Our decision was celebrated immediately by environmental groups who had opposed the plant from the beginning. I am not opposed to power generation using coal, but I would rather see new, highly efficient plants with updated emissions controls in place while closing the older, more polluting ones. If a new plant were to be built, natural gas—which is cleaner and cheaper—would probably be a better choice.

Of even greater concern to me was that building a plant which wasn’t actually needed could bankrupt the utility. When I asked for the business case which should have been developed to support the planned construction, I was met with blank stares. Pro Forma financials analyzing revenues & expenses over the life of the financing? Nope. A cost estimate for construction? Not that either. Yet the coop had awarded a no-bid project development contract, and the developer (who had no experience in developing this type of project) had started the process of obtaining permits.

It became apparent to me and the other new Directors that the previous Board had decided to venture into the new business of energy generation—which operates on a completely different business model—without understanding the risks involved. The Board didn’t know what it didn’t know. A thorough business case, for example, would have revealed whether there was a market for the surplus energy the plant would produce. Without buyers for its surplus energy, the plant could have bankrupted the coop.

How the Board devolved into the state of dysfunction in which it was flying blind is a story that is still surfacing. Much of it has been told in the local media over the past 18 months. Some of it will emerge in criminal court proceedings. When all is said and done, the story will be a great business school case study about corporate governance and fiduciary responsibility.

As far-fetched as it sounds, something like this could happen again. To make a modest contribution toward the prevention of future scandals, I offer these suggestions for nonprofit Boards and individual Directors:

• Consider setting limits on the number of terms a Director may serve. Some of the Cobb EMC Directors had served for 25 or 30 years. A continual influx of new Directors asking probing questions helps to keep the organization on track. Long-term service leads to Board complacency.

• Know the organization’s bylaws and squawk when one is violated.

• When presented with a proposal for a major initiative or a significant change in direction, ask questions, beginning with “Why?” “Why do we need this?” “What’s driving this change?”

• Take a stand. Vigorous debate about important issues is crucial to the health of any organization. When you’re advocating for your constituency, try to persuade your fellow Directors to come around to your perspective. All votes on important issues will appear in the Board minutes—along with which Directors voted “for” or “against” the motion. These minutes should be shared with the membership so the true “owners” of the COOP are fully informed.

• Most importantly, if you’re concerned that illegal activity is taking place, report it immediately to your local district attorney.

In the next couple of weeks I’ll be writing a series of posts about national energy policy. Thanks for reading.

Today I am addressing senior business executives in the role of project sponsors. You hold an eagle-eye perspective, and you’re in the best position to ask the tough questions which will steer a project away from danger. The project manager—even if s/he is an executive—is focused on producing short-term results and will not be able to see the big picture at the same time. It’s up to senior executives to bridge the “perspective gap.”

Depending on what industry you’re in and the maturity of your company, what I call the “Normal Project Lifecycle” may resemble your own project lifecycle, appear very simplistic compared to your more rigorous process, or represent an ideal you’re striving for.

Business Case

Most projects begin with a business case. The most important outcome of this phase is clear, measurable objectives. Projects can drift toward opportunities and away from impediments. One of the most important things an executive sponsor does is hold the project manager accountable for meeting the original objectives. Note that projects always have more than one objective.

To test the worthiness of a business case, these are some of the questions you might ask:

• “Is there a market for this product or service?”
• “What is the expected ROI?”
• “What are the risks?”
• “Are there better or more strategic investments we might make instead of this one?”
• “Do we have the right resources?
• “Are our competitors in a position to do the same thing better/faster/cheaper?”

If you give the go ahead, this is the point at which a budget is established and planning begins.

Plan

Planners work out the details that were probably glossed over during the development of the business case. (After all, salespeople will say almost anything to get a deal.) Planners identify all the tasks, establish a schedule, and determine whether resources are available in-house or must be outsourced.

When presented with a plan, the first question to ask is “What haven’t we thought about?” This is the time to perform a formal risk assessment. Changes to market conditions, shifts in the competitive landscape, emerging technologies, labor disruptions—all of these should be surveyed again—especially if the planning required more than a month or two.

Design

By the end of the design phase, the technical team should have verified that the task list is complete and identified who is doing what. They should also have established relationships with suppliers and know what equipment is needed and what the lead times are.

At this point, it’s important to ask whether the project can meet the original objectives on time and within budget. If not, a new business case should be made or the project scrapped. It’s also important to perform another risk review. Have market conditions changed? Are we trailing the competition rather than leading? Has the projected ROI changed? What is still unknown? Open the gate to implementation only when the answers to all these questions point to success.

Implementation

I call the implementation phase the danger zone because this is where any glossed-over details will rear their ugly little heads. Problems arising during implementation— whether it’s called construction, fabrication, development, or something else—are very expensive to fix and can have disastrous consequences for the profitability of the project.

Projects get cancelled all the time during implementation because of cost overruns, schedule delays, or the loss of market opportunity. Many of the projects I’m asked to review could have been implemented profitably if risk analyses had been more thorough. Others should have been scrapped before they got to the drawing board. In both cases, better planning would have prevented irrecoverable losses.

In my consulting practice I apply project management discipline to all kinds of business problems. In my blog, I’ll be writing for an audience that includes business executives, engineers, project managers, and anyone interested in the topic “Energy and Our Future.” This year I am especially interested in helping business executives become more effective project sponsors. My very next blog post will feature a management tool that I give away to help project sponsors spot the early warning signs of projects entering the “Danger Zone.”

Next week, May 2, I’ll be giving a talk called “Leadership in Crisis Situations” to participants at the New Jersey PMI conference. My talk is based on the lessons learned in one of the case studies on this site. I’ll be giving the same talk to the North Carolina chapter of PMI on June 16. If you attend either of these sessions, please introduce yourself. If you do, and you mention this blog post, I’ll give you a free consultation on one of your current projects. I look forward to meeting you.

David