Perspectives · Perspectives

A Mercenary Perspective on Sustainability

I am blessed and cursed with never having had a boss. Despite the image above, I actually consider myself a capitalist and believe that it is vital  to generate jobs and improve the overall economic well being of society. All of that said though, I do believe we need an overhaul because the existing US-based capitalist system is failing us due to poor regulations and legislation (and lobbyists run amok). For decades I have been a serial-entrepreneur and pride myself on being a founding and managing partner of four firms that have been fortunate to have provided considerable employment and opportunities. I remember in the 70s and 80s when it was the fiduciary responsibility of business owners to work with the local economy, business, suppliers and consumers / workers. Not to exploit everyone mercilessly. Though a capitalist, I do have a problem with Milton Friedman's famous argument that corporate managers should:

“conduct the business in accordance with [shareholders’] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

This is one of the reasons I am so proud (and privileged) to be working with GPM Global. One way to facilitate organizations to be better citizens and to be a better catalyst for improvement, is to incorporate sustainability, social responsibility and regeneration into our business principles. When I present I almost always reference what I consider the key drivers of sustainability (not necessarily in this order) from a capitalistic or mercenary perspective :

• informed risk taking,
• brand protection, and
• asset lifecycle value optimization.

Lets look at each one of these in turn.

Informed Risk Taking

I focus a lot on risk management and mitigation (Please refer to the GPM Blog Post "Sustainable Risk Management – Overview"). Once again keeping in mind that a risk is an uncertain event or set of events that, should they occur, will have an effect on the achievement of objectives. A risk is measured by the combination of the probability of a perceived threat or opportunity occurring and the magnitude of its impact on objectives. As opposed to being risk averse or risk seeking, many organizations need to do a better job of taking informed risks. A key part of risk management is scanning the internal and external environment to identify and estimate / evaluate / assess potential risks as outlined below in the red box: One excellent risk mitigation technique is to employ the GPM P5 Impact Analysis model to conduct and internal and external project and organizational assessment to identify potential threats and opportunities and to prioritize those risks based on organizational priorities and potential impacts:  

Brand Protection

The primary purpose of a brand is to increase the total asset value of the company/organization. One of the key concerns of brand management are risks. Once again one can see how integrated these three points are. The ISO definition of brand is outlined below: A brand is an 'intangible asset including, but not limited to, names, terms, signs, symbols, logos and designs, or a combination of these, intended to identify goods, services or entities, or a combination of these, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefit/values. Note: A Brand creates distinctive images, experiences and associations in the minds of Stakeholders, thereby generating additional value above and beyond the base expectations of the product or service in the category(ies) that the brand operates in' (ISO/CD 20671.2 Brand Evaluation - Principles and Fundamentals, Page 3). Brand is obviously key for organizations, and there are numerous examples of negative brand threat that have metastasized recently in the news based on unsustainable project management practices. Two simple examples:

BP Gulf of Mexico Oil Spill

On April 20, 2010, a final cement seal of an oil well in the Gulf of Mexico failed, causing what has been called the worst environmental disaster in U.S. history and taking the lives of 11 rig workers.

For 87 straight days, oil and methane gas spewed from an uncapped wellhead, 1 mile below the surface of the ocean. The federal government estimated 4.2 million barrels of oil spilled into the Gulf, but BP argued in court that it was much lower. A judge ruled BP was responsible for the release of 3.1 million barrels. (http://www.cnn.com/2015/04/14/us/gulf-oil-spill-unknowns/index.html) On an after-tax basis, BP’s spill costs will amount to $44 billion with the additional charge of $2.5 billion in the second quarter, the company said. “It’s a really scary number,” said Fadel Gheit, oil analyst at Oppenheimer & Co. “Before the accident, BP had a market capitalization of $180 billion. The accident actually shaved off one-third of the market capitalization of the company. It’s a miracle that the company is still in business.” (https://www.washingtonpost.com/business/economy/bps-big-bill-for-the-worlds-largest-oil-spill-now-reaches-616-billion/2016/07/14/7248cdaa-49f0-11e6-acbc-4d4870a079da_story.html?utm_term=.d9f32f9f3714) Due to foolish, short sighted and unsustainable project management decisions, BPs market capitalization was $180 billion until the accident shaved off one-third of the market capitalization of the company. Blame BP for Deepwater Horizon. But Direct Your Outrage to the Actual Mistake 5 years after the Gulf oil spill: What we do (and don't) know BP’s big bill for the world’s largest oil spill reaches $61.6 billion Volkswagen Emissions Scandal "Volkswagen AG’s provisions for the diesel-cheating scandal rose to 22.6 billion euros ($23.9 billion), as the German car maker continues to tally damages from the worst crisis in its history" (https://www.bloomberg.com/news/articles/2017-02-24/vw-s-profit-boost-clouded-by-6-8-billion-diesel-crisis-charge).   "All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis," ING chief economist Carsten Brzeski told Reuters. "If Volkswagen's sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole," he added. (http://www.businessinsider.com/r-volkswagen-could-pose-bigger-threat-to-german-economy-than-greek-crisis-2015-9). Once again, due to foolish, short sighted and unsustainable project management decisions, Volkswagen's (VW) shares lost almost a third of their value, or about 22 billion euros ($24 billion), since it admitted in September to misleading U.S. regulators about emissions with the help of on-board engine control software (https://www.cnbc.com/2016/01/18/volkswagen-faces-shareholder-claims-over-emissions-scandal.html). VW's Costs Keep Adding Up From Its Worst Crisis Ever Volkswagen is a bigger threat to the German economy than the Greek debt crisis How Volkswagen’s ‘Defeat Devices’ Worked Volkswagen faces shareholder claims over emissions scandal  

Asset Maximization

Assets are defined as (ISO 55000 (2014-03-15) Asset management — Overview, principles and terminology, page 13):

3.2.1 Asset: item, thing or entity that has potential or actual value to an organization (3.1.13) Note 1 to entry: Value can be tangible or intangible, financial or non-financial, and includes consideration of risks (3.1.21) and liabilities. It can be positive or negative at different stages of the asset life (3.2.2).

Note 2 to entry: Physical assets usually refer to equipment, inventory and properties owned by the organization. Physical assets are the opposite of intangible assets, which are non-physical assets such as leases, brands, digital assets, use rights, licences, intellectual property rights, reputation or agreements.

Note 3 to entry: A grouping of assets referred to as an asset system (3.2.5) could also be considered as an asset.

The benefits of asset maximization include, but are not limited to (ISO 55000 (2014-03-15) Asset management — Overview, principles and terminology, page 2):

1. improved financial performance
2. informed asset investment decisions
3. managed risk
4. improved services and outputs
5. demonstrated social responsibility
6. demonstrated compliance
7. enhanced reputation
8. improved organizational sustainability
9. improved efficiency and effectiveness

I have highlighted some interesting benefits above showing how integrated asset management is with risk, brand and sustainability, The maximization of assets is not a common reference in project management with the exception of engineering or engineering economic studies. The focus being on the cradle to cradle asset life-cycle of the new asset is a key component of project management and is tied to business case management and benefits management. Sustainability is a core component of asset management and helps maximize the assets by focusing on the full asset life-cycle cost, risks and benefits. One of the fundamentals of asset management is value management, in that assets exist to provide value to the organization and its stakeholders. "Asset management does not focus on the asset itself, but on the value that the asset can provide to the organization. The value (which can be tangible or intangible, financial or non-financial) will be determined by the organization and its stakeholders, in accordance with the organizational objectives" (ISO 55000 (2014-03-15) Asset management — Overview, principles and terminology, page 3).  

Conclusion

There are many definitions and drivers for sustainability. I have found though that from a business perspective focusing on Risk Mitigation, Asset Maximization, and Brand Protection (not necessarily in that order) helps guide decisions and actions that are critically beneficial to organizations, management, executives, and especially sponsors and project managers. They will help increase organizational value, benefits, profitability, brand and reduce threats and costs.