The Money Files

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A blog that looks at all aspects of project and program finances from budgets and accounting to getting a pay rise and managing contracts.

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3 Things I Wish I Had Known About Project Budgeting [Video]

Project Budgeting Tips [Infographic]

Differences Between Contract Management and Vendor Management

What’s New in Project Procurement Management (pt 3)

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7 Elements for Project Cost Management Plans

Categories: cost management

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!

Posted on: March 19, 2018 09:00 AM | Permalink | Comments (12)

Project Cost Management: Trends & Tailoring

Categories: cost management

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:

  • Whether your organisation has formal or informal policies to do with budgeting. Formal policies will probably get picked up anyway, but informal policies are really interesting. This is all to do with the culture of a place, and will be hard to pick up if you haven’t worked there long. Get advice from your manager or a project manager with more tenure.
  • Whether your organisation has formal or informal governance processes for financial reporting and management. The informal element is also important here. You may tick all the boxes for formal governance but because of some unwritten rules, miss out a big step that holds up being able to access your budget, for example. Again, you’ll only know this if you are on the alert and open to the idea that such things might exist. Ask around and see what your colleagues suggest. Then take their lead.

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.

Posted on: February 21, 2018 07:59 AM | Permalink | Comments (8)

What's New in Project Cost Management (pt 4)

Categories: budget, cost management

What’s new in Project Cost Management: Plan Cost Management Process – read the first part of this series here.

What’s new in Project Cost Management: Estimate Costs Process – read the second part of this series here.

What’s new in Project Cost Management: Determine Budget Process – read the third part of this series here.

In the last article I looked at what was different about the Determine Budget process in the new PMBOK Guide®-- Sixth Edition. In general, what I’m feeling about the whole knowledge area is that Project Cost Management has been simplified and streamlined, rather than given a total overhaul.  Today, I want to look at what’s different in the next process: Control Costs.

Control Costs Process

The fourth process in this knowledge area is Control Costs, and it has been given a spruce up to bring it in line with other processes. However, while it might look different in places, I’m yet to uncover anything radical about how you should approach managing costs on your project.

We have moved into the monitoring and controlling process group.

Inputs

There were 4 inputs and now there are 5.

The new one is project documents. The lessons learned register specifically gets a mention. I think this reflects an overall understanding in the PMBOK Guide® -- Sixth Edition, that actually we do need to continue to look at what’s working and what’s not throughout the life of the project, not just at the end. I wrote a whole book about this topic, so I’m delighted that it’s finally making it into the mainstream. And, of course, it’s a lot more agile in thinking, than the old way of managing project lesson learned meetings.

Tools and Techniques

The number one T&T from the previous edition was Earned Value Management: now it is Expert Judgment.

I doubt many people will be losing sleep over that!

However, Earned Value is still in there, under the heading of data analysis. Other data analysis techniques that get a mention include:

  • Variance analysis (this is schedule variance, cost variance and performance indices)
  • Trend analysis (this is your EVM charts and the forecasting you do to show estimate at completion)
  • Reserve analysis.

There does seem to be an overlap with expert judgment here, because the expert judgment examples also include earned value analysis, forecasting and variance analysis. You do need to apply expert judgment to use these techniques, so perhaps that’s why. It reads as a duplication though which I think is confusing.

The project management information system gets a mention as a new T&T, only because project management software has dropped off. PMIS is a more inclusive term, I think, and it makes more sense to use this throughout as it can refer to lots of different types of systems that you can use in your day to day work. PM Software just makes me think of scheduling tools.

Outputs

Organisational process asset updates have dropped off the outputs. There aren’t any new ones so it means that at the end of this process you end up with:

  • Work performance information
  • Cost forecasts (because you are amending these as you go as you control the costs)
  • Change requests (again, as a result of tweaking, monitoring and controlling the costs)
  • Project management plan updates
  • And you update documents (can you see a trend here?)

That’s the last of Project Cost Management process. Overall, I think that the updates have been kind to this knowledge area. The changes have made it a lot easier to adapt the process to your environment because instead of mandating particular inputs or tools, you have the flexibility to use what you need now.

In real life, you’ve always had the ability to use what you need, but the updated standard has given less confident project managers the ‘permission’ to flex their approach as required.

The downside of a more flexible, tailorable approach is that the project manager needs to apply more professional judgment to know what’s acceptable and what is going to work. That’s hard to do if you don’t have much experience. It will be interesting to see how the changes affect people day to day, if they do at all.

What do you think?

Posted on: February 08, 2018 08:00 AM | Permalink | Comments (6)

What’s New in Project Cost Management (pt 3)

Categories: budget, cost management

What’s new in Project Cost Management: Plan Cost Management Process – read the first part of this series here.

What’s new in Project Cost Management: Estimate Costs Process – read the second part of this series here.

In the last article I looked at what was different about the Estimate Costs process in the new PMBOK Guide®-- Sixth Edition. Overall, I’m finding that the process is more streamlined and easier to tailor because there is more scope to adapt – mainly because the inputs and tools and techniques feel more inclusive. Today, I want to look at what’s different in the next process: Determine Budget.

Determine Budget Process

The third process in this knowledge area is Determine Budget, and while it looks quite different, it’s really just a tidy up and alignment to what’s been happening elsewhere in the standard.

We are still in the planning process group.

Inputs

There were 9 inputs: 7 of them have been thrown out.

This sounds a lot more radical than it actually is. All that’s really happened is that the project management plan and project documents cover a chunk of the paperwork that included files specifically called out by name in the previous version, like the cost estimates created in the previous process.

That’s meant the inputs have dropped down to 6. There is one surprising one: Enterprise Environmental Factors. How was that not in there before? It’s one of those inputs that you get tired of hearing about because it crops up everywhere! Now it’s in this process as well, and exchange rates get a specific mention because of how they can influence your budget.

‘Business documents’ is the other new one worth a mention, and this refers to the business case and benefits management plan. I like how these are considered ‘business’ documents as in they are owned by the business and not the project team. However, the project team are going to have some input into them, I am sure.

Tools and Techniques

Tools and Techniques isn’t that different. Data analysis has been added in, as a catch-all term that includes reserve analysis, if your project is going to get a management reserve.

There’s another new one too: Financing. This is about getting the funding for your project. I’m not sure why this is a technique, when it feels quite process-y to me. It’s all about securing external funds if that’s appropriate for your project, so would include everything covered in the book about writing proposals that I read over the summer.

Read next: How to secure continued funding for your project

Outputs

Nothing has changed in the outputs. You still end up with the same at the end of this process:

  • A cost baseline
  • The project funding requirements
  • And you update documents (there’s a lot of that in project management!)

Next time I’ll look at what’s new in the Control Costs process. There are tweaks to this process (including to the outputs) but I hope you’ll agree that they are all sensible changes that do make the process easier to understand and follow.

Posted on: January 29, 2018 08:00 AM | Permalink | Comments (10)

What’s New in Project Cost Management (pt 2)

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.

Inputs

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.

Outputs

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!

Posted on: January 23, 2018 07:59 AM | Permalink | Comments (7)
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