Project Management

Agile Finances on Projects: Cost and Procurement Management

From the The Money Files Blog
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A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts. Written by Elizabeth Harrin from GirlsGuideToPM.com.

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You know I’m interested in the financial aspects of project management – I’m even thinking of teaching a workshop on project budgeting and accounting later this year. I feel like I’ve got quite a good understanding of the topic, but I’m constantly learning.

Having only done a very small amount of work in a team I would say is using agile practices, I am by no means an expert in the practical ways of making agile approaches work on project teams. However, there is a lot of guidance out there for people like me who want to learn more.

The Agile Practice Guide, in particular, has some interesting information about how to apply information from the PMBOK® Guide Knowledge Areas to agile work processes. From a financial perspective, here’s my interpretation of how this would work.

Project Cost Management in Agile Environments

Typically, on predictive projects you would do a lot of costing and estimating in advance. For projects with a high degree of uncertainty, or those where you don’t have a fully-fleshed out scope (hello, agile projects), then obviously you don’t have the data to do this level of cost analysis.

Instead, the recommendation is to use “lightweight estimation methods” (although no detail is given as to what these might be) to come up with fast, high level cost forecasts for resource costs. I can see this working when you are forecasting the general length of a particular engagement – even if you simply plan out the resource costs for the next financial period as a basic benchmark.

Detailed costs for things that aren’t people costs do still need to be done. You can’t run a successful business if you aren’t aware of what project work is costing you. It is OK, however, to do those detailed analyses on a more just-in-time and rolling basis.

To be honest, on some of the long programmes I’ve been involved with we’ve taken the same approach. The business case costs might have been fixed from the start, but frankly they were only ever our best estimate at the time. I then worked out detailed forecasts for the actual year we were in, so the Finance team could manage cash flow and we could accurately account for the capital outlay in the current financial year.

Where your budget is fixed, but you still need to be agile in other respects, then your choice is simply to flex scope and schedule to stay within the cost constraints.

Project Procurement Management in Agile Environments

Procurement management is another area where we incur costs, and as project managers, we need to be aware of how to manage that – in all environments.

Typically, procurements I have been involved with have had a protracted contract negotiation at the beginning to come up with a Master Services Agreement, and then you define the current engagement with a Statement of Work. As we needed suppliers to do extra things, we created new SoWs detailing that engagement. This is also how change control worked: the change control process generated either a credit note (when something was being changed and the end result was the development cost less) or a purchase order and an addendum to the current SoW.

It turns out that, according to the Agile Practice Guide, this is a pretty agile way of working.

There probably are projects where it is prudent and necessary to sign a massive contract upfront (ERP deployments spring to mind, from experience!) but generally, staying small with the engagement and working in a flexible way will suit both parties on the majority of projects.

Either way, something that is the same regardless of the project management approach you are taking is the need to document contractual arrangements and file them somewhere you can easily find them again. I have had a few moments in my career where I have sheepishly rung a vendor and asked for a copy of the executed contracts because – whisper it – it wasn’t possible to find our version of the same document.

Don’t make that mistake! Be agile. Be tidy!

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Posted on: February 19, 2020 08:00 AM | Permalink

Comments (1)

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Dear Elizabeth
Interesting is your perspective on the topic: "Agile Finances on Projects: Cost and Procurement Management"

Thanks for sharing

It does not seem to be very easy to estimate costs in projects whose development approach is agile

There are authors who suggest using the cone of uncertainty
The amplitude is so great that it can vary between 4 times and 0.25 times

When working for a client, it becomes more challenging to estimate costs and come up with a budget

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