What should you include in the cost management plan for your project? If you have a template from your PMO, then it’s best to start there. But if you are designing something from scratch, here are some helpful pointers for the different sections that you should be considering.
Here’s a handy print-out-and-keep guide to what you should be including in project cost management plans. For more details on what each item relates to, check out this article.
What do you think – do you like this kind of graphic? Is it useful or would you prefer more text-based descriptive articles? I’m curious to know what works best for you, so I can make sure I’m writing and creating things that best serve you, so drop a comment below! Thank you!
In this video I share 3 tips with you to help you feel more organised for the coming week. These are quick(ish) things to do on a Friday afternoon, or the last day of your working week. I use these tips myself and they help me waste less time overall. I hope they help you too!
Read more here: http://www.projectmanagement.com/blog/The-Money-Files/7537/
I got so many positive comments about the summary guide to what’s new in Project Cost Management that I shared recently, that I thought I would do it again for another Knowledge Area.
This time, it’s the turn of procurement – another budget and financial management aspect of project management that has had an update in the PMBOK Guide®-- Sixth Edition.
As the date for the launch of the new exam is this month, a quick review of Project Procurement Management will be relevant for anyone who started studying for their PMP® or CAPM® but who hasn’t yet managed to take the exam.
Plus, it’s just generally interesting, if you are interested in things like this – like I am! I enjoy seeing how the discipline of project management is evolving over time and the procurement area has seen some significant updates.
As before, I have to thank the authors of a free pdf including Asad Naveed, Varun Anand and others, for their comprehensive guide to what is new in the latest version. I have my own electronic version and I’ve been scouring that too, but their 130-page guidance document is helpful for showcasing the headlines of where things have changed.
So, without further ado, let’s dive into how procurement management is different now.
Plan Procurement Management Process
The first process in this knowledge area is Plan Procurement Management. We are, of course, in the planning process group.
It feels like quite a lot is different, but I don’t think the changes are substantive. Let me explain what I mean.
The inputs have changed around a lot. Requirements documentation, activity resource requirements, the schedule, cost estimates, the risk register and the stakeholder register are out.
In come the project charter, the generic “business documents” and project documents.
There is some sense to this. It speaks to what feels like more of a desire for project managers to make their own judgements, which is reflected throughout the PMBOK Guide®-- Sixth Edition. For example, project documents can include:
And so on.
The charter includes statements about finances, as you may have consideration given in that document to the total budget, or even information about possible suppliers.
Tools and Techniques
The make or buy decision analysis has gone! So has market research, which I always thought was quite a helpful inclusion.
However, the nice and vague “data analysis” has been included, along with data gathering, and market research could justifiably fit in here.
The other new T&T is source selection analysis. This sounds a lot more complicated than it actually is. All it means is you plan for how you are going to select your vendors. The analysis part is looking at the options available to you and making the choice about which selection approach to use. For example:
Or a mixture, or something else.
The new version has 10 outputs! We have some new ones: procurement strategy, bid documents, independent cost estimates and organisational process asset updates (those OPAs get everywhere, and have to be updated).
Where, in other areas, it feels like there is some streamlining and introduction of generic terms, here the “procurement documents” output has been dropped in favour of the more specific strategy document.
I can see why – this is the planning process, so the output should be something that is basically your plan for procurement. The strategy gives you that. It can cover how you are going to procure, the kind of deals you are prepared to go into, preferences for contract types and so on.
Bid documents might not be necessary for all projects (in fact, much of procurement management might not be relevant for your project – it depends on what, if anything, you are buying). Bid documents is a summary term for the paperwork you need to generate so that suppliers know what it is you want to buy from them. In other words, the Request for Information, Request for Quote or Request for Proposal.
I like that the update includes independent cost estimates, although I have never worked on a project that has used these. Basically someone skilled in this area tells you what the work should cost, so that you can benchmark the vendor proposals when they come in. Very sensible!
Next time I’ll look at what’s new in the Conduct Procurements process. A quick teaser: your new procurement strategy, produced as part of this process, is not directly an input! You’ll have to wait for the next instalment to see how that’s reflected in the process.
What does your PMO track about the projects in your business? It’s often difficult to know where to start, especially when some of the measures you might hear about take a lot of data and relatively mature systems in place to start tracking them.
Here are some simple measures that you can track, and at the end of this article are some that are a little bit harder to put in place but are definitely worth the effort.
Number of projects stopped
You can track how many projects are put on hold, cancelled or otherwise stopped. As a number, it doesn’t give you the whole picture, but with some narrative as well it provides some information about how good you are getting as a business at choosing the right projects to do.
% Increase in projects delivering to time and scope
Hopefully you’ll see this number trend up. It speaks to predictability of delivery: how good you are at making sure projects do what they said they would.
% Increase in projects delivering on budget
Hopefully you’ll also see this number trend up. It speaks to predictability of cost: how good teams are at estimating and managing project budgets as they said they would. You could also look at tracking the % of projects with cost overruns and what these are – with a view that it should be going down as maturity improves.
Whether you work for external clients or internal stakeholders, you can ask them how happy they are with your service! It’s easy to track customer satisfaction and the measures can tell an interesting story.
% of Projects on a Red/Amber Status
Measure the number of projects with a red or amber status at gate reviews, stage reviews or at monthly reporting. Alone, this number doesn’t tell you much, and you certainly don’t want to encourage project teams to under-report problems just so their projects aren’t counted in the monthly numbers. However, combined with other measures it can be an interesting (and easy) number to track. You might also want to add the time period that a project has been on the status of red as this would tell you that the issues are not being resolved, or that the project is hitting multiple issues time and time again – also good to know.
Project management skills
If you have a career path, or defined competencies for project managers, you can track the department’s overall growth in skills maturity. Measure competence at the beginning of the year, do your training programme or whatever, and then measure again at the end of the year. It’s a simple way to show that your staff are getting better and that should have an impact on the success of your project management delivery.
As you would for project managers, use one of the PMO maturity models or organisational project management maturity models to measure your business’ maturity when it comes to progress. Then take the measure again in 12 months.
This can be subjective, and it feels like ages before you can do the measure again, but it is certainly interesting to see how things have changed!
Here are some other measures, slightly harder to implement.
What other measures do you use?
Over the last few articles, I’ve looked at how the Project Cost Management Knowledge Area has been revised in the new PMBOK Guide®-- Sixth Edition. Broadly, it’s been spruced up and clarified, and you’ll need to know the updates if your sitting the exam. As for changing what you do day to day at work – not so much.
If you’ve got your copy of the PMBOK Guide®-- Sixth Edition, you’ll have noticed one major difference in this version. There’s space in each Knowledge Area chapter for a discussion of trends in that area, how you can best tailor the processes to fit your organisation and an overview of what it means to use these processes in an agile or adaptive environment.
I think it’s useful to have this guidance, although it’s only a glancing paragraph or two in each case. Even so, I think it gives people – especially project managers who are perhaps in restrictive or bureaucratic environments, or those who are new to managing projects – permission to do things in the most sensible way, instead of in the way that the book says.
So what does the guidance say about Project Cost Management?
Trends in Cost Management
The big trend covered in the Cost Management section is that of Earned Schedule. There’s a move, apparently, to replacing schedule variance metrics with earned schedule (ES). The difference is in the way schedule variance is calculated:
Schedule Variance = Earned Value - Planned Value
Schedule Variance = Earned Schedule - Actual Time
The aim is to make it easier to get schedule data from the earned value calculations to give you information about time and duration, and to make it easier to forecast accurately.
This idea has been around for a while (there’s an interesting conference paper on it here from 2011 which explains it better than I can).
I’m in two minds about whether the inclusion of earned schedule is useful or not.
On the one hand, it’s a concept that is hardly new to project professionals. If you know much about EV then you have probably come across this idea before. However, I am guessing here. I don’t move in circles where we talk about earned value much, so perhaps the idea hasn’t gained as much ground as I think it should have. (I’d be interested in your take on this – have you come across ES before?)
On the other hand, I’m not aware of any other major trends in handling project finances either, and I get that they had to include something! Frankly, anything that extends the use of earned value to include other measures that project managers can usefully use to deduce information about their project’s performance has to be good. If this brings the concept more to the masses, and helps project sponsors see an extended value from EV, then that’s positive.
Tailoring Cost Management
The guidance given on tailoring Project Cost Management is really quite high level.
As you’d expect, as every project is different you do have to apply a degree of professional judgment to the situation. Things to consider, that are called out in the guidance, include:
There are also some general comments about considering whether you work in an agile/adaptive environment, checking out the lessons learned and knowledge repositories for financial information and so on.
I think the things discussed in these sections of the Knowledge Area underpin my comments on the rest of the chapter: Project Cost Management has been tweaked rather than radically overhauled. I imagine if you did this line-by-line analysis of the other Knowledge Areas you would conclude the same thing. PMBOK Guide®-- Sixth Edition is an evolution, not a rethink. It’s handy to have the latest guidance, and to read it through for information to stay up to date, but I haven’t found anything in this Knowledge Area that would make me change how I approached Project Cost Management on a day-to-day basis.