Project Management

The Austerity Debate: What’s the cost of project management?

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The cost of project managementAndy Murray, Director of Outperform, and lead author of PRINCE2:2009, spoke at the Austerity Debate at Lloyd’s Register in London recently about the role project management plays in this difficult economy.

When times are tough, senior management look to reduce costs and that sometimes means cutting projects and project management.  So how much does project management cost?  Murray explained that there several ways to look at this question.

The cost of managing a project

Each project has an overhead, including the cost of the project manager, the sponsor, a risk budget, the project board and any project support services.

The cost of failure

What does it cost if you don’t do projects well?  There’s rework, the cost of overruns, poor outputs, under-delivery, consequential loss, and benefits that remain unrealised.

The cost of managing projects

This is the infrastructure related to managing projects and includes any Centre of Excellence overheads, the PMO, support, monitoring, tools, evaluation, assurance, the Portfolio Office and audits.

Reducing these costs is possible, Murray explained.  He presented several options that senior managers could consider:

  • Reducing the number of projects
  • Reducing the cost of managing a project – giving each project manager more projects to run, for example
  • Reducing the cost of managing projects but minimising the central overheads
  • Reducing the cost of failure
  • Improving performance with better targets and delivering more benefits.

Andy's slideMurray said that the contribution project management offers is a mix of the value of increased performance, plus a reduced cost of failure and a lower cost projects, less the cost of project management itself.  I’ve represented this as a sum in the picture here.

In the last decade the focus has been on methods, training and techniques, Murray said.  There’s been no focus on behaviour, although he admitted that things have been looking up over the past three years.  There’s been a bit of development in the organisational space around P3O and strategic planning, but he believes we can do better.

What do you think?

Posted on: December 07, 2010 01:04 PM | Permalink

Comments (2)

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I believe you could also reduce the cost of project management by giving PM's P&L responsibility. Keeping an eye on the bottom line would mean greater accountability and greater benefit, as well as more cost effective choices in solutioning and design.

That's a good idea. The model that many companies use where project managers don't have direct responsibility for their resources means that PM's often don't have the opportunity for P&L responsibility. How would you enable them to do that though, just for a project? P&L seems to work best being managed annually, which doesn't naturally fit with the way projects work.

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