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Monday, June 11, 2012

Understanding the Project Environment

Before we can do anything useful with respect to managing our project’s risks, it is extremely important that we understand the Project Environment thoroughly. This is because, without a proper understanding of the Project’s Environment, we will not be able to identify all risks or worse handle them appropriately. You might be wondering why I haven’t said anything about understanding the Project itself here. That is because, as the Project Manager it is imperative that we already have a good understanding of the project characteristics like Scope, Deliverables List, Due Dates etc.

What would comprise a Projects Environment?

Anything and everything that can impact or influence the Project or its outcome will be part of the Project Environment.

As Project Managers, we must know the physical, social, cultural and political aspects of the environment where our project functions in order to efficiently manage all the risks that may arise out of these areas.

Project Environment Classification

As suggested in the previous paragraph, a project’s environment includes a whole myriad of factors that can affect its outcome. So, practically speaking we can classify them into as many categories as we want. But, at a high level we can classify the Project Environment’s into two categories. They are:
1. Internal &
2. External

An Internal factor is one that is directly tied to the Project. Ex: Project Stakeholders, Company’s Org Structure etc. Anything that is not an Internal Factor can be considered External.

The following are some internal & external factors that may affect the Project and be considered as part of the Project Environment.

Internal Factors that Influence the Project:
1. Organizational Structure
2. Culture
3. Project Stakeholders
4. Consumers
5. Technologies
6. Etc.

External Factors that Influence the Project:
1. Natural Factors
2. Political
3. Legal
4. Financial & Economic
5. Industry
6. Human Health & Safety
7. Etc.

Let us take a detailed look at these factors one by one… First let us start with the internal factors.

Organizational Structure:
This is a Project Environmental factor that can have a direct bearing on the Project Outcome. As a result it is extremely vital that any good project manager, esp. the one that is in-charge of Risk Management understands them well and can identify and distinguish one from the other. There are 3 main types of Organizations based on their structure:
a. Functional Organizations – These are traditional type of organizations where departments are grouped by their respective functions. Each department has a functional manager who reports to senior management. These organizations have a very well established chain of command. In these types of organizations the PM’s authority is very limited and they report directly to the Functional Manager.
b. Projectized Organizations – These are Organizations that are the total opposite of the Functional org. Here the PM is the king and almost everything in these organizations revolved around Projects. The PM has supreme authority.
c. Matrix Organizations – These are Organizations that are a blend of both the Functional & Projectized worlds. They try to achieve the best of both worlds. In this type of organizations people report to both the PM and the Functional Manager. Matrix Organizations can be split into 3 sub-categories based on who (the FM or the PM) has more authority.
a. Weak Matrix – Cases where the Functional Manager has more authority than the PM
b. Balanced Matrix – A Strong Blend where both the FM & the PM share responsibility & authority
c. Strong Matrix – Cases where the PM has more authority than the FM

In the chapter titled Understanding the Organizational Structure on the PMP Exam Prep series we had taken a detailed look at these organizational structures and how they affect each project. You can Click Here to revisit that chapter to learn more about these. I strongly urge you to re-visit this chapter because knowing this topic clearly is vital for us to not only be better Risk Managers but also to pass the RMP Exam.

Culture is one environmental factor that is a blanket word that includes:
a. Company Culture
b. Ethnic Culture
c. Religious Culture &
d. Economic Culture

All these factors vary from place to place and projects that involve team members from different countries/backgrounds conflicts can easily arise out of differences in any or all of the cultural parameters mentioned above.


Project Stakeholders are part of the Projects Environment because they can directly impact and influence the project outcome. As the PM we need to know who those Stakeholders are and their level of influence, involvement & authority so that we can handle them accordingly. Based on the Stakeholders interest level and influence on the project, how we handle them will vary. Stakeholder Management is an art and we will be covering it in greater detail in future.

Anyone who is going to use the end product created by our project is a consumer and you already knew that, didn’t you? Knowing what our customer wants is extremely important for the Project’s Success. As Project Managers we need to have a good understanding of the customers’ expectations so that we can try to meet or even beat them.

The Technologies we use, the technologies that are available for us to use and also the technologies that will be created by our project are all part of the Technological factors that might affect our project.

All of the External Factors are self-explanatory and I suppose we don’t need to explain each of them in detail like what we did with the Internal Factors.

External factors when they occur can have significant consequences on your project. For ex: In TamilNadu there is significant power shortage and as a result the government has scheduled power-cut time slots. So, every day you will have No-Power for a few hours. If your project needs non-stop power then you must arrange for alternative sources of power or else your production will be affected.

Get the picture?

The political, legal, economic factors are in almost all cases specific to the country where the project is being executed and are of paramount importance where we have an offshore team working with us. As good Project Managers, it is our duty to ensure that we take into account all these factors that might affect our project beforehand so that we can plan ahead to handle all of them. After all, this is what risk management is all about, isn’t it?

Prev: Risk Management & PMBOK

Next: Important Risk Related Definitions

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