The Money Files

Earlier this month, I wrote about our summer trip to a holiday park. Two of the shows we saw while we were there were magic shows. One was a comedy-style show with some fun magic thrown in. The other was a ‘proper’ serious magic show with all the atmospheric lighting and big illusions.

It got me thinking – I know, this is not how most people spend their holidays, but perhaps project managers are this way inclined – about the parallels between the shows and my job back at base. Here’s what I learned.

1. The wait is part of the journey

We learned on other holidays that if you want a good seat, you have to get to the show early and sit and wait for a loooong period of time for it to start. This is because there is no allocated seating.

While we were waiting for the show to start, having arrived 40 minutes early, the family at the table next to us got out a game to play. They used the downtime as family time, getting everyone involved. It was part of the experience for them: being around a table to play a game.

We had brought books and electronic devices, and we were all occupied but not together. We weren’t using the time as family time. We were just waiting.

The wait is part of the experience. Plan for downtime on your project. How can you use that time productively? For example, can you bring forward tasks, fit in a peer review or a risk review, run an audit, or something? Where there are slower periods on projects, what are you going to do with them?

2. Same prop, different delivery

Both magicians used an identical prop, and they both performed Houdini’s Metamorphosis trick (where one person is locked in a box and the other stands on top with a curtain – they drop the curtain and they’ve switched places).

But the delivery was different. One was fun and light; the other was dark and dramatic. But the box looked the same, and the trick was the same.

Tailor what you’ve got to make it yours. The lesson for me here was how one item could be used so differently. Tailor what you use to make it relevant to your project and the way you want to deliver your work.

3. If you’ve not seen it before, it’s magical

The second magic show contained big set piece illusions: a box pierced with swords, but amazingly the magician inside was still safe, making snow from a piece of paper, levitation, escaping from a strait jacket before a flame burns through a rope and the magician is squashed. I am a huge magic fan, and I’ve seen all these before, in live shows and on TV.

But for my kids, they are new.

And they were truly amazed.

Don’t take for granted what you know. For some of your stakeholders, the magic of project management will be new for them. Train people in the process. Let them know what to expect and help them understand things about the process that feel new and different.

You’ve seen it all before; you’d read about it, done it, written the documents, and got the T-shirt. But they haven’t. Give them the support they need to come along the journey with you.

Project management isn’t really magic, but some days it feels like the team comes together, and we’ve pulled off something amazing. Don’t you think?

Let me see if I can make the difference between economic appraisals and financial appraisals interesting….

They are both covered in the UK Government’s Better Business Cases document. Here’s my take on what they both mean and why you’d want to use them.

Economic appraisals

The document says that economic appraisals are all about value and benefits from the perspective of the stakeholders, users, and wider societal impact. They consider “all social, economic, environmental costs and all effects on public welfare.” Remember, this is a government publication, so the assumption is that projects will be for the public good. Your project might not have an effect on public welfare, but you can imagine that it will have an effect on the project’s customers or end users.

This is the core of a business case.

It includes an element of financial information as well, such as relative prices, direct and indirect costs, opportunity costs where there are any, environmental costs, and benefits however these play out. You’d also include staff time.

It would exclude inflation, tax, sunk costs (let’s hope there aren’t any of those), depreciation of assets, and other accounting treatments.

Financial appraisals

Financial appraisals are purely the monetary calculations: can we afford it? Where is the money coming from?

They consider cash flow, budgets, and accounting practices.

This would feed into a business case because there is no point in progressing a project that you can’t afford to complete or that would not provide adequate financial returns where these are measured.

A financial analysis would look at current pricing, cash-releasing benefits (like delivering a portion of the project early so it could start to ‘earn’ for you), capex and opex costs, tax payment, and inflation.

The do nothing option

A business case should also include the minimum possible approach, which is normally the ‘do nothing’ case against which to compare your alternative(s).

Complete an economic appraisal for that option, too, taking into account what stays the same and the benefit cost ratio of doing nothing.

In my experience, it’s always worth including a ‘do nothing’ option as it really makes it clear to execs what they are giving up if they choose to reject a project.

Is an economic appraisal a new thing?

I don’t think an economic appraisal is a new thing, but I think project managers are more used to seeing it be called a business case or an options analysis.

Once you have created an economic appraisal for a variety of options (including the ‘do nothing’), there is likely to be a clear option that stands out as the best course of action. If not, there might be a few to choose from with subtle differences – leave the choice up to the execs to debate in that case!

I think the thing about an economic appraisal is that it forces you to think wider than the numbers. You’re looking for social and environmental benefit, community impact, and return instead of just a simple ‘if we do this, we’ll get paid that in a year’. It’s a way of reframing the business case conversation into something that is wider and more rounded, helping teams become aware of the full impact and benefit of their initiative instead of simply the bottom line.

And I think that’s a good thing. We should be making rounded, fully informed decisions instead of simply relying on the top level numbers. We need to be aware of the full impact from idea to decommissioning and what impact that is going to have on the world around us, not just the bank account.

By adopting the language of economic appraisal instead of business case, we might be shifting the thought process into a richer dialogue with ultimately better decisions being made. What do you think? Let me know in the comments!

OK, it’s been a while since the summer holidays for us here in the northern hemisphere, and for a while, I’ve been musing on some things I noticed while we were away.

During the school holidays, we took our children to a holiday park – one with a swimming pool, mass catering options, and evening entertainment. During the entertainment portions of the trip, guest services reps – what’s the proper name for those? – milled around before the show started. They managed the queue, checked tickets, and then talked to us while we were waiting for the event to begin.

They were excellent at customer service and making the time feel like it was going faster. Here are a few things I took away from the holiday that I think we could be implementing in project management.

It’s all about the merch

Get your guests in for one thing and then cross-sell them something else. “While you’re here, would you like a hat?”

No, I don’t want a dinosaur hat, but plenty of people in the audience must have bought them for their kids.

The merch stands were obviously secondary money-spinners. The shows themselves were included in the cost of the holiday, but things to wave in the crowd, books, soft toys, and more were on sale at every show we went to.

Takeaway for project managers: “While you’re here, can I also ask you about…?”

Think about who is coming to your meetings and what else you need from them that is beyond the scope of the meeting. Can you ask about an upcoming project? Secure some support for a different initiative?

What can you showcase to a captive audience in a team meeting or even a one-to-one conversation with a stakeholder?

You could even ask them if they need any help with anything else if you are looking to build your network or take on different projects in their area.

Warm people up

Ten minutes before a show started, we’d get a warm up. “Who’s excited to see the show?” Plus lots of reminders about photography, how to order drinks, signposting guests to various social media accounts to follow, or even pointing out the merch stands by the side of the stage in case you had changed your mind about that dinosaur hat after all.

Takeaway for project managers: Build excitement and let people know what is going on.

Let people know how long they have to wait or to do something. Repeat the basic instructions several times. Engage across large groups with broadcast updates and keep reminding people about the benefits, tasks, and activities.

Start high

We did enjoy our time, and we decided during the stay to book again to a different park in the same chain for next year. They encourage people to do that, as you would imagine, by having an on-site shop that discounts holiday bookings for people who book again before they leave.

When I went to book again, I got pitched the most expensive accommodation at the other park, almost £1,000 more than I wanted to spend. We then reviewed all the options and found different ways to bring the cost down to our budget.

Takeaway for project managers: Ask for what you’d like and then work down from there.

When you ask for time, resources, budget, or another type of contingency, be generous with yourself. Start from the position you’d feel most safe in, and then negotiate from there.

Note: this approach might not work so well for risk appetite! You’d want to do it the other way round. Start low and increase the risk as you feel more confident.

The main thing I took from all of this is that there are useful tips and lessons from other management disciplines that are applicable to how we work on projects. While we focus on learning about project management as part of our career journeys, actually, the role of project manager can be far broader as it involves liaising with lots of different business areas, and they all have something to teach us.

The PMBOK® Guide – Seventh Edition talks about four different ways to define business value.

‘Value’ is quite a vague term when it’s used in everyday speech, so I think it’s useful to have something to hang a definition on when we’re using the term in project management.

The Guide does specify that there are lots of aspects to value, including non-financial considerations, and that the four ways that are listed are only some of the ways that you could measure value. However, they are a good starting point if you’re trying to have conversations with execs about what projects you should work on – you do need some kind of idea of what value means.

Here are the four metrics that you can use to measure value, as outlined in the PMBOK® Guide.

1. Cost benefit ratio

This ration works out the present value of the investment compared to the initial cost, basically, do the costs outweigh the benefits (if they do, you probably shouldn’t start the project unless there is a strong justification for doing so in the knowledge that it will cost you more to deliver than the benefit expected).

2. Planned benefits compared to actual benefits

This is a bit of a weird one if you ask me – until you start delivering, you don’t have any actual benefits to compare to. It’s fine if you want to review value after the project is complete or while it is in progress, but it’s not a metric you could use for project selection.

You’d have to use the planned benefits, and that really is the planned value of the work to the organisation – so it’s just a different way of talking about the other metrics until you have some actuals.

3. Return on investment

This is my favourite of the four (is it odd to have a favourite value metric?). Probably because I use it the most and it’s very clear on what it is. It’s easy to explain to stakeholders and finance teams seem to like it.

Plus it’s easy to work out.

ROI is the financial return compared to the cost, so it’s helpful in project selection. However, you can use it throughout the project to refer back to whether or not you are on target to hit that particular ROI – useful to do when your costs are going up.

4. Net present value

NPV used to confuse me because it’s time-phased, but once you get your head around it, it’s straightforward. It’s a very common metric in use for project selection so it’s definitely worth taking the time to understand how it is put together and what it means.

You can measure NPV throughout the project and check that the investment still holds up.

With all of these, as long as you keep measuring if you are getting enough value out of the project, you can make an ongoing commitment to keep the work going. If the numbers point to a trend of decreasing value, there is likely to be a point where you’ll want to stop the work, because the amount of effort expended isn’t worth the value you’ll get at the end of it.

Of course, there are some projects where the value is simply being able to continue to trade or operate within a legal framework, or benefit related to social/corporate responsibility or sustainability, so you might find it irrelevant to track metrics like the ones above. The takeaway from all this is to work out what ‘value’ looks like to your team and your project, and measure that.

How do you do it? Let me know in the comments!

Last time we looked at the different times in a contract where you would be scheduling payments. Today, I wanted to write a bit about the different types of payment you could factor into your work with vendors to give you some variety with how you structure payments.

Before we start, make sure to discuss any payment plans with your procurement and finance teams, so you don’t end up committing your company to something that you really shouldn’t! In my experience, contracting and procurement are really outside a project manager’s pay grade – organisations generally want the specialists involved, and most project managers would not have authority to sign contracts.

However, it’s worth knowing about the different payment options out there, so you can mention them in conversations with the right people if they are relevant to how you think your project would be best served.

Here are some options to consider for your next project procurement activity.

1. Uptime/availability payments

This is something to build into service level agreements. In the past, my projects have needed to set up SLAs, and uptime payments were built into those.

In essence, vendors get an incentive payment for keeping the service available instead of penalty clauses for downtime.

You could use this principle to build in payments for services or support being available, and you could have various thresholds that trigger different payments. Or you could put penalty clauses in for downtime, but that’s not so good for relationship building. The management at my last company was very much against punitive clauses as they believed it did not incentivise a partnership relationship and was too much centred on blame.

If you do put these clauses in your contracts, make sure you also document how you claim the payments. For example, for uptime incentives, if I remember rightly, we had to claim them, and sometimes for the value offered, it wasn’t really worth the admin… so think that through before you write them into contracts.

2. Performance payments

I haven’t used these personally in projects, but I believe they are common in construction (are they? Let me know in the comments).

This would be a payment related to hitting a particular performance threshold, perhaps delivering early on a particular milestone, or reaching some kind of target. When we pay for services, there are often performance-based payments built into the schedule. You’ll have seen these, too if you do any kind of online transaction processing. For example, I signed up for a service linked to my personal website that allows me to have up to 10k of transactions per month at a flat rate fee, and then if I go over that, the next tier of payment-based payments kick in. Payment is based on how many transactions you put through the system.

That could be relevant for your project if you are launching a service where volume or number of transactions or units processed would trigger an additional payment or an additional discount.

3. Incentives

You could find any number of ways to incentivise vendors. For example:

• Productivity savings
• Process improvements
• Staff savings
• Time per transaction saving
• Decrease in number of complaints or increase in staff satisfaction as measured by a survey

In addition to the ones I’ve already mentioned above. Anything that reduces overall cost of the service or product could be passed on to the client (your project), and there could be an incentive payment linked to that – ideally something that is beneficial to you both, not just cost-cutting for cost-cutting’s sake.

Have you used any of these payment methods on your projects? Let us know in the comments!