The Money Files

Last time I looked at 7 types of expense that are worth mentioning in your business case, to show that you’ve got a rounded handle on all the costs.

The Better Business Cases^TM model that I mentioned last time goes on to describe even more different cost types that you should be aware of. I did know about some of these, but this list has some in that I wouldn’t routinely think of.

We might not need to mention or use them all in business case preparation, but it is worth having a general awareness of them, not least so you can ask your Finance colleagues smart questions!

1. Sunk costs

If your business case represents a Phase 2 or subsequent investment, then it’s worth mentioning the sunk costs: the money already spent on other parts of the work that you cannot get back. These might be in contracts already issued, purchase orders already raised that must be fulfilled or previous steps of the project.

They get a mention in the business case but they aren’t part of the appraisal. In other words, talk about them so that decision-makers have the whole picture, but don’t include them in the cost assessment or budget figures for this part of the project.

2. Full economic costs

This is another term I wasn’t aware of but it only means including direct, indirect and attributable costs for each option mentioned in the business case. In other words, flesh out your finances so they show the whole, true picture. Use a bottom up approach to get the real figures.

3. Attributable costs

Wondering what attributable costs are from the section above? These are generally the costs related to staff time. If your team members are caught up delivering the project in this business case, they aren’t doing work on other business cases, that might be equally or even more important. So attributable costs are things that don’t fall into the direct or indirect category but are relevant as they round out the business case.

I think too many managers forget that if you are working on Project A you can’t be working on Project B at the same time (because they expect that everything gets done, most likely!). It’s worth calling out that if you tie up a team full-time on this initiative, their costs go towards the project and their staff time is allocated.

4. Organisational development

Organisational development costs are the figures related to change management. These are definitely worth including. I can’t even remember the number of times I’ve had a project budget handed to me and there has been no allocation for training, printing, change management, travel and room hire for workshops or town halls, or anything else. Make sure your business case includes the costs of what it will take to go from the current way of working to the new way of working, including any process updates, change activity and staff development required to make proper use of the thing you are delivering. 

5. Contingent liabilities

Now, I confess to including these in business cases in the past but not knowing the correct term for them. You are probably aware of them too: they are the expenses related to future events. For example, the costs you may incur to buy yourself out of a contract early. Make a mention of those in your financials as well.

So, we have all those, as well as capital, revenue, fixed, variable, step, opportunity costs and inflation that I covered last time.

It feels like this business case is going to be weighty! Remember to draw on your sponsor, finance analyst and the finance team more broadly for support with the numbers and to make sure your maths stacks up. Ideally, they should be providing the underlying assumptions and algorithms that make up the financial parts of the business case template. As the business case is a major input to how much money you get to do the work, it’s important.

Are you putting together a business case? This is the time of year when many project teams are kicking off new work with the lovely new budgets that are available at the start of a financial year.

The UK government (HM Treasury and the Welsh government)’s guidance called the Better Business Cases^TM model, has a section on different costs that are helpful to include in your outline business case.

Project managers don’t always get involved with business case creation but I think it helps when we are. If you are working on a new proposal, here are 7 types of cost that you can consider including as part of the economic appraisal for why the work should take place, and to show that you have fully considered all the elements.

1. Capital costs

For my projects, I’d say that capital costs make up most of the budget. These relate to buying equipment, whether that is IT kit, or in my case, machinery. They relate to costs that can be capitalised and (depending on your local regulations it might be different for you) the costs of bringing an asset into service.

2. Revenue costs

Also known as opex, these are pretty much the opposite of capital costs: things you can’t capitalise but are required for running the project. Maintenance, operational costs like some software licences, things that hit the P&L like the electricity bill and disposable coffee cups, if your project is required to pay for those.

Even if they are not necessarily part of your project budget, it is worth knowing abou tthesee and including them in the business case to show you have considered the whole life, complete costs of the work required.

3. Fixed costs

These are costs that are constant over time, regardless of how long the project goes on for. Typically for me, these are resource costs that are spread over the life of the project. They could also relate to other overheads like having to hire a portacabin as a project office on site.

4. Variable costs

The monthly impact on your project budget from these costs are variable. They tend to relate to how much of something you use per month, so it could be printing, it could be downloads of something, it could be training costs or meeting room hire.

5. Step costs

These are prices that increase as you reach a certain threshold. For example, if you use project management software you’ll be familiar with the licence model for SaaS tools where if you go into the next ‘bucket’ of users you’ll be charged an uplift. Let’s say the cost for 1-10 users is a certain price per user. When you hit user 11, you’ll be charged a different price.

This could also relate to items like post: as you ramp up receiving in items of post, your parcel handler changes the pricing structure and you end up paying more for hitting the threshold.

6. Opportunity costs

In a business case, you want to say what you’ve looked at in terms of other solutions. The model says that these should be explored in full and be representative of salary with all the on-cost (pension, employer’s tax contributions etc). These represent what you won’t be doing if you go with the recommendation: the loss of other alternatives.

7. Inflation

Yes, given the rising prices we’re experiencing at the moment, it’s worth building some inflation into your financial modelling. Your Finance team can tell you what the right amount to include is for general ‘normal’ inflation and also whether there are other rates applicable to certain elements of the business case, or the cash flow projections.

Next time I’ll look at another 5 types of cost you should also be including in your business case presentations, so watch this space!

If you’ve been reading my blog for some time, you’ll remember that I’m not much into New Year’s Resolutions because they always seem hard to keep. It’s difficult to make new habits and stick to them.

It’s easier – I think – to try to refocus on the core competencies and behaviours that I know make a difference but because of one thing or another tend to have fallen by the wayside as we get busier.

For example, Quarter 4, the September to December period is always busy for me. Partly it’s because of family commitments: birthdays, school holidays, endless school-related events and things to remember, and of course the run up to the end of year holiday season. But it’s also because it’s financial year end, strategic planning for the next year and project review time.

I’ve just filled out the 2023 annual family planner with the key dates for the year and hung it in the kitchen. It always surprises me that the gap between December and January is literally going to bed and waking up and it being a whole new year. But the effort we put into prep – like getting a new calendar and forecasting forward – feels heavy. Why don’t we plan on a rolling cycle? Why do we get to December and think, “I’ll deal with that next year”? Next year is just a couple of weeks away. If the decision had to be made in April, you wouldn’t think, “I’ll deal with that in May.” You’d just do it.

So my objectives for the coming 12 months are simple, and things I have focused on in the past. There are no shortcuts in project management but there are definitely things we can do to help edge closer to successful results.

I’m going to work on the following.

Learning. On reflection, I’ve had a couple of years where I haven’t developed my skills in project management. I’ve been busy doing and teaching, but not learning. I think I need to find events and conferences to attend that are stretching and that will meet me where I am. In the past, I’ve ducked out of attending events because I didn’t think I’d learn anything new. That’s probably wrong: even a refresh of comfortable skills is worth doing. But I’d like to attend events that cover the topics for mid-career professionals, where I can come away with genuinely new ideas and having been inspired. If you know of any, let me know!

Setting my future self up for success. In the rush, I have found myself this year making brief notes on a process or doing something without documenting it. Then I’ve come to do it again and had to start it from scratch. I need to build in time to make life easier for my future self because I’ve done it right the first time. Proper notes, documented assumptions, records of what is included in financial reports (project monthly summary slide deck: I’m looking at you) so I can easily replicate the numbers and justify them.

And that’s enough. The idea of having too many things to focus on for the coming year is overwhelming. It’s enough to have one goal, or two. Or none. We’re all getting through the days the best we can, trying to get our work done, manage our relationships, support friends and family and get everyone fed and into bed at the end of every day.

Are you going to make ‘professional’ resolutions? Or is this really now a thing of the past as our ways of identifying self-development opportunities have moved far beyond needing the scaffolding of a new year to set goals?

And if you are going to make them, how do you decide on what’s enough for you? I’m genuinely interested in how you approach going into a new calendar year. Let me know in the comments!

I’m loving PMBOK7. It’s far more pragmatic and helpful than previous versions, although speaking to other project management professionals (and trainers) they are reporting that students feel like they need the process stuff too, so they can actually get the work done.

I think I’m lucky in that I’ve got my personal ways of working kind of figured out, and over the years have built the confidence to tailor what I do to fit the project, and also the amount of time I have to spend on it.

I’m working on a lot of capex initiatives at the moment, so estimating projects for proposals is always top of mind. I turned to PMBOK7 to see what it had to say about estimating.

The book says there are 4 different aspects of estimating, each affected by where we are in the project lifecycle.

Range

Range refers to how close you can get to what might be the final estimate figure. For example, in the early stages of the project lifecycle you probably don’t have a lot of detail about the tasks and therefore you might not be able to get close to some of your estimates.

Using ranges is useful because it helps present information when you still don’t have all the details. You can state a range like “between £80k and £120k”. As you get more information, you should be able to narrow the range, such as, “between £95k and £110k”.  Eventually, you might be able to pinpoint an exact price.

To be honest, the exact price is often where we start from in capex, procurement-led projects, as the supplier provides a quote early on.

Accuracy

Accuracy is how correct the estimate is; how close to being “true” it is. A supplier quote – provided you have given the correct scope – should be pretty accurate. An estimate from the IT team about how long it is going to take to connect the asset might not be very accurate at all if they’ve never worked with this technology before. If it’s something they do regularly, they can give you an accurate estimate.

Precision

Precision is about how precise (obviously) an estimate is, or needs to be. Delivery dates for kit are often not precise at the beginning of a project, but as the stock comes in and suppliers can be more precise about when it will be shipped, the date estimates become more precise.

Confidence

Confidence levels are useful to include in your estimates, and are especially useful for influencing culture. In my experience, they are helpful when you are working with experts who are reluctant to commit to timescales and dates. You can ask, “How confident are you that you can complete the work within a week?”

The more experience they have at doing that kind of work, the more confident they should be in their numbers. The more robust the estimating, the more confident they should be. Guesstimates have a low level of confidence.

Explicitly mentioning the confidence levels when communicating to senior stakeholders can make uncertainly more obvious to them. I’m sure we’ve all worked with stakeholders who, when you say, “some time during the month” expect it to be delivered on working day 1.

Not all projects will need all of these factors built into their estimates, and as your project progresses through the lifecycle, the way you create estimates will change. It’s worth bearing these factors into consideration so you can adjust and communicate about your estimates as you go.

Getting projects off the ground at the moment is hard: it seems to me that there is a lot more scrutiny on business cases because everything is more expensive. At least, in the UK, prices of everyday things are going up and that is hitting businesses as well as household budgets.

So what can you do? When you want to prove your project is worth the investment, your business case if your first line of defence. Let’s look at how to present your project in the best possible way so you can convince everyone that it’s worth progressing.

Show it aligns to strategy

We know that not all projects have to have strategic alignment: some are just tactical or must-do obligations. But if your project does align to strategy, you should find it easier to secure the commitment to progress.

Provide the evidence and show that the proposal fits with the current strategic aims. Show that it is complementary within the portfolio and (ideally) fills a needed gap. If there are organisational KPIs or targets that your project could/would support, make sure those are called out.

Show the change is required

Most projects are ultimately discretionary. If you want your project to secure funding, you’ll have to show that it’s necessary to do the change – or at least highly beneficial.

Evidence that you understand the business problem and that your project is the solution. Point out any current business risks or issues and explain how your project will address these. If you can talk here about the future goals for the organisation, the future business needs and link your project into those, that would be beneficial too.

Be realistic: talk about the constraints and assumptions you are making, and any risks and issues to the project known at this point.

Show how you get from here to there

Set SMART objectives – specific, measurable, achievable, relevant and timely – for the project and spell them out in the business case. Make it obvious that you can evaluate success and that there are clear goals.

Document the project management and governance approach you plan to take to deliver the work, to show that it’s achievable. Spell out any additional resources required and show that there is capacity to deliver – or that you can source and secure the resources needed and that these are included in the proposal. Be really clear about what’s included in scope.

List the outputs and provide some narrative about what the world will look like post-project. For example, talk about the new capabilities the organisation will have, and how these can be sustained over the longer term.

The business case needs to be honest, but it also needs to be a well-written story that sets out the problem, the case for change, and what that change would be. There are more elements to a good business case than simply linking it to strategy, but this should be the very foundation of your documentation. If the project isn’t a good idea, or one that helps the organisation move closer to where it wants to be, the best financial analysis section in the world won’t get it through the PMO.