Project Management

Whippersnappers Run! Consultant Curmudgeon Is Here!

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Modelling Business Decisions and their Consequences

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Date



Scene: A well-furnished meeting room, prepared for Project Reviews.

Steve (PMO Director): It’s nine o’clock. Which Project is first on the agenda?

Suddenly, Ricky (Project Controls intern) rushes in.

Heads up, everybody – Doug the Consultant is headed this way!

A barely audible groan erupts from the PMs, which quickly goes away when Doug enters the room. Doug is tall, with slightly graying hair, piercing blue eyes, with hints of a military bearing. He sits at the table, near the projection screen.

Steve: Great to see you, Doug!

Doug: First up PM: proceed, sir.

Bob: As everyone can see from this status report, our planned value is ahead of our actual costs, resulting in a positive Cost Variance.

Doug: Your what is ahead?

Bob: The planned value.

Doug: Is that the same as the time-phased budget?

Bob: Yes.

Doug: The more precise term is Budgeted Cost of Work Scheduled, or BCWS.

Bob: Those terms are considered obsolete.

Doug: By whom? (Awkward silence) Here’s the problem – “Planned Value” sounds a bit like “Earned Value,” leading to some level of confusion. The “obsolete” terms should have never been abandoned, which leads to our second problem. A Cost Variance is the difference between the Earned Value and the Actual Costs, not the time-phased budget and actuals.

Ricky: You’re not going to insist that we also use the terms Budgeted Cost of Work Performed and Actual Cost of Work Performed, are you?

Doug: Nope. The new versions of those terms – “Earned Value” and “Actual Costs,” are close enough to the original versions to avoid the same type of confusion represented by “planned value” and “Earned Value.”

Bob: Well, by your definition then, the Earned Value minus the Actual Costs is actually a negative number.

Doug: Tell us about your negative cost variance, then. Also, what’s your Earned Value minus your BCWS?

Bob: That’s also a negative number.

Doug: So you’ve got both a negative Cost and negative Schedule Variance, but were about to talk to a positive spending variance?

Bob: It’s no big deal. What you’re calling the negative Cost Variance is significantly smaller than the amount we have in the Contingency fund.

Doug: Hold on. What’s the cause of your negative Cost Variance?

Bob: We’re still investigating it.

Doug: Well, you can’t just tap your Contingency fund to cover any old Cost Variance. That reserve is only for in-scope, uncosted work.

Mark (assistant PMO Director): Since when?

Doug: Since the terms were invented.

Mark: Well, that’s not how we’ve been using them. We base the usage of all of the reserve funds – Management Reserve, Undistributed Budget, as well as Contingency – on who controls them, us or the Client.

Doug: Another set of problems! Without precise definitions of those reserve budgets, irrespective of who controls them, you’re simply inviting Project Management Baseline chicanery, such as attempts to cover Cost Variances possibly caused by poor performance, with those very reserves.

Steve: Doug, there are literally multiple definitions of those terms out there. Even within our own portfolio, they change based on the customer. What definitions are you talking about?

Doug: Easy. Like I said, Contingency is for in-scope, uncosted. Whether you derive it using a risk analysis (like me, Doug refuses to use initial caps for this phrase) or tack on a flat percentage doesn’t matter. Undistributed Budget is for work that is known to be in-scope at the time of the creation of the Cost Baseline, but there’s no reliable way to estimate it for inclusion in the baseline. Management Reserve is “free BCWS.” The Control Account Managers, or Work Package Managers, “give” back a percentage of their budgets so that the PM can use it however it’s needed, and the Customer really has no say in such usage, save for clear abuse.

Mark: In most of our projects, the Customer has complete control over the Management Reserve.

Doug: Then call it something else, ‘cuz the PM doesn’t “manage” it at all. In that instance, you’re inviting scope creep. What’s stopping the customer from asking for “just this one little addition,” offering to fund it through MR, and bypassing the nominal clearly defined Scope-to-Cost Baseline process?

Steve: Actually, that exact process happens a lot.

Doug: Meaning large portions of your portfolio are likely working under rubber baselines. No wonder its Cost/Schedule performance is so poor!

Bob: I disagree. The reason our Cost/Schedule performance is, errr, marginal, is due to the fact that our clients have some hard-nosed reps in the Configuration Control Board meetings. If we push for Baseline Change approvals too hard, we’ll jeopardize the award fee.

Doug: All the more reason to return to the original names and functions of the reserve budgets. By adapting the newer, less precise definitions and functions of the reserve accounts, you’re making it easier to informally add scope into your projects, based on vague promises that it will all come in under the Contract Budget Base.

Steve: Doug, how, exactly, do you intend to implement such a transition away from the modern PM lexicon?

Doug: One client at a time, Steve. One client at a time.

Posted on: May 22, 2024 09:43 PM | Permalink

Comments (5)

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Jim Allen Consultant and Trainer| Response Resource, LLC Herndon, Va, USA
Scope creep is valuable. It tells us that we are not providing true value to the client. Value can only be determined by the client. Welcome scope creep but make sure that you document requested changes. Make the client determine if they want the change made in the current or future iterations. Ask for appropriate contract changes, not just permission to proceed.

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Jim Allen Consultant and Trainer| Response Resource, LLC Herndon, Va, USA
I have used this approach when increasing contract value from $215M to over $350M ResponseResource.com/Purpose.html

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George Freeman
Community Champion
PM Thought Leader and Author | Florida, USA
Michael, it appears that the Whippersnappers Inc. Project Accountability Avoidance Office accepted the recommendations of its Controls Redefinition Committee.

What is the project world coming to, and what’s next? The select subcommittee on the Urgent and Strategic Need to Redefine Success?—Oh, you’re right; their recommendation was already implemented. :-)

George

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Michael Browning Director, Cybersecurity| Vanderbilt University Nashville, USA
Great insight - thank you for sharing!

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Kwiyuh Michael Wepngong Financial Management Specialist | US Peace Corps / Cameroon Yaounde, Centre, Cameroon
Thanks for this... My tak ehome is One client at a time, Steve. One client at a time.

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