The Money Files

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!
 

During the stage in a program lifecycle where you are identifying the need for a program, you’ll have to put together a business case.

You will need:

A program mandate
A program brief
Some business drivers
Strategy to taste

1. Mix the strategic objectives for the program with the vision statement.
2. Align the mix with the organisational context and the business environment.
3. Add in the expected benefits.  Don’t go too overboard here – you don’t want the mixture to over-inflate.
4. Chop up the overall risk profile, and add in the major risks related to program delivery and benefit realisation.  Don’t sprinkle in the entire list of risks; keep the detail in the risk register.
5. Add in estimated costs and stir through the overall timescales.
6. Does it look like you have enough costs in?  If not, fold in some more now.  Be generous but realistic!
7. Stir to combine all the ingredients with the options and approaches, remembering to add in ‘do nothing’ at this point.
8. Look at the mixture again.  Does it look appetising?  If not, whisk up the costs, objectives and benefits again until it does.
9. Bake slowly and serve to the Senior Responsible Owner.

Hopefully it will be tasty and the Sponsoring Group will want to go ahead with it!

Want some help brushing up your project financial management skills?  Then take the Learn Something New Team Challenge from Safari Books Online.

All you have to do is use one of their books to help you deliver a project of your choice.  Send them the details of your project, the challenges you are facing and some information about the skills you need to do the project - project accounting, help with budgets or whatever.  Then look up what you need to learn on Safari and do it!  There are over 140 financial management books, and a load more on other topics.

The prize is an e-reader or a Starbucks espresso machine (I know which one I would rather have).  The downside is that the e-reader prize is only for a maximum of a team of four, so don't get too excited about being able to dish out iPads to your entire department if you win.

I have used Safari online through a corporate subscription and it is very useful.  In particular, when we needed to assess different software products in order to select the best fit for us, I found A Guide to Software Package Evaluation & Selection: The R2ISC Method by Nathan Hollander which was perfect for the job and a great help.

Essentially, Safari Books Online is an on-demand digital library that delivers thousands of books (and videos) from a variety of technology and business authors from massive publishing houses like O'Reilly and Microsoft.  It's not the easiest thing to read management and technical books on a computer screen, but if you are scanning a contents page for the section that might just save your project, it's certainly worth a look.

I'm not affiliated with Safari in anyway, but I thought this competition was something useful to share - the closing date is 9 August, so get your skates on!

Results of a new global study reveal the concerns, effectiveness and best practices in risk management by organisations that outsource projects. Of the 95 percent of organisations that buy, provide or both buy and provide outsourced services and functions, fewer than half are able to effectively manage risk of outsourced projects.  That’s a pretty poor show, and risk mitigation activities – while they have an associate cost – generally mean less expenditure when things go wrong.  Because you stop things from going wrong in the first place.  Are you following?  I hope so.

Outsourcing in itself is on the rise, as another opportunity to cut costs.  More and more project managers are getting involved with projects that deliver outsourced services, like moving payroll or the invoice processing function to companies that do those activities as their core business.

It’s not surprising that outsourcing projects are managed poorly and don’t reap the expected financial benefits: this study shows that only one-third of organisations always clearly articulate and define financial goals to outsourcing partners.  How are your business partners supposed to know what their tolerance boundaries are if you don’t tell them?

Project managers could put a greater focus on ensuring vendor performance and contract outcomes are clear and defined as part of the project initiation phase.  While you are at it, add risk management to the list – that seems to be a key differentiator among outsourcing partners.

"The ubiquity of project outsourcing creates opportunities for, and demands on, organisations to better develop and refine their outsourcing competencies," said J. LeRoy Ward, PMP, PgMP, Executive Vice President, Product Strategy and Management, ESI International. "The results of ESI's global survey indicate areas for greater performance, productivity and competitive advantages through better risk management."

Here are some other figures from the survey:

• 63% of respondents said that vendor delays were the biggest risk to outsourcing projects.
• 61% said contract scope was the biggest risk.
• 76% of companies go to the effort to evaluate the vendor’s technical ability and past performance – which means that 24% don’t bother (what are they evaluating these companies on then?).
• 65% of companies issue comprehensive, clearly articulated requests for proposals/requests for quotes/tenders that enable standardised responses for comparable analysis – which means 35% don’t, and have to muddle through answers that are difficult to compare.
• Only 50% of respondents thought that their outsourcing team members have appropriate project management experience and skills.
• 75% of organisations do not always clearly define requirements of outsourced projects, which serve as the foundation of successful project management.  No wonder these projects are unsuccessful – the outsourcing people have no idea what is expected of them!

Outsourcing can save money, but you have to do it right – and it seems from these figures that large numbers of companies are most definitely not doing it right.  If you don’t set clear requirements, choose the right partners and monitor the ongoing performance of the relationship then you won’t get out of it what you wanted.  Come to think of it, do you actually know what you want?  Get that bit clear before you even start thinking about going out to tender.
 

What kind of image do you present at work?  It doesn’t have to cost a lot to present a top quality impression, but it is worth making some investment.  I was really pleased to have the opportunity to interview Kat Griffin, publisher of workstyle blog Corporette, about how what you spend on yourself and your appearance makes a difference at work.  Yes, there’s a lot to be said for matching your heel height to the length of your trouser suit.  But listen up, guys, this is about you too…

Spending money on yourself is an investment.  Why should you bother buying expensive clothes?

Clothes affect both the way that you're perceived and the way that you feel about yourself.  From a personal standpoint, better made clothes feel better -- for example, better fabrics are often softer, from wool to cashmere.  Furthermore, clothes you actively like can elevate your mood -- whether it's a tie or a dress or a great pair of shoes, putting them on in the morning gives you a little bit more confidence, and makes it a bit more fun to go to work.  From a perception point of view, people who recognize bad clothes realize you're probably not very invested in your career.

What about accessories? What does a cheap bag/briefcase say about you?

A no-name bag that's well-made is better than a knockoff.  And logo bags, no matter how high end, should really be considered carefully before you wear it, because a lot of people think of them as tacky.  Ultimately, just look for a well-made, functional bag of a good leather, without obvious defects in the stitching or hardware.

Are the rules for contractors/consultants different from permanent employees i.e. do consultants have to pay more attention to this sort of thing and spend more (or at least look as if they have)?

I think it depends on the situation.  On the theory that the contractor/consultant is constantly seeking more work, more business contacts, or even a permanent job, though, professionalism certainly matters -- which means yes, looking polished matters tremendously.

Trappings aside, what about investing in your appearance through hair and nails?  Have you noticed a trend where men are getting their nails done or having facials?

Not really.  In some workplaces, an overly-manicured appearance can even work again you, signifying  that you have a lot of free time to go and get such services done, which could mean that you're not working very hard.

What are the business and personal benefits of doing all this?

Looking polished and put together helps your message be heard without distractions.  It isn't about being the best-dressed person in the room, but it is VERY much about not being the worst-dressed person in the room.  And in terms of personal benefits, there's a tremendous toll that dressing poorly (or even dressing in a uniform, without creativity -- such as women who wear nothing but polyester suits and sensible pumps every day) can take on your psyche.  You want to feel good about what you're wearing -- and that confidence will be conveyed to others.

Thanks, Kat!