Last time I asked Jason Westland, CEO of ProjectManager.com, about his tips for preparing a comprehensive project budget. Today, our interview continues with his advice about budget management processes.
Jason, one of the hardest budget processes to get right is contingency funding. How should project managers make it work?
You do need to add in contingency, especially if you haven’t done this type of project before or it is particularly risky. But most companies don’t have a process for calculating contingency or even accessing it to spend.
It’s hard to calculate how much contingency to add to your budget, because it’s rare that there is another similar project that you can use as a guideline. Start off by working out how risky your project is going to be. Projects with a high level of risk require more contingency funding. Having said that, some parts of the project may be riskier than others, so consider whether you add contingency to the overall budget pot or to particular tasks or phases. You could, of course, do both, if you are particularly risk adverse.
So if you don’t know where to start, what is a good figure?
That’s hard to answer! But my advice would be – if you really don’t know where to start – add 10% of your overall project budget as contingency. Although it is better to work it out as scientifically as you can, as you will get challenged on that figure if your sponsor is doing a good job. You should be able to explain, rather than just saying that you made it up!
Talking to your sponsor about the level of financial risk that they are prepared to accept is another way to manage this. If you explain that contingency funding is there to offset unforeseen risks, they may allow you to have more, because they are risk averse and want to be sure that those kind of situations are covered. Having said that, this conversation could result in you getting less funding if they aren’t worried about riskiness.
What about spending the money?
Yes, you absolutely need to know how to spend it! Both for your contingency fund and your main budget, and they will probably have two different processes.
For your project budget, your Finance team will probably be able to tell you what to do about raising purchase orders, receiving goods, authorising invoices and keeping track of expenditure. While it might be quite bureaucratic, it is normally pretty easy. Get someone in the right team to tell you what your local process is and where to charge expenses to, as I have noticed that they differ widely between companies, and sometimes even within the same company.
And for contingency funds?
Spending the contingency fund normally requires approval from the project sponsor. The best way to manage this is to find out how you can access the fund before you need to use it. The last thing you want to be doing when something goes wrong and you have to sort out a risk mitigation plan at short notice is to be trawling the intranet looking for some obscure policy or trying to schedule time with your sponsor’s PA for them to explain it to you.
Once they have approved spending the funds, it’s normally a similar process to spending ‘ordinary’ money, but it might be tracked separately.
About my interviewee
Jason Westland is CEO of ProjectManager.com, a software firm, and author of The Project Management Life Cycle.
In this instalment of my occasional series interviewing project management experts, I spoke to Jason Westland (pictured), CEO of ProjectManager.com to get his advice on preparing good project budgets.
Jason, it seems like a very basic question, but tell us why it’s important to have a good budget prepared for your project.
A clear budget makes it possible to manage your project – without it you can’t even start to get things done. As a result, working out how much the project will cost should be one of your first tasks.
So, talking to your sponsor is a must?
Yes. It’s important for project managers to be able to have professional conversations about money, as you can’t afford to be shy about asking questions about hard cash.
Project sponsors sometimes already have an idea of what the budget should be, but you should do your own sums as well, if only to give yourself confidence that the sponsor has a realistic view of how much they will be spending over the lifecycle of the project. That will help you manage their expectations.
The project manager and the sponsor, then, work together on the budget. Who else gets involved?
You can’t prepare a budget by yourself. Think about who has the answers to some of your more complicated questions about costs, like how much the consultancy is going to be. Get your subject matter experts involved.
You can use your work breakdown structure or task list and get your team together to try to cost each element. Essentially, you should involve whomever you need in order to get realistic estimates.
You talked about consultancy costs. What other costs should you consider in your budget?
Well, you’ve talked about this yourself: there are two types of costs:
Yes, I remember writing about those.
To summarise, deliverable costs are related to producing your final deliverable or product, like hardware, software, licences and so on. Project management costs relate to temporary fees incurred from working on the project itself, like having to hire a separate office space, or a digger to lay cables, or a painter to decorate your new office.
There’s another type of cost isn’t there? The cost of shutting things down.
Yes, people often forget to include decommissioning fees. As projects involve change, things are different when the change has happened. And normally, the old way of working is left behind. The danger is that if you don’t take out the old way of doing things, staff members will continue to use that and your new implementation will be wasted. You can’t achieve the benefits of the change if they still insist on working in the old ways!
One way round this is to budget for decommissioning what was there before. That way people have to use the new deliverables. This could involve things like decommissioning old software, closing down user accounts, deleting training material from the intranet and so on. As well as it being a professional and tidy way to end the project, it stops people from slipping back into doing things the old way.
Next time I ask Jason about contingency and budget management processes.
About my interviewee
Jason Westland is CEO of ProjectManager.com, a software firm, and author of The Project Management Life Cycle.
Today I talk to Dr Andrew Makar, IT program manager and author of Project Management Interview Questions Made Easy, about getting a new job.
Why is preparing for a new job more than just about practising responses to interview questions?
Preparing to find the next opportunity requires a lot more preparation than futility trying to memorize an exhaustive list of project management interview questions. The majority of the “interview tip” websites seem to think providing over 50 interview questions is a useful resource a candidate can apply in an interview setting.
It isn’t realistic to memorize questions that may never be asked. This is why finding new opportunities and preparing for upcoming interviews is a reflective one much like a project management lessons learned session or retrospective.
I advocate thinking about past scenarios rather than memorizing questions. Reviewing your resume, reflecting on the lessons learned from those past projects and positions provides a much better background than rehearsing the perfect answer to a question that may never be asked.
You talk about a career contact matrix in your book. What is that?
The career contact matrix is a tool I’ve used to help me identify opportunities, leads, and follow up on active conversations for the next career opportunity. It’s a simple matrix that can track active opportunities and identify contacts for professional networking and follow up over a three- to six-month time period.
I developed a career contact matrix using a variety of formats including spreadsheets and mind maps. The career contact matrix consists of 9 simple columns including:
The matrix is managed like a project manager’s issue log where opportunities turn into qualified leads and other opportunities don’t meet your need or interest. By keeping in touch with your contacts, new opportunities can occur frequently and a timely phone call can open up an entirely new job opportunity. Another key benefit of an updated matrix is it becomes your emergency unemployment rescue kit. There is a template for the matrix in my book, Project Management Interview Questions Made Easy.
If you do find yourself unemployed, employers often use phone interviews as a way of cutting down the number of candidates they invite in to the office. What's the biggest difference between a phone interview and a face to face interview?
Phone interviews can be difficult because of the lack of subtext. You only have the benefit of the interviewer’s tone rather than seeing non-verbal communication signals. Most phone interviews tend to be screening interviews when there recruiter is vetting your profile for both skills and salary range. It is difficult to develop rapport with one phone call. The face to face interview is much better because you can look a person in the eye and determine if the opportunity is the right fit.
Remember, you are evaluating them just as they are evaluating you.
That’s a good tip. Do you have any others?
For the job seeker, developing your personal network and promoting your personal brand is a key factor to creating a career safety net. I use the career contact matrix to maintain an action plan for professional networking and building better relationships. I always dislike receiving an email from someone seeking a job when I haven’t spoken to them in a year. By developing better relationships and “checking in” from time to time, your job search becomes easier as opportunities pop.
My past 3 jobs have all come from a professional network instead of a job posting system. As project managers, we can spend over 40 hours a week delivering projects. Take at least one hour a week to focus on your career including networking, opportunity prospecting and directing your own career.
Is the interview the best time to ask questions about salary and benefits? If not, when should you ask about these?
The interview is the best time to sell yourself. The hiring decision is usually the interviewer’s decision. The salary and associated benefits is an HR decision. Focus on positioning yourself as the desired candidate and obtain the hire decision. Once HR makes an offer, you can negotiate the salary and benefits.
In my experience, the initial phone screen or the job description will help identify the position title. You can usually find out about benefits and salary ranges incomparable positions from others in your professional network or using tools like salary.monster.com or glassdoor.com
What happens if the interview includes other things like tests or a presentation? How can people prepare for those?
I’ve asked candidates to demonstrate their skills in an interview by providing situational questions or even asking candidates to draw a small data model. In a project management interview, you want to provide specific actions taken using the processes, tools and techniques to manage a project. If you indicate on your resume that earned value management is a skill, be prepared to share how you’d apply earned value on a project or better yet how you would do it in Microsoft Project. Reflecting on your past job scenarios, providing real world examples with the techniques to support your responses will help you pass any test or presentation.
About Andrew Makar
Ask the Experts: Kevin Baker on improving project management culture at Airbus
In this instalment of my occasional Ask the Experts column, I spoke to Kevin Baker (pictured), Head of Project & Programme Management Operations at Airbus, about the work he has been leading to improve project management standards and culture at the company, including the improvement of project financial controls.
Kevin, you've enhanced the project management culture at Airbus. Has any of this work been around standardising project financial control or risk management? If so, what?
At Airbus we have been working to standardise all aspects of project management, and of course this includes financial control and risk management. Together with schedule management and quality, these form the pillars of a robust project management approach.
What have we actually done? The principles of financial management and risk management have been known in Airbus for many years, there is nothing really new here. What is new is to have a standard set of methodology and tools, so that all actors in the company start to work in the same way, and to use the same language. Over a period of a few years, and with a strong push from the senior management, this starts to embed the new way of working into the company.
Yes, it is really important to have that senior management support. Have you implemented any common tools for project managers to use for managing project budgets or project risks?
In Airbus we have a number of very large projects, like our new aircraft – the A350XWB. Their size and complexity requires a special treatment and we have developed our own toolset – it is called Unified Planning. This takes the schedule status and the cost status at work package level and then aggregates this up to give the overall picture at total project level, that is the status for the complete aircraft development. We also compare cost to schedule achievements to produce an Earned Value indicator. This gives the managers at all levels the visibility of where they are, and how they are performing. And it makes sure that everyone is working to the same information.
Do smaller projects use the same tools?
We also have many hundreds of smaller projects, and we have adopted a simpler toolset for these. But it follows the same basic principles – monitor cost vs budget, and schedule progress vs plan, then calculate earned value.
We cannot say that these new tools will overcome all the difficulties on our projects, but they make sure that we know where we are so that the project managers can quickly start a corrective action if necessary. We are not steering ‘blind’.
Data is a key part to making the right decisions. In order to get there, you’ve had to change the culture at Airbus. What was the biggest challenge in trying to get the company to embrace project management as an intrinsic part of how everyone works?
Airbus is just over 40 years old, and its strength comes from a determination to build the best performing products to the very highest standard of safety. The challenge now is to promote a project management culture alongside these existing strengths. That is to make sure that we not only build fantastic products which perform well but also that we make sure that we do it on time, and within the budget.
We know that the culture change is a long process. It is about making sure that we all think ‘project’. We have made good progress, but the journey will never end. So what is next? – it is more of the same. We keep pushing for a common way of working, a common mindset, a common language. We are deploying some levers to help here. For example we have a project management career path, which is linked to an internal project management certification process. This will help to make project management into a real profession in Airbus – to make more people want to be project managers, to be more proud to be project managers. We are also expanding our range of PM training focussing more now on soft skills.
About my interviewee: Kevin Baker is Head of Project & Programme Management Operations at Airbus. He spoke at Project Zone Congress in Frankfurt last month about this programme of work to enhance project management culture at the company.
Last time risk expert Wilhelm Kross and I talked about the soft factors influencing managing risk. Here is the second part of that interview, which looks at integrated risk management. Wilhelm is presenting next week at Project Zone Congress in Frankfurt, on the topic of Risk Management and he will also deliver a masterclass on the challenges of mega-projects.
Wilhelm, how do risk management and change management fit together to provide an integrated process?
Almost all so-called risk management processes which have been published in the last couple of decades have in common that they reflect what is commonly referred to as the controlling perspective, while neglecting considerable and important elements of the management perspective. Making trade-offs, designing short-term compromises, implementing short-term work-arounds and the like, are typical management challenges that seem to be ignored.
Admittedly these processes reflect the advantage that they are easily rendered compatible with the abovementioned advantages of static risk frameworks. In contrast, however, the implementation of such processes in dynamic risk frameworks poses the danger that the true complexities are severely underestimated, and inherently setup for failure. Change can and will happen as things evolve and in most real-life actions and initiatives it would be rather dangerous to assume that the base conditions at start-up will remain carved in stone.
Of course, the environment doesn’t stay the same while we are managing risk, so naturally things evolve. Although often our processes don’t reflect that. Are there any common weaknesses?
A common weakness in change management frameworks, including project management standards, is that risk considerations reflect the abovementioned weakness of predominantly focusing on the controlling perspective. The framework which was incorporated in PMI’s otherwise extremely useful Project Management Body of Knowledge is a good example. Any real-life organization which intends to focus on the interplay of risk controlling and risk management within its frameworks of change management would need to add a few steps between planning risk management action, and controlling and monitoring the effectiveness.
There are several additional considerations though which are often under-emphasized. First, common frameworks of change may assume that risk is simply one of the knowledge areas which need to be incorporated within change initiatives, while on the other hand risk intervention measures may become the main driver in the adoption to new circumstances as they evolve. The need to reduce risk factors to lower, acceptable levels may cause a significant deviation from what was originally planned.
Second, those standardized change frameworks which use projects as the predominant organizational structure usually tend to underemphasize that the scope of both change management and risk management usually commences long before a project is conceived, and can stretch far beyond the official close of a project, particularly when cultural change and multiple external stakeholders are involved.
Third, risk management efforts in real-life organizations are often setup and implemented somewhat half-heartedly until the true need arises to practice risk management more professionally. Once the establishment of professional risk management involves the triggering of turnaround and crisis intervention measures, of course, numerous additional factors need to be reflected including in particular the recognition of the fact that there is insufficient time available to design and plan all related activities thoroughly.
OK, so the best approach is to blend static and dynamic risk frameworks so you cover all bases. Integrated risk management seems a bit more than that though. How would you define it?
The expression “integrated risk management” commonly refers to static and dynamic risk frameworks in which risk management, often in multiple dimensions (i.e., cost, time, reputation, societal damage, environmental damage, toxicity, etc.), is fully incorporated into line function or change management activities and related decision making.
Thanks. What are the benefits?
Depending on what is truly done and how well, and what is at stake, the conceivable benefits usually include enhanced levels of transparency, a focus on what truly is important, a reduction of undesired negative impacts and side-effects, a protection of the organizational value at risk, time savings in the implementation of management action, and in some cases enhanced value creation as part of what is commonly referred to as systematic opportunity management. Given that numerous frameworks of change, and risk frameworks, authorize the implementation of risk management using predominantly qualitative approaches, in spite of the fact that any unquantified risk is by definition quantified with zero, the quantitative proof of the benefits of integrated risk management inherently remains underestimated.
Are there any limitations to implementing this risk approach in practice?
In my view many real-life organizational frameworks for risk management reflect some inherent limitations that can and should be considered avoidable. To name two typical misconceptions, real-life risk management improvement frameworks are often focused on reaching elevated levels of maturity, and ultimately thriving toward the royal discipline of enterprise-wide risk management. Both may be overly shortsighted. As Harold Kerzner pointed out, maturity can be a point from which onward everything goes downhill, at least when one builds on the analogy of the introduction of products into markets. Kerzner submits that organizational leaders should bank on the preparedness of knowledge workers to accept and adopt change on their path toward maturity; however, rather than maintaining the glass ceiling that often protects these leaders from criticism and emotional attachment, they should consider mapping out the path beyond maturity, which may consist of organizational excellence and ultimately the development of true competitive advantages.
The second aspect of enterprise-risk management as it is portrayed in risk textbooks poses the danger of underemphasizing rather significant factor in today’s real-life. Many organizations have heavily engaged in outsourcing activities and in some cases have even outsourced parts of their core business. Similarly to what is the case in the application of cost reduction activities in which the simultaneous increase in risk levels was simply ignored, the true implications are largely unmanaged. In today’s business environment larger scale investors may be able to purchase and redesign entire industry sectors. A supplier, who was believed to be a secure outsourcing partner, may no longer be available, even at short notice. The typical interface between the organization and its suppliers, the procurement function, may be wrongly focused and may lack the relevant skills to assess the likelihood of stability in the supplier relationship, in which case the evolving hazards for the core business of the organization may remain undetected until it is almost too late. And by the way, these considerations are of significance too in change frameworks, including standards for project management.
Find out more about Project Zone Congress here: http://www.projectzonecongress.org.
About my interviewee: Dr. Wilhelm K. Kross, Dipl.-Ing., MBA, Eur. Ing., PMI-RMP is an internationally recognised expert in the fields of risk and project management and a partner of Plejades and the Amontis Consulting network. His main focuses are the fields of applied risk management and related in-depth risk analytics and valuation techniques, (mega-)project structuring and financing, as well as operational crisis and turnaround management, particularly in complex larger scale crisis programs and projects.