The Money Files

Definitions project managers should be confident using

OK, this might not be relevant to everyone reading, but sometimes project managers are left with ‘spare’ budget in December. How are you going to make use of any available funds – assuming you are not under pressure to give them back – to maximise project value. Here are some ideas.

Conduct a year-end financial review

First, make sure your budget trackers and up to date, and that everything that should have been accounted for has been added on. That will give you a true picture of your actuals, so you can review the financial status of the project, including how much budget is left and what key areas need funding.

If you need to move money around, talk to the finance team so that the right amounts can be journalled to the right budget lines to tidy up your accounting.

Prioritise high-impact investments

Next, think about where you could use leftover budget in the remaining weeks of the year to make the most impact. That could be new tools (testing software licences are always a win), training for project team members, especially if that will help them develop skills they will need next year, or risk mitigation activities. Perhaps you can buy a few days of consultancy time that will speed up a particular task? Perhaps there are licences that need renewing, or equipment that you could invest in? Perhaps you could talk to suppliers about getting a discount if you place an order now instead of in January – many suppliers have targets to hit at year end and might be open to negotiation.

I think that spending money on training and certification is a good choice. It helps team morale as individuals see that their future is being invested in, and you get skilled team members who have the skills required to continue to support the project, or future projects. So my recommendation would be to look at investing here, in team development, if you aren’t sure what use you can make of additional funding.

If you need to buy anything, make sure to get approval and move quickly before the year end deadlines.

Don’t spend for the sake of it

We want to avoid wasteful spending. Be aware of what is going on in the rest of the organisation. For example, other projects might be struggling, and the most prudent thing is to always offer the money back to the ‘pot’ as a first point of call.

In my experience, budget that is not spent is not carried over to the new year unless it can be accrued against a committed spend. In other words, if you have got £20k sitting waiting to be spent, there is a high chance that you will lose it unless it is spent on something. Talk to your Finance team to find out whether that is likely to apply to your budget, and what they recommend you do at this time of year.

Work with Finance to reallocate funds

Talking of working with Finance – they are the guardians of spending rules and regulations, and they will help you maintain compliance and an audit trail for spend.

They will know if it is possible to carry budget over – and it might be, if your financial year does not end in December.

Are you thinking about year-end project audits? Perhaps your PMO is thinking about how to learn from the past year. Perhaps you want to set a good foundation for projects next year. Perhaps you just had a rubbish past few months and want a second opinion to see if there was anything you could have done differently to avoid the outcomes you got.

Whatever your reason, many project leaders’ thoughts will be turning to audits at this time of year, so let’s talk about how to make the most of this exercise – it’s not as awful as you might be thinking!

Planning the audit

First up, make sure the audit is planned in. Schedule it in advance to ensure key team members are available.

Look out the documentation that is required, which is normally things like financial reports, scope changes, and risk logs. You’ll also want to make sure that the business case, project plan, and schedule are available, as well as any change requests that changed those, so the auditor can compare the original planned baselines to the current baselines.

Key areas to audit

So what is your audit going to look at? Whether you have been asked to audit someone else’s project, or you want projects in your PMO to be audited, here are some things you’ll probably want to put on your checklist.

• Budget vs. actuals: Compare planned spend to actual spend and do the same for resource utilisation if you have the data.
• Scope management: Look at how many change requests the project had and whether that resulted in managed change or scope creep. Personally, I don’t think it is important to assess whether the project stayed within its original scope – what you are looking for is whether changes were assessed and approved rather than being done in an ad hoc manner.
• Risk management: You’ll want to go through the risk log to see how well risks were managed, mitigated, or exploited.
• Quality of deliverables: If anything has been delivered so far, check to see that the quality is comparable to the targets set. In other words, are there post-go live bugs still to sort out, and does the product meet quality expectations?

Identify lessons learned

The main purpose of an audit is to review what worked, what didn’t and what needs to change (or be continued). So you can think of the output of the audit as a sort of lessons learned report. If you already have scheduled lessons learned activities, you can feed those in to the audit report. If not, it never hurts to have a lessons learned conversation with the team.

Set the stage for next year

If your project is running into next year, discuss how the results of the audit can be used to improve processes, define new standards or ways of working, and inform the next year’s project strategy. There might be some easy things you can do to change up how things work to make them more effective.

Whether the outcome is a lot of things to change or the reassurance that you are doing everything right, it’s a good time of year to be reflecting on project management practice. Take stock of where you are and how far the project has come, and if an audit is offered, say yes! It really is a good learning experience.

Let me see if I can make the difference between economic appraisals and financial appraisals interesting….

They are both covered in the UK Government’s Better Business Cases document. Here’s my take on what they both mean and why you’d want to use them.

Economic appraisals

The document says that economic appraisals are all about value and benefits from the perspective of the stakeholders, users, and wider societal impact. They consider “all social, economic, environmental costs and all effects on public welfare.” Remember, this is a government publication, so the assumption is that projects will be for the public good. Your project might not have an effect on public welfare, but you can imagine that it will have an effect on the project’s customers or end users.

This is the core of a business case.

It includes an element of financial information as well, such as relative prices, direct and indirect costs, opportunity costs where there are any, environmental costs, and benefits however these play out. You’d also include staff time.

It would exclude inflation, tax, sunk costs (let’s hope there aren’t any of those), depreciation of assets, and other accounting treatments.

Financial appraisals

Financial appraisals are purely the monetary calculations: can we afford it? Where is the money coming from?

They consider cash flow, budgets, and accounting practices.

This would feed into a business case because there is no point in progressing a project that you can’t afford to complete or that would not provide adequate financial returns where these are measured.

A financial analysis would look at current pricing, cash-releasing benefits (like delivering a portion of the project early so it could start to ‘earn’ for you), capex and opex costs, tax payment, and inflation.

The do nothing option

A business case should also include the minimum possible approach, which is normally the ‘do nothing’ case against which to compare your alternative(s).

Complete an economic appraisal for that option, too, taking into account what stays the same and the benefit cost ratio of doing nothing.

In my experience, it’s always worth including a ‘do nothing’ option as it really makes it clear to execs what they are giving up if they choose to reject a project.

Is an economic appraisal a new thing?

I don’t think an economic appraisal is a new thing, but I think project managers are more used to seeing it be called a business case or an options analysis.

Once you have created an economic appraisal for a variety of options (including the ‘do nothing’), there is likely to be a clear option that stands out as the best course of action. If not, there might be a few to choose from with subtle differences – leave the choice up to the execs to debate in that case!

I think the thing about an economic appraisal is that it forces you to think wider than the numbers. You’re looking for social and environmental benefit, community impact, and return instead of just a simple ‘if we do this, we’ll get paid that in a year’. It’s a way of reframing the business case conversation into something that is wider and more rounded, helping teams become aware of the full impact and benefit of their initiative instead of simply the bottom line.

And I think that’s a good thing. We should be making rounded, fully informed decisions instead of simply relying on the top level numbers. We need to be aware of the full impact from idea to decommissioning and what impact that is going to have on the world around us, not just the bank account.

By adopting the language of economic appraisal instead of business case, we might be shifting the thought process into a richer dialogue with ultimately better decisions being made. What do you think? Let me know in the comments!

Last time we looked at the different times in a contract where you would be scheduling payments. Today, I wanted to write a bit about the different types of payment you could factor into your work with vendors to give you some variety with how you structure payments.

Before we start, make sure to discuss any payment plans with your procurement and finance teams, so you don’t end up committing your company to something that you really shouldn’t! In my experience, contracting and procurement are really outside a project manager’s pay grade – organisations generally want the specialists involved, and most project managers would not have authority to sign contracts.

However, it’s worth knowing about the different payment options out there, so you can mention them in conversations with the right people if they are relevant to how you think your project would be best served.

Here are some options to consider for your next project procurement activity.

1. Uptime/availability payments

This is something to build into service level agreements. In the past, my projects have needed to set up SLAs, and uptime payments were built into those.

In essence, vendors get an incentive payment for keeping the service available instead of penalty clauses for downtime.

You could use this principle to build in payments for services or support being available, and you could have various thresholds that trigger different payments. Or you could put penalty clauses in for downtime, but that’s not so good for relationship building. The management at my last company was very much against punitive clauses as they believed it did not incentivise a partnership relationship and was too much centred on blame.

If you do put these clauses in your contracts, make sure you also document how you claim the payments. For example, for uptime incentives, if I remember rightly, we had to claim them, and sometimes for the value offered, it wasn’t really worth the admin… so think that through before you write them into contracts.

2. Performance payments

I haven’t used these personally in projects, but I believe they are common in construction (are they? Let me know in the comments).

This would be a payment related to hitting a particular performance threshold, perhaps delivering early on a particular milestone, or reaching some kind of target. When we pay for services, there are often performance-based payments built into the schedule. You’ll have seen these, too if you do any kind of online transaction processing. For example, I signed up for a service linked to my personal website that allows me to have up to 10k of transactions per month at a flat rate fee, and then if I go over that, the next tier of payment-based payments kick in. Payment is based on how many transactions you put through the system.

That could be relevant for your project if you are launching a service where volume or number of transactions or units processed would trigger an additional payment or an additional discount.

3. Incentives

You could find any number of ways to incentivise vendors. For example:

• Productivity savings
• Process improvements
• Staff savings
• Time per transaction saving
• Decrease in number of complaints or increase in staff satisfaction as measured by a survey

In addition to the ones I’ve already mentioned above. Anything that reduces overall cost of the service or product could be passed on to the client (your project), and there could be an incentive payment linked to that – ideally something that is beneficial to you both, not just cost-cutting for cost-cutting’s sake.

Have you used any of these payment methods on your projects? Let us know in the comments!