IPMA International Project Management Association
23 September 2019 / 9:00

‘Pay-as-much-as-is complete’ – A new flexible PM system: Will it work?

Projects are inherently deliverable oriented endeavors. That is why people often use the old adage ‘begin with an end in mind’ to describe project characteristics and emphasize that achieving the final objective(s) or deliverable(s) is the main activity of projects. While, such an approach is duly warranted and provides the required focus and clarity to start the project work, in hindsight, it also stifles the flexibility when things don’t go as planned.

It won’t come as a surprise to many that projects fail and fail miserably too. PMI’s Pulse of Profession 2018 report suggests that on average 50% projects fail outright in organizations that undervalue project management (PM) competencies as the strategic organizational skill (PMI, 2018).  Given that PM is often not the core business activity of majority of organizations, it may result in lax approach towards building PM competencies and hence increased chances of project failures.

The question then is how to stem the tide? How to reduce project failures? How to become PM smart? Obviously, a lot has been said and written to answer these questions. But somehow projects keep failing. The situation demands fresh thinking and an open mind towards finding new models and systems that allow flexibility and improve chances of project success.

Keeping in view the quartet of project core made-up of agility, scope, time and cost, we propose a new performance driven flexible system of project delivery called as ‘Pay-as-much-as-is complete.’

To build an understanding of the proposed system, we define ‘Pay-as-much-as-is complete’ as “a performance-driven flexible project management system which encapsulates an in-built mechanism of non-dependence on one project organization for completion of project work, and legally allows entrusting/switching project to a new eligible project organization(s) in circumstances when it is determined based on stage-gate or other reviews (at any point in the project life-cycle) that the project progress is not satisfactory as per agreed upon terms and conditions. The system allows a sponsor/client to get the entire project completed in multiple chunks of work possibly carried out by multiple project organizations, as needed.

Now that we have defined the scope of the concept, it is important to consider whether the proposed system will work. To that end as a starter, below we present discussion on some of the positives and negatives of using the proposed system for project delivery. Needless to say, the list of pros and cons should not be construed as exhaustive or complete but is meant to serve as a starting point of thought building process.

Pros of adopting a ‘Pay-as-much-as-is complete’ system for PM

  1. Cash in hand’ is better than ‘Cash in dead-end

Liquidity and cash flow are critical to the survival and success of any endeavor, be it project-based or non-project based. In a project context, rather than spending the entire project budget with one project organization that may not be performing, risking the investment and finding oneself at the dead-end; it would be worthwhile to follow a system of progress reviews and assign the left-over work to a new project organization when things don’t go as planned. However, such a flexibility may not be possible in current system of PM.

The proposed Pay-as-much-as-is complete system of PM enables client/sponsor to follow a built-in mechanism of conducting several reviews of project progress at various stages and intervals. Where, it is clearly evident that the project is not progressing well and is likely that it will go over-budget or over-time or face scope-creep, the client will have full authority to entrust the left-over work to another organization.

It is expected that with the use of Pay-as-much-as-is complete system, project organizations will recognize the importance of performance management. The realization that under the proposed PM system client has the option to stop the project at any point during project life-cycle and assign work to another project organization will hopefully make the project teams performance-driven.

In the proposed system, clients/sponsors will be able to have improved financial liquidity and freedom to get the project work completed within the required time frame.

  1. Provides flexibility and improves chances of successful completion

Pay-as-much-as-is complete system is expected to infuse agility and improved performance management among project organizations, and hopefully improve overall project success ratio.

It is expected that both client and project organizations will benefit from the flexibility provided by the proposed system. Client organizations will be able to choose a new service provider when the project performance is not upto the scratch. Whereas, project organizations will be able to come out of the negative situation of non-performing project and invest their energies in a new project endeavor. The performance-driven approach in the long run will be beneficial to every stakeholder in the process and is expected to have a positive effect on overall project success rates.

  1. Reduces risk of dependency on one team

The proposed Pay-as-much-as-is complete system will reduce the risk of dependency on one project organization. It will allow client to make amends for any wrong decision in choosing a project organization in first place. In fact, the performance-driven proposed system will serve as a motivation for project organizations to perform as per project requirements and deliver project successfully. Thus, more often than not the project will be completed by one organization.

Moreover, often at the bidding stage, parties bid for the project at low cost due to a variety of reasons, such as the lack of full knowledge of the work involved or to beat the competition. In such cases, the winning bidder could find it hard to perform optimally. The proposed PM system will provide flexibility to the client in such situations to find another party that could complete the project work rather than project gets abandoned. Lowest bidder who is unable to perform will also have the opportunity to come out of the unintended predicament.

  1. Enables clients to safe-guard their interests

Clients are typically vulnerable parties, not only because they make investment into the projects but also because achievement of their dreams depend on the performance of project organizations. The proposed system is expected to safe-guard client interests and at the same time drive performance-based approach for managing projects.

  1. Drives performance-driven focus among project organizations

In the proposed system, client organizations would need to perform stage-gate reviews or multiple reviews at various intervals during the project lifecycle to ensure that they are aware of project performance. Such a tendency will drive taking a formal performance-driven, well-considered approach to project work. Project organizations are expected to make conscious efforts to use a well-defined methodology and apply best practices to carry out project work, which will improve chances of successfully completing the project. It will help build PM maturity among project organizations.

  1. Sunk cost is reduced

The project failures entail significant losses to clients and their organizations. When a project fails, organizations often regard the investment in the project as sunk cost. In other cases, when organizations abandon the non-performing project mid-way, they consider the money invested thus far as the sunk costs.

The proposed PM system is expected to provide clients a way-out to reduce their sunk costs. In the proposed system a built-in mechanism of multiple reviews will help client assess the project performance and make decisions before it gets too late. Ultimately, when the project performance is not as planned, clients will be able to continue their projects by contracting new project organizations rather than abandoning the non-performing projects and incurring sunk-costs.

Cons of adopting a ‘Pay-as-much-as-is complete’ system for PM

  1. Projects can become un-hinged from the start

One of the challenges of using the proposed system is ‘how to ensure that it does not create a sense of insecurity and uncertainty among the parties involved in the project.’ If the project organization feel insecure that it may lose hold of the project at any time, it may not be able to perform with full confidence. Such a situation increases the risk of project becoming unhinged from the start.

  1. Risks can increase if process is not carefully managed

If the process of project stage-gate reviews and switching to new project organization is not managed effectively, it will certainly increase the risks to project. Legal aspects of switch over process needs to be carefully taken care off to avoid liability risks to projects. Setting-up performance expectations with the project organization at the start of the project will help avoid increasing risks of conflicts and disputes at later stage in the project.

  1. Senior management may be too scared to adopt the new system

Senior management buy-in is critical to use the proposed system. Given the possible complications in switch over to new project organization, senior management may find the new system a hard pill to swallow and may not lend their support to use the proposed system.

  1. Difficulties in finding a new service provider to switch

One of the obvious challenges is ‘how to ensure that the client will be able to find a new project organization if there is a need to switch due to poor progress of project.’ Till the proposed system find its feet and become mature in marketplace and across industries, certainly switch management will be the biggest challenge when using the system.

  1. Expertise may not be available to switch in case of complex projects

Large complex projects are often carried out by specialized project organizations with niche expertise. If such organizations are unable to deliver the project successfully and are not performing, it becomes very hard to find a replacement organization that can undertake and complete the remaining project work. The situation will impede the use of proposed system in sophisticated industries with scarcely available expertise.

Concluding thoughts:

Simply put, projects are investments of dollars and a variety of resources. As such, the failed projects mean financial and monetary losses to client organizations. Despite the extent knowledge and efforts to achieve successful outcomes, projects failure rates remain high. The situation demands changed thinking.

One way to solve the problem is to develop agile, performance-driven PM systems. To that end, we have proposed a flexible Pay-as-much-as-is complete system of PM which entails several advantages for parties, both client and project organizations, involved in the project work. Given the new system, we have identified some pros and cons which we hope will help build further thought and spur discussion.

References:

PMI, (2018). Success in Disruptive Times, https://www.pmi.org/-/media/pmi/documents/public/pdf/learning/thought-leadership/pulse/pulse-of-the-profession-2018.pdf

Authored by:

Professor Jiwat Ram

© 2019 Jiwat Ram, All Rights Reserved.

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Jiwat

Author of this post

Jiwat is a Professor in Project Management. He has considerable experience of working internationally in diverse cultures and business environments.

Jiwat is currently serving on the Editorial Board of International Journal of Project Management.

Jiwat actively contributes to project management community. His work has been published in top scientific journals and Four of his published papers have remained in Top25 most downloaded papers. Additionally, two of his papers have been ranked as the Most Cited article published since 2012. More recently, he has published a number of articles on some of the issues confronting project management in various industry based outlets.

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