The Money Files

Because quality costs money…

In their book, Project-Driven Creation, Jo Bos, Ernst Harting and Marlet Hesslelink write about the 3 levels of quality. “When is the project result good enough?” they write.  “Countless projects are deemed failures because when the result is finally delivered, it runs out that the sponsr had expected something completely different.”

Setting clear objectives and involving your stakeholders and end users at every step of the way is one approach to addressing this. But understanding what quality means to your stakeholder groouop and how they want you to service quality on your project is also really valuable.

The levels of quality that the authors talk about are:

• Acceptable quality
• Appropriate quality
• Aspirational quality.

Let’s look at what each of those means, and I’ve got some examples as well to share with you.

Acceptable quality

This is the minimum level of quality. You can even call it “minimum” if that’s what you think your end users would respond best to. This is the lowest level of quality that you can deliver and still get away with – it will ensure that you hit the bare minimum of expectation levels. If you don’t reach these targets your sponsor isn’t going to be pleased and your project would be considered a failure.

Note that your project sponsor will probably not tell you about this level of quality. You’ll have to surmise what you can get away with and then put a positive spin on it.

Example: Building a website for the company that delivers functionally but that does not have all the content expected at the point of go live. You believe that this can be added in later and – with the agreement of your sponsor – you feel that it’s more important to hit the published go live date for the new website than it  is to have all the content there on go live day. It’s not the quality that you signed up to at the beginning of the project (as you thought you’d have everything in place, including all the copy) but it will do.

Acceptable quality will do. It’s not substandard. It’s just good enough given the circumstances.

Appropriate quality

This is what your sponsor has actually asked for. It’s what they want and what they have conditioned themselves to accept. It’s what you should strive to deliver (because you are good at your job and want your team to deliver something valuable, right?).

Example: Completing a project to the standards set out in your quality plan, or if you don’t write one (like me) then understanding your stakeholders well enough, and working with them consistently enough, to get a result that they consider “quality” and successful. Importantly, you know what this is before you set out, so that when the project finishes you can honestly say that you met their expectations with the product/service/etc that you delivered.

Appropriate quality is really the minimum that you should be aiming for. Delivering to this level should be costed into your project plans.

Aspirational quality

Ignore the first two levels and shoot for gold. This is where you deliver above and beyond the expectations of your project sponsor. You know what the objectives are and you aim to exceed them. This tends to happen when your team (and you) are fully committed to the project and are able to take responsibility for their areas. It also helps to have a hugely positive project sponsor who is behind you and supporting you all the way.

Example: Delivering a product that sells 30% over the original sales target because you know your market so well and are able to suggest changes along the way following your team’s customer focus groups that boost conversions and bring in more revenue.

Aspirational quality comes at a cost. It involves the team being self-managing instead of micro-managing. It relies on good communication and collaboration. It depends on a supportive working environment and a culture that is blame-free. It also helps to be out of the mindset that project management is just about ticking boxes and making sure that tasks are completed. Instead, think about how your job adds value if you do it right.

The flip side of aspirational quality is that it can cost you a lot of money if the changes that lead to overachieving aren’t adequately managed through change control. Even small changes at a late stage can add significantly to your budget.

What level of quality do you go for on your project? And how successful have you been? Let us know in the comments section below.

Here’s a summary of what’s covered in the video.

During project execution you are putting your plan into action. Part of the monitoring and controlling of your project is to make sure that you understand how much work has been carried out so that you can work out the costs.

It boils down to two questions:

1. How many days have you already worked on the task?
2. How many days have you got left?

Armed with the answers to those questions you can calculate the additional cost, if any of completing the work.

During execution you may also be using earned value calculations, which are beyond the scope of this video today, but definitely worth a look if your sponsor wants a really detailed understanding of project performance.

As well as monitoring cost performance you can also monitor and control your risk response budget, review your quality efforts and costs and check that your resource planning is still accurate and you’re on track to deliver for the budget you set.

You’re likely to have to do some kind of course correction as it is a rare project that moves ahead perfectly to plan. This will involve handling change so you’ll be drawing on a change, contingency or management reserve budget or moving numbers around so that you can deal with the costs of change.

The biggest challenge during the execution stage is communication, and the authors of Project Management Accounting talk about that a fair bit. Without good communication you won’t have an accurate picture of project performance and you won’t be able to track and monitor any aspect of your project, let alone the budget.

You also have to work out what is the right level of detail to be sharing about your numbers – while you need all the detail your managers might not want that. If you don’t have a standard project management reporting template then you’ll have to make one up and getting the level of detail right could be trial and error as it depends so much on what your audience is interested in.

Tracking project financials is a really important part of the execution stage because it’s how many projects are judged – cost control is essential. Make sure you are spending enough time on it, and know enough about how to do it, to keep your project financials under control.

In Project-Driven Creation, Jo Bos, Ernst Harting and Marlet Hesslelink talk about 4 instruments for cost control – and by ‘instruments’ they mean tools.

They describe 4 different tools that you can use as your project progresses.

• In the Initiation Phase, use cost estimates.
• In the Planning Phase (which they call Definition), use a budget.
• In the Execution phase, use cost monitoring.
• In the Closing phase, use financial evaluation.

Let me talk a little bit more about each of those tools and how you can best use them.

Cost Estimate

During the project’s very early days you won’t have a lot of detail. The first financial planning you do for the project is in the form of cost estimates. And there’s a ton of stuff on this blog about estimating. (Start here).

At this point all you are doing is working out whether the project is financially viable or not. You might still go ahead even if the finances don’t stack up. There’s often good reasons to do projects that are going to cost, rather than make money, such as compliance and regulatory obligations. But even if that is the case, your sponsor will still want to see an early view of how much the project is going to cost.

Cost estimates are how you do that.

Budget

When you’ve got approval to go ahead and you’re planning out the work, you take the cost estimates and turn them into a working budget. It’s more accurate than your early estimates but it’s still only a forecast.

You build your estimate from the work breakdown structure, details of how much tasks will cost and expert input from your team. Then build in a margin, just in case you’ve got it wrong.

Cost Monitoring

Now the project is fully underway and you’re working your way through the tasks in the Execution Phase.

This is where you use cost monitoring to check that your project spending is broadly in line with what you said it would be. Monitoring your costs regularly lets you see if there are any overspends or trends towards performance that you want to investigate further. The faster you spot it, the faster you can do something about it.

The authors write:

“This comparison is only useful if the monitoring includes evaluating whether the project activities are also on schedule.”

That’s really important, because you could burn through all your money and only be 20% through the tasks. Doing this in any formal way normally includes using Earned Value but for many projects that is overkill. Use your professional judgement to monitor your costs and if you aren’t comfortable tracking expenditure and tasks and taking a position on whether they are progressing as you expected, then talk to your finance team, your PMO or someone else who’s opinion you respect.

Financial Evaluation

Finally, you’ve reached project closure. Your cost control work doesn’t stop just yet: first you can complete your financial evaluation.

This lets you see if the project has hit the financial targets that were set, especially around benefits. So, did it achieve the increase in revenue or cost savings that were expected? This is an evaluation around the outcomes of the project.

Second, you want to measure the project management effectiveness of the project. Did you do the work in line with the budget? Or was your budget woefully wrong? How did you deal with any surprises or overruns and what caused them? And most importantly, what can you and the team learn from them so it doesn’t happen again?

Taken together, these 4 tools give you a good handle on cost control. Even if you didn’t do anything else on your project, these would let you manage the financials adequately.

Do you agree? Let me know what you think of the 4 instruments of cost control in the comments below!

Project budgeting is one of the harder parts of managing projects, because the consequences of getting it wrong are significant. People tend to be more forgiving when it comes to delivering a little bit late or having to take shortcuts on the scope. But ask for more money or spend too much? That provokes strong reactions from project stakeholders!

I’ve made a short animated video about 3 of the more common budgeting mistakes that you might come across on your project: consider them things to watch out for.

You can read more about possible pitfalls for your project budget in this article, and this one.

Here's a summary of what the video talks about:

In the planning stage of the project you are working out all the project costs and building a resource plan against which you can track later.

Your wbs and the project schedule is really important when it comes to understanding your project budget. You need to know how long tasks will take and how much work needs to be performed before you start seeing a return.

During the planning stage you have to work all this out so that you can monitor against it during execution.

You also have to work out the other costs on a project. for example, the cost of the people doing the work in terms of salary  or day rates, and other expenses like materials or equmpment.

There might also be a cost associated with procurement.

I’d also plan for risk in here too: you’ll want to know that your risk profile is covered and that you’ve got plans in place, and a budget to fund them, to address your major risks and current issues.

Finally, you’ll be planning for quality and including the cost of prevention, correction and warranty.

I’ve drawn my advice here from this book Project Management Accounting. I recommend it if you’d like to learn more about project financial management.