The Money Files

Is project management a cost to be reduced or an enabler for cost reduction? This was the question asked at the Austerity Debate in London last month.  Donnie MacNicol, Director, Team Animation, presented his view.

Project management is likely to be seen as a cost to be reduced, he said, in organisations which do not have mature project management structures.  In this situation, project management is not linked to strategy and it is ineffective.  Projects delivered are not the right projects, and they don’t deliver appropriate benefits.

Project management is likely to be seen as an enabler for cost reduction in an organisation where project management as a discipline is understood and well-implemented.

The role of organisational culture

Organisational culture is a key driver for how project management is perceived in the business.  “Project management typically requires people to have a certain level of openness,” he said.  How does this work across an organisation where other departments are not like that?  It certainly makes it harder, he explained.

Culture has an impact on the PMO, which supports the organisation in achieving its strategy.  It also has an impact on how well this strategy is articulated.  Getting the strategy implemented isn’t something we can spend too much time on now, he explained.  We’re now in a position where we have to make large scale changes using a directive style – because we have to change things quickly.  In a time of austerity, organisations need to be responsive and flexible, and that means implementing and adopting change speedily.

He also explained that how we brand the project, programme and portfolio management internally has a big impact on its success.  “Do you understand your organisational culture and the impact it has?” he asked. 

The vote

Attendees at the austerity debate were asked to vote on whether project management is a cost to be reduced or an enable for cost reduction.  Some people put their hands up to show they thought it was a cost to be reduced.  However, many of them also put their hands up to show it was an enabler for cost reduction too.  Overall, the ‘enabler’ opinion won out, with the majority of people thinking that project management facilitates cost saving in companies.

Project management is an enabler, but I think that those people who voted for it to be both an enabler and a cost to be reduced had it right.  It is both those things.  We need to be delivering projects in a cost-effective way.  We should be looking at the cost of project management and working out how we can best make savings to make the PMO (or P3O) as efficient as possible.  Only then can we really use project management as an enabler for cost reduction in the enterprise.
 

Andy Murray, Director of Outperform, and lead author of PRINCE2:2009, spoke at the Austerity Debate at Lloyd’s Register in London recently about the role project management plays in this difficult economy.

When times are tough, senior management look to reduce costs and that sometimes means cutting projects and project management.  So how much does project management cost?  Murray explained that there several ways to look at this question.

The cost of managing a project

Each project has an overhead, including the cost of the project manager, the sponsor, a risk budget, the project board and any project support services.

The cost of failure

What does it cost if you don’t do projects well?  There’s rework, the cost of overruns, poor outputs, under-delivery, consequential loss, and benefits that remain unrealised.

The cost of managing projects

This is the infrastructure related to managing projects and includes any Centre of Excellence overheads, the PMO, support, monitoring, tools, evaluation, assurance, the Portfolio Office and audits.

Reducing these costs is possible, Murray explained.  He presented several options that senior managers could consider:

• Reducing the number of projects
• Reducing the cost of managing a project – giving each project manager more projects to run, for example
• Reducing the cost of managing projects but minimising the central overheads
• Reducing the cost of failure
• Improving performance with better targets and delivering more benefits.

Murray said that the contribution project management offers is a mix of the value of increased performance, plus a reduced cost of failure and a lower cost projects, less the cost of project management itself.  I’ve represented this as a sum in the picture here.

In the last decade the focus has been on methods, training and techniques, Murray said.  There’s been no focus on behaviour, although he admitted that things have been looking up over the past three years.  There’s been a bit of development in the organisational space around P3O and strategic planning, but he believes we can do better.

What do you think?
 

I’ve been asked a couple of times now about why understanding your project’s finances is important. If your company doesn’t ask you to track your hours or what is being spent on the project, why should you care about the numbers? Your role is to deliver the project according to the scope and quality criteria set but the sponsor, right?

Wrong.

Your role is to deliver a project that is fit for purpose and adds some value to the organisation. Whatever you are working on should have a benefit. As we saw last week, benefits don’t have to be financial. But there should be a purpose to what you are doing – someone who cares about the outcome enough to sponsor the project, and a business case that justifies why you and your organisation are bothering to work on this project at all. And that requires you to know a little about the finances of the project.

You don’t have to do sums. You don’t need to have complicated spreadsheets or do lots of financial reporting. All you need to do is work out roughly whether the effort you are spending on this is worth the perceived benefit. Use your judgement. If the sponsor is asking you to work on a project that will take eight months of your time to complete, with no other costs, but it will deliver pretty much no benefit, is it really worth it?

This is such an important question right now as project teams are pared back to the bear minimum to reduce costs. Ideally, the programme office should have done this thinking for you, and be giving you the confidence that you are working on something important and of business value. But in the absence of someone doing that, you need to. And frankly, even if they are doing it, you should sanity check it yourself.

Put your project in the overall context of the organisation’s operating environment. With whatever ‘efficiency measures’ your company is implementing, is this project a good use of your time or could your time be better spent working on something else?

You know the hair care advert: ‘Because we’re worth it.’ Well, project managers need to work out if their projects are worth it. Are yours? Which projects will you recommend closing when your sponsor is back from holiday?

This video looks at the impacts of the recession on budgets and covers the benefits of home working as well as the green elements of saving money.  There's a white paper here (.pdf) with more information.