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Freebie Projects and The Project Business Management Office (PBMO)

Project Business Management

SERIES ARTICLE

By Oliver F. Lehmann

Munich, Germany

 



Summary

Project business management is high risk for all parties involved. For organizations performing projects for paying customers, a very central area of uncertainty is profitability from one or more projects. A second one is liquidity, and on top of that, the customer must be satisfied. Assigning persons as Project Business Managers can help meet these goals for individual projects. For a portfolio of projects, a Project Business Management Office (PBMO) can be beneficial to ensure portfolio-wide profitability.

Freebie Projects

Case Story: A Customer Betraying High Hopes

Silk Moth Inc.1 is a JAM. The company performs a continuous portfolio of customer projects and is Just About Managing, meaning that it makes enough profit to survive the day but has no monetary resources to manage unexpected problems and crises and to grow into new capabilities and markets.

As a small publicly listed manufacturer of automotive components with roughly 1,000 employees, Silk Moth’s name stands for quality and for timeliness in delivering its products to its customers, mostly automotive manufacturers. The name also stands for effective integration of product development and production design for small components roughly up to the size of a tin can. In its development work for its customers, it follows the standard process of the industry, which predevelops innovative products to a market maturity of roughly 50% to 80%, then offers the product on the market and finishes development when a customer and with the customer a business case has been found[1].

Automotive industry is generally a high-pressure environment, and while some suppliers of automotive components and services are highly profitable there, the majority are JAMs. Profitability is a leadership task, and while most companies in automotive industry are well managed, they are also under-led.

In the specific case, the product was a new type of pump for break fluids and coolants, designed to be located around an axle. The pump uses the rotation of the axle to propel the liquids, when the car is driving and switch on an electric motor when the car and with it the axle stands still, to ensure uninterrupted and steady flow and pressure of the fluid. During a presentation on an exhibition, a customer was indeed found for the item, who was in the process to develop a new electric car, Botfly Corp., and an agreement was soon made that the final development, based on the predeveloped immature product, would be finished for the item, production design started for it, and that it would become a part of the future car model.

Such a development project is often a Freebie project. It is done by the contractor for the customer free of charge, but after its end, revenues created from the product or service that the project has created will pay back the investment for the contractor. Figure 1 describes the lifespan of a freebie project with those of internal projects and customer projects that are regularly paid by the customer during the course of the project.

Silk Moth was normally a very careful company, that would not take too many risks for a new and uncertain customer business in development. The high hopes associated with the first application of the new product and the expectations of the Botfly car to sell in high numbers and to give the company a first-class reference customer for future business development however blinded their attention to business risks. They also considered the customer strongly dependent on them and thought, this will protect the return from the investments ahead. Being driven by devoted engineers, Silk Moth never understood, how Botfly’s processes actually brought about their decisions.

 

To read entire article, click here

 

 

1  Name changed by the author

 

Editor’s note: This is the 5th in a series of articles by Oliver Lehmann, author of the book “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016. See author profile below.




About the Author

 


Oliver F. Lehmann

Munich, Germany

 


Oliver F. Lehmann
, MSc., PMP, is a project management author, consultant, speaker and teacher. He studied Linguistics, Literature and History at the University of Stuttgart and Project Management at the University of Liverpool, UK, where he holds a Master of Science Degree. Oliver has trained thousands of project managers in Europe, USA and Asia in methodological project management with a focus on certification preparation. In addition, he is a visiting lecturer at the Technical University of Munich.

He has been a member and volunteer at PMI, the Project Management Institute, since 1998, and serves currently as the President of the PMI Southern Germany Chapter. Between 2004 and 2006, he contributed to PMI’s PM Network magazine, for which he provided a monthly editorial on page 1 called “Launch”, analyzing troubled projects around the world.

Oliver believes in three driving forces for personal improvement in project management: formal learning, experience and observations. He resides in Munich, Bavaria, Germany and can be contacted at [email protected].

Oliver Lehmann is the author of the book “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016.

To view other works by Oliver Lehmann, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/oliver-f-lehmann/

 

[1] The development process is called Produkt-Entwicklungsprozess (PEP) and has been highly standardized in automotive industry to combine creativity in development with consistent technical and business practices (Moehrle, Isenmann & Phaal, 2013)