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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How To Deliver When Your Project Budget is Cut

Categories: budget

Budget cuts… this is something every project manager faces at some time in their career. Your healthy budget of whatever is suddenly subject to scrutiny because your sponsor’s department has been told to find savings of X% and all projects are at risk.

Then you find that your project has generously ‘handed back’ a sizeable amount to the corporate coffers. And yet somehow you’re still expected to carry on.

The good news is that in situations like this your project sponsor will know what has happened and should be broadly sympathetic to the idea that they can’t have everything they wanted after all. If the money isn’t there, they know you’re going to have some limitations on what you can deliver. But where do you start with that conversation?

Start With the Requirements

A closer working relationship is exactly what you should be aiming for when budgets are stretched. The more you can understand what it is your customer wants – in really granular detail – the better it is for everyone as you’ll (hopefully) be able to come up with solutions that achieve the ‘right’ outcomes in a cost-effective way.

Check that there’s nothing extra that has found its way into the scope. Check that you understand what’s expected from the contract so that you aren’t inflating or gold plating anything unnecessarily. What could you lose from scope (with everyone’s agreement) that would still end up with the customer getting broadly what they wanted?

Look at the processes and bureaucracy involved in getting the work done: often closer working relationships can strip time out of these processes and time is money, so there could be savings there.

Basically, think collaboratively about what’s possible. Lean in.

Stagger the Work

Look at what could possibly be removed from the initial scope of your project and pushed to a further delivery phase. Financial years are cyclical – there might be more money available next year to finish a particular element. Consider what parts of scope you could agree to postpone.

Small Changes Make the Difference

It’s rare that you’ll be able to make one sweeping change to your project and have all your financial issues go away. Rather, you’ll be making lots of smaller changes and tweaks across the board with a view to improving the budget position holistically.

Together, small changes really do add up. Unfortunately, identifying the right small changes and doing the planning work to incorporate lots of changes does take time. You might want to slow down progress on your project while you’re doing all this reforecasting work as you don’t want to incur additional (and perhaps unnecessary cost) at this time.

Work with your project sponsor, key suppliers and other people on the team to look at where savings could be made that would contribute to meeting the financial challenges overall.

Keep Talking

Projects move on and evolve frequently, and if you hit a problem that is going to affect the budget you should bring that to the attention of the project sponsor straight away. You should do that anyway, but in times of financial pressure and when your budget is challenged, it’s even more important to involve them in the planning and response to issues when money is at stake.

Keeping honest communication channels open is also helpful for building trust, and it ensures that you hear about changes that might affect you. For example, there might be more budget that needs to be reallocated, or you might be lucky and find that some extra cash is flowing your way.

How Much is Too Much?

In an article for PMToday Magazine way back in March 2010, John Judge explained the four stages of budget cuts, which I’ve elaborated on here:

  • Budget cut by up to 15%: you can work within reasonable cost reductions across the project and hopefully minimise the impact on the project scope.
  • Budget cut by 15-25%: more noticeable scope impacts with likely impact on the functionality of your end result as well.
  • Budget cut by 25-35%: you’ll have to look seriously at what can be removed from scope or deprioritised, or moved into a future phase or the next financial year.
  • Budget cut by >35%: consider pausing closing down the project as with this level of cuts it’s unlikely that you’ll be able to deliver effectively.

These are useful rules of thumb, but it does beg the question: if we can manage with budget cuts of up to 15%, why don’t we stretch ourselves to deliver under budget by that amount anyway?

Do you think you could cope if you lost 15% of your budget tomorrow? Let us know in the comments section!

Posted on: September 18, 2017 06:00 AM | Permalink | Comments (7)

5 Differences Between Project Accounting & Financial Accounting

Categories: accounting, budget

In this video I share 5 differences between what it means to do accounting on your project (and manage the financials/budget) and how financial accounting can work. Understanding these differences makes it easier for you to work with your Finance teams and run your project budgeting processes.

Posted on: September 13, 2017 08:00 AM | Permalink | Comments (4)

Book Review: Writing Proposals: A Handbook of What Makes Your Project Right for Funding

Categories: budget

I’ve been catching up on some reading over the summer, and Edoardo Binda Zane’s book, Writing Proposals: A Handbook of What Makes Your Project Right for Funding, has come to the top of the pile.

It’s a book about how to write a compelling argument for getting cash to do your project. Aimed predominantly at people trying to secure public funds for their initiatives, I think there’s plenty in here that would be helpful for project managers writing business cases or proposals outside of the public sector too.

The book is split into 3 sections:

  • Workflow: this talks about how you gather the information for your proposal and put it together in a way that is the least amount of work and doesn’t require you to keep editing and aligning the main document.
  • Writing techniques: Tips for making your writing stand out to the person who is reading a dozen of these proposals.
  • Proposal-specific writing tips: Further advice on making sure your proposal is a polished as it can be and that you are totally clear on what you are asking for.

A Practical Step-Through Guide

What surprised me about this book – and I don’t know why, because it’s clearly marketed as a book to make proposal writing easy – is that it’s literally a guide to what to put in what section. It’s almost like cheating.

Binda Zane tells you how to write it and what to say. There’s even a downloadable proposal template and budget sheet in case you need them. It’s a step-by-step guide to getting your proposal accepted. Just do what he says in the order he says and – while it won’t guarantee you funding for your project – you’ll certainly have a far better chance of hearing ‘yes’.

Technical Proposal

The largest part of the book focuses on how to write the technical proposal. It’s about putting together a work breakdown structure, describing what you are planning on doing and creating a realistic budget.

There are lots of tips in here, and while the author only hints at his past experiences early on in the book, it’s clear this is hard-won advice. You can tell he’s earned his stripes!

Tips for Clear Communication

My favourite tips were around using visual planning to get the message across, and thinking about how your proposal actually looks.

For example, he suggests taking out some of the extra stuff like staff profiles and putting them in an appendix. It saves the document from looking too bulky (and your word count, if you’re limited) while still providing the information required.

Binda Zane also encourages you to use Gantt charts and diagrams to explain the project and your methodology. Don’t worry if you are an Agile team. If Scrum is more your thing, there’s a section on how to create a timeline for your proposal without having to use a waterfall-style Gantt chart.

Worked Examples

Sometimes it’s hard to visualise what your finished proposal should look like, so the author has included worked examples, especially around calculating hourly rates and working out your budget. There are also examples of clear writing: it’s a lot easier to tell the difference between poor sentence construction and good sentence construction when it’s right there on the page in front of you.

It’s a short book. I read it at the soft play while my children romped on the giant slide and sat inside a submarine. That points to how easy it is to get through: if I could concentrate on the book, a latte and the kids then it’s definitely an accessible read. I can think of three or four project management books where I wouldn’t have been able to get past the first page due to the density of the writing.

Writing Proposals: A Handbook of What Makes Your Project Right for Funding by Edoardo Binda Zane is available here.

Posted on: August 15, 2017 06:00 AM | Permalink | Comments (5)

Earned Value: 5 Things To Have In Place Before You Get Started

Categories: budget, success factors

So you want to go with Earned Value as a way of tracking time and cost performance? Good for you. Here are 5 pre-requisites that you’ll need to consider before you really get into the detail of doing the work.

Oh, and this assumes that you’ve already ticked the pre-requisite that is ‘team and manager on board for a major change in how we track project performance’ because EV is quite a culture shock to the uninitiated.

With that out the way, let’s dive in!

Pre-req #1. Detailed Scope

You’ll need to have a work breakdown structure in place, with a degree of detail you perhaps haven’t had to focus on before.

In order to track your progress against your scope you have to know what the scope is. Without that, you’re going to struggle to get any degree of accuracy in your reporting. Break down your tasks to a decent level as well, so that you aren’t struggling to report progress on a task that’s gigantic.

Pre-req #2. A Timetable

Armed with your breakdown of tasks you can then start adding dates to them. Again, if you want to track whether you are hitting your milestones and working ahead or behind schedule, you need to start from somewhere. This is your baseline schedule.

Build out your dates for each element on the work breakdown structure. Make sure they take into account the fact that your estimates are realistic and that you’ve got the agreement of the team member involved before committing them to anything.

This is the point to layer over your resourcing and capacity planning, so that you aren’t scheduling work in a vacuum. Take into account holidays and other absences so your schedule is as accurate as it can be.

Pre-req #3. A Breakdown of Costs

Earned Value is only good for tracking time and cost performance. It’s very good at that, but it’s not going to give you the context for changes or a feeling for how quality is being achieved (or not). The timetable gives you the info you need to start thinking about tracking time; a cost breakdown structure gives you the info for tracking cost.

Take your work breakdown structure and cost it out. Whether you do this top down, bottom  up or some other method of applying costs to work packages – it doesn’t really matter. However you get there, the end result is the same. You should be able to apply a fixed cost to a piece of work that has a scheduled completion date.

Pre-req #4. A Plan for Reporting Progress

Next, you need to establish an approach for reporting progress with the team. This sounds more straightforward than it is because you’ll need to be able to say what % complete through a task is, and some tasks don’t breakdown nicely.

For example, if part of your task involves ordering kit and then you have to wait until it’s delivered and then you do something with it to set it up, your work and expenses aren’t going to be evenly spread across all the days allocated to that task. It would be better to split the work into two tasks: Order Kit (which finishes at the time that the kit is delivered and costs as much as the kit costs) and then Do Something With Kit (which takes as long as it takes and costs the amount you bill for resources).

Generally you’ll report whether a task is not yet started, in flight or complete, so you should to agree whether the % complete targets of 0%, 50% and 100% are adequate for your needs. And, for each task, what 50% looks like. That could be quite easy with some tasks, especially where the work is spread evenly over the time – it’s where work isn’t spread evenly that makes it a bit harder to predict.

You can go as granular as you like but don’t get so hung up on working this out that you never get started tracking EV in earnest.

Pre-req #5. A Plan for Collecting The Data

When you’ve got agreement on how progress is going to be measured, you should agree with your team how they are going to get that progress to you. This is likely to be in the same way that they do now, in your non-EV world, either through checking in with you during the task formally or informally, completing a status report or giving an update at your regular team progress meeting.

It simply sets expectations so that everyone knows what they should be doing and when.

With those 5 pre-requisites in place you should be good to start monitoring time and cost performance with your EV spreadsheets and tools.

I found a good (short) video from Simon Harris introducing EV so if this article has given you the appetite to take it further, watch this.

Posted on: June 27, 2017 08:59 AM | Permalink | Comments (12)

4 Reasons Why People Need Estimates

4 Reasons Why People Need Estimates

Estimating take up far too much time and are, as my 3-year old says about everything right now, ‘a bit boring’. I have no idea where he picked that up from. Don’t judge me!

I digress. We need to do estimates. And if you are one of those strange people who LOVE doing estimates, then skip this article and go and read this one instead!

Take a deep breath, and think for a moment about why we bother to do estimates. In his book, Project Management for Humans, which is soon to be released, Brett Harned provides 4 reasons why estimates are important for people on the team.

1. Estimates help you cost the project

“Estimates are based on a level of effort and times,” Brett writes. “Typically, the cost of a project is based on the time spent on a project. Your estimate helps calculate a rough determination of that cost and sometimes whether or not the project is worth the investment.”

A giant estimate normally comes with a giant price tag, and that might mean you don’t go ahead with the project. Or you scale down the scope significantly so you still get some benefit and don’t have to spend half your annual budget on this one project.

Either way, knowing how long things are going to take gives you valuable information to make informed decisions about your project and whether or not it should go ahead in the current form.

2. Estimates help you staff the project

Estimates are created around specific tasks and the skills required to complete those tasks.

Your estimate therefore gives you clues about who you need to do the work. And in turn, that gives you a good idea about how long the work will take.

For example, a senior developer might take a week to complete a task, but your apprentice developer would take a month, and need someone else working alongside them to help check the work and support them during the coding. Knowing this you can then decide what’s more important: having the work done quickly or upskilling the apprentice. Or maybe you won’t have a choice, if the skilled developer is working on something else and isn’t available.

Either way, estimating the work and thinking of who is involved in doing it will give you invaluable information for your plan.

3. Estimates help you plan dependencies

If you know how long a task will take you can better plan for the impact it is going to have on other tasks or on other projects. The duration of a task can help you schedule the next set of tasks, or tell another project manager when they’ll be able to start work on their project (or task).

For example, if you are tying up your senior developer for 4 weeks, in a business that only has one developer with those skills, the next project to use that person will have to wait until they are free. That’s a dependency on that skilled person.

You have a number of options to deal with that dependency including changing the project priorities so the other project gets the resource before you if that project is ‘more important’, buying in external skilled resource if you want to do both at the same time, or even having someone else with less ability work on it so you can at least make a start. But you need to know that you have a problem with resourcing and dependencies before you can start to come up with solutions to address it.

Here’s an introduction to dependencies and constraints on projects. Even knowing that your project doesn’t have dependencies on any other work is a big help with your planning because it frees you up to get on with things safe in the knowledge that your team isn’t messing anything up for anyone else. (Of course, that might change if a new project is approved – so don’t take it for granted.)

4. Estimating creates agreement and buy in

“Working with a team can often be a challenge, particularly when no one is in agreement on the project,” Brett writes. “Working together to produce an estimate can be a great way to pull the team together to talk about staffing, responsibilities, process, and timing. And guess what, that all helps produce a solid estimate.”

I covered this in my book too, Shortcuts to Success: Project Management in the Real World. I highly recommend that you share all your budget information with your team, from the moment you start to work on estimates through to the budget spreadsheet and forecast rates.

Working together will help you gain collective responsibility for the dates and scope of the work. You can hold each other accountable and no one can turn around and say that they weren’t aware of the deadlines or their responsibilities. That’s huge, especially on projects with tight deadlines and remote teams.

So, estimates benefit you and your team in lots of ways, and they are a part of your project to just get on with, get done and then start using. They can feel like the start of the real detailed work, the prelude to the fun part of building, but they help set you up for success and a smooth delivery. What do you feel about estimates? Let us know in the comments below!

Posted on: June 21, 2017 09:59 AM | Permalink | Comments (6)
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