manage by project with project-based solutions (pbs)

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ERP OR PROJECT BASED SOLUTIONS (Pbs)

A project is a temporary endeavor, having a defined beginning and end (usually constrained by date, or by funding or deliverables), undertaken to meet particular goals and objectives, usually to bring about beneficial change or added value. The temporary nature of projects stands in contrast to repetitive, permanent or semi-permanent functional processes designed to produce products or services in a predictable, stable system.

In practice, the management of these two systems is often found to be quite different, and as such requires the development of distinct technical skills and the adoption of a separate management style.

The primary challenge of project management is to achieve all of the project goals and objectives while honoring the preconceived project constraints. Typical constraints are scope, time and budget. The secondary—and more ambitious— challenge is to optimize the allocation and integration of inputs necessary to meet pre-defined objectives and outputs.

But projects can be defined in a number of ways to encompass not only a product lifecycle, but a customer order life cycle, or the lifecycle of a group of customer orders. Consider the case of an equipment engineering and fabrication firm that has traditionally served original equipment manufacturers (OEM) in the electronics industry, but also has some customers in the oil and gas industry. Management by project will track all the resources consumed by each group of customers, and this might reveal that the profit margin from OEM customers is in decline, due to falling volumes. Meanwhile, oil and gas-related customers, provide a growth opportunityalbeit one that can only be achieved by some staff retraining and the acquisition of new resources. Identifying and responding adequately to this opportunity would require PBS—enterprise software designed to facilitate a project-based approach. PBS provides a forward-looking view of actual staffing levels, resource skills and equipment requirements. On the other hand, if this business had been run using a more traditional approach, where direct labor hours were measured against agreed standards for each process and indirect labor applied as general overhead—then the differentiation of profitable customers from non-profitable ones is a challenge, and unlikely to drive optimization and profitability.

This example suggests that even executives in industries characterized by repetitive manufacturing can benefit from this way of thinking. Let’s say you are in the beverage industry and want to launch a new soft drink product line. There will be a certain cost to launch that product, including financial cost, operational capacity, and even sales revenue that might be cannibalized from other parts of the business. All of those costs would have to be balanced against the anticipated revenue for that new product. Often the launch of the new product will be carried out within a ‘project’ that lives outside of the main operating systems of the business—which means the impact on business schedules, staff resources and profitability are not taken fully into account.

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ERP OR Project-based solutions (Pbs)

In the automotive industry, the launch of a new product is extremely resource-intensive, and all of those resources, from equipment time tracking at engine testing facilities to tooling, from engineering and design time to prototyping, etc. can be rolled up into a project that encompasses that product launch. That product launch project can later be rolled into another project that encompasses the lifecycle of that new model. In an industy such as this one, treating, each new product model as a project can have enormous benefits both in tracking the uniqueness of each vehicle through procurement and into final assembly and in the execution and planning of the through-life maintenance, service schedules and spare parts requirements.

Some elements of this management-by-project approach may seem to be “old hat” to those already in project-based industries such as complex engineer-to-order (ETO), configure-to-order (CTO) or make-to-order (MTO). Many executives out-side of ETO or MTO approach their business as static, as operating in much the same way from one day to the next, and many enterprise applications are designed under this same assumption. Management by project operates under the assumption that even ongoing business operations are affected by anecdotal circumstances, changes, and trends, and leverages project management thinking and practices to help manage operations to ensure customer obligations are met and the work is performed in such a way as to generate a profit.

expanding the concept to non-traditional businesses PBS can bring value to most manufacturers. For years, a high-volume manufacturer would have designed, engineered and manufactured their own products at their own facilities and would personally manage each element and process. This approach would at one time be considered as the norm in most industrialized societies and provide companies with the opportunity to exert strict control over the development, marketing, manufacture and distribution of their products. However, this procedure contributes to high overhead that reduces profit margins. It also encourages a manufacturer to extend a product’s lifecycle beyond its viability in an effort to reclaim the initial investment in engineering, design and tooling. If the market changes frequently, requiring shorter product runs and a regular issue of new and innovative designs, manufacturers that rely exclusively on internal resources will be left with lower returns or growing losses.

The rise of increased global competition, rising local costs and an ever more sophisticated and discerning consumer base have driven many astute manufacturing management teams to change their approach. The old way of doing business was financially crippling, tying up vast amounts of capital in labor costs, plants and other fixed assets, real estate, energy cost and exposure to governmental regulation and environmental liabilities. The need to pare down the operation and find more cost effective methods of production has made it paramount for certain companies to review how and where they conduct parts of their business.

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The result is that many manufacturers now outsource certain parts of their operation, in order to contract portions of or even all of the manufacturing process to a geo-graphical area that offers cheaper labor, acceptable quality standards and excellent transport infrastructure to the consumer.

the iMpact of outsourcingThe first obvious impact of outsourcing is that the day-to-day control of volume manufacturing facilities becomes the job of the contractor or supplier. This means you no longer need to manage, within your own business solution, the details relating to bills of materials (BOM), routings or shop order information—and the associated materials consumed or the resources (machines, tooling, labor) used in the manufacturing process. This is not to say that you have completely washed your hands of what the outsourcing supplier does; clearly they have to provide a quality product, meet your global regulatory compliance needs on a geography-by-geography basis and, when required, provide a parts list for subsequent after sale service and maintenance.

Keeping control of key skills and processesMost companies choose to retain the design and engineering parts of their business to protect their intellectual property rights (IPR). This provides them with hands-on control which is critical when they are looking to introduce new products. They can achieve greater product continuity and exploit market opportunities confident that they can find appropriate manufacturing facilities that have the capability to meet their quality and time to market requirements.

complex supply chains that extend into multiple countriesDealing with suppliers from across the globe requires business of any size to be multilingual as well as accommodate multiple units of measure and accounting rules used in each nation and continent its operation touches. Moreover, as relation-ships between supplier and customer become more fluid—and suppliers are involved in more value-added work—business systems must allow for a free flow of data across organizational boundaries.

government regulation driving rapid changeAs businesses operate in multiple parts of the world, more numerous and more complex regulatory requirements are putting a heavy burden on their operations. After all, dealing with regulation in a single country is difficult enough, much less facing different regulatory and monitoring requirements in multiple countries. The growing need to track product content, environmental impacts and labor and wage figures will require businesses to employ flexible and easily reconfigurable business

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tools to stay ahead of the regulatory onslaught. Government contractors in particular are facing more and more scrutiny of the value they deliver to their public sector customers, and tools like Earned Value Management will become more important to those who deliver intangibles like research and development.

shortening product lifecyclesGlobal media brings new product information to market more quickly, and manu-facturers struggle to keep up. To adapt, many manufacturers are “re-badging” the products of other manufacturers, taking advantage of others’ core competencies instead of trying to gear up for new products at the breakneck speed of 21st century business. Other companies that operate in a more of a project-based MTO and ETO environments are turning literally into general contractors (or project managers), self-performing little if any manufacturing work. This contractor business model allows a project-based business to leverage capabilities of a large number of suppliers —capabilities that the business could not develop on its own quickly enough to meet changing customer demands.

brand maintenance and expansionThe company uses its brand identity to maintain consumer demand and confidence. This is frequently reflected in more ambitious marketing programs and energetic advertising campaigns. Far higher regard is placed on brand development and brand cultivation as astute businesses now realize that is it their single most vital asset.

i don’t liKe it but haven’t tasted it?Convention has probably stifled innovation more often than anything else. And it is this closed mindset which has prevented the spread of project-based operation. Traditionally, many executives have felt that their operation is just plain unsuited to the project paradigm and have resisted change purely on that basis. And those that dared to dip their toe into the water have frequently been put off by the added complexities and information roadblocks that occur when they have tried to amal-gamate two separate business applications.

seize the dayManagement by project is particularly applicable where the volume production is being outsourced and where the design and launch of new products is being managed using a combination of internal and external resources. It is also applicable during periods of slow business (whether you have outsourced or not), because without proper project-based insights, businesses may make changes to their organizations that they later regret. This is because they lack visibility into which product families are the most profitable, and therefore cannot change their plans to mitigate the

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impact on their business. Meanwhile, project functionality within an enterprise application can help executives manage an economic downturn, creating a variance in a project by making amendments, in real time, to keep that project on budget and profitable.

Even in the best of times, many executives do not know from one day to the next whether their organization is profitable or what products are making money and which are losing money. If you are not able to separate costs and revenue by product or by order, you are likely emphasizing products that are losers and starving or underemphasizing products that could add even more value to your business— at theworst accepting new orders for products that will result in a loss. In flush economic times, an executive may get away with this. In an economic downturn, walking away from additional margin through suboptimal management could be devastating.

Leveraging a business solution that allows for management by project permits executives to recognize these patterns of profit and loss, and as economic tides ebb, they can move resources, including staff, from products that are in decline to products that are thriving, allowing top-line revenue and margin to increase even through a recession. Lacking this information, too many executives take the easy way out, laying off employees rather than repurposing them onto more profitable business.

Yet, these layoffs are the result of a demand shock just like any other unanticipated shift in demand for the product. And many times, executives will overreact, cutting the work force by 20 percent to correspond with a 3 percent decrease in gross domestic product (GDP). In recessionary times, management by project will treat a period of economic slowdown as a simple variance in a project rather than a catastrophic event. This allows for a more thoughtful analysis of what type of correction is necessary to keep that project—be that project a collection of product lines, product families, or an entire enterprise—on budget.

Without management by project, it is difficult to analyze business data with the understanding that a slowdown is only temporary. And while the initial layoff results from a demand shock, eventually the economy and product demand will recover, which will lead to a corresponding supply shock. Suddenly, the executive that was perhaps too hasty in laying off very good employees will have to rehire. This exacerbates that demand shock as hiring and training takes time, and those new workers will only gradually become as efficient as those they replaced. In this instance as well, management by project can help plan the process of a return to full productivity and determine the cost of new employees going through that learning curve. On the other hand, if you have managed to keep your workforce through the downturn, you will be able to keep your costs much more stable during the recovery.

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supporting change via technologyMoving towards management by project is relatively easy with the right enterprise technology. As the name implies, management by project differs from project management primarily in that you are treating the ongoing demand for your product and your ability to meet that demand with supply as an ongoing project, a series of projects or projects linked to an overall program. Within a PBS enterprise environ-ment, management by project is as simple as right-mouse-clicking on a customer order line or other element and indicating which of a number of projects it is associ-ated with. Or, you can create demands in the future and attach them to a project, or even attach engineering or administrative time that otherwise would have been considered an indirect cost or overhead and associate it with a specific project.

In selecting a PBS enterprise application for management by project, it is impor-tant to ensure that the solution is integrated enough for the management of the supply and demand for all resources and for incurred cost to flow up to financials, as well as up through the project, so you can see how each project is progressing over time.

Optimally, we do not want integrated point solutions, but rather a unified enter-prise application that allows budgeting and forecasting, so that c-level executives can see how certain project-defined areas of the business are progressing against plan.

Some marketers of enterprise applications claim to offer integrated project management, but it often is limited to accounting functions, and it is really not tied into the rest of the application. So it is important to look for the ability to connect your project functionality to other areas of the application, from the original contract, through design into construction/manufacture and all the way to after-sale service, maintenance or decommissioning. This means that project-based environ-ment encompasses engineering, resources (people, material, facilities and cash), risk management, time and skills management and finance. This allows executives to attribute project-specific buckets, in real time, to everything from costs, completions, and estimated completions to earned value on design work being completed on behalf of a customer. And not least the ability to attribute as much or as little of your business to a project as you wish—even in a traditional project-based construc-tion company, not everything is managed using projects.

This integrated functionality should deliver these essential benefits:

• Tracking of Front-end Costs: Track project-specific costs from a design perspective—including engineering, creation of documents, and other time- driven costs that typically would be considered indirect or overhead.

• Full Project Enterprise Planning: Make sure the project functionality is connected into the application’s planning engine as well, so production items (if you have them) show up on the project plan.

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• Standard Plan: Obviously, the goal of implementing management by project is to allow detailed management and analyses of parts of the business as de facto projects. But even within those projects, some parts should be allowed to be shared commonly across multiple projects. Standard plan capabilities allow, for example items such as fasteners to become common to multiple projects.

• Re-use: Organizations often enter into customer contracts when the final specification is incomplete. To reduce risk and benefit from past experience,providing the ability to copy from a template of a similar completed project is essential.

• Swap (borrow & pay-back): The ability to change resource items from one project to another to maximize resource availability and at the same time reduce costs of holding items that are not required as originally planned due to changing priorities.

More than softwareManagement by project, while facilitated by business software, carries implications far beyond the technology infrastructure, and indeed affects the entire enterprise. To truly manage by project, a company will need to make certain changes to its organizational structure.

Find good project managers. Management by project is no different than project management in that it takes a certain type of person to keep things on time and on budget. A lot has been written about what makes a good project manager, but some key traits include honesty and a willingness to make waves to do the right thing for a project. They need the poise and confidence to stand up for what is right. They have the skill to lead others to that right course of action and then marshal the work of others to get it done.

Form project teams. Many companies are organized in a departmental structure (silos) that oftentimes can be rigid and territorial. Management by project requires human resources from various departments to be on loan for each project, creating a temporary organization with its own profit and loss (P&L) account. So from a project cost perspective, it is important to be able to monitor the workload each project places on each resource, allowing for some common resources to be allocated proportionally across numerous projects. It is also important for the tech-nology to allow management to see whether certain resources in each department might be overloaded, and to take those capacity issues seriously.

Create an agile organization. On the whole, management by project requires a more flexible and agile organizational structure, and that cultural shift can be more difficult for some organizations than the underlying technological shift. Rather than using department structures, the organization is built on rapidly shifting matrixes.

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People come onto a project team, work on that project until it is completed or their contribution is completed, and then cycle onto the next project.

Much to gainThe advantages of management by project are attractive under every circumstance and for almost every industry. But in recessionary times, executives can afford to leave less money on the table, must avoid more waste, and be as resourceful as possible to avoid a reduction in force.

Management by project assumes that business is essentially anecdotal, and an economic downturn proves this point. Having the tools to not only make necessary adjustments for a more challenging environment, but that allow for the eventual resurgence of economic activity will yield greater benefits than assuming decreased levels of business represent a new status quo.

Technology can provide the visibility of the anecdotal nature of business and facilitate a project-based approach, but ultimately, it is up to the management of each enterprise to take advantage of these capabilities and create a business culture that is agile enough to respond to today’s challenges.

new kid on the blockBusiness software that makes projects a true extension of a company’s existing business solution minimizes the miscommunications that occur due to a lack of compatibility and integration of systems not really designed for management by project. This allows companies testing a project approach within a part of their business to ensure that the flow of information doesn’t stagnate, but remains accessible throughout the organization. Previously, companies had to restructure their operation and create dedicated pockets of employees who solely concentrated on the project-based part of the business. This, in turn, caused a lack of communi-cation which affected the company’s efficiency and decision-making process. Often, the slow dissipation of vital information could have dire consequences in terms of risk mitigation and missed opportunities.

The need for companies to refine their operation by incorporating the virtues of different business practices has exposed the benefits of management by project and the project-based business model to a wider audience. And a growing number of companies are committing part or parts of their business to a project-based approach, confident that contemporary business software provides a solution that can integrate projects into their overall business solution. PBS is truly opening whole new world of software supporting the challenging markets of the 21st century.

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about ifs ifs is a public company (omX sTo: ifs) founded in 1983 that develops, supplies, and implements ifs Applications™, a component-based extended erp suite built on soA technology. ifs focuses on agile businesses where any of four core processes are strategic: service & asset management, manufacturing, supply chain and projects. The company has 2,000 customers and is present in more than 50 countries with 2,700 employees in total. .

more details can be found at www.ifsWorld.com. for further information, e-mail to [email protected]

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manage by project with project-based solutions (pbs)

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