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Shortcuts to success
Project management in the real world
Elizabeth Harrin
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eBook - ePub
Shortcuts to success
Project management in the real world
Elizabeth Harrin
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About This Book
Anything from an office move to the Olympic Games can be termed a project, and 97 per cent of successful projects are led by an experienced project manager. Presenting over 250 years of professional project management experience in a highly accessible format, this entertaining yet practical book will help project managers get up to speed quickly with good practice, avoid pitfalls and deliver business value. SHORTLISTED FOR THE 2014 CMI MANAGEMENT BOOK OF THE YEAR.
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SECTION 1:
MANAGING PROJECT BUDGETS
INTRODUCTION
Know that with a farm, as with a man, however productive it may be, if it has the spending habit, not much will be left over.
Marcus Porcius Cato (234â149 BC), De Agricultura
More than one-third of projects have a budget of over ÂŁ1 million so knowing how to handle the finances is an essential part of a project managerâs repertoire. The initial budget is often just a starting point. An incredible 56 per cent of projects are affected by budget changes and thatâs not just a one-off financial revision. The average project, if there is such a thing, has its budget revised 3.4 times.1
Keeping on top of all this is not always easy, and it is made harder by the fact that project managers themselves donât always get control over the money. If thatâs the case, why should you care about the numbers? The answer depends on where you think a project managerâs role ends. If you believe that your job is to deliver the project according to the scope and quality criteria set out by the sponsor, then it doesnât matter about tracking hours of effort or money spent. However, the project managerâs role should cover far more than that. Your role is to deliver a project that is fit for purpose and adds some value to the organisation. Whatever you are working on should have a benefit, even if they are not financial benefits. There should be a purpose to what you are doing â someone who cares about the outcome enough to sponsor the project, and a business case that justifies why you and your organisation are bothering to work on this project at all. And that requires you to know a little about the finances of the project.
This section covers how to manage project variables over which you do not necessarily have authority, how to find out who has that authority, and how to manage the relationship with the budget holder. Many projects do not appear to have budgets at all and Chapter 9 looks at working effectively in that environment. This section also looks at reporting, tolerances and contingency.
1 CREATE A REALISTIC BUDGET
Even the smallest project will have overheads: your time as the project manager as a minimum. Nearly all projects will have more than that, so part of your role in setting up the project is to define and propose a budget for the work and get that approved.
PLANNING REALISTICALLY
Established in 1943, Hanford, a nuclear processing plant, produced plutonium for the worldâs first nuclear device. The facility, which lies along the Columbia River in Washington State, is now home to one of Americaâs largest nuclear waste storage plants run by the United States Department of Energy (DOE). There are 177 waste tanks on site, storing about 56 million gallons of high-level radioactive waste underground â thatâs equivalent to an area the size of a football field over 150 feet deep.
The DOE launched an 11-year project in 2000 to build facilities at Hanford to treat and prepare the waste for disposal. Around the same time, the DOE launched a project management initiative designed to counteract the departmentâs poor record of inadequate management of contractors. The initiative recommended that contingency funding be built into a project budget according to the projectâs degree of risk. Unfortunately at the time of signing a contract with the construction company in December 2000, the project management initiative had not been fully implemented. When an internal DOE assessment was carried out, it became clear that the department had signed a contract with a flaw: the cost baseline of $3.97 billion was so low that the project had only a 50 per cent chance of delivering against it.
The DOE took steps to address the gap in April 2003 and revised the cost baseline to include a $550 million contingency budget. They also set up a governance panel consisting of both DOE and contractor personnel to manage the additional funding and to monitor spending. The aim of the contingency budget was to counter unforeseen cost increases across the life of the project. The team also allocated an additional $100 million to be used to mitigate unforeseen technical and management risks.2
An audit in March 20053 highlighted that project reports were still showing that the clean-up work was on target to meet the approved baseline of $5.78 billion. However, by 2006 the construction project team was forecasting a final budget of $12.3 billion. The massive increase in cost was due to contractor and management performance problems, changes in scope and technical problems. As a result, the timescales had also slipped. The team had initially planned for the construction to be complete and for the treatment of waste to start in 2011. This has now been pushed out to 20194.
The Government Accountability Office, which audits major public sector projects in the United States, reported in 2009 that the DOEâs estimates of how much it will cost to complete this project âare not credible or completeâ. They have also criticised how estimates have grown each time the work has been re-estimated. At the moment there is no way of knowing exactly how much this project will cost â or if it will finish successfully at all.
You might not be decommissioning thousands of tons of nuclear waste, but you can learn from the need to create a realistic budget. You can work out how much money you will be spending based on what you know needs to be done, just as you work out how much time the project will take based on the same information. Think of the budget as a shopping list of all the things you need to buy to make sure the project gets completed. Just like a trip to the supermarket, you might not end up spending exactly what you expected but at least the list gives you a reasonably accurate starting point. âWhen planning, assume your budget will not be increased or decreased during the project,â writes George Doss in the IS Project Management Handbook. âBudget changesâŚare adjusted through negotiations with the project sponsor based on circumstances at the time.â5
There are five steps to creating a project budget:
1. Identify the resources required for the project.
2. Estimate the cost for each of those resources.
3. Document the costs and calculate the overall figure.
4. Submit the budget to your steering committee or sponsor for approval.
5. Find out your budget code.
Letâs take each of those steps in turn:
1 IDENTIFY THE RESOURCES REQUIRED FOR THE PROJECT
Review the schedule, project initiation document and any other documents you have to identify the activities that need to be completed. Draw on your stakeholders and project team to brainstorm anything else that might be required (like travel, accommodation, couriers, equipment and so on). Will your project have to pick up the costs incurred by other areas of the business that are impacted by the work you are doing? Ask other managers who have done similar projects to validate your list.
2 ESTIMATE THE COST FOR EACH OF THOSE RESOURCES
Every step, every task of the project will have associated costs. Projects that do not have full-time staff may avoid paying for the entire salary of anyone working on it, so ask the finance department if there is a list of standard chargeable rates per âtypeâ of employee. For example, your project might have to pay ÂŁ1,000 per day for an expert manager, but ÂŁ650 per day for a junior marketing executive. Some of these costs may be just âwooden dollarsâ â especially for internal resources. They are simply figures you plug into the business case but in reality money never changes hands. Check out your companyâs rules for charging for project team membersâ time and also check with each department head about their expectations. For example, if they are loaning you a person for the team, they may expect the project to fund a temporary resource to back-fill that personâs day job.
A NOTE ON ESTIMATING
Given the flexible nature of budgets, and projects in general, itâs very hard to pin down costs to an exact figure at an early stage of the project. And itâs not a good idea either, unless you are absolutely 100 per cent sure that your estimate is spot on and will not change.
At this stage, present your estimates as a range rather than a fixed sum. This means that your overall project budget, once you have added up all your estimates, will be between ÂŁx and ÂŁy. It is this range that you present to your project steering group and sponsor.
Presenting a range gives you a little more flexibility later on. It also offers you the chance to start managing the expectations of your key stakeholders now â they will have to come to terms with vagaries and changes as the project progresses so now is a good time to start explaining the nature of project management.
3 DOCUMENT THE COSTS AND CALCULATE THE OVERALL ESTIMATE
Companies that carry out a lot of projects will probably have a standard template for submitting a budget, so find out if there is a form that already exists. Create your own in the absence of anything standard, using a method that suits you. Spreadsheets are the most effective way of recording and managing costs. The advantage with an electronic budget spreadsheet over using a word-processing package or a paper system is that you can include formulae to ensure that summary figures and column totals update automatically, reducing the risk of manual error and saving time. Software like Google Docs (if this is authorised for use by your company) allows you to share the spreadsheet in real time with your project team and stakeholders, wherever they may be, and have multiple people update it (although you may not want this, of course). Group similar costs together so you have sub-totals as well as an overall total and include a line of contingency for risk management. Compare your budget range to any amount given to you by the project sponsor and see below for what to do if the figures donât match.
4 SUBMIT THE BUDGET TO YOUR STEERING COMMITTEE OR SPONSOR FOR APPROVAL
Once you have your budget written down, it needs to be approved before the project can continue. Your sponsor or steering committee are the first point of approval. They will advise you on whether the budget needs another level of approval from finance, a central planning committee, an IT authorisation forum or another group, depending on where the funds are actually coming from.
More often than not, youâll be asked to kick off the project without budget authorisation. In the real world, there are deadlines to meet that wonât wait just because the budget committee only meets on the last Tuesday of the month. If youâre asked to start work without the relevant approvals â get on with it! But make su...