FINDING OPPORTUNITIES

IN PROBLEMS
Edward J. Fern, MS, PMP
Time-to-Profit Inc.

Vladimir Liberzon, PMP

Spider Management Technologies

1
 LATERAL THINKING
"You cannot dig a hole in a different
place by digging the same hole
deeper"
This means that trying harder in the same
direction may not be as useful as changing
direction. Effort in the same direction
(approach) will not necessarily succeed.

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 LATERAL THINKING
"Lateral Thinking is for changing
concepts and perceptions"
With logic you start out with certain
ingredients just as in playing chess you
start out with given pieces. But what are
those pieces? In most real life situations
the pieces are not given, we just assume
they are there.
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 LATERAL THINKING
"The brain as a self-organizing
information system forms
asymmetric patterns.”
In such systems there is a mathematical
need for moving across patterns. The tools
and processes of lateral thinking are
designed to achieve such 'lateral'
movement. The tools are based on an
understanding of self-organising
information systems.
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 LATERAL THINKING
"In any self-organizing system there
is a need to escape from a local
optimum in order to move towards
a more global optimum.”
The techniques of lateral thinking, such as
provocation, are designed to help that
change.

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NORTHRIDGE

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 NATURAL DISASTER
an opportunity
At 4:31 A.M., Pacific Standard Time, on
Monday, January 17, 1994, a moderate
but very damaging earthquake with a
moment magnitude (Mw) of 6.7 struck
the densely populated San Fernando
Valley, in northern Los Angeles.

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PROBLEM

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 GRIDLOCK
Without the
Santa Monica
Freeway, traffic
on neighboring
freeways
became
unbearable.

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URGENCY
Local, State, and
Federal authorities
recognized the
urgency of repairing
the Santa Monica
Freeway.

Tax revenues would

be down.
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 RECOVERY
February 5, 1994 - Reconstruction
on Santa Monica Freeway begins
Contract approval took one day, as
opposed to the typical 30 to 60. The
winning firm was northern California-
based C.C. Myers, which pledged to
complete the project in the allotted 140
days.
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 PROBLEM
Gridlock would
slow the
delivery of
equipment and
materials to the
reconstruction
sites.
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OPPORTUNITY
The contractor
chartered a
private train to
move equipment
and materials,
by-passing the
gridlocked
freeway system.
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 RECOVERY
April 11, 1994 - Santa Monica Freeway
Opens 74 days ahead of schedule
In fact, the company reopened the freeway in
just 66 days. To achieve this miracle,
contractor Clint Myers radically expanded his
workforce, hiring more than 200 carpenters
(65 is average for such a project) and 134
iron workers (the average: 15). Myers's
employees and subcontractors worked 24
hours a day, 7 days a week, regardless of the
weather.
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 RECOVERY
Prime contractor earns $200,000
bonus per day - 14.8 million dollars
C.C. Myers Construction Company,
which pledged to complete the project
in the allotted 140 days. In fact, the
company reopened the freeway in just
66 days, earning an additional $14.8
million in incentive pay on top of the
$14.9 million it had bid in construction
costs.
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Olympic Village Construction Project

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Olympic Village Construction Project
• Olympic Village construction project for the
First International Youth Games in
Moscow had very tight schedule.
• Construction site was very crowded – 17
main contractors, many people, a forest of
cranes, and a lot of other machines.
• Each week construction site was visited by
Moscow mayor or the head of the Moscow
Government Construction Department.
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Olympic Village Construction Project
• Project started with the earthmoving for
building foundations and soon there was a
request of the construction manager to
Moscow mayor that sounded like this:

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Olympic Village Construction Project
• An answer was unexpected:

!
"
" "
#

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Olympic Village Construction Project
• In two weeks construction project manager
showed to Moscow mayor fresh landscape
design and addressed to him with the new
request:
$

! #

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Olympic Village Construction Project
• After the Games the flats in the Olympic
Village buildings were sold very quickly
and for higher price than was expected.
• Landscape became an additional valuable
attraction.

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BETTING A COMPANY

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 OPPORTUNITY
The 1990’s saw the spread of the Internet to nearly
universal availability in the developed world. The
spread was accompanied by two major trends in
information technology:
1. Companies were moving applications and
databases from the old mainframe-and-
terminal mode to the new client/server
mode.
2. Companies were transforming themselves to
interact directly with their customers and
suppliers in new and previously unimagined
ways: via the Internet and through integrated
supply chains, auction mechanisms, and
dis-intermediated transactions.
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 THREATS
Exploiting the opportunity posed threats:
• Learning new technologies
• Developing a new organizational
structure
• Building new security infrastructure
• Hiring many new people
• Customers could choose not to move
• Customers may leave for competitors

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 UNCERTAINTY
The investment in a new way of doing
business might be wasted if customers
were unimpressed and chose to stay
with the old way of doing business.

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RESULTS

Feb-03
Feb-04
Schwab
Merrill-Lynch

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 TIME TO PROFIT
• The time required to finish a project is less
important than the time required to recover
its costs.
• Profits are necessary to fund new projects
that create more new advantages.

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TIME TO PROFIT

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 MEASURING SUCCESS
• Project success criteria should be defined
by project business goals.
• The traditional approach, on time and
within budget, is not perfect especially for
profit-oriented projects.
– What if the project will finish earlier but
exceeding budget?
– What if the project will be late but will save a
lot of money?

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 SUCCESS CRITERION
• We suggest to use only one project
success criterion – total project NPV or
NPV at some moment in future.
• Using this criterion project managers will
be able to make proper decisions oriented
on company’s business goals.

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 EXAMPLE
Let’s consider the following sample project.
• It is planned to build a residential building
and to sell the flats.
• On the following slide you will see the
project schedule and the expected project
cash flow.

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 EXAMPLE
Project NPV = 1,640
Construction Duration
= 270 days
Payback Time =
16.03.2006 12:00
IRR = 76.67%

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 EXAMPLE
Instead of flats, we may decide to build and to sell
shops on the ground floor:
NPV = 2,240K
Duration = 275 d
Payback Time =
18.01.2006 12:00
IRR = 127.61%

This decision
Is worth making!
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 EXAMPLE
• You may notice that the construction will
have 5 days longer duration and will cost
more but future profits justify the decision.

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 MEASURING FAILURE
• Time-to-Profit approach to new product
development project management means
that project manager is responsible not
only for achieving project goals but also for
timely project termination if the project has
a low chance of being successful.
• From the very beginning, not only project
success criterion, but also project failure
criterion should be defined.

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 MEASURING FAILURE
• Project failure should be measured in the
same way as project success:
• If the expected NPV will become lower
than a specified value then the project
manager should suggest project
termination.

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 ARM DEFINITION
Active Risk Management is a system for:
– Identifying future events that are
important,
– Evaluating their potential impact,
– Planning our responses,
– Taking action in advance when
appropriate,
– Monitoring events that give us warning.

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 RISK
Future events that may or may not occur
that may have either positive and/or
negative effects.
– Events that have positive effects are
opportunities
– Events that have negative effects are
threats
– Most events are both

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 ESTIMATING RISKS
Estimate costs and benefits at the
same time and to the same degree of
precision.
– Establish separate teams to estimate
the opportunities and the threats.
– Require the teams to document their
findings before they see the other
team’s report.

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 ESTIMATING RISKS
Estimate uncertainty about costs and
benefits at the same time and to the
same degree of precision.
– Establish separate teams to estimate
the opportunities and the threats.
– Require the teams to document their
findings before they see the other
team’s report.
Estimates are not facts. The future is
not knowable.

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 ESTIMATING RISKS
Estimate alternative risks in the same way.
– Establish a standard for estimate precision.
– Establish quantifiable ways of talking about
uncertainty. Avoid vague terms:
• Big
• Small

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 ESTIMATING RISKS
Commit to using risk estimates as the
basis for decision making.
– If risk estimates are often ignored, they
will be poorly prepared.
– If risk estimates are used for decision
making, they will receive attention and
effort in their preparation.

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 ESTIMATING RISKS
Evaluate results.
– Compare anticipated threats to threats
that materialized.
– Compare anticipated opportunities to
opportunities that materialized.
Give estimators feedback to help them
improve their accuracy.

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 SETTING PROJECT TARGET
AND THRESHOLD
Project Targets.
– Simulate project risks and uncertainties and set project
targets (usually NPV at some moment in future) that
have reasonable initial probability to be achieved.
Project Thresholds.
– Define Project Failure criteria and set project threshold
(usually minimal acceptable NPV at the same moment
in future).
– Define project termination rules (i.e. current probability
of meeting project threshold became lower that some
specified value).

44
 SUCCESS DRIVEN PROJECT
MANAGEMENT
• During project execution project managers
should regularly recalculate and control
probabilities of meeting project targets
(success probability) and project failure as
well.
• Negative success probability trends
require corrective actions.

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 SUCCESS DRIVEN PROJECT
MANAGEMENT
• High probability of project failure (or low
probability of meeting the least acceptable
NPV – project threshold) requires
consideration of project termination.
• The next slide shows probability trends of
meeting target NPV and project threshold
for a sample project.

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 SUCCESS PROBABILITY
TRENDS
In this sample project, the current probability of
meeting project threshold is very high though
achieving target profit is uncertain.

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 CONCLUSIONS
• Small risks bring small threats but
small opportunities.
• Large risks bring large
opportunities but large threats.
• While we are alive, we cannot
avoid risk.

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 THE BIGGEST RISK
“It is not enough to think outside
the box. We must learn to live
outside the box.”
A competitor, usual or unexpected, may
accept a bigger risk than we have, manage
the threats and realize the opportunities.

Each of us has 6.3 billion potential

customers and 6.3 billion competitors.
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 % & ' ( ) *+ #
• We will appreciate your
feedback and future
discussions.

edfern@time-to-profit.com
www.time-to-profit.com

spider@mail.cnt.ru
www.spiderproject.ru 50