The Money Files

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.

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!

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.

Inputs

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.

Alternatives include:

• Funding your project from capital
• Funding with a loan i.e. debt
• Making the project self-funding
• Or some other way or raising the money to do the 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.

Outputs

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.

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!