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Does the Project Organization Provide Value?


Released on Tuesday, January 8, 2013
By Dean Findley, IPA Director of Subscription Services

Independent Project Analysis (IPA) has observed that some project organizations systematically achieve better results than others. The use of project Best Practices is a key driver of the better results. IPA’s organizational effectiveness (OE) research shifts the focus from the project level to the organizational level to better understand what organizational factors affect project performance. Figure 11 outlines the underlying framework of the OE research.

Figure 11
Fig11-Why-Is-Organizational-Effectiveness-Important.jpg

The research considers who should be involved, what activities are important, and how the organization should be structured to best support the people and work processes to implement capital assets. Figure 12 presents the three elements of organizational effectiveness: people, work process, and organizational structure. Each edition of the Business Professionals’ Capital Projects Newsletter will focus on a different aspect of the project organization.

Figure 12
Fig12-Elements-of-Organizational-Effectiveness.jpg

For example, Figure 13 reports the relationship between annual capital spending and the number of owner full-time
equivalents (FTEs) who are directly working on capital projects. Annual capital spending is an important dimension to the portfolio’s size. More owner personnel are needed to effectively implement larger portfolios. Figure 13 also reports that the number of projects being managed in the portfolio is another independent measure of portfolio size. Similar to capital spending, the variable is positively related to the number of FTEs.

Figure 13
Fig13-More-Capital-Managed.jpg

The relationship between the portfolio and number of owner FTEs is important because owner staffing is required to ensure that adequate levels of project definition are realized. Figure 14 reports the relationship between Front-End Loading (FEL) and the number of FTEs. As the number of FTEs increases by 5 percent from an industry average level of 1.00 to an FTE Index of 1.05, the FEL improves from Fair to Good. The relationship is very important as represented by its slope and the statistical levels are very strong with less than a 1 in 1,000 chance that the relationship is random (Pr <0.001).

Figure 14
Fig14-More-Owner-Resources-Improves-FEL.jpg

FEL is a key leading indicator of project performance. Figure 15 reports the relationship between FEL and both cost and schedule performance. Clearly, improved project definition improves competitiveness as better defined projects cost less and are executed more quickly. In summary, adequate levels of owner staffing are necessary for providing value to the business.

Figure 15
Fig15-Better-Defined-Projects-Provide-Business-Value.jpg

Future editions of the Business Professionals' Capital Projects Newsletter will report on how project organizations add value to the business (or how they do not).


This article originally appeared in the Business Professionals' Capital Projects Newsletter (Inaugural Edition, September 2012), an IPA publication focusing on improving the interface between business and capital project representatives. Visit this page for more details and subscription information.

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