Framework: An Integrated Approach to Portfolio, Program and Project
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IV. TOTAL COST MANAGEMENT ENABLING PROCESSES - CHAPTER 11 - ENABLING PROCESSES
11.2 People and Performance Management
TCM is the sum of the practices and processes that an enterprise uses to manage the total life cycle cost investment in its portfolio of strategic assets. Costs include any investment of resources, with human resources being a major category along with materials, time, money, and information. Therefore, the effective utilization of human resources is an integral part of TCM. However, in the process sections of the TCM Framework, resources, including human resources, are generally described from a quantitative perspective as something to plan, measure, and assess. The goal of this section is to highlight some unique qualitative considerations for managing human resources.
11.2.2 Leadership and Management of People
Leadership is not about imposing control, but about obtaining commitment from people to support enterprise goals and objectives. It is about positively influencing peoples behavior toward self control and enhanced individual and group performance. To obtain commitment from people around objectives, a leader must first understand those enterprise objectives, develop a personal vision of their purpose, and communicate the vision and get other stakeholders to see that they have a shared purpose. For this, a leader must develop an environment of mutual trust.
Behavioral scientists have advanced a number of theories about leadership. Without detailing each theory, they collectively indicate that successful leaders have an attitude of trust and respect for people and their opinions; a balanced concern for individuals, people, and relationships versus organization, process, and production; and an understanding of motivating factors (e.g., a challenging job, good working conditions, etc.). The theories also indicate that to be a good leader, or team member, one must understand and challenge ones own attitudes and assumptions about people and their behavior.
Few endeavors of an enterprise are undertaken by individuals acting alone. Significant and challenging activities can only be accomplished through integrated efforts of several individuals. However, high-performing, successful teams do not just happen; they are built by leaders who can obtain the team member commitment, despite sometimes differing personal objectives, to support enterprise goals and objectives. There are many challenges to effective team building including team members differing motivations and expectations, and differing attitudes and assumptions about people, work, and accountability. It is a leaders responsibility to communicate to the team clear goals that are tied to overall business objectives and customer requirements and then work with the team to address the challenges and obtain commitment to work together toward the common goals.
Team members differences are both challenges and opportunities. Differences in the way team members think and act (e.g., some are intuitive, others logical) can be leveraged so that a team takes a balanced approach to problems. Differences in team members cultural backgrounds can be taken advantage of in the same way. However, the attributes that add richness to a team may also add more complications for the leader to work through. Significant differences and conflicts should always be addressed, not ignored. One more important aspect of team building is that team members goals and objectives may not coincide with the enterprises goals and objectives. The team leader must be aware of that fact and work toward team integration or minimizing the gaps between diverse goals.
.3 Leadership Roles: Leading, Managing, Facilitating, and Mentoring
The most effective leaders have the ability to assume different roles through the life cycle of managing assets or projects. The appropriate roleleader, manager, facilitator, or mentoris assumed depending on the team members respective needs for shared vision, structure and discipline, path clearing, or personal guidance.
The role of leader takes priority when the team loses sight of its shared purpose. The manager role of providing structure and discipline is called for when self-control is not keeping things on track. Facilitation is needed when roadblocks such as conflicts between teams, resource shortages, or other obstacles call for the leaders influence to clear the way or help the team members find paths to do their jobs. The role of mentor or coach is important when an individuals skills, knowledge, or behavior need development or improvement and some guidance, assistance, feedback, or role modeling might help that individual and, by extension, also help the team.
When people are involved in a process or system such as TCM, successful performance toward a goal often depends on the motivation of the people involved. However, in the TCM process, the questions asked regarding performance measurement, assessment, and actions toward a goal are focused on impersonal attributes such as: What are the asset or project value drivers? The cost drivers? The risk drivers? The question TCM has not asked is: What is driving the team members performance or behavior toward the goal? What are the personal value, cost, and risk equations that individuals consciously or unconsciously measure, assess, and act upon? As was mentioned, a good leader must understand what motivates team member behavior that supports effective individual and team performance.
The drivers (i.e., motivators or demotivators) may come from either intrinsic or extrinsic sources. Sources of intrinsic motivation rise from within people, such as a personal desire to learn or to help others. Extrinsic sources originate from outside the person, such as rewards or improved working conditions. To have an impact, extrinsic sources must either counter or complement intrinsic sources. For example, if a person has no desire to learn, an offer of reimbursement for education costs is unlikely to have an effect on that persons actions. If, however, that person has a desire for money or esteem, an opportunity for higher pay or a better title with an increased level of education may have an effect. A leader must understand a persons intrinsic motivations in order to find extrinsic motivators or incentives that will improve behavior and performance without violating anyones ethics.
As with leadership, behavioral scientists have advanced many theories about motivation. These have characterized the subject from the perspectives of evolution, biology, drives, needs, and social influence. The many theories will not be described here, but each of these perspectives is in agreement that individuals display a wide range of motives. Each theory also begins with the premise that motivation involves goal-directed behavior.
The preceding discussions concern how leaders influence peoples behavior and the performance of actions (i.e., the means) toward enterprise goals, objectives, and purpose (i.e., the ends). As discussed in Section 11.1, at all times, each person in the enterprise must judge the means and the ends against personal and societal values and rules of conduct. In judging, people and organizations must ask questions about the means and ends, such as: Are they fair, respectful, responsible, honest, and honorable? Society sets the framework for this questioning, but individuals and organizations make the judgments and set the rules. Most organizations have ethics programs or rules of conduct. For example, AACE International has a Canons of Ethics, which if violated by a member, may subject that individual to expulsion from the Association.
The preceding discussion of leadership focused on people working in teams. However, teams are part of an enterprises organizational structure. Therefore, TCM process activities as well as the concepts of leadership, motivation, and ethics must be considered in the context of the established or changing organizational structure.
.1 Organization Structure Design and Development
An organizational structure can be considered a strategic asset of the enterprise, and it can be managed using the TCM process. Organizational requirements and plans should be based on the needs and objectives of the enterprise; performance should be measured and assessed, changes controlled (i.e., organizational development), and so on. As with any asset or project, the structure and scope must be well defined and communicated to the stakeholders so they understand how they are tied to the enterprises objectives.
Traditionally, the design of an organization structure must consider the following principles:
Division of labor. Consider departmentalization or specialization.
Unity of command. Consider lines or chains of command.
Unity of directions. Consider authority and responsibility.
Span of control. Consider levels of control and degree of centralization.
Traditionally, there are three structural design frameworks used, for which the preceding principles are considered:
Functional. Focused on division of labor or specialization (e.g., cost engineering)
Divisional. Focused on unity of command and direction concerning product lines and/or regions. Typically, each division is organized functionally.
Matrix: Focused on tasks. Typically, task managers draw resources from functional and divisional organizations as needed.
Typically, each design will have lateral or "dotted line" relationships, liaisons, and temporary attributes to meet special needs. Many enterprises also have hybrid organizational designs because each design has advantages and disadvantages in terms of the efficient and effective use of resources, decision making, and encouragement of expertise development.
Functional designs encourage expertise development and avoid duplication of resources, but tend to be "siloed" or more focused on the needs of the specialty than the integration of specialties needed to serve processes, products, or customers. Divisional designs improve the focus on product and customers and decision making concerning them, but tend to use resources inefficiently because each division uses functional organization, which may foster detrimental rivalries. Matrix designs use resources efficiently and have a focus on the task (i.e., process, product, project, or customer), but they complicate decision making and allocation of resources because lines of authority are less clear (e.g., a person may have two supervisors: functional and project). In todays complex world, organization structures tend to be complex models that integrate the three traditional designs into one structure that can dynamically serve an enterprises overall strategies.
.2 Organization Structure Design and Development for TCM
In TCM, a key organization concern is the authority to make decisions as to a commitment or investment of enterprise resources (i.e., time, people, or money). Authority is a concern because the matrix type of organization design is commonly used in TCM, particularly for project management. A matrix works well because asset and project management are task and product-focused efforts using teams with resource needs that vary over the life cycle of the effort. A matrix is a flexible and efficient design for drawing resources from functional and divisional organizations as needed. Organization charts for a matrix organization are dynamic and must constantly be revised.
However, the matrix design complicates decision making because team, functional, and divisional managers may have conflicting authority over resources. Team members that report to multiple supervisors may become confused as to whom they should listen. This situation places a premium on leadership and planning. Specifically, leadership ensures that everyone shares a clear vision of common purpose to avoid rivalries and conflict. Planning ensures that there is unity of direction; that is, it clearly establishes guidelines of who has authority for different types of decisions. Enterprises that have project systems (see Section 4.1) will have such established guidelines. The authority of the team manager must be adequate to allow efficient day-to-day operations. Planning also makes sure that resources are allocated wisely.
Each TCM process map includes a planning step in which roles, authority, and responsibility are established. Also, the resource planning (Section 7.4) and procurement planning (Section 7.7) processes must consider the owner and contractor organization structures and how they will interact. These processes must also consider whether the owner or contractor has sufficient qualified resources for specific roles and activities.
Because of their intimate knowledge of asset and project cost investments, cost engineers are expected to be good stewards of the enterprises resources. Some organizations institutionalize this idea by having them report to a functional or division manager rather than the team manager; that is, they become in part an internal auditor of the teams function. However, this can lead to mistrust; the cost engineer should be a close and trusted advisor to the team manager. A better way to ensure cost engineers independence to fairly assess and report cost issues is to have team managers direct them, but ensure that no one team manager has an undue influence on their future career (e.g., make sure performance appraisals are balanced).
While the TCM project control process almost always employs teams organized in a matrix structure, it is more common to find a divisional structure used for the strategic asset management process because the division usually "owns" and operates the asset (i.e., operational management) and has a less temporary focus than a project team. A division may have its own established capital management or strategic planning department, function, or team that handles much of the asset management process. However, when separate divisions within the enterprise are given authority to decide on major investments for their part of the asset portfolio, there is a risk that the decisions will be biased, often unintentionally, by their parochial needs and desires and by competitive instincts (i.e., "pet projects"). Yielding to biases, or lacking a unified vision, a divisions assets may evolve through many small upgrade and maintenance projects into something that no longer meets the enterprises strategic requirements in some regard. While TCM does not address business strategy development (strategy is an input), the effective application of TCM in deploying that strategy requires strategic alignment between organizations and calls for planning, measuring, and assessing the enterprises asset portfolio as a whole.
Competencies are the skills and knowledge required of an individual or organization to perform a job or function. Knowledge is an understanding gained through experience or study, and skills are abilities that transform knowledge into use. Enterprises must assess where and with whom competencies should reside in the organization structure. Often, organizational effectiveness is improved if some jobs or functions are performed by individuals or organizations outside the enterprise (i.e., outsourced). In general, most enterprises retain in-house those jobs and functions that are essential to its operations and effectiveness. These are generally called the "core competencies" of the organization.
An individuals core competencies are those that are essential to the successful performance of their specific job. Organizational effectiveness is enhanced when individual and enterprise competencies are tied together in a model. Lepsinger and Lucia define competency models as ". . . a descriptive tool that identifies the skills, knowledge, personal characteristics, and behaviors needed to effectively perform a role in the organization and help the business meet its strategic objectives." In other words, for best performance a model should define the skills and knowledge needed for a job as well as the expected levels of performance. Furthermore, the model should tie skills and knowledge to organizational roles, and tie everything back to business objectives and strategies.
A basic competency model for a particular job or function can be displayed as a table. In the first column each competency is listed. The expected level of performance for each step of competency development or maturity is then shown in adjacent columns. These models are effective tools for training and career planning and performance management. Many professional societies, including AACE International, have developed consensus competency models for standardization and professional certification purposes.
11.2.4 Productivity and Performance Management
The preceding discussions concerned positively influencing peoples behavior toward self control and better individual and group performance within the context of the organization. In TCM, labor performance is measured and assessed as objectively as possible; the measurement is usually referred to as productivity. In Section 10.1, labor productivity was defined in general terms as the ratio of the value that labor produces to the value invested in labor.
It is expected that an enterprise will to do everything possible to promote performance and productivity. Performance begins with having capable or competent people. Figure 11.2-1 illustrates a typical performance expectancy model in which the individuals have basic capabilities that result from many factors. The performance outcome of the individuals activities partly depends on effectively developing and using that capability. Competency models help assure that appropriate skills and knowledge are developed and experience is obtained over the course of an individuals career. For example, an individuals performance of competencies in the model can be rated, with overall performance being weighted for the importance of each competency to the organizations objectives. Identified performance gaps can be addressed through training, new assignments, coaching, mentoring, and so on.
Enterprises can either facilitate or constrain capability development and deployment. One goal of performance management is to manage the constraints. Figure 11.2-1 illustrates the types of potential constraints. The previous sections covered the role of leadership and organizational design and development in making sure that the individuals capability and performance is promoted and not restricted.
Figure 11.2-1 Performance Expectancy Model
In Section 10.1, labor productivity was defined in an absolute sense as a measure of the extent to which labor resources are minimized and wasted effort is eliminated from a work process (i.e., work process efficiency). Figure 11.2-2 illustrates how performance potential is lost through inefficiency and waste.
Figure 11.2-2 The Performance Problem
The goal must be to eliminate or minimize the factors contributing to that degradation. The solution to the performance problem is the TCM process; that is, planning, measuring, and assessing the work through an integrated process while making sure that leadership and organization promote its success.
11.2.5 Key Concepts for People and Performance Management
The preceding discussions touched on a few principles and considerations regarding people and performance management for the TCM process. A key point to emphasize is the important role of leadership in promoting performance, particularly for the matrix organizations typically used for asset and project management. Some people and performance management application issues are covered in other sections, particularly resource planning (Section 7.4), procurement planning (Section 7.7), and project performance (including productivity) assessment (Section 10.1).
The following concepts and terminology described in this section are particularly important to understanding people and performance management in relation to TCM:
.1 Leadership. (Section 184.108.40.206).
.2 Teams. (Section 220.127.116.11).
.3 Leadership Roles. (Section 18.104.22.168).
.4 Motivation/Incentives. (Section 22.214.171.124).
.5 Ethics. (Section 126.96.36.199).
.6 Organization Design. (Section 188.8.131.52). Including traditional principles and frameworks for organization design.
.7 Matrix Organization. (Section 184.108.40.206). A common design used for asset and project management.
.8 Competencies and Competency Modeling. (Section 220.127.116.11).
.9 Productivity. (Sections 10.1 and 11.2.4). Including the problems of waste and inefficiency.
Further Readings and Sources
The references on people and performance management are too numerous to mention. However, this section was in large part abstracted from AACE Internationals Skills and Knowledge of Cost Engineering, which in turn reflects material from the texts of the contributing authors listed below.
AACE International. Recommended Practice 11R-88, Required Skills and Knowledge of Cost Engineering, AACE International, Morgantown, WV, 2005.
Amos, Scott J. Skills and Knowledge of Cost Engineering, 5th ed. Morgantown, WV: AACE International, 2004.
Bent, James A. Effective Project Management Through Applied Cost and Schedule Control. New York: Marcel Dekker, Inc., 1996.
Flannes, Steven W., and Ginger Levin. People Skills for Project Managers. Vienna, VA: Management Concepts Inc., 2001.
Kezsbom, Deborah S., and Katherine A. Edward. The New Dynamic Project Management: Winning Through Competitive Advantage. New York: John Wiley & Sons, 2001.
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