What’s new in Project Cost Management: Plan Cost Management Process – read the first part of this series here.
In the last article I looked at what was different about Plan Cost Management, now that the PMBOK Guide®-- Sixth Edition is out and available. Today, I want to look at what’s different in the next process: Estimate Costs.
Estimate Costs Process
The second process in this knowledge area is Estimate Costs, and it looks a little bit different in the new version. There’s nothing amazing that is going to throw you for six, but the process does feel simpler and more streamlined. It’s just more logical. That’s a good thing!
We are still in the planning process group.
The inputs have been updated and streamlined. Previously the inputs included the cost management plan, the human resource management plan and some specific documents. Now, the inputs are simply ‘project management plan’ and ‘project documents’.
You could say that this vague, but it’s more in line with other processes and knowledge areas that have been updated, and it’s more rounded. You could, for example, argue that other bits of the project management plan are important, not just those mentioned in the previous version. In fact, the guidance in the PMBOK® Guide does go on to say that the quality management plan plays a part.
Project documents is also explained to include the lessons learned register (which is popping up everywhere – also a good thing) and resource requirements. I like this new vague approach because it means you could even argue that things like the communications management plan and stakeholder management plan have a role to play – they aren’t mentioned in the PMBOK® Guide but in real life you’d want to incorporate the costs of stakeholder engagement activities and a cross-check against that plan would be helpful during your project budgeting.
Tools and Techniques
Tools and Techniques have had a revamp too. There are 3 new T&T:
Data analysis (alternatives analysis, reserve analysis and cost of quality – these last two used to be called out as inputs in their own right and now they are bundled up)
Project Management Information System (again this seems to be popping up all over the place, and is explained to mean spreadsheets, statistical analysis and simulation software (does anyone outside of large government/public sector projects actually use this?). This replaces the old ‘project management software’.
Decision making e.g. voting. I love how some of the ‘tools and techniques’ read more like leadership qualities or competences, but yes: you can use decision making to help with defining your estimates.
Vendor bid analysis and group decision making techniques have dropped out, but would be bundled into decision making.
There’s a tiny change here: Activity cost estimates becomes plain old Cost estimates.
Aside from that, there’s nothing else different about the outputs. You still get out the estimates themselves, the documentation that sets out the basis of estimates and you update some documents as required.
Next time I’ll look at what’s new in the Determine Budget process. This has had quite a few updates, although they make the process easier to understand and easier to tailor, in my view. More on this next time!
Have you got your copy of the PMBOK Guide®-- Sixth Edition yet? It’s not a scintillating read, but it is worth a look, especially (and of course) if you are planning on going for a PMI certification this year. For the purposes of this article, and in line with what this blog normally looks at, today I’m going to highlight the changes in the Cost Management knowledge area.
For this I have to thank the authors of a free pdf including Asad Naveed, Varun Anand and others, as they put together a comprehensive guide to what is new in the latest version. I’ve also been pouring over the electronic version but it has definitely helped to have someone else call out where I should be looking.
So, without further ado, let’s dive into how project cost management is different now.
Plan Cost Management Process
The first process in this knowledge area is Plan Cost Management, and you won’t find much that has changed.
We are, of course, in the planning process group.
The inputs have stayed the same, but interestingly have changed order. The Project Charter is now at the top of the list which I think makes sense. It’s produced before the project plan, so it’s more logical to have it first although in reality it won’t make any difference to how you actually do the project.
Tools and Techniques
I always thought ‘analytical techniques’ was vague, and in the Sixth Edition this has been replaced with Data Analysis.
That’s still a vague description of a technique you might use to work out and work with the costs on your project. Specifically, the text refers to using alternatives analysis, which is a lot less complicated than it sounds. I interpret this as using basic techniques you would expect to see in a business case to discuss the different alternatives for funding the project, with the objective of concluding which is going to be the best route for this piece of work.
You can also do the same ‘how shall we get the money?’ discussion for specific resources, and this is a make or buy decision. You can also consider whether to rent equipment, for example, or any other way of getting what you need.
There, that’s not so complicated, is it? And a lot more useful than the vague ‘analytical techniques’ of the previous version.
Move along, nothing to see here!
Outputs remain the same: there’s just one and it’s the cost management plan.
Next time I’ll look at what’s new in the Estimate Costs process. A quick spoiler: I think it’s got easier and the process is more streamlined! You’ll have to let me know what you think.
Who Does What in KPI Project Reporting
For more information and extra detail about who does what when it comes to project reporting at different levels of the organisation, you can check out this guide and infographic.
What a great question: is it worth moving clients to a retainer model for project services? A got in touch to ask me, and I thought it was probably a question worth sharing with everyone here.
This is what she said:
“We're a small graphic design studio with 3 employees. My boss wants to convince some of our clients to move to a retainer model. The thing is, most of our projects are on an ad hoc basis, without much consistency from month to month. My feeling is a retainer is not ideal in such a situation, but my boss likes the appeal of it... Money in the bank every month, how wouldn't you?! So my question is: when would you recommend a retainer, and when would you advise against it?”
What is a Retainer?
A retainer is a fixed fee that the customer pays you every month to secure a certain amount of work done. The work could be anything, as long as it’s covered by the scope of your agreement.
Sometimes hours not used are carried forward (often by a limited amount e.g. use within three months or forfeit the hours). Sometimes they are written off if the client doesn’t use them (which is the arrangement I have with a supplier at the moment).
Let’s look at the pros and cons of this payment model.
Advantages of Working on a Retainer
First, the most obvious advantage: it’s money in the bank every month! Whether you do the work or not! What manager wouldn’t want that? I totally get it.
This model works well for projects where there is an element of continuity. I know project have a start, a middle and an end, but if you have projects where there are incremental improvements planned over a year or so, you can see that having the commitment to move forward works well. Think design clients, web projects, app development, that kind of thing, although I’m sure there are other industries where this would also work.
It can improve the flow of work from the client. When they know they have committed to pay a certain amount for work done each month, you might find the work planning is easier. They should be letting you know what they need you for in advance of the next month. This can improve the consistency both of the incoming work (better for you) and the communication (better for both of you).
You should get to know them better and what they want, and that might help you advise them on how to use the retained hours each month. You are also more likely to prioritise their work above incoming fixed-fee or ad hoc projects, just because you have a relationship with them that’s different. That could be a selling point for clients.
Easier admin: both for you and the client. It’s one invoice, it’s a fixed fee, it can be largely automated as a recurring payment. It should be easier for you to maintain the relationship and manage the payment cycles (although for your own benefit and for “proof” you’ll still have to do timesheets). Fixed costs for the client could be a real plus point.
Disadvantages of Working on a Retainer
There are some disadvantages of course, for you and the client. First, you never know how much work the client might want you to do – if it’s a slow month you might be able to squeeze in extra ad hoc work from other people. It’s better to plan for all your hours to be used up so that you can definitely resource their work, but if they don’t send work your way you might have project staff waiting around.
Normally you’d charge your client less per hour on a retainer than you would for a project-driven rate – that’s the advantage to them of having a retainer.
The client might decide that if the work genuinely is ad hoc, that they don’t want this model and you’ll end up either going back to the way you worked before or potentially losing the client if you no longer offer that as an option.
Transparency becomes more of an issue. If the client doesn’t believe they are getting value for money they will vote with their feet and take their projects elsewhere. Think carefully about how you are going to do demonstrate what you have done and what value they have got from their investment each month.
So: When Does a Retainer Work Best?
I think the retainer model works well when the scope of the work is broad, ongoing or likely to evolve. In other words, where the requirement for a long term relationship seems apparent from the start. This might be through lots of micro projects such as graphic design projects, or through one larger piece of ongoing work.
It’s also an effective way of working where the breadth of the work required stretches over several teams or the capability of a whole agency/supplier. You aren’t costing hours per different type of specialist resource within your team, you’re quoting for work done on a flatter cost structure so it removes admin.
I have paid retainers before (and still do) but I am interested in hearing your thoughts on how this works in your business. Let us all know in the comments below, and thanks, A, for the thought provoking question!
This month it’s all about celebrating project success here on ProjectManagement.com, and with that in mind I wanted to explore some ideas around what makes a project successful.
Malcolm Gladwell has been instrumental in shaping my thinking about this, and you can read more of how I got to know of his work and his thoughts on the paradox of successful cultures in this article.
Often times, we rely on the old adage: “Fast, good, cheap: pick any two.”
The assumption here is that if you don’t pick ‘cheap’ and you have plenty of money to invest in your project, then you’ll get a successful outcome. We also hear leaders talk of being able to throw money at a problem.
Don’t get me wrong. Having money to help resolve issues and to fight off potential problems is a huge benefit. Funding does make many issues seem less troublesome. When you can call in extra resources or buy more stock without worrying about it, that’s definitely a burden removed.
The thinking of Gladwell, author of Blink and Outliers, suggests that successful cultures aren’t the ones with the most money to throw at problems. Success doesn’t come from unlimited funding.
Borrow and Follow
Successful project cultures are those that rely on the ‘borrow and follow’ approach that Gladwell laid out at the PMI Global Congress North America in Dallas where I heard him speak.
Those project management cultures don’t innovate – at least, not extensively. They look at what is working and adapt processes to their own environment. They actively pay attention to lessons learned. They work hard to build organisational knowledge and avoid the mistakes of the past – following in the footsteps of those who have done good work.
In other words, don’t reinvent the wheel if you don’t have to. Let someone else do the heavy lifting. In project management this could look like:
There’s no requirement for ‘success’ to start with a lot of hard work in setting up systems that already exist elsewhere. While you should always be mindful of taking intellectual property and reusing it as your own (ethics is always paramount), there are plenty of materials, processes, templates and more out there that mean you can create a successful project management culture with a smaller initial outlay.
The Negative Side of Funding
The other interesting idea that has come through Gladwell’s thinking is the concept of money constraining creativity.
In other words, the more money you have, the less creative your project environment is likely to be, and that can have implications for success – both on a project level and on a portfolio or PMO level.
You’ve probably seen this yourself in your workplace. When money isn’t an issue on a project (if you’ve been lucky enough to be in that kind of environment) then you’ll know that when you hit a problem, the first thing the team thinks about is how to buy their way out of it.
When I researched my first book, Project Management in the Real World, I included a case study of a build project where the team had to work creatively together to find ways to hit the project budget. The project was a success because the effort of having to think creatively around funding brought the team together. The closer working relationships they forged when together the various suppliers worked with the project’s objectives front of mind made it a better project for everyone.
Money Doesn’t Equal Success
I don’t doubt that money makes projects more likely to hit their objectives. The experience of working on a project with adequate funding is more pleasant than having to scrabble for resources, count every penny, and challenge every receipt. But it isn’t the only thing that makes a project successful.
Think about your projects and what success looks like for you. How much of it is determined by the funding available and how much by the talent of the team, the timescales or the commitment of leadership?
What do you think about this topic? I’d love to hear your thoughts so let me know in the comments below.