Project Management

The Money Files

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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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3 Levels of Project Work Authorization [Infographic]

What goes into a Control Account Plan?

2 unexpected benefits of risk management [Video]

Establishing the Budget in Earned Value Management

How to Monitor Risks

What to do when resource costs spiral [Video]

resource costs

When you have to pay for internal or external resources, the costs can soon mount up. It’s not difficult to find yourself with spiralling resource costs, even if they are just wooden dollars being moved between departments.

The most likely causes are poor estimating and too many change requests.

It’s often hard to drill down into the detail of where a resource is spending time, especially if you don’t have a timesheet application. If you don’t record time, then start doing that first! It will really help you improve your estimates over the longer term.

Short term, you need to sit down with your team and reforecast the whole project. If you then can’t afford to do all the work that you’ve planned out, you need a frank conversation with your project sponsor about what can be taken out of scope for this phase.

This video explains more.

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Posted on: March 02, 2021 01:55 PM | Permalink | Comments (6)

What to do when supplier costs increase [Video]

supplier costs increase

Let’s say your company has entered into an agreement with a supplier and now the bills are starting to rack up. This could happen if your agreement is on a time and materials basis, or a fixed price plus extra costs for changes to scope.

Find out why the costs are overrunning. Is it because your team is putting through too many change requests, which is hitting a contract clause that lets the supplier charge more? Or is something else at play? Whatever the cause, pin it down and work from there. Involve the supplier as well, so that they know that you can’t afford, or choose not to afford, to put up with those costs going forward. You may end up renegotiating the whole thing, but better to do that early than to put up with overspends for too long.

This video explains more.

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Posted on: February 02, 2021 02:05 PM | Permalink | Comments (3)

Key Achievements for Project Cost Management [Infographic]

Categories: cost management

I’m often asked about ‘the minimum’ for any given project management process – as if the rest of the process is somehow superfluous and anyone who does those extra bits is wasting effort.

I think most project management processes are implemented with ‘the minimum’ in mind – or at least they should be. However, project cost management is a big topic and it got me thinking about the kinds of things I would consider ‘winning’ at managing the project’s financials. What would the minimum be?

Ultimately, if stakeholders are happy and the work is progressing and under control, then I’m winning!

I’ve put what I think the key achievements for project cost management should be in the infographic below. I’m not sure that ‘achievements’ is quite the right term because this is our job we’re talking about, not some kind of badge-collecting exercise. But I couldn’t think of anything better! Leave a comment below if you’ve got a different term I should be using.

These are the things that I consider to be the basics for myself doing cost management on a project. Your ‘minimum’ list might be different. And if it is, let us know in the comments!

cost management infographichThe key things are:

  • Agree a contingency budget
  • Estimate accurately as a team
  • Set up good governance
  • Create a financial baseline
  • Work with suppliers.
Posted on: November 16, 2020 08:00 AM | Permalink | Comments (9)

4 Tools for Managing Cost Control [Video]

Categories: cost management

cost tools

In this video you'll learn 4 different tools to manage cost control on your project. Cost control is an important aspect of project management, and there are things you are already doing on the project that can help you manage your finances more effectively.

For more information, read this article: https://www.projectmanagement.com/blog-post/19000/4-Tools-for-Cost-Control.

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cost control

Posted on: November 02, 2020 03:16 PM | Permalink | Comments (6)

What is Expected Monetary Value?

Categories: cost management

expected monetary value

Expected Monetary Value is abbreviated to EMV, so you may also see it called that.

It’s a concept that took me a while to get my head around, but it’s a useful measure to know when thinking about project cost management and project selection.

The challenge I had with understanding EMV is that it’s a calculation about a probability. I prefer to deal in ‘real’ numbers, like payback period or ROI. Having said that, EMV is a tool out there and in use, so it’s worth knowing more about.

How do you calculate EMV?

One of the disadvantages of EMV is that so much of the calculation relies on professional judgement and expert input. In other words, guessing.

EMV is calculated like this:

Probability x (financial) Impact

Let’s take an example.

You have identified a risk with a 20% chance of occurring.

If the risk occurs, it could cost you £500 to deal with it.

The EMV for this risk event is:

Probability = 20%

Impact = -500

So:

0.2 * -500 = -100

You should make sure there is a risk budget allocated of £100 to help offset this risk.

The challenge I have is that if the risk occurs, it is going to cost you £500, not £100, so you won’t have enough. If the risk doesn’t occur, you don’t need any money.

That’s what makes EMV feel very abstract to me, but I understand that it works better across a wider pool of risks. They won’t all happen, so the money you’ve put aside will hopefully be enough to act as contingency for the risks that do occur.

What do you use EMV for?

EMV is a useful measure to help you work out the contingency funds you might need. As we’re talking about probability and the chance of things maybe happening, you can see that there is a strong link to risk management.

You can also use EMV calculations to help determine the best course of action for risk management. If you have two possible ways to mitigate a risk, which one would give you the best EMV result? Do the maths and that helps you with a recommendation for next steps.

You wouldn’t need to use EMV calculations on small projects. It’s really a technique for larger initiatives where you have a lot of risks requiring financial amounts to manage them. It can help you spread the risk budget between risks.

Do you use EMV on your projects? Is there a better way to explain the probability and why it’s OK to not have the full amount of risk budget in your reserve? Or is it just me who finds this concept not very practical?!

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emv

Posted on: April 27, 2020 09:00 AM | Permalink | Comments (9)
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