Wednesday, October 15, 2008

3. The Credit Crisis: For Project Managers - What Does It Mean?

"Times change, we change with them.” - Latin Proverb

In 1983, US companies spent $32 billion on IT, which accounted for 9.8% of their total investment in fixed assets that year.  By 2006, spending had risen almost tenfold, to $294 billion, and IT accounted for 21.1% of new fixed assets purchased that year in the US, according to Harvard’sAndrew McAfee.

Much of this growth has come from projects and been led by project managers.  The credit crisis marks a change.  If you want to lead and benefit, think about some of the changes likely to come and how to position yourself to take advantage of them.

This is part 3 of 4 looking at the credit crisis:

  1. The Credit Crisis: What Does it Mean for You and Your Company? - This will look at what’s currently happening and what it means.
  2. The Credit Crisis: Why It Is Important? - A Little History - To get some context, we’ll look at why companies were set up and why investors, like Carl Icahn are so outraged.  Understanding this is important to recognizing good opportunities.
  3. The Credit Crisis: For Project Managers - What Does It Mean? - What are some things as project managers you should be doing.
  4. The Credit Crisis: For Project Managers - What should you Expect? - What are things to look for and think about.

What does the Credit Crisis Mean?

The credit crisis is simply the event that woke everyone up.  There are several issues: financial, corporate governance, excessive supply, globalization and a host of others that could have caused the re-evaluation.  Now that the re-evaluation has started, there are a couple areas that will be effected.  Spending, corporate governance or transparency and excessive supply.  Look for your opportunities to excel in the areas relevant to your firm and you will be a hero.
Estimates have S&P 500 forward earnings for 2009 decreasing by 20%.  It’s a good bet internal budgets will decrease by even more.  Expect that budgets to be cut.  There will be fewer projects and less money. Position yourself to succeed by thinking about:

  • What will projects costs be?  Be able to show how you arrived at those costs and what interim measures can be taken to measure progress.  Think EVM - Earned Value Management or other measures that can be checked by people with no understanding of the project.
  • What will the ROI (Return on Investment) for the project be?  Demonstrate that the project must be done by showing the risks of not doing it.
  • People with strictly financial concerns will scrutinize projects looking for ways to cut costs.  Help them see how a project is progressing in cost and benefit ways.
  • Where can thresholds or gates be set up to evaluate the projects progress by people who are not savvy about what the project is doing.  If you can schedule gates where progress can be evaluated as a way of controlling costs, you’re helping those who are being evaluated on how money is spent.
  • What external contracts will the project require?  How much will those contracts cost to execute?  How much has it cost other businesses to execute similar contracts?  Can those contracts be written so that the vendor succeeds or fails based upon whether the project succeeds or fails?
  • What are mitigation plans if the project has to be ended?
  • If a project has to be ended, how can you, as a leader, effectively end it? (You’ll make yourself a hero if you can set up gates and show how a project can be shut down if it’s not meeting its targets.)

Corporate Governance

“The collapse of Lehman Brothers, with it’s massive losses for shareholders and employees and near catastrophic market consequences, obviously reflects an abject failure of management in risk oversight. - Carl Icahn Oct 13, 2008

There is a second element that hasn’t received as much attention, transparency and corporate governance.  Shareholders who have lost money in other companies want to be sure they will not lose money again.  Activist investors are going to demand accountability from boards, executives and through them, all of management.

Look at some of the resources on Corporate Governance.  Zebablog offers many insights.  Be able to speak intelligently about corporate governance and know where you can research items specific to your area.  There is limited knowledge in this area.  That limited knowledge is a huge opportunity for you.  Take the opportunity, learn and lead.  SOX is not the same as corporate governance.  Governance and transparency are going to become more critical, why don’t you take advantage of this?

Finally, there are long term considerations.  Where is your company?  Where is your company going?  Can it adjust to the changes occurring in the world?  Can you?

Many people don’t want to think about these things.  You should.  Thinking about what’s happening and things to keep your eyes open for, are what we’ll cover in the fourth entry, The Credit Crisis: For Project Managers - What should you Expect?

Are there other things you’ve seen that might be beneficial to think about?

Photo Credit: Christoph Niemann

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