Hello everyone and welcome back to our project management series. In the previous post, we began exploring the project environment and its relationship with project success. We started by classifying the project environment into three broad parts, which are project time environment, internal project environment and the external project environment. We were able to analyze the first two (project time environment and internal project environment). You can see the article here. In this article, we would conclude by exploring the external project environment.
The external project environment consists of a range of factors that affect a project but are beyond the immediate control of the project organization. These factors affect the planning, organization, staffing, strategic decision and the manner in which the project manager carries out his responsibilities. The main elements that make up the external project environment are
Market Structure and Competitors
Professional / ethical bodies
Just like the internal project environment, the external project environment is different for every project. During a project life cycle, the external environment is very dynamic and is more likely to change than the internal project environment. This is because we are more likely to have control over what happens within our organization than outside the organization. We always have to tailor our internal strategies to match with the ever-dynamic external environment. For example, we have to change the internal strategy of our organization to adapt to a change in market demand and supply as a result of a new competitor that comes into the market.
Customers – According to Wikipedia, “a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product, or idea, obtained from a seller, vendor, or supplier for monetary or other valuable consideration”. The customer may or may not be the end-user of a product or service. In a situation where the customer is not the end-user, then it becomes important for both the customer and the supplier to ensure products or services are designed to meet the need of the final user. In any project scenario, the end-user (final consumer) is KING and the most important stakeholder. Every conflict should therefore be resolved in favor of the consumer.
One of the main reasons for establishing a project is as a result of market demand. In this case, it is important to understand the market analytics and develop a strategy to penetrate the market, be it an existing or a new market. Various market penetration strategies have been developed which we would analyze in details in our subsequent articles. The Ansoff matrix is however the most used strategy for developing a market penetration strategy. The figure below gives an inroad into the Ansoff matrix showing what strategy to employ in relation to the product and the market
Figure 1. The Ansoff Matrix
Government Regulations – The world is fast becoming a global village and there is a higher probability of handling a project that is outside the boarder of our countries. Depending on the location where the project is being handled, there are various government regulations that affect the manner and processes in which a project is carried out. For example, the tax rate in different countries would be different, some dues and levies that are applicable in some countries are not in others. For example, when renting a residential apartment in the UK, the TV license and council tax bills that you have to pay. Since these bills are not collected anywhere else in the world, carrying out a project in the United Kingdom without knowing the required regulation would lead to an overrun in the project cost and budget.
The government regulations are also dynamic and beyond our control. They can change at anytime; it is therefore necessary to have a good and updated knowledge of our project environment. For example, if during the construction of a multi-million dollar hotel in Nigeria, the government bans every importation of foreign furniture, how do you react to this change? Situations like this are the reason why plans and strategies should be flexible and we should always keep abreast of all the information in our project industry. If we are always in touch with recent developments in our industries, there is a possibility we might have imported all the required piece of furniture before the implementation of the ban.
Market Structure and Competition – An organization is always a part of an industry (market). This makes it necessary for the organization to understand the market structure in which it plays and the factors that can affect supply and demand in that market. Understanding the factors that cause a change in the supply and demand curve of an industry helps a firm in fixing their prices at a competitive range.
There are five main types of market structures, which are;
Monopoly – For monopoly, there is only one company that is a sole provider of product or service in the industry. Government and labor union discourage this type of market as research has shown that competition is good and it is to the advantage of the final consumer.
Duopoly – In a duopolistic market structure, there are just two main producers of product or services. There is a high barrier to entry and the market does not support more than 2 providers. The most common example of this is the aircraft manufacturing industry consisting of just Boeing and Airbus.
Oligopoly – This consist of a small number of firms which control a major share of the market. There is a high barrier to entry and the entrance of a new competitor would have a huge impact on supply and demand. An example is the telecommunication providers in any country
Monopolistic competition – This is an imperfect market where competitors make similar product but differentiate their products with the help of branding and quality. The other industries provide substitutes but not perfect substitutes as a result of brand and loyalty. Example is the fashion market.
Perfect Market– This is a theoretical market structure that assumes demand is equal to supply and all players in the market sell their product or service at equilibrium price. It is impossible for any profit to be made in a perfect market since no firm has a competitive advantage over another.
Depending on the market, the entrance or exit of one market player might have a major influence on the industry.
Professional / ethical Bodies – Just like the government regulations, almost every profession has a professional body that regulates the manner and approach in which an organization should carry out projects. The medical field, engineering, architecture, project management etc. have their various professional bodies. These professional bodies also vary depending on the geographical location where the project is being carried out. Due to the professional requirements, it is sometimes impossible to carry out project in a particular environment except you meet the professional regulations in that location or partner with existing professionals in that environment. This would, therefore, affect the training and recruitment plan of organizations.
Although most countries are beginning to adopt a standardized model of doing project and more and more universal professional bodies such as PMI, CISCO, ACCA etc. are beginning to spring up which unifies the standards in which projects are carried out in more countries. However, there are still country specific institutions and it is the duty of the project manager to find out the requirements in the location of their project before beginning the execution of the project.
Geographical Location – Yes, we have referred to geographical location a lot in the previous explanations, but at this point we would be analyzing geographical location in terms of demography and climatic condition. There is a direct relationship between demography and mode of project implementation. The population and average age of the working class in a geographical location can affect the cost of a project. A good example is India and China. Due to the high population in these countries, they have become the world’s central hub for outsourcing. Labor is cheaper in these countries and in other to maximize profit, organizations are willing to outsource their production to these countries in order to reduce overhead cost and maximize profit. Also, depending on the nature of the project, the climatic factor of the geographical region might be a big issue. This is largely true especially for the construction industries where weather is a big factor when planning the project schedule.
In this article, we concluded the second part of our analysis on how understanding the project environment could affect the success of a project. We explored the external project environment and were able to divide it into 5 broad parts, which are customers, government regulations, market structure and competitors, professional & ethical bodies and geographical location. We mentioned that the external project environment is dynamic and beyond the control of an individual firm, thus most organizations have to adapt their internal strategies to take advantage of the external project environment. The ever-dynamic nature of the external environment also favors a flexible project management plan than a rigid one.
That’s all we have for today and once again thank you for reading. Do not forget to drop your thoughts and questions in the comments section. In our next article in this series, we will explore the flexibility of project life cycle in various organizational settings. See you soon!
References and further reading
A Guide to the Project Management Body of Knowledge: PMBOK Guide. Project Management Institute.