A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts.
Written by Elizabeth Harrin from RebelsGuideToPM.com.
Last week I shared with you some questions and answers from my recent webinar on managing money on projects. I wasn’t able to answer all the questions after the presentation, and those questions I didn’t get a chance to answer in person I am answering here.
Here’s another batch of Q&A.
Can you give a definition of "Consultancy"? Is that research/consulting on tasks OR the hiring of outside resources to assist with the project tasks?
I think it’s both. If you don’t have the skills amongst the permanent staff in your organization, you need to hire those skills in. The people hired could be doing specialist tasks like research or technical consulting, or they could be an extra pair of hands to help you get the project done, like an extra project manager on a large program. Either way, these are additional, external resources and that’s what I mean by ‘consultancy’. Essentially, it is paying for people who are not permanent staff.
Do you ever find that being transparent with $$$ leads the funding away from your project and onto another "priority" thereby interjecting project risk? Seems like the norm is to cloak the budget until successful completion and then release at completion with the rest of the resources.
I think this is very dependant on the culture of your organization. Fortunately I have not worked anywhere where I have seen this happen, although I wouldn’t be surprised to learn it did go on in some organizations. It is all to do with what the company thinks are its strategic priorities and unfortunately your project might not be one of them. A strong PMO can help here, as well as a mature project management culture where people understand the value of not chopping and changing their minds about projects every five minutes. Projects cost what they cost, and if the investment is worth it and you haven’t padded out the budget unnecessarily, you shouldn’t have to worry about sharing the figures.
If your project is no longer a strategic priority it seems sensible to me to divert the funds on to something else that will deliver great value for the organization. If you are worried that your management team doesn’t have the foresight to do this which leads you to hiding your budget until the project is over, they all need to go on Sponsor training!
Do you consider utilities, rent, etc to be a project management cost or deliverable cost?
Utilities, rent and so on are project management costs. Let’s recap the difference:
Project management costs are the costs of doing the business of project management e.g. paying for your team members, training including the costs of a trainer, room hire, refreshments, delegate transport and accommodation, hosting large meetings off-site and hiring equipment.
Project deliverable costs are expenditure directly related to what the project is going to deliver e.g. software, hardware, purchasing equipment, licensing and things like buying software and funding anything that will change as a result of your work like new stationery or user guides or paying for documents to be translated.
Might training be considered a deliverable cost associated with quality assurance? What about testing resources?
Yes, I suppose they could be. The purpose for me of categorizing costs in this way is simply to provide a starting point for preparing a comprehensive budget. People often think about what they need to buy to deliver the deliverables – a new server, new office equipment, software licences etc – but they forget about the costs required to make it all happen. These are what I call project management costs and are the overhead of running a project. In real life it doesn’t matter at all if you categorise training as a deliverable cost or a project management cost – the important thing is that you have considered it and included the cost in your budget.
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Sometimes on projects companies need to hire space to work in, for example, if they are relocating members of different teams to put them in the same location for the duration of the project. Office space could be in the form of a ‘project war room’ or a model office which can be used to run through the new processes. Even small companies may need to hire desk space in a shared office or meeting rooms for large meetings if they do not have the facilities in-house. Renting office space costs money, and that should be factored in to your project budget.
Are there Excel templates that will be provided?
No, sorry, I don’t have Excel templates I can share. There are a number of places online where you can download project management templates.
I know under-budgeting on a project is bad but will it get you fired?
Good question! I think it depends on the culture of your organization. If you under-budget for a project and it costs a lot more than you thought, it could make you look incompetent, so if redundancies are on the horizon you may be in a weaker position than a top-performing colleague.
The company may have borrowed money unnecessarily if the estimate is significantly higher than actual spend. The costs of that will hit the company but may not be included in your project cost. Project managers should be aware.
Thanks – this is an excellent point to note. If projects are funded from debt instead of working capital the interest rates and terms of the loan will have an impact on the company that you may not see through your project accounts.
Have you worked on projects where the mgt does not allow contingency?
Yes! Which is why I recommend you put contingency in if you are allowed to. Unfortunately, things happen on projects that mean you can’t accurately predict the future, and contingency funds are a useful risk mitigation tool.
Are project salaries considered project management costs or deliverable costs?
Salaries for people working on the project team are project management costs. Let’s recap the difference:
Project management costs are the costs of doing the business of project management e.g. paying for your team members, training including the costs of a trainer, room hire, refreshments, delegate transport and accommodation, hosting large meetings off-site and hiring equipment.
Project deliverable costs are expenditure directly related to what the project is going to deliver e.g. software, hardware, purchasing equipment, licensing and things like buying software and funding anything that will change as a result of your work like new stationery or user guides or paying for documents to be translated.
Could you please repeat the difference between contingency and tolerance?
A contingency fund is money set aside at the start of a project to be used in case of need, for example to offset unforeseen increases in costs. The amount of this ring-fenced budget depends on the level of risk the project faces and also on the overall project budget itself.
Tolerance is the amount by which the project can be delivered over (or under) budget without anyone being concerned. It’s usually a small amount represented as a percentage. Tolerance is either calculated as a straight percentage of the core budget estimate or as a percentage of the core estimate plus the contingency fund. As you should assume the contingency will be spent, it’s better to agree a tolerance based on the latter.
Welcome to this new Gantthead blog, which focuses on the financial side of managing projects. I'll be looking at all kinds of money-related things, from the technical aspects of project financial management to managing your personal finances as they relate to your working life.
I look forward to hearing from you about topics you'd like me to cover, and to writing more!
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