve managerial decision-making within an organization by virtue of its ability to catch and correct errors (Harrison 1987).