The Money Files

There’s a lot around at the moment about green project management.  It’s a good thing: we could all benefit from living and working in a more sustainable way.  However, selling that to senior management can be difficult, so is there a financial benefit to being green?  I spoke to environmental and management experts Rich Maltzman and Dave Shirley, authors of Green Project Management, which is published this month.

Rich, Dave, how do green project management practices help businesses from costing the earth?

To best answer that question, we tried to first answer the question, “what are green project management practices”?  Green project management is not a new discipline, but rather the intertwining (or intersection if you will) of green business practices with project management discipline.  By nature, project managers manage limited resources,cost and time, and it also includes the earth’s limited resources, fossil fuels, water, and other things we take from the earth.  By viewing their project through an environmental lens, making sure that resources like energy are conserved throughout a project, project managers can conserve those scarce natural resources and reduce what we take from the earth.

Right, so through taking an environmentally-aware approach to projects we can make a contribution to being green.  Convincing others that this is worthwhile goes further than just ‘doing the right thing’.  Is there a money saving benefit to being green?  How does it manifest itself?

The short answer is yes there is a benefit to being green and it manifests itself as cash!  One only has to look to Interface Global (worldwide leader in modular carpets) and Ray Anderson, its founder, who we consider one of the green business gurus.  His aim is to be sustainable in all its dimensions by 2020.  According to our research, “the company started with projects focused on waste reduction, considering the reuse of everything from carpet scraps to industrial effluent, which immediately led to savings—more than $60 million in the first three years.”  You can read more about Interface Global here.

Wow!  That’s a lot of money to be saving.  We should be including green savings in all our project business cases.  What’s your top tip for project managers who want to employ green project management practices on their next piece of work?  Where do you start?

Rich says:

Let me answer both questions at once. Start with the Environmental Management Plan and/or the environmental policy statements of the enterprise.  Like a project manager draws power from their project charter, the PM who is trying to increase greenality on their project must draw power from the company’s mission to reduce its carbon footprint, reduce waste, and whatever other aspects of corporate social responsibility fit into your piece of work.
So the tip is to connect your project’s charter and its resulting work statements to the Environmental Management Plan of the company, which should be conveying the rationale that to excel in this area is actually a benefit to the company’s bottom line.

And, if your company is lacking in that area – become its champion!  After all, projects are all about change.  Be that change.

Dave says:

Well, I’ll be a little more expedient (or should I say a lot more).   You start with our book, Green Project Management; it will give you insights into all of the things Rich has said above, as well as an understanding of your stakeholder’s green drivers, green project fundamentals, lean and green,  takes a look at the companies we believe are “At the Top of Their Game” and more.  It is a quick read, but will be the project manager’s starting point to affect the greening of their “next piece of work”.

Rich, you mentioned the word greenality.  What’s that?

Greenality is an attribute.  It’s a less clumsy way of saying that an organisation is “greening up”.  In fact, if you look around the literature, and the web, you’ll notice a lot of quotation marks around the word green or greening. To us, that says that people are not comfortable using the actual words.  That implies there is a missing word.  Otherwise, why the “quotation”  “marks”?

Good point!  So where did the word greenality come from?

We created the word by smashing two known words – which need no quotation marks – together.  Those two words are green and quality.  Quality, as we know, is built in, not bolted on, to our projects.  It’s in the fabric of what we do, always aimed at meeting or exceeding customer requirements.  The green we understand it is focused on sustainability, the environment, on reducing waste.

So by putting the words together we have a definition for Greenality which goes something like this:

Greenality (project): The degree to which an organization has considered environmental and sustainability factors that affect its projects during the entire project lifecycle and beyond. It contains two important aspects: (1) minimizing the environmental impacts of projects (this includes efforts to simply run the project more efficiently and effectively) and (2) minimizing environmental impacts of the product of the project. Like quality, greenality must be designed-in, not inspected-in.
Greenality (general): The degree to which a set of inherent characteristics fulfills environmental and sustainability requirements. Like quality, greenality must be designed-in, not inspected-in.

This definition is actually up for editing at a non-profit site called Open4Definition.org.  You can join a project to help refine this definition on the site.

We do not yet have a scale for greenality. It is a word quite literally in its infancy. However we have seen efforts to do this on a broader scale for enterprises with examples such as the Pacific Sustainability Index, where measurements are made of the companies’ greenality by observation of their public presence on the web.  Another example is ClimateCounts.org.  We need to take this initiative which is applied to business in general, and ‘projectize’ it.  We are glad to collaborate with others to do just that.

So there is still some work to do embedding greenality as a concept and a word in our consciousness.  How sustainable is this trend?  Businesses may have high level statements on reducing their carbon footprint, but that has not filtered down to general project management practices yet.

We certainly hope that this is not a trend, but even if it is, we go back to the idea that sustainability makes good business sense even if there is not a groundswell for environmental action and responsibility.  And project managers should – by their nature (excuse the pun) – be all about reducing goldplating, reducing waste, and effective use of resources.  So we maintain that the sustainability of sustainability is sustainably sustainable

[Laughs.]  OK, thanks, guys!

More about my interviewees:

Rich Maltzman and Dave Shirley are the authors of Green Project Management and the blog Earth PM.

I’ve been asked a couple of times now about why understanding your project’s finances is important. If your company doesn’t ask you to track your hours or what is being spent on the project, why should you care about the numbers? Your role is to deliver the project according to the scope and quality criteria set but the sponsor, right?

Wrong.

Your role is to deliver a project that is fit for purpose and adds some value to the organisation. Whatever you are working on should have a benefit. As we saw last week, benefits don’t have to be financial. But there should be a purpose to what you are doing – someone who cares about the outcome enough to sponsor the project, and a business case that justifies why you and your organisation are bothering to work on this project at all. And that requires you to know a little about the finances of the project.

You don’t have to do sums. You don’t need to have complicated spreadsheets or do lots of financial reporting. All you need to do is work out roughly whether the effort you are spending on this is worth the perceived benefit. Use your judgement. If the sponsor is asking you to work on a project that will take eight months of your time to complete, with no other costs, but it will deliver pretty much no benefit, is it really worth it?

This is such an important question right now as project teams are pared back to the bear minimum to reduce costs. Ideally, the programme office should have done this thinking for you, and be giving you the confidence that you are working on something important and of business value. But in the absence of someone doing that, you need to. And frankly, even if they are doing it, you should sanity check it yourself.

Put your project in the overall context of the organisation’s operating environment. With whatever ‘efficiency measures’ your company is implementing, is this project a good use of your time or could your time be better spent working on something else?

You know the hair care advert: ‘Because we’re worth it.’ Well, project managers need to work out if their projects are worth it. Are yours? Which projects will you recommend closing when your sponsor is back from holiday?

This video explains 7 places to look for benefits on your projects. For those of you who would prefer to read a transcript, here it is:

Hello. I’m Elizabeth Harrin and today I’m going to show you seven places where you can look for benefits on your projects. 

We often think of benefits as financial, but they don’t have to be. 

For example, they could be a legal or policy requirement, something that is mandatory for your organisation.  This type of benefit enables you to satisfy legal, compliance or other mandatory requirements that are essential to keep operating.  This type of benefit makes the business case for your project stand by itself – you won’t need to look for any other types of benefits, but you can if you want to show that your project will provide some added value.

Quality of service benefits provide a better service to customers. This could be through a shorter turnaround time for queries or reducing customer complaints.  Ideally, something quantifiable.

Some benefits help improve things like corporate decision making.  These are internal improvements that won’t be felt outside the organisation but can streamline or support management processes.

Flexibility might not the first benefit you think of, and it is difficult to measure, but there are benefits to be had here.  Flexibility benefits allow an organisation to respond well to change without incurring extra costs.  An example project could be to introduce working from home.

Risk management should be done on every project, but it can also be one of the project’s benefits.  Risk management benefits are those that help a company reduce its risk by being better prepared for the future.  Depending on the project, these could also support a business case alone, even if the costs of doing the work are high.  For example, redesigning your disaster recovery strategy might be an essential piece of work to mitigate business risk, even though you won’t get a financial return on the project.

Projects have an impact on people, and projects that improve staff morale or better motivate teams can possibly claim productivity benefits.  They could also claim to reduce staff turnover, although think carefully about how you will measure benefits like this that are around people.

And finally, don’t forget the benefits that are driven by cost.  Financial benefits can be through reducing costs while maintaining quality, or through delivering increased revenue, for example, through launching new products.  You can also include financial benefits around keeping revenue the same but getting it faster, as these will have a financial impact on your profit and loss as well as on timescales.

We’ve looked at, benefits as a result of legal or policy requirements, quality benefits, internal improvements, people benefits, risk management benefits, flexibility benefits and financial benefits.  I hope your projects see some of these in the future. 

Thanks for listening!

You can manage your project finances in a spreadsheet, right?  That’s what I do.  Admittedly, by the time you have done one for capital and operating costs, one for invoice and purchase order tracking, plus a general budget reconciliation of spend against forecast, you do end up with some pretty complicated spreadsheets.  Is accounting software the answer?  I spoke to Reginald Howatson, Director, Sales and Marketing, at JOVACO Solutions, Inc., to find out if it would really help.

Why is it important to have project accounting software?  

To be able to track expenses, and time against projects to better manage costs and profitability of projects. As customers become more price conscious, making accurate and precise estimates, respecting time and cost budgets and using resources effectively have become a part of the challenges that your business must face every day.

Fair enough.  But why won't ordinary accounting software do the same thing?

Basic accounting software does not offer the required functionality to manage projects with the level of detail required to view the different levels of the projects. You can no longer afford the luxury of approximating costs or tracking projects by simply using Excel spreadsheets.

Oh.  So how can project accounting software contribute to project success?

Project accounting software contributes to the success of a project by managing budgets, time and evaluation of specific Key Performance Indicators. Access to meaningful and complete management information is crucial for any project manager.  You have a rich and unique source of information that you can use to produce a wide range of reports for your project analysis, your organisation’s profitability as well as ad-hoc analyses and key performance indicators.

OK, that makes sense.  It’s like a dashboard for project finances, with some extra stuff included too.  I expect this is also useful for managing benefits once the project is complete.  What's your top tip for project managers having to manage project finances for the first time?

Choosing a single platform for managing project finances and using an integrated solution makes managing easier since data is integrated from virtually any source, such as your ERP, CRM and Business Collaboration platform.

A single platform, as long as it isn’t Excel.  Got it.  And what's the mistake you see most frequently?

By not using project-based business management software and integrating all the features required for project accounting you increase your administrative costs. Data is not shared and is not easily accessible thereby slowing down staff and negatively impacting their work and the profitability of projects.

While budget estimates or erroneous delivery dates can result in significant changes in the costs, it could even make you lose business opportunities or increase billing cycles. As a worst case scenario, it is like financing your customers.

The dashboard concept must mean that information is quickly, and that must be a help for decision making.

With today’s technology, you can now access reports on the web from your project accounting software in real time, anytime and anywhere. For example, using web based time management software integrated into your project-based management software; you can keep track in real time of your project's profitability and solve problems as they occur. Project managers have access to all the tools necessary to manage their projects.

Thanks, Reginald.

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I'm personally not yet convinced that implementing project accounting software would make much of a difference to the way I manage projects.  If your Finance department use spreadsheets, chances are it will be easier to use the same approach as they do.  On top of that, once the spreadsheets are set up, you can use the same templates over and over.  Still, in large project-based organisations this type of software has a place.  Have you used anything like this before?  What's your experience?

More on my interviewee:

Reginald Howatson is the Director of Sales and Marketing at JOVACO Solutions, which specialises in project accounting software for professional services firms.  He has extensive experience in ERP software sales and marketing, and is a prior Chair of the International Association of Microsoft Certified Partners.

It was a while ago now that I gave a webinar on managing money on projects, but it is taking a long time to answer all the questions that I didn’t get round to doing during the live session.  Thanks to all the fabulous participants, who asked such brilliant questions!  I am still trawling through them hoping to answer them all, and here is today’s batch of managing money Q&A.  

What is the difference between the contingency and a reserve?

Nothing.  Call it whatever you want.  The idea behind both contingency and a reserve is to have a pot of money put aside in case of unforeseen developments.  Regardless of what you call it, you can’t draw on it as a matter of course.  Accessing the contingency fund is only done with the permission of the sponsor – it’s not there for you to use as a buffer because you haven’t managed to keep the project costs on track.

If you choose the biggest number in the range of total project cost, would you then use that as the basis for applying a percentage as contingency?

What you are talking about here is presenting budget figures as a range to key stakeholders during the decision making process.  This is a great idea, and it encourages people at the early stages of a project to take into account the fact that the planning is not yet completely finished.  If you then want to apply a percentage amount as contingency – say, 10% - choose the biggest number in the range. So if your budget prediction is a range of £250k to £280k, you would work out 10% contingency as 10% of £280k, giving you £28k.  You can always hand your contingency back if you don’t need it, or reforecast it to a more accurate level later.

How we can handle project cost in a software product development company where the same resources are being used both for Development and production support and trouble shooting the issues of the live product?

Timesheets!  The project costs you must be referring to here are resource costs.  All other costs could be attributed directly to the cost of brining a new product to market, like buying a new server to host it on or marketing for new clients.  Accurately predicting and monitoring resource costs on a project are going to be hard unless you know how your teams are spending their time. Get them to do timesheets for a couple of months to get a baseline of what percent of their time is spent on support and troubleshooting.  This will give you a basis on which to forecast going forward.

On the other hand, if you aren’t worried enough now to be tracking time and working out how much effort your teams put into managing projects, why do you want to going forward?  Consider the reasons why knowing this information is important to you before going to the effort of introducing a time recording system that won’t give you all the data you need to make useful business decisions.

Would you say an initial budget has a +/- % deviation and encourage revisiting the initial estimate to reduce the deviation or wait till you expect to exceed initial budget?

Never wait until you expect to exceed the initial budget to reforecast.  Typically, project budgets are reforecasted at the same time as the rest of the company accounts are reforecasted, so once a quarter is normal, if the project is large or costly.  You can set points in the project lifecycle where it is sensible for you to revisit the costs.  For example, after the first phase, or once the development is complete could both be good examples of where it is an appropriate time to look again at your projections.  

I would say a budget has a +/-% deviation, and I think this is a good habit for sponsors to get into – they should be used to looking at ranges of numbers, and you can then revisit this estimate to reduce the deviation once more detail is known.

What are the reasons for going over budget and how can I control it early?

Where do I start?!  Here are some reasons:  poor estimating, equipment costing more than you first thought, forgetting to add in the tax (I’ve done that), not calculating formulae properly so your sums are wrong before you start (done that too), a risk materialising and not having budgeted for problem resolution, resources costing more than you thought i.e. having to pay for overtime or weekend working. The list goes on, and I’m sure you have your own suggestions of why projects go over budget.

Mainly it all comes down to poor monitoring and control.   If you have estimated accurately, keep the project on track, manage the resources effectively, and forecast estimate to complete properly, you should at least have an early warning that you are going to go over budget, and you can address this appropriately.  That could be through increasing the budget, using the contingency fund, trimming down the scope or dropping the quality of some deliverables, or through other means.

Read Part 1 here
Read Part 2 here
Read Part 3 here

You can see the whole presentation online here, via a recording of the webinar.  I’ll have some more Q&A for you soon!