Wednesday, November 9, 2011

Deliverables as Revenue Agents

Muda (non-value-added [wastes])… includes the seven wastes of the Toyota Production System and their lean product development counterparts….  Any activities that lengthen lead times and add an extra cost to the product, for which the customer is unwilling to pay, are considered muda.
-          Morgan, James M. and Liker, Jeffrey K. (2006).  The Toyota Product Development System: Integrating People, Process, and Technology. New York: Productivity Press, p74.
Back in January one of my posts was on The Task.  Building on that foundation, I’d like to state some axioms:
1.       Every task in the WBS should roll up to a Deliverable.
2.       The collection of all project Deliverables defines the high-order scope (the Tasks define the low-order scope).
I’m not yet ready to defend or prove these axioms;  that comes later.  First we have to understand and agree on what a Deliverable is.  Certainly, I have referenced the term often enough in my previous posts.
Over the course of a project, the team will produce some number of – generally many – tangible and intangible results.    These results are called Work Products.  Every well-defined task should produce a Work Product.
What distinguishes a Work Product from a Deliverable?  A Deliverable is a special kind of Work Product (and therefore Deliverables are a subset of project Work Products).  The specific characteristic distinguishing a Deliverable from a Work Product is that a Deliverable has an (ideally formal) acceptance or approval.  Some examples:  a meeting minutes is a Work Product, but (generally) not a Deliverable;  a draft Requirements Document is a Work Product, but the final Requirements Document submitted for acceptance is a Deliverable.
Deliverables have special meaning for Consultancy PMs and for project management consulting firms because they represent well-defined Earned Value boundaries and, for accrual accounting, a point where revenue can be recognized.  All of the project revenues are represented by individual Deliverables spread over time so that revenues are evenly spread over the life of the project, not bunched at the end.  The customer is getting value from the project from the completion of each Deliverable and the consultancy is getting recognizable revenue.  A mutual benefit.
In addition to the economic value to this approach, it is also an indicator of a well- or poorly developed project schedule.  If the Deliverables (costs and revenues) are not evenly spread over the life of the project, that should be a red flag to re-think the project approach, because it means that you as the PM and also your employer are not getting regular feedback on the quality of the project product.
Now we can return to the axioms.  I’ll start with the second axiom.  If you can get the client to accept each Deliverable, and there is no work that is not contained within a Deliverable, then getting final project acceptance is an academic exercise – you’ve accepted all of the individual project components, so sign that the overall work is complete.  Therefore, the consultancy is motivated to make sure all project work is contained within individual Deliverables.  Thus, the project scope is equivalent to the collection of project Deliverables.
Now for the first axiom.  If something is a cost that doesn’t increase revenue, it should be eliminated.  Only Deliverables represent revenue.  Tasks represent costs.  Any task that is performed that doesn’t roll up to a revenue component is wasted money.  Removing these tasks improves the project margin and thus the organization’s margin.  Removing waste is a significant way to improve both quality and margin.  Therefore, any task not included in a Deliverable should be removed from the project WBS and thus, also, the schedule.  Every task remaining rolls up to a Deliverable.
So I can hear you now:  “All of your arguments apply only to Consultancy PMs;  what about P&SD PMs?”  My only practical response is that there’s a reason consultancy PMs have a much better track record at project performance!
When you’re running a project in a P&SD shop, how do you prevent  operational and production tasks from creeping into your project?  Is it based on a philosophical approach, rules, or serendipity?

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