The Money Files

This is an extract from the draft of the second edition of Social Media for Project Managers by Elizabeth Harrin and published by PMI. Consider it a sneak preview for when the book comes out!

The normal approach is to define your strategy, research what you need to do in order to achieve that (both in terms of cultural and non-technical changes and software/infrastructure investment) and then prepare a business case to secure the investment. When the business case has been approved you then go into more detail and fully scope the projects or programs required to deliver on that investment.

However, a full financial business case doesn’t always stack up for collaboration tools for many reasons including:

• The difficulties of measuring intangible results like ‘better collaboration’
• The time it takes to baseline today’s results to compare future performance
• It’s hard to define exactly what return on investment would look like
• The lack of detailed time recording to see whether improvements have been made in productivity and speed of access to experts.

In short, the intangibility and unpredictability of knowledge work makes it hard to quantify anything reliably. Project work by its nature is non-repetitive, and if you have deployed your collaboration tool at the beginning of a project you may not have sufficient experience with that team and on that project to estimate, for example, the length of time tasks are taking with any degree of accuracy. Without that baseline you cannot definitely say that your software has improved the delivery time for tasks. For that reason, many organisations choose not to measure efficiency in a quantitative manner. Instead, companies often rely on employee surveys that in turn rely on subjective responses around whether a tool has made it easier to work together. Make an educated guess based on anecdotal evidence and feedback from the project team.

To give another example, it is difficult to quantitatively measure the positive impact on enabling online communications. How much more useful are project workspaces than a phone call? Bloggers in the public online space often use the amount of comments and social shares received on a blog post as a measure of popularity, interest, engagement with their readers and so on. This is not a reliable measure in a workplace setting: a discussion post may have a couple of comments before you step in and facilitate a face-to-face meeting on the topic, or the commentators pick up the phone to each other to get to the bottom of the finer points. The amount of conversation going on is not necessarily a reflection on the quality of those conversations, so again this is a difficult thing to measure.

The inability to clearly define and measure what you want to achieve will make many project managers uncomfortable (and may force them to choose irrelevant or subjective measures for success). After all, the project charter should include enough detail about scope and acceptance criteria to ensure that the relevant people can sign off the project’s products as complete and fit for purpose. You wouldn’t embark on a project without knowing what ‘finished’ looks like, and knowing who would agree that the work has been completed to the required quality.

However, do you measure how well you wrote the Project Charter or how effective your quality reviews were? Probably not, outside a general feeling that it was a good, comprehensive document or that the meeting participants got what they needed from the review. Collaboration tools are a project support system much like email or conference calls – and would you measure the success of those on a monthly basis? Success criteria are useful, but they do not have to be statistically measurable. Consider the implementation of digital team tools as another option for your project management toolkit. You can measure it with the same judgment calls that you do for the other processes in your methodology.

Don’t struggle with a full financial business case unless you really need one to get your investment approved.

The alternative to a financial business case

If a full financial business case won’t stack up, or your leadership doesn’t require one, then prepare a short options appraisal instead. Review the solutions available to you, using any identified in your strategy document and any others that have come about as part of your general research into delivering the strategy. An options appraisal includes:

• Pros and cons for each option
• Financial investment for each option
• Timescales for implementing each option
• Resource implications for each option
• A recommendation, stating which option you want to go for.

Present this to your decision makers and start the discussion to secure the investment in your collaboration tool.

Alternatively, consider asking for approval at this point only for the analysis phase or a small pilot. This would give you a mandate to go ahead and research the market and how the tools might benefit your teams, while not asking for a financial commitment at this point.

The second edition of Social Media for Project Managers by Elizabeth Harrin will be out next year.

I’m not the world’s greatest when it comes to numbers so when I started getting more involved with project financials I decided it would be a good idea to read up on the subject. I bought Project Management Accounting a few years ago now and it has become my go to book for understanding project budgets. It’s by Kevin R. Callahan, Gary S. Stetz and Lynne M. Brooks. My copy actually still looks pretty new, as I don’t get it out to read very often – it’s the kind of book that is useful at certain points in a project and then goes back on the shelf.

Here are my takeaways from it.

Financial understanding brings seniority and gravity

“Senior project managers have their roots in many different areas of expertise, but the great majority do not come of out finance or accounting,” write the authors. That’s true, and it means that for many of us there is a huge hole in our knowledge of how the mechanics work around paying for projects and accounting for the returns.

The authors think that once you’ve gained experience and proficiency in project management skills, you’ll benefit from learning more about the numbers. They write:

“After years of managing larger and more complex projects, senior project managers often aspire to making greater contributions to their organisations. One way to do this is by gaining expertise in fiancé and accounting, thereby enabling them to view the organisation from a different perspective and to make a greater contribution to it.”

I agree: I think it’s hard to really make a strategic difference, even on smaller projects, unless you understand the fundamentals of how cash moves around the business and how your company makes money. It’s one of the reasons that I’ve tailored this blog to be mainly about the financial topics relating to project management. If we want to – as an industry, as a profession – move the perception of project management to the next level then we have to be taken seriously and be seen to operate a senior levels. Seniority in many companies often goes hand in hand with the ability to handle budgets.

Get involved in the financial decisions

I particularly like the fact that it advocates for project managers to get involved in financial decisions. The authors write:

“[Early during the project’s conception], often project managers are not part of the decision-making process. In many cases, it is because the project manager is not believed to have the business experience necessary to make such decisions. However, using the project management and business tools [discussed in the book] a project manager can guide the decision process to avoid making costly mistakes. It will not always be easy for project managers to have input into important financial decisions, but without some knowledge of how finance and strategy work, they will have no input at all.”

I think this is a really important point, because the shift in project management is towards project managers taking on a greater responsibility for leadership in the early stages. It’s no longer just a delivery job (thankfully) and includes elements of business change and strategy. So you need to have the vocabulary and skills to take part in discussions at that level.

Boost your network

One of the things discussed in Chapter 6 is the role of the financial manager. Do you know who the financial manager is for your project? It’s not an accountant. The authors point out that the role of finance is to “develop benchmarks as a guide to managers”.

A financial manager is someone who can create a good balance sheet, the optimal one for the company at this point in time. That can involve advising on which projects to take on, which to stop and providing input into business cases. They also work on financial documentation such as budgets, and income and balance sheet statements.

Your project, especially if it is sizeable, will need someone in this financial management role as well as potentially another person to handle the invoices and make payments from the bank. Those latter functions are normally handled by the Accounts Payable team and you’ll have standard corporate processes for doing those. Advising you on your project takes a trusted financial ‘adviser’ in an internal role, so build your network and consult the company org charts so you know who to turn to.

In summary

I’ve only pulled out a few key points from this book and added my thoughts but I hope you can see that it’s a useful shelf reference for project managers looking to move into more senior positions or those generally wanting to understand more about how money moves around in the company. I’d recommend it.

Book referred to in this article: Project Management Accounting, Kevin R. Callahan,  Gary S. Stetz and Lynne M. Brooks. Wiley, 2007. The image is of the 2nd edition. I am quoting from my copy, which is the first edition.

In this video I talk about the cost management processes.

I was contacted by a student recently who was having trouble understanding some of the outputs from the cost management processes, specifically around the terminology about what goes into a cost management plan.

The trouble is, some of the training material makes things unnecessarily complex. The jargon makes you feel as if the explanation can’t possibly be that simple. I think that was the problem he was having – he couldn’t get past the fact that it was supposed to be complicated.

Some of it is complicated. But some of the cost management jargon is just that – jargon. When you get to the bottom of what the PMBOK Guide is really talking about then you see that actually it’s quite simple.

Here are the 9 areas of a cost management plan that he asked me to help define.

1. Unit of measure

This is just a fancy way to say ‘day’ or ‘hour’ or ‘dollar’.

Write down the units that you are using in your cost management plan. If you are using several, make it clear what is being used for which areas.

2. Level of precision

A precise estimate just means that when you talk about a range of figures, they are all bunched together. The less precise you are, the more your numbers spread out.

Use it like this: “Precision range for this budget item is +/-1%.”

That would be super precise.

3. Level of accuracy

Level of accuracy is talking about the rounding you use in your estimates. An accurate measure is one very close to the actual measure, once that is known.

4. Organizational procedural links

This section of the cost management plan lists the details of any processes you have to follow e.g. what account codes you need to use for budgeting. Basically, it’s information that you will get from the Finance team. Once you’ve written it in one cost management plan, it’s highly likely that every other project for that company will use the same processes so you won’t have to research and write it out again.

Top tip: Copy this section from another project manager who has already worked it out. Then take a few hours to make sure you really understand what their paragraphs mean and copy and paste it into your own plan.

5. Control thresholds

This relates to the agreed amount of variation allowed in your project. In other words, are you able to go over by 10% without having to ask your sponsor’s permission? Look at it as another way to describe tolerance.

6. Rules of performance measures

Write in the plan how you will track how you are doing against your budget and at what level e.g. every week, every month, to the penny or to the nearest £100. Say if you will use Earned Value Management or not and if you are going to use it, then how you are going to do so.

7. Reporting formats

Your cost management plan just needs a sentence that explains what format you are going to report in. There’s nothing special about this. You just write ‘We’ll use the standard project report template to report on cost’ in the cost management plan document, or whatever you are going to use.

8. Process descriptions

Write in the plan ‘We’ll follow the normal accounting processes for our company’ or whatever process you are going to follow.

I have never met a manager who expects there to be a process flow diagram in here explaining how each financial process works. Perhaps it’s relevant for consultancy bids, but I doubt that many businesses require more detail than just a few lines referring back to standard operational practices.

9. Additional details

This is just a generic section of the cost management plan for anything else that needs to go in.

If you think of anything that is useful for you to record, shove it in here.

Now, it’s perfectly possible that I’ve misunderstood some of these terms myself, and made them seem much simpler than they really are. Feel free to chime in and let me know if that is the case. Maybe I’m missing something, but it does seem like a lot of buzzwords to me.