The Money Files

In this instalment of Ask the Experts I talk to Jon Swain, President of Virginia Beach-based firm Ten Six Consulting. Ten Six specialises in enterprise project management tool deployment, so I talked to Jon about what these products can do and how they can help project managers work more effectively.

Jon, when I think of enterprise project management tools, I think of scheduling. What else can they do?

There are many features that take EPM tools beyond just scheduling. At a high level, EPM tools offer a centralized repository with all of an organization's project information in one place.This is coupled with a role-based security structure that allows an individual access to only what their role needs. Because you can centrally control the environment, you can enforce process disciplines. For example, take baselines. Baseline discipline is sometimes difficult to achieve with standalone tools as the project can re-baselined at any time without a formal process to control that. In EPM tools, you can better control the schedule from being informally baselined.

With everything in one place, senior management can see up-to-date project performance data across the whole organization allowing them to better manage their project portfolios. They can proactively choose which projects to select, prioritize projects particularly with competing or scarce resources, understand the interactions between projects and tie all of these decisions directly back to the company's strategy and goals.

So portfolio management is a big chunk of it. How do they fit into the rest of the systems in use?

It's not uncommon for EPM tools to be integrated with other enterprise systems including HR and accounting. Two very simple examples of these include allowing the synchronizing of resources from an HR system and the collecting of actuals costs from an accounting system. A project manager can not only plan and profile their budget, but accurately track project spending by collecting actual costs from these systems. This gives you a complete picture of your project finances. This kind of integration and information sharing at the enterprise level are benefits that stand-alone implementations of project management tools can’t easily match.

In addition, collaboration is available with many of the EPM tools today emphasizing the importance of collaborating and communicating to improve productivity and drive project success. These capabilities can enable the better management and sharing of project artifacts.

It would be remiss of me not to mention the tool vendors embracing web-based technologies. Having all this functionality in a tool suite that is now 100% web-based, makes it far easier from an IT perspective to deploy and manage large numbers of users.

That sounds great, but expensive. How do they pay back?

Many organizations that are not using EPM tools often have no way of measuring organizational project performance with empirical data, resulting in subjective assessments that can be misleading.

By way of example, a successful deployment across a 'green field' IT organization of say, a thousand staff, can yield millions of dollars in savings. These savings can come from improved project selection, removal of duplicate effort, better utilization of resources on the right projects, improved project delivery and reduction of project risk, to name just a few. These are fantastic benefits that any company could and should enjoy.

Also, learning from past project performance increases the likelihood of better estimating on future work. Building on past project successes helps create best practice templates that can be reused time and again. It's a cycle that naturally drives continuous project management improvement over time.

The customers in which Ten Six have successfully implemented EPM tools are reaping huge benefits and often have an improved organizational culture with a motivated staff that is focused and all pulling in the same direction.

I imagine you can get a lot of reports out of these systems. How does good reporting help a project manager make their project more successful?

Reporting plays a big part in supporting the project manager. EPM tools provide real-time information on the status of their project, which is presented in the format and style that they need to make decisions. These reporting capabilities can be extended using third party reporting tools, allowing complete customization of report formats and the ability to include information from other systems.

Getting the right data out of these tools is no longer the only priority; great graphical presentation in specific formats for different roles including senior management has become just as important. Web-based dashboards also play a large role in supporting both project managers and senior management in their decision making process.

I'm convinced. Is the next step to pick a tool?

There are three elements that are often talked about when implementing EPM: first tools, second processes and third people. Most organizations that are implementing EPM tools for the first time focus on these three things in that order.

In our experience, they should reverse the order to get better results faster. In other words, implementing the tool is typically the least of your challenges. Cultural issues, change management and user adoption are the challenges that need to be overcome to ensure a successful EPM tool implementation. So, if the priority were people, process and then tools, more emphasis, money and effort would be spent dealing with these “soft” issues that can slow down or even stall an EPM implementation, ironically making the implementation more expensive!

Thanks, Jon!

Project budgeting is all about using your best estimates to work out how much the project is going to cost. But it never costs what you think. Something always gets in the way. There will be an issue, or a schedule overrun, or an addition to scope that makes the original budget estimate different from what the final cost is.

So, you know the final cost of the project at the end, right? When everything is accounted for and all the project-related costs are spent.

Michael Cavanagh, author of Second Order Project Management (2012, Gower), doesn’t think so.

“Although it has been said often that the only time you know the cost and duration of a project is when it has been delivered, in truth, you don’t,” he writes. “Post-delivery costs including fault correction, maintenance, support and disposal are all subject to the vagaries of implementation in the real world and should be addressed and included in the estimation process.”

Cavanagh is talking about putting together a comprehensive contract with a third party supplier, but the same holds true even if you are building your project deliverables in house. However, I don’t completely agree.

I have to say that I hadn’t considered the cost of fault correction as a project cost. For me, the delivery of the project does not happen at the point that the deliverable is launched. There is a handover to support period, and in that time you would warrant that the products provided are fit for purpose. If the deliverables have been signed off, but a bug is identified six months later, then this is not a project cost. It’s a cost related to potentially a change in the way the product is used, and is part of the product lifecycle costs but not the project lifecycle costs.

I do believe that maintenance and support are project costs, at least for Year 1. Typically – and this will depend on your company’s accounting rules – maintenance and support for the first year are included in the project budget. Maintenance and support for Year 2 onwards are business as usual costs. A lot of this is to do with whether you can capitalise maintenance and support fees, and whether your project has an opex budget or not. Check with your finance team if you are unsure on whether you can include maintenance and support in your project budget, and for how long.

Disposal costs are also part of the product lifecycle in my opinion. I would never include in a project budget the costs for disposing of an asset my project brings into service. How would I know what it would cost to dispose of in ten years time? Or longer, depending on what it is?

However, there may be some products that are decommissioned directly as a result of your project. For example, as part of a project to replace a piece of software with something new, the old software becomes defunct. The cost of decommissioning this is a project cost.

The full product lifecycle costs including disposal, servicing and maintenance should be included in the project business case. That document is all about making good business decisions so they decision makers should know exactly what they are signing up to, both now and in the future in terms of recurring costs like maintenance. But what goes into the business case does not automatically go into your project budget.

When you budget, do you take into consideration the life-long costs of the project, or just the implementation and set up costs? Do you agree with Cavanagh?

As part of your project status reporting you probably include metrics. You might even have a project dashboard that calculates the metrics from an enterprise PM tool and displays them for you. Project metrics are things like resources consumed and estimate to complete. Some metrics mean more to stakeholders than others. Personally, I am not a fan of percent complete for tasks, for example.

As least one of your project metrics should relate to your budget – assuming you have the responsibility for tracking how much the project is spending. There are a number of different ways to track the budget, for example:

• Earned value management metrics
• Variance to forecast
• Percent of total budget spent
• Budgeted estimate at completion

Again, project stakeholders will respond better to some measures than others. It depends who they are, what they want, what they need to do their jobs and what their previous experience is. A project sponsor with a finance background is likely to want a far greater degree of visibility of your budget than someone whose main focus is quality. Your job is to find out what they want and provide it.

It really doesn’t matter what the metric is that you use, provided it fulfils two criteria:

1.      It must make sense to the people who are using it

2.      It must have clear boundaries defined so that you all know what ‘red’ means.

There is no point in having Red, Amber, Green (RAG) or any other categorisation method (click here for a Gantthead discussion on how to categorise projects) if no one knows what the different categories mean.

Set thresholds. Define what the tolerance levels are for each metric and publish them. Then stick to them. Your budget RAG status could look like this:

Green: within +/-1% of budget

Amber: within +/- 5% of budget

Red: over +/-6% of budget

Choose figures that make sense to you: 1% of a £5m is not very much in the grand scheme of things so you could probably agree different tolerances with your project sponsor. As long as you are clear about what ‘Red’ means, everyone will be operating from the same information and your metrics will be meaningful.

How do you define Red?

In this video, I look at the hidden cost of project changes.

Today I’m interviewing Todd Williams, author of the popular book, Rescue the Problem Project. In the book, Todd talks about cost audits. Even if your project doesn’t need rescuing, cost audits are a useful technique to use, so I talked to Todd to find out more.

Todd, what is a cost audit?

A cost audit is a relatively simple task of reviewing all of the costs on a project and ensuring they are in line with the project’s anticipated spend. It validates the right amount is going to the right people at the right time.  Simple, right? The sticky part is usually that last clause—at the right time. Projects have specific milestones for when items should be paid for. Usually it is when a tangible item is delivered. Some form of acceptance document is signed and the vendor gets paid.  Internally, the demarcation point is resources moving on to new tasks. If they still have lots of loose end to tie up, then you keep spending money on something that is supposed to be complete.  In other words, money starts leaking out of the project.

It can, however, be a little more tricky. When you are determining the cost of internal resources, you need to determine they are performing to expected goals. Are they spending time on non-project tasks or inefficiently getting toward deliverables? They may be salaried and simply billed to your project.  In this case you need to be diligent ensuring hours (which translate to money) are spent on completing their work and that these hours are in compliance with industry standards. If time gets excessive you have a problem.

The best measure of this is a cost performance index. But that indicator is imperfect. If deliverables are being signed off as complete when there is still work to do, then people need to keep working to get a workable product. Money to cover the expense, with the best of intentions, can get pulled out of some other budget. This is similar to the Ponzi schemes we have seen in the headlines recently and can be hard to find until after it is too late.

OK, so I guess you don’t want to wait until the end of the project to carry out a cost audit.  When is the best time to do one?

The minute you get a funny feeling in your gut that something is not right. This goes for the Project Manager or the project sponsors and executives. Often the latter can get someone to come in and find the problems in short order, before they get too big. Always assume positive intent—the mistakes are honest misunderstandings.

For some organizations it is a matter of course; however, it takes a significant amount of time. This is far from a lean process and I do not recommend it. If you are dealing with the government, you are often required to have some audit process in place. In any case, if you see the cost performance index starting to go awry, it is a good time to do one.

You mentioned bringing someone in. Can project managers carry out cost audits themselves or should someone else do it?

Using and internal or external auditor? Answering this question with a question will make my point. Would you trust a company where you have a significant amount of your savings invested if you knew they did their own audits instead of having an independent auditor do the work? Of course not. You would want them to have an outside firm review the books to ensure there were no mistakes. It is of little value to have the person that was making the mistakes try to find them—it is harder for me to discover that I do not understand something than for someone else. In addition, if someone is cooking the books, the exercise of an internal audit is a waste of time.

Right, so say I get someone in to do a cost audit on my project. What form does the output take?

I am sure there is a formal layout that finance people like to see, but I simply put the variances items in a spreadsheet showing the anticipated cost, actual cost, and whether it can be recovered. Then I total out what is lost and what can be recovered. The last step is to give a set of recommendations for fixing the issues and preventing them from recurring.

I bet the reports have lots of interesting things in them. You must have uncovered some sneaky deals.

Although I said to always assume positive intent, there are times when people do not have the best intentions. I have seen people who were buying equipment that was not needed so they could get a gift from the vendor. They labeled the purchase order as if it was an item that was needed and the audit found it sitting unused on a shelf. The buyer had a positive intent (beyond the gift)—to improve the capabilities of the deliverable. Unfortunately that functionality was out of scope and it was questionable if the purchased equipment would meet original scope.  

In cases like this, the report, or that section of the report, should be confidential. Covert and clandestine discoveries are the exception. The information should be an educational tool to reduce the chance of the mistake recurring. Remember that the data can be sensitive and publicity can cause a lot of pain. I am sure the readers can think of some big items in the press.

I know that now you are very experienced in doing cost audits, but tell us about the first time you were asked to carry out this type of review.

I am not a finance guy. After all, I have a bachelor of science in chemistry. Being called in by the CFO, I was certain I was being set up and was scared to death. I started by reviewing all the invoices and reconciling them to the material we had on hand and the functions that were supposed to be delivered. Finding numerous major discrepancies, I got even more nervous thinking I was doing something wrong. After double-checking the numbers, I called a couple vendors. They got very defensive. It turns out that the vendors had learned the client would pay anything without validating the fit of the deliverable. They could meet their revenue numbers by delivering and billing early.

Unfortunately, the vendor’s management would not let them work on the items that had been delivered and invoiced since there was no more revenue to gain. There were hundreds of thousands of dollars that had been spent on partially delivered items. With new confidence, on a regular basis I would walk into the CFO’s office and write the new funds found and recovered. The value dwarfed my billings by an order of magnitude.  Needless to say, the CFO was pleased.

I’m sure he was! Thanks, Todd.

About my interviewee:

For twenty-five years, Presidents, V-Level, and C-Level executives of manufacturing and service companies have asked Todd Williams to help them build leading-edge systems, improve organizational efficiency, and rescue problem projects. From this experience, he has developed methods to streamline organizations, turn-around troubled projects, and help prevent recurring failures.

As President of eCameron, Inc. and a professional member of the National Speakers Association, he is an expert in project rescue, failure prevention and engaging people in the solution.  He maintains a blog that has been quoted on CIO Update, ZDNet, IT Business Edge, Center for CIO Leadership, and CIO Essentials, among others. He has been chosen to speak to numerous companies including NASA, AMA and PMI.