The Money Files

Project cost management is an important part of managing a project: A Guide to the Project Management Body of Knowledge – Fifth Edition (PMBOK Guide®) devotes over 30 pages to it. But where do you start? It’s a daunting subject because somehow managing money seems much more difficult than managing people or organising tasks, don’t you think? It doesn’t have to be that way and the PMBOK Guide actually gives you some straightforward approaches to making it easier.

For a start, project cost management the whole purpose of it – the reason why we bother with cost management at all – isn’t rocket science. It’s so that the project can be completed within the approved budget.

It is, however, wider than just budgeting. Cost management involves planning how you’ll spend the money, estimating, getting the financing, finding funding, managing and controlling the costs and of course budgeting too.

Let’s take a look.

Project Cost Management Processes

There are four processes covering cost management in the PMBOK Guide. They are:

1. Plan Cost Management

This is the process of working out how you are going to do your financial management. In this process you’ll establish what policies you should adhere to, what company procedures are relevant and set up the documentation for planning, managing, spending and controlling money as it flows in and out of your project (mainly in at the start as you get authority to spend your budget and then pretty much exclusively out – projects are expensive things and don’t normally generate an income of their own during execution).

At the end of this process you’ll have a cost management plan that tells you everything you need to know about managing your project finances. If nothing else, this should give you the confidence that you’re doing the right thing!

2. Estimate Costs

This process involves coming up with the total figure that your project is going to spend. It’s a part of your overall resource estimating – cash, after all, is a resource on your project. People costs might fall into here but people may be considered a different type of ‘cost’ and you may not need to account for them at all. You’ll also get quotes from suppliers and other third parties in this process for anything that your company can’t do itself.

During this process you’ll apply estimating techniques and build up a picture of the cost of individual activities. Weirdly, you don’t add them all together in this process. You have to wait for…

3. Determine Budget

You add up all your estimates here. This process collates all your estimated costs into a total for the whole project. This is also the process where you get authority to spend your money and that gives you an authorised cost baseline. At the end of this process you’ll also know the ‘profile’ for your spending or the run rate: how much money you need for your project at various points. This can be useful if you’re working on a multi-year project as your organisation can split the funding across several financial years and it isn’t tied up in project accounts when it could be put to better use elsewhere.

4. Control costs

Once the project is in full flight, you’ll be spending money and you’ll need some way to monitor and control what’s happening. This process takes the documentation you prepared earlier and puts it into practice. You’ll apply those policies and procedures (such as how you pay invoices) and record what is going on.

If you are doing Earned Value Analysis on your project, this is the step where that kicks in, as a monitoring and control tool.

Personally, I think Estimate Cost and Determine Budget run so closely together on many small projects that it’s hard to see where one ends and the other begins. As with many things in the PMBOK Guide, you’ll have to apply the processes pragmatically so that you don’t end up with too much bureaucracy but you do get adequate control. In fact, the PMBOK Guide does say that there is plenty of continuity between the cost management processes and the only reason they are split out into four separate processes is because they use different tools and techniques. Those tools and techniques might be different enough to make up a separate section in the book, but in reality you are likely to use them together in a budget workshop – so don’t be afraid to merge the different steps together to get the end result you want.

Over the coming weeks I’ll be looking at each of these processes in more detail, and talking more about the tools and techniques involved. In the meantime, leave your project budget process questions in the comments and I’ll make sure to answer them in a future article.

Elizabeth Harrin also blogs at A Girl's Guide To Project Management.

When you are preparing to select a new supplier for your project you want to make sure that they are a good fit for you and your organisation. As well as the cost management aspects of getting a quote and setting up a procurement process to select a vendor, there are some other things to consider when you are making your final choice. These should all be part of your selection criteria – don’t forget that as well as technical requirements for your project you’re also ‘interviewing’ them to gain some confidence that they are actually going to work well with your existing project team.

So what do you need to know about your project supplier? Here are some things to consider.

Solvency

Solvency is important because you want to work with a business that is credible and stable. It’s not fun to be in a situation where you are halfway through a project and you find out that your supplier is on the verge of bankruptcy. Ask your finance or legal team to carry out their standard background checks on the businesses that you are considering working with (they should have access to the information to do this, although they might outsource the checks to a third party).

You’ll get back information about how the company has performed financially and whether or not it is considered a going concern. If you are at all bothered by the results, talk to the supplier. Some things could be explained away but if not, this simple solvency check will help you avoid a lot of problems in the future.

Size of business

How big is the company? It’s a very different experience working with a major multi-national to working with a small design studio that could essentially be one person working from their kitchen. That’s not to say that you shouldn’t engage small and independent firms, but be aware if you are doing so.

Taking on a big contract is also a risk for a small firm. If you decide not to continue to use them (say, after the project has finished) then they will lose a large deal and could potentially struggle. If you do need them for some kind of ongoing support then make this clear.

With a big company you could find the opposite: your project is so small in the grand scheme of things that you don’t get the customer service you expect because they don’t prioritise your problems.

Estimation techniques

Find out how they have prepared their estimates. There should be a list of assumptions somewhere in the proposal document. These should explicitly say if the proposal includes taxes and expenses. Some vendors will also expect per diems for their staff. This is a flat rate to cover the cost of working away from home or on a client site, and is supposed to be used to cover things like lunches, laundry, phone calls and so on. It’s paid directly to the staff member so it is different from expenses and often it’s explicitly excluded from a quoted price.

How do I know? I’ve been caught out with those before.

Working hours

The working hours are particularly relevant if you are working with international partners. They will have different national holidays to you so it’s worth finding out when they are. You can also write into your contract that you expect them to be available on all workings days in your country. Personally I think this is a bit mean and it’s nicer to be able to work around their availability rather than make them skip their local holidays, although I have seen it done.

You might also want to check what hours they are going to be available. While no one would expect the team in New Zealand to stay up all night in case someone calls, it is worth discussing what would happen if there was an urgent problem during your working hours and the overseas office was closed.

Staffing and experience

Talk to them about who is going to be allocated to your project. You’ll want confidence that the consultants they put forward have the relevant experience to be able to complete the work. Everyone, of course, needs to start somewhere and you may find that you also get less experienced contractors allocated to your account. That’s fine, as long as you know they are being adequately supported by more experienced colleagues. You’re paying for someone to do the job and provide expertise in a field that your own company doesn’t have. You’re not paying for someone to learn on the job.

While you are at it, get references of where they have delivered similar projects for other clients. They should be able to evidence the fact that they are experts in this area because that is what you are engaging them for. If they haven’t got a lot of experience in your sector but you still want to use them, talk to them about you can help them build their knowledge quickly.

What else do you consider when selecting and securing a third party to work on your projects? Let us know in the comments.

I was really sorry to read in PMI Today that Wilhelm Kross had passed away. He was kind enough to let me interview him only last year and I was impressed by the depth of his knowledge. His desire to improve things in project management came through really strongly and he was an active member of PMI as well.

He was a well-known and well-respected figure in project management and I know he'll be deeply missed.

You can read my interviews about risk management with him here and here.

Projects often require out of hours work. That means someone staying late or working over the weekend (or in other non-normal working time) to complete project tasks. It happens in many industries: in IT for example you can’t always make changes to systems during working hours as it stops the production system, so someone has to make those changes at night when the office is closed – and if they can’t be automated then it really does mean someone staying up to press a button.

I haven’t come across many project team members who are willing to work unsociable hours, unless they are getting paid a lot to do so. Therefore you have to handle the requirement for out of hours work sensitively as it does normally mean someone giving up their social and family time to do project work. Here are some guidelines for managing project tasks that have to happen out of hours.

Is it planned?

First, consider if the project task is planned. That could include:

• Software installations or upgrades
• Building work
• Hardware upgrades like PC replacements or other kit
• Networking and telephony project work

I’m sure you can think of other things relevant to your industries and projects that involve out of hours tasks.

If out of hours work can be planned, then it can be managed.

Provide lots of notice. The more notice people have, the easier it is for them to rearrange their other activities and tasks around this. No one likes to be told that they have to work out of hours at short notice (more on this later). Keep reminding them that the out of hours work is coming up and checking that it is still on their radar.

Arrange who is required. When work is out of hours it can be hard to call in a colleague if you have forgotten something. You can’t just dial up your mate at 3am and ask them to do something. So make sure you have lined up the right resources from the outset. This could involve you or a project team leader, the resource in question, technical or IT staff and someone from the vendor.

Check access. If you are going to site, make sure they remember you are coming and haven’t locked up. If you need access to a secure area, check that someone is available to let you in.

Check the facilities. Do they need to take their own food with them? The canteen on site closing at six isn’t going to be a problem for the normal staff, but if your project team goes on shift then and is planning to work through the night, make sure they’ve got the facilities to at least make themselves a cup of tea. If necessary, turn up yourself with cake – I have done this and it was really appreciated, even though I contributed very little to the actual project tasks in hand.

Arrange overtime payments. Let the individuals know how they will be compensated for working out of hours so there are no surprises. This could be overtime at time and a half or double time, or time off in lieu.

Is it an emergency?

Sometimes project work has to happen as a matter of urgency. Sometimes stuff happens that creates problems that have to be fixed immediately (like a technical failure in the middle of a training course) and that might mean calling someone in when they are supposed to be on leave or asking someone on a Friday afternoon to stay late and work all weekend. Because most project disasters happen on a Friday at 4pm, don’t they?

This type of out of hours work should be managed through your project issue management process.

Organise channels of communication. Make sure that the individuals know who to talk to and who they need to report to when the problem is fixed.

Appoint an issue owner. If you aren’t going to be managing this issue through to resolution, make sure you appoint someone else. Let everyone know who is the main point of contact for decisions, whether that is you or a colleague.

Deal with the problem. Do the work. Get the project back on track. Then fill in the issue log with the resolution and do any other project reporting that you have to and update your project plan.

Recognise the effort. Again, if you have had staff work out of hours in order to resolve a problem, look at how this can be rewarded and recognised. If you can, pay overtime for the hours worked. If you can’t, time off in lieu is normally at your discretion. Say thank you – they got you out of a hole.

Out of hours work is part of managing many projects and you can keep your team on side while you ask them to work unsociable hours for practically nothing. Keep cheerful, keep them cheerful and explain the benefits of the project over and over again. And above all, be grateful. Very few people have ‘must work overtime for project manager’ in their contract so recognise their commitment and thank them for their contribution to a successful project.