When standard is no longer "standard"
From the Easy in theory, difficult in practice Blog
by Kiron Bondale
My musings on project management, project portfolio management and change management.
I'm a firm believer that a pragmatic approach to organizational change that addresses process & technology, but primarily, people will maximize chances for success.
This blog contains articles which I've previously written and published as well as new content.
Recent Posts
Leading Through Crisis Means Leading Through Context
"It's the end. But the moment has been prepared for." - retirement lessons from the Doctor
Just because they are non-critical, doesn't mean they are not risky!
Just because they are non-critical, doesn't mean they are not risky!
How will YOU avoid these AI-related cognitive biases?
Categories
Agile,
Artificial Intelligence,
Career Development,
Change Management,
Communications Management,
Decision Making,
Governance,
Hiring,
Kanban,
Lessons Learned,
Personal Development,
PMO,
Portfolio Management,
Project Management,
Resource Management,
Risk Management,
Risk Management,
Schedule Management,
Scheduling,
Tools
Date
Project management standards such as the PMBOK® Guide, Sixth Edition state that contingency reserves, which are established to offset the cost or schedule impacts of realized identified risks, are considered part of the project budget and cost baseline. As the project manager is authorized to spend the budget as planned, it is assumed that they have the ability to draw upon contingency reserves directly as risks are realized.
In a recent class discussion, most of the learners indicated that while contingency reserves were considered part of the project budget, project managers in their companies were required to seek some level of approval from senior management before they could draw upon that funding. This matches my own experience from the previous two companies I worked for.
So I decided to conduct a poll in the LinkedIn PMI Project, Program and Portfolio Management discussion group to get feedback from a larger sample of practitioners. That discussion group has over 300,000 members and I received just under 2,000 responses to the poll which is a good response rate given that the vast majority of members of such large LinkedIn groups rarely contribute.
Only 17% of the responders indicated they had full authority to draw down on contingency reserves. This poll also garnered a number of comments from the group and here are some of the more interesting ones.
- "Every company I worked for the PM required approval to access contingency funds."
- "PM needs to be given the "rights" to use their "authority" which generally is not the case in most organizations"
- "Agree, PMBOK is theory, real life business operations run differently in most cases"
- "The PMBOK is not living in the real world with respect to contingency reserves."
- "I think it varies depending on the type of organization/industry. For example, in construction industry Project Managers have much more authority in general and a lot of funds are on their disposal. Compared to that Project Managers in IT have much less authority and funds in their control. They generally have to request approvals even for smaller sums."
So, if in the majority of cases a PM needs to seek approval for contingency reserves, aside from artificially allocating funds to different cost "buckets", is there any real benefit in distinguishing between contingency and management reserves?
And if there is such a disconnect between what is in written in project management standards and how it gets practiced in the real world, should we continue to call it "standard"?
Posted on: February 20, 2022 07:00 AM |
Permalink
Comments (10)
Please login or join to subscribe to this item
Luis Branco
CEO| Business Insight, Consultores de Gestão, Ldª
Carcavelos, Lisboa, Portugal
Dear Kiron
The topic that you brought to our reflection and debate was very interesting.
Thank you for your sharing, the survey results and your opinion.
After project planning (one of the fundamental parts is the budget and, consequently, the contingency reserves), before starting the execution, it is customary to be validated by the sponsor and, depending on the type of project, by the main stakeholders.
If the company trusts the project manager (it knows that he will only "put his hand" on the contingency reserves if necessary) it is natural that it gives him the power to use these funds
Otherwise, despite being budgeted, the project manager has to justify the use of contingency reserves before using them
This procedure can integrate project governance and/or organizational governance
Does the existence of this procedure invalidate the preparation of the budget and the creation of contingency reserves?
My question is of a different nature:
- Do project managers properly use the processes and procedures proposed in the standard?
- And is this use of processes and procedures traceable?
Stéphane Parent
Self Employed / Semi-retired| Leader Maker
Prince Edward Island, Canada
Let's remember that the PMBOK Guides offer best practices. Let's face it, not every company uses best practices. (I can't tell you how many times I've seen organizations flip-flop between empowering front line managers and centralizing accountability.)
Thanks Luis & Stéphane! Trust is really the key here - while contingency reserves are commonly defined and budgeted, few organizations fully trust that PMs won't be tempted or influenced to misuse them. The sad thing is that they might put the power in the hands of a sponsor who is more likely to abuse such funding given their likely bias for adding more scope whereas a PM is supposed to be impartial.
Luis Branco
CEO| Business Insight, Consultores de Gestão, Ldª
Carcavelos, Lisboa, Portugal
Dear Kiron
Is our exchange of views about standards?
When the project manager's services are outsourced, what do you propose? That the contingency reserve is subject to prior approval?
Our conversation is being about projects whose approach is predictive, right? (In an adaptive approach, cost and time are fixed. Agreed?)
There is a process and procedures for changes whether in scope, time or cost.
If a sponsor "gets down to business", governance can and should be reviewed.
Luis -
Should it matter whether we are talking about an internal or external PM? If we trust them enough to hire them to do the work, we should trust them to do the job right, but have some checks and balances (e.g. financial reports) to protect us in case they don't.
Contingency reserves apply to any type of project. While adaptive projects could be performed with a fixed cost, that fixed cost could include the expected monetary value of specific identified risks.
Kiron
Robert McMartin
PMO Manager| Hanwha Defence Australia
Southbank, Vic, Australia
The major issue is that with the exception of the people working on projects, Projects doesn't fit into the corporate culture. Boards don't understand them and the current structures of most organisations support something out of the 80's.
If any project had budgets defined, including risk budgets, the PMs should be able to use the Delegation of Authority assigned to them to release money as required. PMOs, and Senior Management should be informed of the release, and should also be informed when a risk has passed and can be released to either Management reserve or the Balance Sheet. Management Reserve (Executive Bonuses) will always require senior management approval, but the PM should be free to drawdown on any amount that is budgeted. Of course, this is based on a company understanding projects and project management.
Khaled Ktecha
PM I| Darwish Engineering Emirates L.L.C
Dubai, Dubai, United Arab Emirates
Thank you for putting this interesting matter for discussion, in my opinion, we should take a deep look at the standard before making a decision if we can use it exactly as it is or not or some adjusting is required to match with the private case because not all the standards applicable for everything and everywhere.
Kwiyuh Michael Wepngong
Community Champion
Financial Management Specialist | US Peace Corps
Yaounde, Centre, Cameroon
Stéphane Parent
Self Employed / Semi-retired| Leader Maker
Prince Edward Island, Canada
Your comment, Kiron, reminds me of something I once heard: the project manager should not be employed by either the client or the project team organization. I've rarely seen a project manager that was a true third party. Even when contracted, the project manager is still paid by someone who pulls strings.
Standard are subjects to revision and should have adaptive nature. Thanks for the article
Please Login/Register to leave a comment.
|
"If you must play, decide on three things at the start: the rules of the game, the stakes and the quitting time."
- Chinese Proverb
|
