The Money Files

“The majority of forecasters are fools or liars,” says Professor Bent Flyvbjerg from the BT Centre for Major Programme Management, at the Sa?d Business School, University of Oxford, in a new paper on inaccurate estimates for major projects.

The paper, published in the International Journal of Project Management, sees Professor Flyvbjerg criticising the way that forecasts for projects are put together. He says they are inaccurate and provide poor material from which to make decisions about cost and benefits.

“Estimates are commonly poor predictors of the actual value and viability of projects, and cannot be trusted as the basis for informed decision-making,” he says. “These forecasts frequently misinform decision makers on projects instead of informing them. Some of the inaccuracy comes from genuine forecasting mistakes arising from over-optimism, but some estimates are deliberately misleading, designed to secure financial or political support for a project.”

You probably know of examples of where a project manager has padded estimates for one reason or another, by Prof. Flyvberg is pretty scathing about forecasting methods and the people who use them.

“Many forecasts are garbage and can be shown to be worse than garbage,” he is quoted as saying in a press release from the university. “These reports give the client, investors and others the impression that they are being informed about future demand, or the costs involved in a major project, when they are being misinformed. Instead of reducing risk, reports like this increase risk by systematically misleading decision-makers and investors about the real risks involved.”

What’s the answer?

Prof. Flyvbjerg says that the answer is for everyone to be a bit better at not putting up with this (I paraphrase). For example, he recommends that clients should ask for their money back when they receive reports which later prove to be significantly inaccurate and misleading. He even goes as far as saying that they could demand compensation (some contracts must have a clause for this in anyway). His most radical idea is that in some cases criminal action would be justified. “Merely firing the forecaster may be letting them off too easily,” he says. “Some forecasts are so grossly misrepresented and have such dire consequences that we need to consider suing them for the losses incurred as a result. In a few cases where forecasters foreseeably produce deceptive forecasts, criminal penalties may be warranted.”

Personally, I can’t see many project managers ending up in court because of poor scheduling, but as this has come from the Centre for Major Programme Management, Prof. Flyvbjerg is really talking about complex, mega projects.

When we say ‘everyone’, Prof. Flyvberg includes the professional bodies in that too. He calls on them to use their codes of ethics to penalise and possibly exclude members who produce unethical forecasts. “This needs to be debated openly within the relevant professional organisations,” he says. “Malpractice in project management should be taken as seriously as malpractice in other professions like medicine and law.” How many project managers genuinely produce unethical forecasts and how many are just incompetent? I think it would be hard to decide if someone was acting in good faith and to the best of their abilities or whether they were deliberately altering estimates for political gain.

A better way of forecasting

As you would hope from someone who is so outspoken about this, Prof. Flyvberg has all the answers. His answer is to turn to his own work and in this IJPM paper he sets out the case for quality control and due diligence to be applied to the evaluation of front-end forecasts. Unfortunately, I think his answer only works for massive projects and not for the type of forecasting and estimating most project managers do on their projects.

“Recent research has developed the concepts, tools and guidance on incentives that could help curb both delusional and deceptive forecasts,” he says. “Whether forecasters are unwittingly or deliberately under-estimating the costs, completion times, and risks of projects, and over-estimating their benefits, we need to have a systematic basis for evaluating their findings in order to make informed investment decisions. Given the high cost of major infrastructure projects, the irreversibility of decisions, and the limited availability of resources, this is clearly critical for both public sector and private sector projects. Significantly more accurate forecasts can be produced by looking at the evidence available from previous similar projects which have been already completed – what I call, taking an ‘outside view’. This seems so simple, but in practice it is transformative and leads to much more accurate forecasting.”

In other words, take large data sets or statistically relevant data for projects in your sector, apply due diligence, estimate from the basis of past experience and critically evaluate the forecasts. You’ve spotted it – the big downside to this estimating approach is that you need large, validated data sets to draw benchmark data from previous, relevant, projects. If your PMO has been up and running for years and has gathered all this, and you never do any projects which innovate or deliver something new in a way you haven’t done before, then you could make use of this technique.

If you don’t have all that data to hand, then this method of forecasting will not scale from mega projects and programmes to the humble projects that you and I work on. While using historical data is great and we should all look to the past to better predict the future, we would be wrong to expect this model to work for all projects.

Normally on a project you will plan out the tasks required to do the work, and then add in the resources needed to carry out those tasks. Here are 5 things to take into account when doing resource planning on your project.

1. Holidays

All team members need holidays or vacation time. Remember to plan for this when you are scheduling resources – you may find that a critical resource has already planned to take leave during a time on the project when you would really rather that they are around. Talk to the line managers of your team members about when they already have holiday time approved.

Also factor in religious and other cultural holidays. Team members may want to take time off around these times – and that goes for school holidays too.

2. Sickness absence

Unfortunately, team members can go off sick without any notice. While the option to work from home allows many people to soldier on when they may be too ill to make it to the office, you can’t rely on people to not be ill.

One way allow for this is to consider how you will backfill a project role if the person currently doing it is away from work. While you shouldn’t allocate two resources to every task just on the off chance that someone will get the flu, you should have a plan in mind just in case someone drops out of the team due to sickness absence at short notice.

3. Single point of failure

When task planning, look at who on your resource plan is the single point of failure. Who has worked on all on the Finance tasks and has all the operational knowledge? On long projects it can be particularly difficult to switch someone in at the last moment if your single point of failure person hands in their resignation.

4. Negotiating with line managers

If you don’t have direct responsibility for the team member concerned, you will have to negotiate their time on the project with their line manager. This can be tricky, especially if you only need them on a part-time basis. You may find that they can’t do the job they used to do before the project on a part-time basis, and their line manager may not find it convenient to have them back. It may be possible to job share the role in this case.

You should also consider what would happen if your schedule slips and you end up needing the team member for a longer period of time – how will you negotiate this with their line manager?

5. The triple constraint

If you lose a resource back to their day job or for any other reason, you will have to consider the impact that this will have on your task scheduling. The traditional triple constraint, for all its faults, is a good place to start discussions with your sponsor. If you have fewer resources, can you negotiate a longer time to deliver the project? Could you negotiate more money to pay for additional resources so that you have more confidence about reaching the original milestones?

In the end this will be your project sponsor’s decision, but you can at least take him or her some options to consider.

Resource allocation will no doubt change your task plan. You really need to review both the tasks and the resources in parallel so that you can put the two together and come up with an effective and realistic schedule. What other tips do you have for successful resource scheduling? Let us know in the comments.

Transcript:

There’s one more time in the Finance department that I want to tell you about. In my last videos, I’ve talked about Accounts Receivable, Accounts Payable and the role of the general accounting team and capital accountants in particular. There’s another team that again, which depending on your project, you may or may not have anything to do with, and again it may be a team of people, but more likely to be one or two people even in a large company, and in a small company it’s likely to be a general finance person who has this as part of their role.

This role is around Treasury and that is essentially to do with bank accounts. So if your company has subsidiary companies or works with partner companies, or wholly owns or partly owns different groups you may find that your project budget comes from various different places and the Treasury team will probably pull all that together.

The Treasury team can also deal with international payments. They will be able to track, if you are making an international payment, what the currency valuation is in your own currency when that hits your bank account. And they can also tell you about any charges you have incurred for making international transactions.

If you are working on an international project, the Treasury team are really useful people to know in case you have these issues with currency or moving money between different bank accounts for different countries.

If you are working on a single currency project, you probably won’t have much to do with them but it is still useful to know who they are and where they are in case you ever need to call on them for your projects.

At Øredev, the software development conference in Malmö, Sweden earlier this month, Catherine Powell, principal at Boston-based software engineering firm Abakas, talked about the core structures the agile teams.

She described six core concepts for agile teams. Provided you have these six things then your team can be considered agile. So, let’s look at those six things.

1. Team

Catherine defined a team as a group of people who together are going to accomplish something. "You're trying to structure team with lots of disparate roles," she said. She advised that we define who needs to be in the team by role or function and then allocate these to people - people can have several roles. It’s the roles and the common goal that make people a team.

2. Backlog

An agile team needs a concept of backlog – the work that is still outstanding and that forms the requirements log. Without a backlog, you can’t structure the upcoming project work, so you need to store the backlog somehow so that it can be prioritised and incorporated into future releases.

3. Customer

An agile team needs the idea of a customer. In real terms, this is unlikely to be a ‘real’ customer who will buy the end product, so your team will have to find someone who can represent the interests of the customer. This could be someone from a business team, a tester or a product manager.

4. Done

You have to define what ‘done’ means to you. Catherine pointed out that you have to have a way of saying when you have arrived. For some teams this might be that a product is ready to ship and for others it might mean that testing is complete. However you define it, you can’t be an agile team unless you have agreed on what ‘done’ looks like.

5. Process

"Agile is not really about running around like chickens with our heads cut-off," Catherine said. She said that despite what some people think, Agile does not mean that there is no process. On the contrary, process is important to ensure that there are no bottlenecks and that work flows through the team adequately and moves from idea through to development, testing and release.

6. Heartbeat

The heartbeat of the team is the way in which they work. It’s “time-based predictability,” according to Catherine. It is not necessarily about how fast you work or how productive you are. For example a team of space scientists may work quickly, but still only have products to release or milestones achieved over the period of several months. On the other hand, a team of software developers working on a web software project may be making releases into production several times a week, or more frequently. The heartbeat of an agile team is this regularity. "It is extremely important to team morale," said Catherine.

These are the six things that Catherine said were essential to be a truly Agile team. "For me, everything else is negotiable," she concluded.

Which of these tenets do you apply to your Agile project teams? And do you think she missed anything? What else defines an Agile team?

Lord Digby Jones spoke at Synergy, PMI UK Chapter’s event for International Project Management Day earlier this month. Previously Director General of the Confederation of British Industry, he spoke about the economy and the financial situation that project managers find themselves working in.

“What is the tapestry against which we are all operating?” he asked, before going on to give us his answer on that.

He started with some statistics and said that the percentage of GDP in Shanghai in the private sector is bigger than all the UK’s major cities except London. “This, my friends, is Asia’s century,” he said. 800m Chinese earn under $2 per day, “and every one of them wants your lunch.” He talked about moving the wealth west into the rest of China and filling the vacuum left in the east with the work we do. Therefore, he argued, we should be focusing on what we can deliver to a growing nation of consumers, or in upskilling ourselves so that the work we do is not off-shored to skilled workers in China.

He said the same principles applied to India as well. Three quarters of the population in India work on the land, he explained. As education rates go up, and industrialisation reaches these areas on a much larger scale, this will change. He also explained that he didn’t see this competition as anything like a threat – instead it is an opportunity. “This is no threat, if we provide the stuff, and the services,” he said. “Brazil, India, China, they are all getting richer so we need to provide the stuff that they want to buy.”

Europe in the globalisation stakes

He talked about what he considers the flawed model of European economics (although he didn’t actually use that term). “What we do in Europe is dumb it down to the lowest common denominator so everyone can get a prize,” Lord Jones said. “Well, I’ve got news for you: to get a gold medal, someone has to lose. We might all be equal in Europe but the only race that matters is the globalisation race. We’ve got to move away from everyone being the same.”

The advantage of this is that we can take the best from every country instead of trying to even the playing field. For example, he said that, “delivery from middle managers is better in France than anywhere else.” He also spoke highly of Germany’s ability to deliver infrastructure projects and the benefits of our UK labour market. “So why don’t we use our labour market, the German infrastructure build model, France’s middle management delivery and standardise to that?” he asked. “That’s the tapestry against which we all operate.”

Lord Jones on the economy: the new normal

“This isn’t austerity,” Lord Jones said. “This is going to be normal. How are we going to live in a world where there wasn’t ever enough money and we’ve only just been told we can’t have it all?” That’s the challenge for all of us – not just project managers.

He suggested that there were three ways to get to grips with this new normal.

First, “We’ve got to get building projects,” he said. “We’ve got to make sure we equip the nation.” If we don’t build capacity, Lord Jones believes that the UK will move into the second tier of European countries. He said that was fine as a strategy if that is what the government wanted to do (although it wouldn’t be the sort of place he would want to live). He believes that we can invest in this sort of project even in times of economic difficulty because “infrastructure takes a while to produce and a while to pay for.”

Second, he advocated for a more efficient public sector. If we want the public sector to be more efficient, it is pointless saying work harder, he said. The answer is in smarter working practices. Adding value through innovation, qualifications and growing skills is key. One third of adults are functionally illiterate, he said. “We need an education system fit for purpose – children should be able to read, write, add up and use a computer by the age of 16,” he said, “or parents and teachers have failed.”

Third, he stressed the importance of leadership. “If you are going to deliver on projects, none of it happens without leadership,” he said. Leadership is not the prerogative of captains of industry and big wigs – it is down to you to lead your project team. “You are in a position to change someone’s life for better or worse,” Lord Jones said. “You can bring on or knock down. That’s what we need. Popularity is not what you are in leadership for.”

Lord Jones was a challenging speaker with some big ideas, and while inspiring at times and a good storyteller, it was certainly a ‘bigger picture’ speech. It was a good way to open the day. “Don’t you let anyone tell you that leadership is for someone else,” he concluded. Whether you agree with his views on the economy and Europe or not, I think we can all agree with that.