The Stage-Gate Methodology: Phases and gates in project management

What is the Stage Gate methodology?

Stage Gate Methodology (SGM) is a global standard for effectively designing and implementing new products. The well-known PRINCE 2 project management methodology, which manages complex projects of various types, is based on the principles of SGM.

Phases and goals in an example project

Let’s imagine that we want to launch a new electric bicycle model. We have done a preliminary market scanning, and this bicycle market segment will likely be promising. However, in the beginning, we didn’t know from what supplier we would obtain the motor, what its cost would be, we didn’t have precise data on what market segment we wanted to reach, whether we had the necessary competencies to build, and sell it if we wish to manufacture everything ourselves or use subcontractors – in a word, the unknowns and potential risks are many. Even at this stage of the project, it is clear that it will take at least a year and a half and is complex. The Stage-Gate Methodology says it makes more sense to plan the entire complex project precisely from the beginning. The Methodology divides the process into phases (Stages), and between each phase, it builds decision gates (Gates). This approach assumes that the further we are in such a project, the more information and data we will have. Then, we will be able to make more accurate decisions.

The diagram below vividly demonstrates the strategic application of the Stage-Gate Methodology. It showcases how a project can be effectively divided into distinct stages, with decision gates strategically positioned between each stage. This strategic placement of decision gates ensures that informed decision-making is based on the available data at each point, instilling confidence in the method’s effectiveness.

In practice, to have an idea of what we are undertaking, a high-level plan for such a project (High-Level Plan) should be developed at the outset. Such a plan would include a description of our ideas for an electric bicycle, a scoring analysis, an estimated budget and duration for each phase, and the most critical risks.

According to the figure above, our high-level plan assumes the project will require about PLN 7 million and take about two years. We have decided to spend PLN 7 million at this point, but we need to know that if our assumptions are correct, we can afford such an undertaking.

To start the project, the company’s board of directors (or other decision-making body) should decide that we launch Phase 1, i.e., Product Concept Development. To make such a decision, the project team should develop a detailed schedule for Phase 1 and a detailed budget in advance and define what products will result from the completion of Phase 1. By launching Phase 1, the company’s board of directors accepts a budget of PLN 150,000, which can be implemented; the budgets of subsequent Phases are frozen.

After the completion of Phase 1, we arrive at Decision Gate 1, where the project team presents the work results, adjusts the high-level plan, and presents a detailed schedule and budget for Phase 2. During the execution of Phase 1, the team analyzed several criteria and acquired new information, which together allowed them to make the schedule and budget of the entire project more realistic.

Based on current knowledge, the project team estimates that the revised budget for the entire project will amount to PLN 8,630,000 (that is, it will exceed the initial assumption by PLN 1,380,000) and will last about 31 months (about five months longer than initially assumed). The company’s management decides whether to continue or discontinue the project based on such revised information. Such a process is repeated in each subsequent Phase and each ensuing gate.

Benefits of using Stage Gate Methodology

• Allows projects to take off faster, resulting from good ideas without the need for detailed planning at the very beginning.
• Allows the required decisions to be made in the right places.
• It does not force a binding decision to launch the total project budget initially.
• Has clear checkpoints – Gates – at which the decision to continue or stop the project is necessary, reducing the risk of misguided investments.
• New information is the basis for making project assumptions more realistic.
• All projects are implemented according to the company’s accepted standard, which increases efficiency.

System support for project management automation based on Stage Gate Methodology

There are IT solutions on the market that support Stage-Gate methodology. One such system is the FlexiProject project management software developed by our team, which:

• It allows you to design schemes based on Stage-Gate methodology for the projects you want to implement. When launching a new project, the manager downloads its schema from the system, and the project management support system guides him through the process.
• It enables management of the company’s best practices, gathering knowledge from different projects.
• It has a scoring analysis module that objectifies the selection of the best ideas for implementation.
• It has an embedded mechanism of Phases and Gates and an explicit acceptance path mechanism to support decision-making.
• It is equipped with a mechanism for systematic project reviews.