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Project Management Insights From Detroit's Bankruptcy“Kevyn Orr, the emergency manager appointed to oversee the city, has said Detroit’s pensions are underfunded by as much as $3.5 billion in part because of unrealistic assumptions of 8 percent annual investment returns.”  Bloomberg Businessweek 2013.

Unrealistic?  Eight percent? No, this was the long term annual return that anyone who was doing financial planning was using.  In fact what I observed was that during the “boom” period folks were assuming larger annual gains and that was where most of the mistakes I saw were coming from.

What “went wrong” was in fact something fairly normal in that the economy went down for awhile, in which case no one is going to get 8%. From my own data I know that the long term of 8% is still working well.

“The value of real estate held by the General Retirement System plummeted almost 47 percent.”

For holdings in the stock market in general, and not necessarily real estate, the great recession lost about 40% before it came back.  So the loss of 47% is not an unreasonable amount for what the economy was doing.  In this case, they go on to say, the average for the industry at that time was a gain of 3.6%, so this — comparing performance to an objective index — is a little more compelling than just saying things were not going well.

The good side is the stock market rebounded back from its own 40% drop, so something like a 47% drop is not in itself evidence that anything was done wrong, only that the economy was doing a wild swing.

The point is that in planning we use some assumptions, ideally based upon past performance.  We can try to predict the future, but few financial experts do it well, and the rest of us get good results by being fairly conservative and going with the averages (e.g.,  investing in broad index funds).

Too often in business and projects I see a manager criticized after doing good planning, because normal stuff happens (i.e., problems occur).  The greatest danger to the project or business when this normal stuff happens is that someone decides we need to do something completely different, because things aren’t working perfectly. Instead of relying on the past performance to get us back on track, we throw in extra perturbations that drive the team further off track — so far off track that we can no longer recover from something that we normally could recover from.

If our plan shows that we’ll typically take six weeks to accomplish something and if it takes a bit more or a bit less, then that is perfectly fine and not a reason to panic (by anyone).  If we have planned well, then these variations will work themselves out in the long run — over the course of the project.

We had finally gotten the project managers into the habit of actually planning based upon past performance.  In this environment it had been more traditional to use aggressive schedules based upon nothing more than what we had tried to achieve in the past, and always — always — failed at achieving, missing our markets by months.

The project had been going well and in fact was currently trending two weeks ahead of schedule. What did the team do?  They officially modified their schedule, while it was still at least six months from delivery, to show delivering two weeks earlier than originally planned.  What do you think happened?  Yes, they eventually delivered two weeks late based upon their updated schedule.

Knowing what is normal and what is reasonable is often just based upon looking at our past performance and using that as our benchmark.  Once we see how well we do and know what is normal in the ways of ups and downs, then it becomes almost trivial to manage the project as it then goes through those same ups and downs.  Trivial in that we know that the odds are in our favor that if we press on, working hard, that things will come back around to being on track.

Just beware of folks who panic and point out how everything is going wrong. When something varies by say 40% — which we know to be in the range of what can be expected — we press on in the knowledge that what we’ve set up will spring back if we stick with our plan.

Do your planning numbers hold up over time over the course of your project?

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