The Importance of Market Awareness and Conditions
For project managers, the learning curve can be STEEP
These days, the success or failure of projects can depend as much on the external market factors as internal technical factors. Overruns and delays on multi-billion-dollar projects such as the Gorgon project in Australia and the Northeast Water Purification project in Houston are testaments to how market factors such as commodity prices, regulatory changes, labor conditions, and competition can impact on-time/on-budget project results. On Houston’s Northeast Water Purification project for example, the project manager from the contractor, CDM-Smith, last year said his biggest risk was the potential rise in steel prices due to tariffs imposed by the Trump Administration. This political event resulted in what some have estimated as much as a 78% increase in steel prices over the past 2 years – considerably impacting project economics. Chevron’s Australian Gorgon project, completed in 2017, resulted in a $17bn cost overrun – largely due to poor planning and poor risk management around external market factors such as labor costs and equipment delivery delays.
It is no wonder that for projects big and small, the profession’s leading association, the Project Management Institute (PMI) calls “Market Awareness” a Strategic and Business Management skill for every project manager. In 2015, the PMI formally included it as part of its “Talent Triangle” of skills for the successful project manager.
Staying aware of changing market conditions is more critical than ever for project managers. Yet most project managers have no background or training in the market research or strategic planning core skills needed to stay informed. So how can organizations and individuals begin to equip themselves with these skills? The first step may be to start with a “framework” for understanding the external environment.
STEEP, a framework for every project manager
STEEP is an acronym for Social, Technological, Economic, Environmental and Political trends. Strategic planners and futurists have used this framework for years because of its simplicity and comprehensive span of topics. Project managers can also benefit by looking at the world through the lens of each of the 5 STEEP areas. In this way, they can train themselves to identify critical trends in the popular media, technical press, trade shows, research papers, and interactions with influential trendsetters. To get project managers on the right track, upper management should stress the importance of reading non-technical publications and getting outside of their project bubble through networking in technical, political and social circles of societal influencers.
Critical Factor Analysis, the focus of STEEP attention
A thorough STEEP monitoring is tough enough if a project manager did not have a full-time job managing the project! But today there are so many things trending that the STEEP activity can become overwhelming for the PM if their scanning is not focused. Thus, their focus should be on things that are truly the levers of success or failure for their project. You might call these things to monitor, “Critical Factors.” By analyzing the project budget to identify the “critical few” drivers for cost savings or overruns, project managers can focus their STEEP attention on what really matters. Critical Factor analysis is a form of project risk analysis. This can be as simple as sorting line items in a spreadsheet to as complex as performing a Monte Carlo simulation to determine the “sensitivity” of various factors displayed in a “tornado chart.”
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