Do Service Projects require enhancement of the PMBoK?

Before launching into what Service Projects do or don’t require, we need to start with some discussion about the nature of service projects and how they might differ from more traditional projects. 

My earlier experience with projects is based upon defined end objective that has more or less orderly sequenced activities that have well defined start and completion dates along with well-defined budget or cost objectives. This experience is supported by the PMBoK that has served us through the management of many projects. 

So what’s different about service projects? And, what is meant by service projects? Service projects can be thought of as those of project classes where the Client or Customer contracts with another for work that is not end item. In the past, this is typically been such things as maintenance and cleaning. The definition does not include service activities like contracting for a design or component of a larger product because these activities will have the standard project attributes of well defined budgets and ending criteria.

In recent years some of the service projects have become very large.  This has occurred when major corporations have examined their core competencies and benchmarked these and other of their operations. The result has been that some of these corporations have seen an advantage for contracting for services to perform operations that were not a core competency and better performed by an appropriate contractor. These have generally been called “Outsourcing”.

How does this correspond with the prevailing PMI definitions of a Project? The PMBok distinguishes between operations and projects as follows, “Operations and Projects differ primarily in that operations are ongoing and repetitive while projects are temporary and unique.” The service projects that are typified by Outsourcing are instances where the operations of an organization are transferred and performed by another organization. These are characterized by the dislocation of assets (capital and human) that may happen quickly or over a period of years along with the introduction of new practices and procedures. The first phases of the project are filled with frantic activity, but as the life cycle matures the activity settles into ongoing and repetitive effort. If the project is successful, it is “evergreen.”   

	Restructuring in Corporations has created emphasis on a type of project that has many characteristics in common with non-service or “traditional” projects, as found in the Aerospace and Engineering Construction Industries. But, these projects also have unique features that are critical to success, both for the client and the contractor. 

	In restructuring, Corporations are focusing on their core business and assigning non-core activities to others. Most of these “other” activities are service related and the assignment often takes the form of “outsourcing” or similar arrangement. The assignment entails a project to transfer the activity from the Corporation to the new entity, Contractor. 

	A significant amount of these type of Service Projects are occurring in computer related activities where the rapid change in technology places a very large demand on Corporate resources just to stay current. As the Corporation focuses on its core competencies, it makes sense to outsource networks, personal computers, servers and similar items, including the physical assets and the related support and maintenance services.
   
	The Corporation expects that it will lower its operating costs and attain higher performance in the outsourced activities. The Contractor expects to grow its business with appropriate profitability while meeting the Corporations performance expectations.  Both sets of expectations are realizable. The realization occurs through the Transition Phase of the Service Project. 

	The physical transition may occur quickly in relation to the transition to the desired business states. This is in contrast to non-service projects where the completion is physical terms (mechanical completion) and a formal acceptance. The physical transition can occur at the time the contract is signed and assets and personnel go from the Corporation to the Contractor. But, it may take years to achieve operating conditions that are satisfactory to both parties. 

Project management knowledge, as we know it in the PMBOK, provides the foundation for these  Service Projects, but these need to be augmented with  the knowledge and tools that are associated with conventional business management. In the following, each of the elements of PMBOK will be discussed in relation to Service Projects with consideration for additional elements or activities that are needed for a successful Service  Project.

Scope:

	A clear Statement of Work is essential in Service Projects just like any other type of project. Particular emphasis is needed in the definition of roles and responsibilities between the Contractor and the Client. Recall that the Project Objective is to move a defined set of operations from the Client to the Contractor. Much of the Client’s process and procedures will be poorly documented and buried in the culture. It should be expected that the Client will have a continuing role and responsibility to examine the Contractor’s solutions and evaluate them in terms of prior practice and participate in assimilating the new processes. This may lead to changes in the Contractors standard service offerings.

Change Control is a critical activity for these Service Projects. There are many unknowns and the Client’s practices and procedures may be poorly documented. The scope statements must be concise and clear and well linked to the WBS to provide the basis for definition of changes. Change control serves to protect the contractor from doing uncompensated work out of scope; but equally important, it serves the Client as a vehicle to adjust the new processes to conform with the business practices of his organization.

Schedule:

	Schedule performance is as critical on a Service Project as any other project. However, in a ranking of project objectives it is often the case that Financial and Quality objectives have a higher priority and the Project Manager may willingly “trade-off” schedule to attain financial or quality objectives. Recall that the Client’s assets may pass to the contractor at the signing of the contract. The performance period of the project usually spans multiple years and includes a Transition Phase to implement the new practices and procedures. The metrics of “mechanical completion” and “acceptance test” are augmented by business metrics, like response time and customer satisfaction for the Client ;and “cash flow”, “margin” ,and “PBT” for the Contractor. Until these quality and financial objectives are met, the project is incomplete and it may make sense to extend the planned completion date of the Transition Phase.

Cost:

Cost Management should be substituted by Financial Management for Service Projects. The Project Manager is concerned with his costs (planned vs. Actual), but he and his company are equally concerned about business metrics like cash flow, margins, PBT, accounts receivable, and so on. The standard cost curves (planned vs. Actual) should be augmented with similar revenue information, as shown in Figure 1, below:

Figure 1  Hypothetical Service Project   -   Financial Overview

In Figure1, some the business metrics (or indicators) become apparent.

•	Planned Margin = PR - BC
•	Actual Margin = AC - BR
•	Forecast Margin = ER -ETC

An indicator of Accounts Receivable or the aging of receivables can be obtained by comparing planned of Billed Revenue against the Planned Revenue, and Billed Revenue to Received Revenue.

	The above figure is unfortunately indicative of many service projects with respect to cash flow, where the indicator of cash flow is the cumulative difference be revenue and cost. The cash flow is negative for most of the Transition Phase. Clients often expect the contractor to initiate project activities at their own expense, which starts the project with negative cash flow. And, this condition may persist for some time acting as a negative motivator for the entire project team (Client and Contractor) that effects the quality of the services. This situation negative cash flow situation can be remedied by introducing a mobilization period with appropriate lump sum payment at the beginning of the project or major project phase. These are funds that the Client will ultimately expend in any case and the early expenditure tends to alleviate a risk area for the Client, since the ultimate responsibility for identification of risks and their subsequent treatment must rest with the owner or client.

Quality:

	In Service Projects the Client’s quality measures are normally established as part of the contract. In Desktop Services Projects, for example, the services typically include item like:

•	maintenance response time
•	mean time to repair
•	call handling response time
•	time for call resolution
•	percent satisfactory responses
•	mean time to install
•	Customer Satisfaction

The Contractor’s primary quality issues are achievement of the contract requirements and the financial criteria in figure. 1 The project is best served if the quality metrics, like those above are maintained as control charts, including mean, variance, control limits and specification limits. 

Risk:
	
	Service projects are a little deceptive with regard to risk. On one hand the services seem to be well known to both the Client and the Contractor; on the other hand there is often a semantics difference that can lead to disagreement during implementation. The magnitude of the impact of the change to the Client when shifting from one set of practices and procedures to another is not generally well understood by either party. The Client often takes a position to preserve a Practices and Procedures and this may represent a change to the Contractor’s service offering. Many of the Client’s Practices and Procedures are not well documented and are simply buried in the way they do business. Some of these may be associated with critical competitive advantage so there is no recourse but to change the service offering.

	Changing  (sometimes called tailoring) the service offering can have ruinous effects on the Contractor’s margin requirements if not well managed since much of the Services that are “outsourced” are already low margin activities. As the contractor adjusts to accommodate these Client induced changes he begins to lose efficiency and productivity that comes with standard operations. If the Contractor is not appropriately compensated for these changes to his standard offerings, then he is forced to reduce costs in other areas in an attempt to maintain Margin Requirements. This can lead to a general deterioration of service. 

	Risk Management for Service Projects must include consideration for dealing with these types of unknowns. Client/Contractor project reviews should include topics related to actual service delivery versus the Client’s expectations. Significant deviations would be subject to the Change Process. It may also be appropriate that the Client set up a Management Reserve for these instances.

Contracts:

	Service Contracts tend to be multi-year agreements. The true “project” work is completed early in the total engagement in the Transition Phase that converts the Client from either self performing or another contractor to the Contractor. In most cases, the service delivery is fixed price, low margin, low risk, for a relatively repetitious activity. This is in contrast to the Transition Phase that is non-repetitious, high risk, but usually compensated by the same fixed price consideration. This situation presents problems for both the Client and the Contractor.

	If the contractor includes risk funds in his fixed price, then the Client may be overpaying for the service. If the contractor does not include risk funds in his prices, then margin erosion may have adverse effects on the quality of the service. A relatively simple solution is in the recognition of the distinct characteristics of these phases and that a different compensation scheme is appropriate for each.

	The work in the transition phase may be compensated by a ‘cost plus’ contract terms, while service delivery is compensated by fixed price arrangements. 

Human Resources:

	There are a number of human resource considerations that require unique attention in Service Projects. Probably the most significant is that the project must migrate a user community from one set of working procedures to another. This could represent a severe disruption in operations if not handled carefully, especially if the migration is accompanied with “downsizing”. The HR plan must be a collaborative effort between the Client and Contractor that is based upon thorough and documented understanding of this User Transition and accompanied by a program of communication and support. The objective is to monitor and maintain productivity at a high level and also record the improvement in productivity as a result of the Program.

	Another Human Resource consideration is that the distinct difference between the Transition and Delivery phases of Service Projects tends to require different skill sets of the Project Manager. The Transition Phase requires a Project Manager who can deal with unique situations in a changing environment while controlling scope and driving the schedule. The Delivery Phase places an emphasis on maintenance of stability and control. All Project Mangers do not have an equal abundance of skill sets required by the respective phases, and it often makes sense to plan a change of Project Managers at the end of the Transition phase. This may be well understood by the Contractor, but unless this is communicated and understood by the Client it could be misunderstood and create a problem. And, usually the better the Project Manger is during Transition Phase, the more difficult it is for the Client to accept a change of Project Managers

Communications:  

	Project communications is always a critical element and this is even more true with Service Projects. The primary reason for this is that the project directly effects the Clients User community. Any problems are that are felt by this community have a way of quickly escalating to major complaints. Changes that will have a beneficial outcome for the Client are often met with complaint until they are understood and integrated into the normal work processes. 
	
	The Communications Plan needs to be jointly developed by the Client and the Project Manager. It should  anticipate the User reaction to the change and provide response that allays the User concern. It is necessary that the Client play a key role not only in the development of the Communications Plan, but especially in its delivery.    

Summary:

Service Projects are a growing segment in the Projects Management endeavor. This growth will continue as long as Corporations continue focus on their core competencies and look to others to provide essential related services.

The major differences between Service Projects and more ‘traditional’ projects are:
•	The continuing requirement to “manage the business”  
•	The continued maintenance of good Client/Contractor relations, including End Users, while at the same time maintaining high quality service levels at the agreed prices.

	The PMBOK provides the basic framework for managing Service Projects with a shift of emphasis in some areas. It is necessary to shift the focus from Cost Management to Financial Management. Business Objectives must be met and the Project Manager must manage change and be prepared to ‘trade-off’ schedule performance to achieve Financial objectives. The Project Manager must establish a change process with the Client that can accommodate some alteration to the standard service products. This is often necessary to preserve Client Processes that involve unique competitive advantage.

	The current wave of Service Projects is in response to Corporate strategies to focus on their core competencies and contract with others to obtain necessary support services. This puts stress on those who were providing these services. Generally, they are obliged to change job functions, either within the Corporation, or as is often the case, seek employment elsewhere. Those who remain with the Corporation must adjust to a new service provider with new practices and procedures. Sensitivity to the pressures on the Clients Workforce is essential. The Project Manager, with the Client Management, must put communications vehicles in place to keep all aware of progress and attainment of performance standards. This is a difficult adjustment and transition.

	This transition contains many unknowns with accompanying risks. The risk in the Transition Phase is substantially greater than the phase after transition. This suggests contract arrangements where the risk is shared between the Client and the Contractor during the Transition Phase and fixed prices for the services after transition is complete.

	 Service Projects with their accompanying Client/Contractor alliance are a major factor in the changing business environment. They represent win-win opportunities and Project Management is the key to realization of the opportunity.

Max B. Smith, PMP, has over 25 years of Project Management experience in the Aerospace, Engineering and Construction, and Computer Industries. He is currently managing the Program Management Office for Digital Equipment Corp, Multivendor Customer Services for the South Central United States.