The Money Files

I met Tarik at the PMI EMEA Congress this year. Tarik travelled to Dublin from Dubai, where he is Assistant PMO Director at Ajman University of Science and Technology. He is also one of the few PMI-RMP’s, as well as being a PMP.

Tarik, you started out managing construction projects. How did you move into your current role?

The opportunity came to me when I was nominated to be part of the team who founded the PMO in Ajman University of Science & Technology in UAE.  My role was there is simply to take part in designing the project management processes. This step took me to another important stage in my professional career through moving to strategic project management in matrix organizations. The PMP certificate played a vital role in transferring me to a strategic position.  

OK, so your role at the university involves setting up project management processes. How did you go about this?

In matrix organizations the most important thing is to involve everyone in designing the processes, especially the processes related to cost control. One of the most important concepts to do that is moving the projects from the project level to an organizational level; this concept impacted the designed processes a lot.

Another important concept in designing financial and cost control processes in matrix organizations is to engage the finance people, because usually they control the project costs, leaving the project managers without any authority. This could be implemented by designing a customized process that balances the power between the finance team and the project managers.

You are also responsible for producing strategic reports. What financial information do you recommend that project managers include in strategic reports?

Usually at certain points, we ask for a complete EVM analysis and a complete forecast for the remaining period of the project. In addition, when we have long projects we usually look after trends just to control the funds in future.

The most important thing in the financial strategic reports is to stay aligned as much as you can with the project budget. Usually higher management worries about the unjustifiable use of the contingency and management reserves.

One of your other responsibilities at the PMO is to deliver a lot of the training to the projects managers at the University. What financial/cost control/budget training do you offer them? Are they keen to learn?

This is good question! In matrixed organizations not all the project managers have financial backgrounds, so sometimes simple accounting, financial analysis and reporting training is important so they learn how to grab the important related information from the financial sheets and reports.

Another important training session is the EVM workshops to learn the EVM technique for the control of costs on their projects.

All project managers can keep developing themselves, not necessarily through formal education but through informal education like workshops, forums and training such as PMI Congresses. This gives you the chance to learn from the experts about practical project management. Project managers might be very strong in their technical field but weak in practical project management and this would be enough for their projects to fail.

You have managed some large projects What are your 3 top tips for managing project budgets?

1. Define a clear scope and create a complete Work Breakdown Structure.
2. Risk is very important topic, the more you respond to the risks early and in a timely way, the more you save costs.
3. Close management control, especially when working to a tight budget, through continuous reporting, managing reserves wisely.

You can find Tarik on Facebook and LinkedIn.

It’s not always easy to know where to look for help when you need advice about money matters. Here are 5 places to look for the answers.

1. The Finance team

The corporate finance team are paid to manage money and balance the books all day. They are your in-house experts for all things from getting invoices processed to budget forecasting and understanding the implications of changes to tax legislation.

Does your finance department have functional leads who face off to different areas of the business? If so, who is your representative? If you work in the IT department, for example, you may find that one of the corporate accountants specialises in the IT budget and they would be a great starting point for your questions.

2. The PMO Finance liaison

Just as the finance team may have staff members who specialises in handling the accounts for your functional area, your PMO may have someone whose role it is to liaise with the finance team.

If your organisation is managing portfolios at a mature level (to the P3O Standard Maturity Level 5, for example), financial control of projects and the portfolio will be an integral part of how the company manages money. There will be full integration between the corporate financial models and the programme and project financial controls, so it is highly likely that someone in the PMO will have the ability to answer your money questions, or at least know who to ask.

3. Books

There are a number of books that deal specifically with project budgeting and financial control. I learn well from books, and being an author myself I have a natural affinity to information in books. Here are two to start you off:

• Earned Value Project Management, 3^rd Edition, by Quentin W. Fleming and Joel M. Koppelman (PMI, 2005)
• Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability, by Kevin R. Callahan, Gary S. Stetz and Lynne M. Brooks (Wiley, 2007). This is my desk reference book when it comes to project financials.

You can check out my blog for more project management book reviews.

4. The PMBOK® Guide, 4^th Edition

A Guide to The Project Management Body of Knowledge (which we know as the PMBOK Guide) contains a chapter on project cost management. It’s Chapter 7, to save you looking it up in the index. This knowledge area contains the processes around estimating costs, determining the budget and controlling costs. It details a number of tools and techniques – not in any great level of detail, but the thumbnail sketches of different estimating techniques, for example, will give you enough to go on to determine whether they could help solve your problem.

You can then go and research that further.

5. Groups

Don’t underestimate the power of asking for help outside of your organisation. There are a number of forums and special interest groups. For example, PMI has an Earned Value Management Community of Practice.

APM also has an Earned Value SIG. 

Even if your question doesn’t specifically relate to earned value management you will find financially-minded people in groups like these who could probably answer your queries. There are also great  discussion groups on this website where you are right now, and you could always ask your question here too.

What other sources of financial information and help do you use? Let us know in the comments.

In the next installment of my video series explaining project financial acronmyns, I look at BCR (that's benefit cost ratio!).

A new European law about using contract workers comes into effect in the UK on 1 October 2011. If your project relies on temporary staff, freelance workers, or contractors, you may find that your project costs go up.

What is the new law about?

The Agency Workers Regulations entitles freelancers, consultants and other ‘agency’ staff to equal access to benefits and equal working conditions to those of permanent staff. That impacts everything from maternity pay to annual appraisals and the right to attend the Christmas party.

Employing a temporary worker on your project means that they will be entitled to information about job opportunities in the company, access to the canteen and to use the childcare facilities if these are provided by the company: basically, they are ‘equal’ to permanent employees. It is likely to take some time to establish how far this goes: will they be entitled to a car parking space, for example? Or luncheon vouchers? (Although I’m not sure if companies still give out luncheon vouchers!)

These benefits apply from the first day that the person takes a role with the company. There’s another level of benefit for contractors, though. This level kicks in after the person has been in post for 12 weeks. At this point they become entitled to the same basic working and employment conditions as a permanent staff member.

That means that contractors become entitled to the same working hours, rest breaks, equal pay, overtime payments and bonuses. They also become entitled to annual leave, with parity to what is on offer to the permanent staff. One quirk of the new law is that they can choose to take the time off or receive additional pay in lieu of the holiday time – not all companies offer permanent employees the opportunity to do this, instead opting for a ‘use it or lose it’ policy.

What is the impact on your project team?

Contractors:

Contractor rates are typically higher than permanent staff rates because contractors are currently not entitled to holiday pay, sickness absence pay or other benefits. With the introduction of the new law, you could have the opportunity to negotiate a reduction in contractor rates to take into effect the additional payments required for holiday entitlement.

Overall, costs for contractor staff could be higher, and you would be advised to review the provisions of the law and plan this into your budgets, especially if your project needs contractors on the team for over 12 weeks. You may even find it harder to get approval for temporary team members, because the terms of the new law make it less attractive to employee short term contractors.

Permanent staff:

Don’t forget the impact of all this on the permanent staff in your project team. Contractors are generally on high day rates – and now they are getting holiday pay? Managing the morale of your permanent team members when faced with high earning contractors could be tricky, so think about what you can do to address the balance. What else can you offer in terms of reward and recognition to support the permanent team members?

You may also find that permanent team members who have been thinking about contracting decide that this is the push they need to leave employment and set up on their own as a project management contractor.

What next?

First, find out if the rules apply to your company. Talk to your Human Resources department. This is the result of EU regulations, but even if you are working in a non-EU country, it could have an implication for your project if you have a European division. Normally, the rules of engagement in the hiring country apply so even if you are working elsewhere, team members based in the EU could be affected.
 
Second, find out if the rules apply to your contractors. In my company, The Otobos Group, I have a number of part-time staff – including an accountant and a virtual assistant. The Agency Workers Regulations do not apply to these people because I buy services from their companies, I do not have the individuals under my direct supervision on a day-to-day basis. There might be contractors or freelances to whom this applies, but given the cost, time and reputational damage that going to court incurs, it is best to be careful. This article is not meant to provide specific legal advice for your situation, so the best thing to do is to check now about how the new regulations will affect your project team!

September marks the beginning of budget season: when we are all trying to work out how much our projects will cost in 2012 and put in requests to the PMO and senior executives for what budget allocations should be made.

In this installment of my Ask the Experts feature, I spoke to Rob Prinzo, founder and CEO of The Prinzo Group, an innovative  knowledge firm that provides performance management expertise through project assurance solutions for enterprise  transformation  and technology projects. He is based in Georgia, and is the author of No Wishing Required: The Business Case for Project Assurance. We spoke about financial loss, why business cases are rejected and managing procurements.

Rob, lots of people are preparing business cases now for projects that will begin next year. Is this early stage the time when most projects are at risk of financial loss?

I have found that the following points in the project lifecycle are where the risk of financial loss is greatest. To prevent against financial loss and another failures, I recommend conducting a project health assessment at each of these crucial points.

1. During the strategy phase, before the business case is presented for approval and funding.
2. During the acquisition phase, towards the end of the vendor selection process, before vendors are finalized and negotiations begin.
3. During the planning phase after the initial drafts of the Project Charter, Detailed Project Plan and Change Management Plans have been developed.
4. During the design phase after the initial drafts of the System Design Documentation have been developed.
5. Towards the end of the development phase or the beginning of the Testing Phase.
6. Towards the end of the testing and training phase before the system cut-over.

You talked about vendor selection there. Procurement management is something project managers sometimes struggle with. What are your three top tips for making the procurement process as smooth as possible?

Make sure that you have defined all your requirements and dependencies. A lot of organizations get into the procurement process or make a purchase and soon realize that they have left something out. Make sure everybody is involved in requirements definition and validate the scope against lessons learned from past projects.

Develop a Request for Proposal. As simple as it sounds a lot of organizations skip this step. A RFP will provide structure to the process and help you compare apples to apples.

When possible engage vendors in a prototype exercise or conference room pilot. This will allow you to dive deeper into specific requirements for your organization and get a feel for what it is like to work with each vendor before making a commitment.

Working with the vendors in this type of prototype exercise will also give you a feel for how robust their estimates are, both financially and in terms of timescales. This is useful to know to feed into the project budget. What's your advice for making sure that project budgets are as robust as possible?

Robust budgeting starts with comprehensive requirements. I recommend starting by making a list of all your projects, categorizing the projects based on: size, business function, type, level of funding, effort and organizational impact. Next, determine the dependencies with other projects, funding, resources and business decisions.  Once you have your list, categories and dependencies you can start to determine the projected costs for the projects.

Great, thanks. So if you’ve done all of that and worked out the projected costs accurately, why do some business cases still get turned down?

I have seen Business Cases get turned down for the following reasons:

• Lack of funding – This happens often, especially in this economic environment.  As a project manager, if you feel that you have a large imminent project, but do not feel that the organization can fund it this year, consider breaking up the initiative into smaller projects or breakout the upfront requirements definition into separate project. This will help keep the project moving forward, reduce the overall project timeframe for the bulk of the work and spread the cost over a longer time period.
• Communicating Business Benefits. A lot of teams do not focus on the business benefits of doing a project or the consequence of not doing a project. Instead the team focuses on technical outcomes: we need to upgrade or move to a new technology platform without properly stating the business reasons and befits why this is necessary (streamlined process, integration, operating efficiency, etc.). Project Managers need to make sure that the business need, not the technology need, is clear.
• Timing – It may not be the right time for the organization to undertake a particular initiative. If the timing is not right, use the opportunity to educate decision makers on the project, get feedback and refine the business case for a more appropriate business cycle.

So if our projects don’t get funding for 2012 it’s not personal! Thanks, Rob.

You can follow Rob on Twitter: @RobPrinzo