The Money Files

Toy trains are now part of my daily life. In fact, I’ve had my routine disrupted several times by Percy from Thomas & Friends going missing, so much so that I’ve put plans in place to mitigate the risk of it happening again by shifting in other areas of the household routine.

That is why we went to visit a model railway exhibition, and that’s why I got started thinking about things in miniature – and those tiny projects you work on in parallel to the big things you have going on at the same time.

What makes a miniature project?

I’m not aware that there is any formal way of classifying tiny projects. For me, these criteria would define a miniature project:

• Limited scope
• Micro or no budget
• Short timescales
• High expectation of quality
• Small group of stakeholders, probably some more committed to the project than others.

There are probably other characteristics as well, but those are the ones that immediately jump out at me.

What project processes can you miniaturise?

I have a couple of small projects on at the moment – one at work and one organizing a summer event for a group of friends. It’s not a big thing but it will take a bit of planning and a few phone calls to sort out. I want to apply project management techniques so I approach the work in a structured way, but I don’t want to go overboard.

I looked at what project tools I could use and scale right down:

Planning: No need for a Gantt chart. I can cut the planning right down to just a task list.

Meetings: Nope. Not when there is just me on the ‘team’ with a few other stakeholders who need to be kept informed. But in terms of planning and doing the work, I can do that alone. At least, that’s the view at the moment. If I need help I’ll ask for it.

Other communication: I can use email and texts. No need for formal status reporting.

Change management process: There will be changes. If you have ever tried to organise an event for a group you’ll know that there are normally several iterations of the right date, the activity, the cost, the guest list and so on. I can keep track of all that with my task list. If I consider anything a material change (such as the cost going up by enough that I feel everyone else should know), I’ll communicate and manage that accordingly.

What can’t you miniaturise?

There are some things that can’t be scaled down, even on small projects:

Quality: We still need a quality event. Just because the project is easy to manage and it’s small doesn’t mean the end deliverable should be boring or shoddy.

Risk management: OK, I’m not maintaining a huge risk log and holding a risk mitigation budget. But I am still taking contingency planning seriously, with the same effort as I would on a larger project. This ties into the point about quality: if I want my event to go off without a problem, I need to plan for the problems and head them off before they happen. In practice, that means having a wet weather plan and making sure that someone apart from me has the details for the day so that if I’m struck down by illness or delayed en route, they can pick up and start without me.

The difference is judgement

The main thing that I can identify from this is that it boils down to: “I’ll use my judgement”. And given my years of experience in project management, I like to think that my judgement is pretty good when it comes to getting things done.

Professional judgement helps you decide how to scale processes and what the end result should look like. It helps you decide who needs to know and how best to handle a decision. Mostly, I think, judgement comes with experience, but it’s a personal quality you can develop through observing others and continuous professional development as well. You don’t have to be a project manager of advancing years to have good judgement or to apply it intelligently.

I like small projects. They are easy to manage and rewarding, because you see results more quickly. Would you rather work on large initiatives or several small ones? Let us know in the comments and feel free to share your favourite techniques for scaling down your processes to deal with the miniature projects in your portfolio.

PMI has produced a whole practice guide on managing complex projects. Navigating Project Complexity: A Practice Guide, takes you through how to assess your project in the complexity stakes and then put together a robust project management approach to handle the areas that might be difficult.

But it all starts with building a working environment that fosters the culture for complex projects to succeed.

The conditions for success

PMI identifies six conditions that, if present, will increase your chance of success on a complex project. Let’s take a look and see what they are and how you can recreate them in your own environment.

1. Leadership

It won’t come as much of a surprise to know that strong leadership is going to really help you develop and deliver a complex project. A good leader should:

• Be an active executive sponsor
• Demonstrate commitment to the project
• Empower the project team to deliver
• Notice the early warning signs of failure and work with the team to put in place recovery plans
• Champion the project and highlight successes at senior management levels in the organisation.

Read more about the four traits of great leaders here (hint: it’s an attitude).

When working on a complex project, one of the key things a leader can do is to tell everyone that it’s an important initiative. Even if you can’t plan it to a fine degree of detail, at least set the leadership agenda so everyone is aware that it’s a huge strategic priority.

2. Portfolio management

Get portfolio management.

OK, that’s harder to do than it is to write. Portfolio management gives you the tools to navigate through complex project situations because:

• It helps leaders understand project priorities
• It helps share best practice between projects
• It monitors the overall health of corporate initiatives
• Managers understand the need to implement tools to support all strategic and tactical initiatives, which are looked at in a holistic way.

3. Collaboration

A culture that fosters collaboration is going to be able to successful negotiate the complexities of projects far more successfully than one which prefers knowledge silos.

Encourage communication between team members and also up to the project sponsor and program or portfolio team. Use change management practices to ensure that new ways of working are properly embedded. As a project manager, work with an open door policy both within your own team and also supporting cross-functional working across diverse teams as well.

4. Performance measurements

You can cope better with complex situations if the structure is in place to measure them. Performance metrics give you the chance to understand the health of the project at a given point in time. Then you can act to address that if necessary.

Set up your performance measurements (get some tips from Gartner’s experts for setting up project metrics here) before your projects go too far. Typical things that you would want to measure are:

• Schedule performance
• Financial performance
• Adherence to scope
• Quality

Complex projects would also benefit from using Earned Value Management too. Actually, the list of things to measure for complex projects is quite similar to what I’d expect more straightforward projects to be measuring.

5. Align organisational structures

Typically you’ll be managing projects within a projectised, matrix or functional organisation. The structure you use depends on the culture of the business, geography and lots of other things. However, for complex projects you may find a different-to-normal set up works better.

A flatter structure may work well with a distributed project team. There may be more delegated authority than normal. In my experience co-locating the team works well, as does arranging the resources under the line management control of a project manager so that managing the resources involved becomes easier.

In short, set up your complex project in any way you like that makes it easier to manage. The point is to take complexity out with your management structure, not make the situation worse!

6.Skills gap

Carry out an assessement of the skills available in the team toensure that you have the right resources available to you. Ideally, you should do this before the project really begins, otherwise you could find yourself committed to delivering project tasks and no one capable of doing them.

It’s fine to bring in external help if you feel that would bolster your internal team, but remember that long-term you should aim to be supporting this change initiative yourselves, so build in knowledge transfer from external resources.

By focusing on these six areas, you can create an environment for your project where even complex initiatives are more likely to succeed.

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Blank spreadsheet, new project. Where do you start? Here are 5 options for creating your new project budget.

Bottom up

This is my personal choice most of the time. Work out the cost of the individual items included in your project budget and then you add them up to get the big picture. Simple. Especially when you can rely on subject matter experts to give you the figures. All you have to do is ask intelligent questions and make sure nothing is overlooked.

There’s more on how the elements of your budget fit together starting with the individual task estimates created through bottom up estimating here.

Top down

Parametric estimating is not a method that I tend to rely on, but it does work. It relies on you having sensible data to use at an overall level (although there is no reason why you couldn’t decompose your tasks and work it out at lower levels).

For example, if it takes one person three days to dig a trench and you need three trenches, that’s nine days of digging.

The risk with this very simplistic example is that maybe people need a rest day after they’ve been digging for two days. Or maybe one of the diggers doesn’t dig as fast as the others. Still, if you’ve got a reliable way of using data to extrapolate your estimates, you may as well use it to give you an overall, high level estimate while you consider other techniques to refine your approach if necessary.

I’d be interested in hearing about examples from people who have successfully used top down or parametric methods to work out their budgets to understand more about the type of projects it is useful for. Get in touch if you have anything to contribute on that topic.

Based on previous projects

This is a method I’ve also used successfully, although it does rely on:

• Your previous projects having good cost management processes
• Your previous projects being updated when estimates change
• Making sure that you are using the latest estimate data and not the original budget forecast from the project initiation stage.

If you can get round that and use real, validated data from previous similar projects, then I think this is a very robust approach to putting together a budget for your new project.

For example, we often repeat project implementation phases in multiple sites. The initial planning and set up at one site might take a bit longer than by the time we’ve done it 25 times in 25 locations, but essentially the steps are the same. We use the data from the first two or three installs to determine the implementation plan for the other sites. Then it’s almost a case of working through a project checklist and productionising the deployment of software on site. Of course, we always hit some kind of unique problem, but if we know there will be something at each site the overall timescales are still virtually the same. It does mean that sites that will get the software in the future are able to know with a high degree of certainty about when the project team is coming to them.

Using three point estimating

Three point estimating takes some time to do. OK, all estimating should take time to do if you are doing it properly. But three point estimating takes more than the others as you aren’t estimating once, you’re estimating three times.

First, you estimate the optimistic time for completing the task. Then you estimate the most likely result. And finally, you need a view of how long it would take if it all went a bit wrong – the pessimistic view. Then you use the formula:

Take your most likely estimate and times it by 4. Then add on the optimistic estimate and the pessimistic estimate. Divide the total by 6. That gives you a weighted estimate of how much the task will cost, weighted in favour of the most likely cost, but taking into account the fact things might go well or they might not.

A combination of approaches

I know I’ve said that bottom up is the approach I rely on the most, but really, it’s this one. I use whatever works at the time, and in reality that’s a combination of approaches based on the data I have, the expert input available at the time and my best guess.

I think that given the choice, most project managers would opt for this approach to building their budget. It’s the most flexible, and gives you the best chance of coming up with a sensible budget. Where you’ve got data for parametric estimating, you can use it. Where you know how to decompose the tasks, you can plan from the bottom up, and so on. Why limit yourself to one way when actually a combination of methods would get you a better result?

The only thing to remember is to make sure that your cost management plan includes the assumptions and parameters you are using to estimate so that if someone else needs to review your budget it’s clear to them how you came up with the costs you are using for each element.

If you had to choose your favourite budget method, what would it be? Let us know in the comments.

Last time in this series about project cost management I looked at the process for determining your budget. Today I want to cover the last process: controlling costs. The main purpose of controlling your project costs is to understand where you are creating variances (i.e. over or under spending) so you can put them right before you create a massive problem for yourself and your sponsor. It’s another way of minimising risk on your project, and it’s good housekeeping too.

So, let’s start with the process inputs.

The inputs

There are four inputs to this process. None of them are things you won’t have come across before. They are:

Project management plan

You need this because it contains the cost baseline. See what makes up the cost baseline in this article. The overall project plan also includes the cost management plan, which sets out how you are going to monitor and control the budget. I hope you haven’t forgotten, but if you need a reminder it’s all there for you.

Project funding requirements

You’ll get the forecasted expenditures and any liabilities (such as loan repayments) from this.

Work performance data

This is useful to track what has been worked on so far and how much money you are burning through as a result.

Organisational process assets

Yep, these again. They crop up a lot! This time you are looking for things that can influence the Control Costs process, like:

• Policies
• Procedures
• Guidelines
• Tools or tracking software
• Reporting templates.

The tools and techniques

This is where the process starts to get more tricky. There are 5 tools and techniques available to you for controlling costs, and they do take a bit more understanding than some of the tools we find in the processes. They are:

Earned value management

Not all organisations use EVM, but those that do typically find it really helpful. It’s a way of combining schedule, scope and resource information to see how the project is progressing. It gives you early notice about being behind schedule or over budget, but it is only as good as the information you put in. I’ve not known people to calculate it manually either. Life’s too short for that – the people I know who use it rely on tools to do it for them.

There are whole books written on EVM so I won’t go into it in any more detail here.

Forecasting

Forecasting simply means looking forward and working out how much you anticipate having spent by the time the project completes. This is likely to be different from your original budget as things change during the project life cycle. Depending on how different the forecasted estimate is from your original budget you might take a number of steps:

• Not different: carry on as you are
• A bit different: if it’s within tolerances agreed with your sponsor there’s no need to do anything yet
• A lot different: talk to your sponsor urgently and establish whether the project is still viable, whether you need to tap into management reserves and create a plan of action to correct the budget issue.

To-complete performance index (TCPI)

This technique lets you measure the cost performance required in order to meet your project’s goals. In other words, what run rate are you aiming for in order to complete the project with the current resources and budget? There are equations to work all this out but it’s essentially a ratio to track your performance numerically and give you early warning that you aren’t working efficiently enough to complete the work on time.

Performance reviews

Performance reviews are a technique whereby you compare the cost performance on the project with the estimates needed to complete the work. Think of them as just another type of project audit or peer review. You can look at the project’s variances, earned value management reports and pretty much anything else to give you an assessment of how the project is performing in budgetary terms.

Project management software

This one is easier – use your project management software to calculate the EVM measurements, work out forecasts or just add up your expenses so you can track them.

Reserve analysis

This is a fancy name for keeping an eye on how much contingency money you have left. Track this element of the budget, and the management reserves, in the same way that you’d track expenditure on any other part of the budget. Equally, controlling these budget elements lets you establish if you need any more.

You can also plan to release contingency or reserve funds if the risk event they were linked to passes without incident. No need to hang on to the cash if another project could use it more effectively.

The outputs

Finally, we’ve got the outputs, and again it’s quite a long list. The point of doing this process is to ensure you’ve got these 6 outputs, half of which are updating documents you already have:

Work performance information

This just means that you should share the budget tracking information and your cost control metrics with your stakeholders. If they are interested.

Cost forecasts

Again, once you’ve calculated the cost forecasts, write them up and include them in documentation to your stakeholders.

Change requests

All this cost control analysis might throw up areas where you need to raise a change in order to secure additional funding, remove items from scope, carry out preventative actions or similar. Change requests are an output of this process if you need to do that.

Project management plan updates

If you do make changes to your budgets as a result of your cost control activities, remember to update the cost baseline and cost management plan in the project management plan – it’s tidy that way, and you won’t forget what’s happened.

Project documents updates

And update any other documents, like the estimates or assumptions. Complete that lessons learned document as well, while you are at it, as what you have learned managing this budget is bound to be useful knowledge for the future.

Organisational process asset updates

Again, update anything that needs updating, like financial databases.

And that’s it! Quite a long description of the cost control process, but there is a lot to do in here. Do you have any tips for managing and controlling your project budget? Let us know in the comments.