The Money Files

Math (or maths, as we'd call it over here) is essential to managing projects. You need to know how to construct a budget, use the data from time-tracking software and calculate lag and lead times for project tasks. And don't get me started on Earned Value.

But many of us find math tricky. Laura Laing, in her book Math for Grownups, tries to put that right.

"Remember, it's only a tool...It's a language that describes how our world fits together," she writes. "Math enables us to make predictions and quick decisions. Math helps us feel powerful and confident."

Trying to remember how to calculate ratios can be hard when school was the last time you got out your scientific calculator. Laing writes:

"It's completely understandable if you struggle with some basic math facts...When you understand why arithmetic works, you can make up for most any math fact that you've forgotten."

Her book aims to explain why math works, to give you both the skills and the confidence you need to tackle everyday math problems. And if you can't work it out yourself after reading this book, she recommends heading to the internet to find the formula that you need. This is not a book about making things harder than they need to be just to prove you can do long division in your head; there is no shame in using a calculator.

Math for Grownups is a book about changing your attitude to math. It covers skills like estimating and fractions, and explains them in the context of real world examples like using discount coupons in the supermarket. That doesn't make it a basic text.  Before you are 50 pages in to the book Laing is explaining negative exponents. The book has a useful appendix listing formulae and a glossary of math and financial terms.

Math for Grownups is also about reclaiming numbers for yourself. Math is not there to constrain you. The underlying message throughout the book is that math is your friend. Should you buy that snazzy new ice cream maker? Math will help you work out if you can afford it but even if you can't, the choice is still yours.  "Just remember that you-not the numbers on the page-make the final decisions," writes Laing.

Throughout the book Laing presents simple tricks to make equations and calculations easier. Key to this is her philosophy about estimating. She introduces tips like dropping the fractions off numbers, doing the math with whole numbers and then adding the parts back on again. Doing math that gets you an answer that is good enough is all that is required. She writes:

"All through your math education, you were taught precise was to solve problems. And you may have come away from that experience thinking that math depends on that degree of precision.

Sure, math is an exact science, but you get to decide when you need a precise answer and when an estimate will do. The key is thoughtful estimation. Make sure that you're not cutting so many corners...that you end up with an estimate that is either too small or too large.

And when you get your solution, ask yourself this question: Is it reasonable?"

There are a lot of real-world examples from buying a car to scaling recipes to deal with a glut of tomatoes from the garden. There is nothing specific about work-related math like project budgets although Chapter 8 deals with household budgets. That section also looks at salary negotiations and now to calculate how much that raise is really worth if it pushes you into a higher tax bracket.

Laing gives readers the tools they need to get more confident with managing numbers. One way to do this is to practise in situations where the future of your project is not at stake, like calculating grams of fat on food labels, or working out how much each family owes when renting a holiday villa with friends.

Laing encourages us to have a relationship with numbers that puts us back in control. If you feel like you struggle with calculating ratios and fractions or percent (for example when working out contingency budgets) then this is a confidence-boosting book.

Transcription:

I’m standing on the banks of Lake Como in Italy and as I’m here I thought it would be a good opportunity to talk to you about managing projects where you’ve got budgets in two currencies. And I’ve done that. I’ve managed a project where I have had contribution from the French office and contribution made by the UK office.

Managing two different currencies was actually a very difficult thing to do because it meant that overall project accounting was very difficult, very difficult to manage two sets of accounts, if you like, two sets of who was spending what and how that added up to an overall budget figure to put on my steering group reports.

So my advice to you would be to avoid doing that if you possibly can. Make sure if you are getting contributions, people are paying different things from different countries, then you try to convert all of that into one main currency and use that as the way that you report to your stakeholder groups.

The other thing that you could do when you’ve got multiple currencies is to fix your exchange rate so where a contribution from one country or an office in one country or a team in one country might cost a particular amount in Euros, as we’re in Italy, when you wait a couple of weeks that same contribution might be worth something different. So agree with your finance office how you’re going to convert, fix a particular exchange rate and use that for the life of the project.

Every so often I’m asked questions about handling project finances. Here is another batch of Q&A. If your question isn’t answered here, drop me a line and I’ll try to include it next time.

Today we are focusing on tolerance.

You've recommended ranges for budgets as well as tolerances - can you recommend whether to combine these or keep them separate?

Estimates are better if they are ranges. You might estimate your budget to be £90-110k, for example. This will become a narrower and narrower estimate as the project progresses. But when you are discussing budgets at the business case stage, a range is a more appropriate response to uncertainty.

Tolerance is the amount by which the project can be delivered over (or under) budget without anyone being concerned.  It’s usually a small amount represented as a percentage. If your tolerance is a percentage, you will express it as something like +/-5% i.e. you can be up to 5% under budget or up to 5% over budget and still be delivering the project appropriately.

I would not combine tolerance and budget estimates. Set your budget. Then agree a tolerance level with your project sponsor. Apply the tolerance to the budget. You will end up with a statement like:

“The budget for Project Banana will be £90-110k with a tolerance of +/-5%.”

Is tolerance the difference between total cost and contingency?

No. Don’t think of tolerance as ‘real money’. It is simply a parameter in which you operate. It’s the same as saying, “I’ll aim to be at the cinema to meet you at 7pm but the trains aren’t running to the timetable because of engineering works so I could be there anytime between 6.45pm and 7.10pm. That should still give us plenty of time to get tickets and sit down for the film.”

Total cost is the amount (in range form if your sponsor will let you) your project will cost. Contingency is a pot of money put aside in case of unforeseen developments. It is not part of your overall budget and with any luck you won’t have to draw on it. It is for managing project risk.

What is the normal level of tolerance as a percent?

That’s a difficult question! It depends on the project. A project that has many elements that have been done before, an experienced team who have put together comprehensive and accurate estimates, with low levels of innovation and without the risk of new technology could easily have very low or no tolerance. This is because you’ll already know enough to ensure that you won’t need the ‘safety blanket’ of tolerance in delivery as you’ll be pretty sure that you will hit the estimates straight on.

The ‘right’ answer is whatever your sponsor says is appropriate. For organizational politics reasons, or financial constraints, the answer might be zero.  Talk to your sponsor about what tolerances they consider acceptable for the budget.

If you are pushing me for an answer I would say +/-5%. That gives you a window of 10%. If you are swinging outside of that window you will either be tying up money that you don’t really need for the project that could be better spent elsewhere, or you’ll need to go back and ask for more money as your project costs have risen.

Is it customary to add % of budget as ‘miscellaneous etc’ to the project budget and is this the tolerance you are talking about?

Yes, it is customary to add a budget line for unforeseen items. But no, it isn’t tolerance. This is your contingency fund.

Is it any different for PRINCE2?

No. PRINCE2 doesn't specify any particular way to manage project finances. You can read more about project tolerances in PRINCE2 here.

Last year I gave a webinar on managing project budgets, which also included the answers to many questions. You can see the whole presentation online here, via a recording of the webinar.  I’ll have some more Q&A for you soon!   Got any questions?  Leave me a comment and I’ll answer them in a future post.

Read Part 1 here
Read Part 2 here
Read Part 3 here
Read Part 4 here
Read Part 5 here

At the PMI Global Congress EMEA in Dublin last month Terry Williams spoke about his research into early warning signs on complex projects. Last week I wrote about what causes problems on projects. One of the things his research team considered was the role that external reviews have to play in uncovering those problems.

External reviews at all points in the project are useful. These provide a sense of legitimacy; comfort that you are doing the right thing. However, they need to be well focused, with guidelines. And of course it is not enough just to do a review and create a list of issues: issues have to be acted on as well.

However in some cases it was the process of doing the review was the most useful. The interview forced the project team to defend what was happening and therefore helped them uncover what was indefensible.

Having to justify the decisions made the project team question them and this process was identified as a good tool for flagging where things were going wrong.

Barriers to identifying early warning signs

You may expect warning signs to be successfully identified and dealt with in an environment where gut feel is taken seriously and reviews are carried out. But it is not like that everywhere.

Terry also shared some of the barriers to identifying early warning signs in projects. Here are some:

• A mismatch between project life cycles and strategic planning cycles; no alignment between annual budgeting and long term projects
• Methods are not well focused
• Effects of politics make you do the wrong thing. internal politics stop you seeing what's happening, and even if you do see it you won't say anything anyway
• Quality of team
• Being too optimistic
• Lack of a good business case
• Sponsors who have set up a project and then moved away leaving the team to get on with it.
• Lack of documentation
• Getting vague answers to critical questions
• When people work too much or too little
• Constant churn of people and those in acting positions (like Acting Marketing Director): they don't have ownership or the history to look out for problems
• Unfulfilled promises
• Frequently changing decisions.

I am not a big fan of organisational politics, and I often wish we could cut through the hidden agendas and just get things done. However, fast tracking projects through politics means you don't have time to assess early warning signs, Terry said.

What are the early warning signs?

As a result of their research the team was able to make lists of typical early warning signs by project stage. These are helpful guidelines for people doing project reviews - pointers for what to be looking for. The lists included:

During project set up

• Poor project definition
• Poorly developed business plan
• Sponsor with unclear expectations
• Inconsistent arguments about agenda
• Vague reasons for undertaking the project
•  

In early stages of project

• Lack of a clear business case
• Deterioration of relationships within the team and with suppliers
• Incomplete docs
• Unwillingness to conclude discussions or make decisions
• Lack of competences in team
• Lack of clear roles and responsibilities

During project execution stage

• Frequently changing decisions
• Uneasy comments
• Strained atmosphere
• Not showing trust in project organisation

Do you do project reviews? If so, have you spotted any of these warning signs or any other signs that things might not be going to plan?

"We should have seen it coming."

Have you ever said that or felt that on a project?

Terry Williams spoke about his research into early warning signs on complex projects at the PMI Global Congress EMEA in Dublin recently. The researchers looked at how successful project assessments are in uncovering the warning signs that something is going wrong on the project.

They set out to discover what the most important early warning signs are, and what to look for in different contexts. Terry specifically focused on complex projects. "A complex project is one where you don't understand how the inputs generate the outputs," he said.

The team went in to 14 organisations and interviewed people about what went wrong in their complex projects. The issues they asked about included:

•  Political processes and reasons for projects

•  Business case

•  Risks and opportunities

•  Stakeholders

•  How you learn lessons from other projects, and the difference between lessons identified and lessons learned.

This last point was interesting. A public sector project lessons learned report included the advice that future projects needed a strong leader. That's not rocket science. But when the researchers dug into the reasons why the lack of leadership had been an issue on this project they found out all the political reasons behind it, which is much more useful. Understanding the context and the narrative around the lessons is helpful, Terry said.

He cited the NASA lessons learned database which I also refer people to when I give talks - it is a great example of managing organisational knowledge.

What causes the problems?

Problems on projects are caused by all kinds of things, and the researchers uncovered some common themes:

•  Overly ambitious plans

•  Development of new technology

•  Difficulty of stopping projects when they have gathered steam.

•  Complexity

•  People in senior roles forgetting what managing projects is like as they have moved to levels in the organisation where they have no recent relevant operational experience

•  Group-think

Then they took a step back and looked at what warning signs came before these problems.

The researchers saw that early warning signs include 'gut feel' and non-verbal, people-related issues. "Early warning signs may be evident from people's behaviour," Terry said.

Unfortunately, project managers and executives don't always pick up on these signs, or know what to do if they notice them. And the more complex the project, the more likely they are to ignore them.

Half of the companies taking part in the research distinguished what a complex project was. They had guidelines set by the company specifying what 'complex' meant for them.

"We got this feeling that people doing complex projects define more things to look at and this takes away reliance on gut feel," Terry explained. "The more complicated guidance distracted you from using gut feel."

The more structured and complicated the organisational structure, the harder it is to allow soft interpretations of concerns.

Next time I’ll be looking at the value of using external reviews to assess early warning signs on complex projects.