Winning the Project Management War

“This is war,” Charles said. He pressed his lips together until they turned white. “I’ve put too much in this company already. I can’t lose this.” At the beginning of the meeting this general contractor had laid his financial statements on the conference table. He’d pulled out a contract he’d just been awarded and an application for a bank loan. I was on site to assist this small business survive a crisis. I began to look these materials over.

I didn’t have long. Charles snatched the profit & loss out of my hands. He yelled, “What’s wrong with this picture?” He waived the report vigorously over his head, trying to strike a pose of defiance. But as I stared at him, dumbstruck, I saw that his hands were shaking. His eyes were fixed and his pupils dilated. His voice had been crackling from a dry throat. I realized, then, he was projecting the appearance not so much of a soldier at war as a peasant begging for surrender.

The Project Management Practice

On a good day, business leaders like Charles will tell you they know perfectly well how to manage. And if they run a service businesses delivering projects—as contractors do—they will boast about how great they are at executing on their projects. But when you really stop and think about managing, and you think about projects in the same context, you are considering a special business challenge—Project Management. Project Management is a practice poorly understood and poorly delivered by small and medium-sized service businesses. The results of poor project management are devastating: Irate customers, lawsuits, lost profits, and layoffs. Worse, in the present economic slowdown, bad project management can sink the whole business.

This story about Charles’s contracting company, and its balancing act at the financial and legal precipice, really happened. The names, locations and a few details have been changed to protect identities. His company suffered from all the bad results of poor project management, and its very existence was threatened. The good news is that Charles has now learned how to win the war. His story provides great lessons for any business that uses projects to deliver services.

Taking it Personally

Charles gave the profit and loss report he’d brandished over his head back to me. I scanned it hurriedly for the most important numbers, thinking he might grab it from me again. 16% gross profit. Not great for a general contractor, but better than a lot I’d seen. Net operating profit 5.5%. Not wonderful, but many businesses survive long and happy at that rate.

Charles forced his body up from the slump he had fallen into, holding his head up as high as he could manage. His shoulders and eyes looked heavy.

“Robert, you see that bottom number?” He thrust his stiff index finger at the page like a knife. “Do you see all of that money there? I don’t have it. I don’t know where it went!”

I looked over the newly awarded contract. It was a sizeable win. Next I scanned the loan application. It didn’t look like a very strong presentation, but no small business in need of a loan these days has strong numbers to show.

“What about this new contract?” I asked. “I see that it’s signed off and ready to go. It looks pretty good to me.”

Charles’s eye twitched as if a bug had flown into it. He explained he had just been awarded the 1,020 vehicle parking garage project. Ground breaking was expected to begin in three weeks. To get the project started, he said, he was required to put money into perimeter fencing and an office trailer, plus he had to add a new superintendent to the payroll. Such are the normal mobilization costs for a project like this, I thought.

“What about this loan?” I asked, guessing that he probably intended to use it to provide working capital for the mobilization costs. “What did your banker have to say?”

Charles looked away. He opened his mouth to talk a couple of times but couldn’t. He looked back at me with a blank gaze. Then he broke eye contact again, signaling the condition necessary to say what was next. “Well, that’s the main reason I called you in to help me. They called….” He trailed off, fumbling the words. I knew this was not going to be good.

“They called me Monday. They said they were going to turn me down. And they were the forth bank.” His eyes drooped. He wrapped one hand around the knuckles of his other. He squeezed hard, as if punishing himself for some sin.

I could see Charles wanted to say more. As if confessing to a crime, he spoke low and slow. “When I look at my checking account and think about what I have coming in over the next three weeks, and when I add up all the bills I absolutely have to pay, I know I can do only one of two things: I can pay out what I have to pay to get this project started. Or I can make one more payroll. I can’t do both.”

His heavy, dark eyes kept their gaze on me. He didn’t blink. Then he squirmed in his chair, and I could see he was working to set himself up again as high above the desk as possible. But his eyes drooped some more. The corners of his mouth fell, drawn down by a gravity that seemed somehow stronger today than the laws of physics could explain. His words trailed out like the last air from a balloon.

“Robert, how did I ever let this happen? I’m not sleeping because of this. I’ve given up going to the gym. Look at me.” He winced as he looked down over his belly. “Plus, I hardly see my wife. I don’t know how long she is going to put up with me never being there. Last week I missed my youngest kid’s birthday party.”

I was trying to think of what to say. After all, I was the one supposed to have all the answers. A few minutes prior I had felt ready to make a brilliant comment about the numbers, but now Charles was opening up so honestly, showing me so much of his pain, that I was struggling. What words could I utter to honor the dignity of this broken man?

Essential Stepping Stones

In the next hours, as I went to work helping Charles and his employees find a path out of their mess, I began to discern a pattern. Every business is different, for sure. But after years of assisting small and medium-sized businesses, I can see the patterns pretty quickly. And here it was: Charles had never taken the fundamental steps, like stepping stones over a patch of mud, to set up his growing company so it could succeed. By contrast, other fledgling businesses that make it to adulthood always manage to put together some basic steps and use them to get through the hard times of starting a company. But the businesses that fail always get stuck in the mud because one or more of these critical stepping stones is missing.

Listing the steps is easy; accomplishing them is hard. Here they are:

1. Identify business functions. This is the first step for a leader starting a business. He or she has to identify these for his own particular kind of business. For example, all businesses small or large have to have an executive function, an accounting function and a sales function. Businesses that make products have a manufacturing function, inventory, shipping and receiving, and some more. Service businesses have a customer service function and sometimes a field service function. Service companies that deliver projects have the project management function and sometimes the estimator function.

2. Define the accountabilities of each function. An accountability is a task that can be easily observed, measured and evaluated by a superior. For the customer service function, to answer the phone is a task; to answer it within 2 rings 90% of the time is an accountability.

3. Assign accountabilities to qualified people. This is a matter of educated judgment. Sometimes a leader’s best judgment turns out not to be right and has to be corrected.

4. Get agreement. The people to do the work need a chance to evaluate their accountabilities and plan how to achieve them. Some people may ask for special help or training.

5. Hold people accountable. This means holding them to task for delivering what they have agreed they can deliver.

6. Evaluate results and give consequences. Unless leaders do this, there is no accountability. Consequences just mean natural results that accrue to the individual. They should be either positive or negative depending on whether the individual’s actions cause a positive impact on the business or a negative one.

7. Make corrections. Everyday, good leaders let their people know how they’re doing through casual, on-the-job comments that shape the employee’s behavior. The best leaders use a conscious method to shape behavior, and that’s called coaching. On a more drastic level, corrections are made by moving people out of what they are doing to more appropriate functions, or by moving them out of the company altogether.

It might be easier for you to imagine these steps as rungs on a ladder. In a few minutes, as you learn more about Charles’s company, you’ll see that Charles—like so many business leaders—was awkwardly and tragically trying to pull himself up the ladder without even putting his feet on the rungs.

To begin with, it was clear to me that the business functions at Charles’s company were ill defined. And I saw no system apparent to hold people accountable. But which of the missing functions was causing the greatest problem? I had to act quickly. I began as a physician, looking first at the business’ symptoms.

From Symptoms to Root Causes

The most pressing symptom was the impossible dilemma of either starting the next project, which was required to keep the minimal lifeblood of revenue and cash flowing, or meeting the next payroll, but not both. There was much more to the story. The symptoms of pain an organization feels in any moment—a minor vexation or a sweeping existential pain like Charles was suffering—are like the leaves on a tree. The leaves are what you first see when you glance at a tree. But, of course, there is a lot more to a tree that leaves. The leaves are held up by branches, the branches are held up by a trunk, and the trunk is supported by a root.

So, too, the problems you first notice in an organization are caused by more fundamental problems, and those deeper problems are caused by yet deeper problems. Trace the connections of problems logically, and you’ll finally get to the root cause. If you try to solve a problem at the leaf level, you don’t solve the problem at all. You’re just treating symptoms. If a tree has brown leaves, you don’t water the leaves, and you don’t water the trunk. You water the root.

Therefore, I began looking for the root cause of the cash crunch at Charles’s company. I asked Charles to meet with me in the conference room, and I sketched out on the white board a few facts I had turned up from talking with his employees. I turned to Charles to ask him to tell me more.

The gravity seemed to increase under his chair again. The corners of his eyes and mouth fell.

Leaves on the Tree

“I priced a sidewalk deal bad last January. That caused a small loss, and that was the first hit to the cash.

“Then a month later, I felt like I was riding high because I had managed to hire Stewart Johnson, a guy I had known since school. He was always boasting about the huge ground-up construction projects he was leading, and for some reason he got laid off from the company he was working for, so I managed to hire him as project manger.”

I made some notes. I was seeing nothing but leaves, symptoms, so far. I asked Charles to continue, in spite of the fact that I could see he was getting more and more depressed.

“I had just been awarded a big project to lay the parking lots at the new mall east of town. Stewart was really doing a good job, or so I thought. Well, he made a mistake, a pretty big one. He brought in concrete to lay one entire side of the mall’s parking area. He did this before the inspector’s report was back. He knew the inspector quite well, and he thought he knew the work going on pretty well, and he figured the report would come back fine.

“Turned out the inspector red tagged the soil conditions. All the concrete just laid had to be torn out. I wasn’t watching what Stewart was doing like I should.”

That was the first sign of come kind of underlying cause. I asked Charles what reports he had from Stewart that might have given him an idea things were not going right. Charles answered, “No reports. Really, I wasn’t watching him at all. There hadn’t been any complaints, so I thought everything was alright. That loss was the second hit to the cash, a pretty big one.”

Approaching Underlying Causes

“What kind of loss?” I asked, knowing that we were working our way down a tree branch.

“Well, about as big as you can get. After we re-graded the soil, the management group seemed to have changed their specifications. There was a big argument between Stewart and the engineers. Stewart said we did the work to the specs the second time, but the engineers wouldn’t let us pass. Stewart said the management group was changing specs on us because they had lost faith in us, but the engineers were arguing that the specs were the same.”

“What did the truth of the matter turn out to be?” I asked.

“I don’t really know,” he answered. “Everybody argued for about a month.”

“Charles,” I stepped in, “you said you didn’t know the truth of the soil conditions. That’s the kind of thing you have to know, and you have to know that your project manager knows.” We were way beyond the symptoms. Now we were solidly on branches, but I didn’t know how much farther down we had to go.

Charles knew what happened in this project was quite bad. But he was opening up pretty freely now. He seemed to be getting relief from telling the story, as if he were giving confession to his priest.

“During the month of arguing, we weren’t being paid by the management group, and as a result we weren’t paying our subcontractors. Consequently, two of our subcontractors filed liens on the job. Then the management group claimed they gave us notice for non-performance. I never got anything in the mail, at least nothing that I noticed.”

“Charles,” I had to jump in again. “You know how serious a claim of non-performance is on a contract, particularly from a large management group!”

“Yeah, I know, at least I know now. But at the time I was busy with a bunch of other things. I just expected Stewart to handle it. You know—delegation.”

“You know something,” I responded, feeling angry for the sake of the business itself, the well-being of which had been abandoned by Charles and his so-called project manager. “You know, Charles, delegation isn’t about giving people so much rope they hang themselves and you, too.”

“Well, I guess I did give him too long a leash,” he said, seriously minimizing the disaster arising from his inaction. Charles seemed eager to go on now, finally having the chance to unload his burden. I suspected the next statement to take us much further down the branches.

“Another month passed. Then we got a letter from the group’s lawyers that they were filing a claim on our bond.”

“Oh, no!” I yelled. “Do you know what that means? Oh! That was, what, six months ago? You and Stewart got all this resolved, didn’t you?”

“Well, to be truthful, no. I didn’t know what the city was doing at first. Stewart was intercepting all of the mail. He told the bookkeeper to give him everything relating to the mall project, even certified letters that had to be signed by me.”

I thought I was definitely on the trunk of the tree now. “So you didn’t have the job functions for your PM and your bookkeeper defined so that you could…”

“No, they have job descriptions, if that’s what you mean,” Charles interrupted. “They are in a big book, right over here.” He pointed to a book on a shelf at the side of the conference room. It was entitled Office Manual. Beside it was another manual entitled Project Manager Procedures.

“Really, job descriptions are just a small part of it,” I said. “I was about to say…’so that you could then take all of the steps necessary to hold them accountable for doing what you expected them to do.’”

“I gave them the manuals,” Charles said dismissingly, but he knew his excuse was thin as paper. “I told Stewart to keep me up to date, but it took me a while to find out just how much he didn’t keep me up to date.”

“What else did you find out?”

Well, I didn’t find out about tearing out the concrete and the re-grading until it had already been done.”

“Let me guess,” I said, “Stewart didn’t tell you.”

“Right. It was the concrete and grading subs calling to get paid that tipped me off.”

“You mean, you didn’t know there were two months of cost overruns and a client not paying you?”

“No. Not until I tried to pay the grading sub, and I found out I didn’t have the money to do it.”

Something Deeper

I decided at this point there was more to discover, farther to work our way down the trunk of the tree, before discovering the root cause. It was a fact that Charles hadn’t defined his business functions, and a fact that the people performing the functions didn’t have a clear idea about how to perform specific accountabilities, and a fact that he didn’t have any kind of measurement systems in place to detect problems and correct them. Plus it was a fact that the project management function itself was completely undefined and uncontrolled. Those were all causes of the cash crunch symptom, but I knew there was something deeper.

“Charles, if I understood your P&L correctly, this mall pavement job was not your largest project at the time. Why didn’t you use collections from one of your other jobs to pay your grading sub, just to get him out of the way? That’s not a good practice generally, but it could have saved you some grief.”

“The reason was this. I wasn’t able to bill much on my other two big jobs, not for about three months. That’s because when Jim Biggs, my second-best project manager, found out that the mall filed on my bond, he went out and got another job. Just like that! Then I brought in another good friend of mine, Steve Littlefield, to take over on Jim’s jobs. It took Steve two months to get them started again, and I couldn’t bill anything during that time.”

“Are those two projects completed now?” I asked, fearing I already knew the answer.

“No, they should have been completed about six months ago. But they’re still running.”

“Why?”

“You know, the work isn’t done.”

“What work exactly is not done?”

“I don’t know.”

“Well, why don’t we look at the schedules and just figure it out?”

“Steve never gave me any schedules.”

That statement took us all the way down the trunk, to the dirt level. We had exposed the top of the root of his problem. But there was a lot of root, deeper still.

Project Management Function

Before telling the rest of the story, I want to focus for a minute on the function of project management. You already know the role of project managers was not defined in Charles’s company, and you know PMs were not held accountable, in measurable ways, for executing on those accountabilities. But let’s pause for a minute and consider how Charles might have defined the project management function.

First, let’s recognize that project management, as a business function, is the same in contracting companies no matter what the type. It would be the same for a general contractor building a bridge or a general contractor building school playgrounds. It would be the same for a subcontractor installing the piers and footings under that bridge, or the sub installing and maintaining landscaping on the playgrounds. It could be an appliance installer delivering and hooking up washing machines that people buy at Best Buy. It could be a audio-visual company designing, selling and installing A-V equipment in office buildings. It could be a custom drapery and bedspread fabricator for hotels. All of these are service businesses who deliver their services defined by projects. Each of these businesses has the business function of project management, whether they call it that or not. So to be successful, each of these businesses has to have project mangers, whether they are called that or not.

So what are the accountabilities of project managers?

1. Decode contract specifications. To perform this accountability requires the talent of projecting three-dimensional structures from two-dimensional blueprints. It also requires envisioning the efficient flow of work by the various trades required to get the project completed. Further, it means perceiving the level of expertise required by workers, foremen and subcontractors to get the work done.

2. Negotiate contracts with qualified subcontractors. Contractors have requirements about quality, safety, daily reporting, payment schedules and the like. Subcontractors do not all come to the job equally qualified to perform a general contractor’s requirements. It’s up to the PM to keep a database of subcontractors and their qualifications, select them to bid, and hold their bid and schedule tight with a contract.

3. Plan the work in detailed schedules. Minimal elements of schedules are job start and job stop of each trade, and job start and job start of each of the general contractor’s supervisors. Also required are expected phase billing dates and amounts, and projected dates of project closeout activities and project completion. It should go without saying that this accountability also means keeping the schedule up to date as things change.

4. Orchestrate the players. This is about communicating changes in schedule to subcontractors, laborers and materials purchasers, in order to meet the demands of changing conditions.

5. Capture changing customer requests in change orders. Contractors make jokes about how their customers continually change their minds about what they want. Good project managers don’t laugh. They increase gross profit by properly pricing changes and presenting change order documentation for customer approval before the work of the change is done.

6. Meet the gross profit implicit in the bid price. It doesn’t take until the end of the project to find out if the project is making the money it should. Any decent accounting system, such as QuickBooks, is able to keep track of ongoing job costs and billings, and to compare the two. To compare expected vs. actual gross profit over time requires some work in Excel, but it is fairly easily done. Every week the PM needs to know if he or she is over or under the gross profit target, and by how much. With such knowledge, the PM is able to—and required to--make corrective actions.

7. Meet the schedule committed to the customer. This accountability doesn’t mean that the end date of the schedule never changes. Change orders often mean, in order to deliver on an enhanced specification, that more time is needed. But the cost of the extra time, as well as the extended date, is memorialized in a change order.

8. Communicate. Communicate with the customer, subcontractors, vendors, employees and management. This means communicating all of the right things, and none of the wrong things.

In the weeks that followed, the project managers at Charles’s company learned, for the first time, how to be project managers. They learned how to present Charles the measurements showing him whether their jobs were on track or not. The accounting systems were put in place to show the gross profit on projects, compared to budget, weekly. And scheduling systems were put in place to show the PMs’ projected completion date as compared to contract completion dates. Charles became highly engaged in tracking the progress of his project managers and holding them accountable with consequences, both positive and negative.

More Threats

It was none too late for these measures. It turns out there were many more dire and dreadful symptoms than detailed above. There were liens and lawsuits on projects unrelated to the ones already discussed, because the money that should have been paid to the subs and vendors on these other projects was highjacked to pay the subs and vendors on the problem projects. There were lawsuits by customers we have not talked about, stemming from their project managers being yanked from their jobs to try to fix the problem jobs. Thus problems bred problems, like a disease. Charles’s capacity for bonding projects greater than about $30,000 was stopped. Each lawsuit was publically filed. Charles’s Dun and Bradstreet rating was in the tank because each of the ugly details was in the report.

No surety company would touch him. As these threats mounted, Charles’s one decently-trained project manager Jim Biggs had perceived the risk of staying in Charles’s company and left for a competitor. With nobody to bid and run the kind of projects Jim was accustomed to running, Jim’s foremen had to be laid off. But as revenues fell, those layoffs didn’t produce sufficient cost savings, for there was overhead being supported by those lost projects that now had to be cut out. But Charles didn’t know how much overhead that was; he just knew he was running out of cash. And as he came short each payday for a couple of months, he just laid off other foremen, including highly skilled foremen doing their best to salvage projects run into the ground by poor project managers. Some of Charles’s less skilled foremen were therefore left still working. Charles had let go the wrong people! He had had no way to define the crew leadership function and measure effectiveness.

I found out all of those symptoms later and traced the causes down the branches and trunk as before, arriving at the same root. Every problem was caused by the same root cause, it turned out. Therefore, let’s go back to the first meeting with Charles I left hanging.

The Bottom

Back in the conference room where Charles and I were sitting during our first week together, I had been reluctant to ask one last question, but I had to. I had been finding out the causes underlying the mall parking lot debacle. I had heard evidence, over and over again, that project management was not being done in any recognizable way at Charles’s company. But one detail I had heard that day about Jim Biggs was bothering me. I was finding out that Jim was the one PM who had a history of concluding projects on time and on budget. Even during that first week, it was clear Jim was the one effective project manager Charles had.

To follow up on a hunch that was bothering me, I asked Charles, “How did you describe Jim Biggs a minute ago? Didn’t you call him your ‘second-best’ project manager? Why ‘second best?’”

“Yes, well, I just never liked him as much as Stewart. I knew Stewart’s wife and his kids. I just trusted Stewart more than Jim.”

“But Jim appears to be the only manager you’ve had who could keep projects on track.”

“Yes, I think you’re right. I know that now. But I didn’t really know that at the time. Something else I didn’t like about Jim is that he was always hitting me with too many details about his projects. I just wanted him to get his job done and leave me alone.”

That was it! I had reached the bottom of the bottom, the deepest cause, the root cause of all the problems at Charles’s company. Not only had Charles not defined the function of project manager and wrapped an accountability system around it to keep it in control. Charles didn’t even know what a project manager was supposed to do, and he didn’t even care about not knowing until the pain became too great to bear.

Charles was the head of the company, the CEO, in name only. He was not able to fulfill the accountabilities of the executive function. He was not able to do the first thing required by executives, to define business functions, because he didn’t know what those functions had to be in order for his construction business to be successful. And, tragically, as is often so true, Charles’s failure extended almost to the failure of his entire company.

A New CEO

Today, the story of Charles’s company is better, but it is not over. Charles has now learned the basics of the executive function and he is doing the work courageously, better and better all the time. Most importantly, he has learned how to define the project management function, and he’s set up a system of weekly and monthly meetings and reports by which the PMs present the statistics of health or lack of health to him on each of their projects. When projects start to get off track, Charles and the PM collaborate on solutions. Of course Charles had to do some more firing and hiring to get the right people in place. With his financial house now propped up and cleaned out, he was able to get loans to pay off some of the subs so they would remove their liens and lawsuits. With those removed, he got the original mall project settled by means of a long-term note, for a whopping $275,000!

Now Charles hopes to find a surety company to bond larger projects. But that hasn’t happened yet. All of the debt amassed to pay off the vendors and subs, and to settle the mall horror show, has created a much larger overhead. More gross profit is required on his jobs just to break even. That makes Charles’s pricing less competitive, and he loses more bids to competitors.

Knowing the rungs in the ladder, the stepping stones, for building any company, knowing how to set up project management accountabilities, and discovering the root cause of problems are the most important skills for fighting the project management war. But time is needed for battle scars to heal. Charles is now performing as a CEO in all the right ways, and his project managers prove their accountabilities daily. But with the recession still dropping bombs all over Main Street, was Charles’ progress too late?