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Advanced Project Portfolio Management and the PMO
In these circumstances, each active project blocks the progress of other projects. It is like having the organization’s arteries clogged. The lifeblood of change, projects, cannot flow very quickly or sometimes cannot flow at all. Who put all those projects into the system? In many cases, the answer is the executives. If the executives created the problem, why can’t they simply solve it by removing some active projects? We believe the answer lies in measurement systems within each organization that drive executives to continually activate new projects. Goldratt suggests, “Tell me how you measure me, and I will tell you how I will behave. If my measurements are unclear, then no one can predict how I will behave, not even me!” In most organizations, executives cannot keep their jobs for long if they do not meet their specifically designated goals. Since CEOs hold each executive accountable for their local contribution to the corporate goal, each functional executive is left with no choice but to initiate projects to meet their functional goal. In operations, the goal is often couched in terms of reducing costs or increasing efficiencies. In sales, it is increasing revenues. In engineering, it may be in terms of reducing scrap, increasing quality or producing more specifications with the same resources. Goldratt suggests that “The purpose of measurements is to motivate the parts to do what is good for the system as a whole.”* When we analyze the measurements within each functional area of an organization, we typically find dozens of measurements, many conflicting with each other. Conflicting measurements pit people against each other, even when they have common goals. For example, consider measurements on inventory. In Figure 7.1, we see that the sales organization wants to increase inventory to be able to satisfy more customers on the spot. It is very frustrating for salespeople to make a sale, only to find that the company cannot meet the customer’s required date due to lack of available inventory. Production, on the other hand, is trying to decrease inventory to meet its goal of cost cutting. Since it is charged with inventory carrying costs, Production appears to be in conflict with Sales. A third player enters the picture and has yet a different goal. The Finance Department wants to maintain inventory where it is. It has to meet banking covenants and shareholder expectations. If inventory is reduced too much too quickly, it causes the cost of goods sold to increase, showing reduced profit for the firm. Inventory is also viewed as an asset by the bank, and is considered to be collateral for lines of credit and loans. *For further information, see the Bibliography references to Theory of Constraints SelfPaced Learning Program on Finance and Measurements.