Let’s talk about commercial viability for your projects.

Commercial viability is something that is considered at pre-project stage. It’s all about proving that it is worth going ahead with the work because the figures make sense. It’s typically related to working with suppliers: your analysis establishes that the relationship is commercially viable, which means you’ll both get something out of it and it is worth the time and effort involved.

A commercially viable deal will be one where the procurement decisions and contract offer the best value to the organisations involved over a time period that makes sense for the deal.

One of the challenges is that what sounds commercially viable today might not be tomorrow, if the market changes, or a supplier goes bust, so it’s important to take a proactive approach and be as risk-aware as possible.

We’re now in the realms that – in my view – stretch outside of a project manager’s remit. As the project manager, it’s unlikely that you’ll be signing the deals or commenting on the financial viability of the partners you are about to start working with. But you can make sure that the right people are involved on both sites.

Here are some things to consider.

What procurement options are available, and have they all been considered? What are the contract terms and is there a break clause? How long are you locked in for and is that acceptable?

What do both sides need out of the deal and what are the requirements?

Where does the risk sit, and if it is with your organisation, is that acceptable? What does the risk profile look like when aggregated across the programme? Do you feel that the supplier is taking too much risk to the point that it might jeopardise their ability to remain commercially competitive?

How and when will payments be made? That can affect the commercial viability of a project because it impacts cash flow. Large payments need to be pre-organised in my experience, so they can made in a timely fashion. What are the payment terms – you might be surprised at how often payment terms are a sticking point for negotiations! We all want the money in our bank for as long as possible…

How will the money spent or earned show up on the books? The accountancy treatment is something that the Finance team will agree. For example, exceptional spend might appear below the bottom line. Some items might be capitalised; others will not. This is out of your control as a project manager, but it gives you confidence to know that someone has considered it and made a definitive choice as to how these things are going to be handled.

Finally, are there any staffing requirements that affect the business case, or the chances of the deal being commercially viable longer term? For example, with the supplier provide staffing, and then when those individuals leave, you have to pick up the resource requirements internally? Build in any costs of handovers, transition planning, a drop in efficiency while new members of the team get up to speed and so on.

All of these discussions take place at various levels, and the summary ends up in the business case before a project is approved. It’s just worth having them on your radar so you can prompt the right people at the right time and get the best possible start for your project.

The Planning performance domain in PMBOK 7 covers all things relevant to making sure the project is adequately planned. We want to address all the work required to deliver whatever the project is delivering, and to do so in an organised, thought-through way.

Planning for the financial aspects of your project is covered by this domain.

Budgeting

Budgeting is the obvious one: as part of putting together the early steps of getting our project off the ground, we need an idea of how much it is going to cost. That means taking info from the task and work estimates and using that to create a cost estimate.

Building out the cost baseline forms part of the project planning activity and then it’s used to track against. Project performance can be measured against the baseline, in the same way you do for tracking schedule activities. In fact, combine cost and time schedules help you phase the spending. Even if you don’t go ‘full EVM’, a phased budget is helpful for the finance team to manage cash flow and for the project team to track whether work is broadly happening at the expected pace.

Financial management

Knowing how you are going to manage the finances is also useful and worth working out at this point. For example, how often are costs going to be reviewed? What contingency reserves are going to be put aside and how will the team access those? What’s the process for getting purchase orders raised and invoices approved for payment? Do you have access to a management reserve and if so, who is going to approve using that funding?

Procurement planning

Most of my projects involve buying things from suppliers. Whether it’s something small or a multi-million pound deal, procurement activities are a big part of what we do.

It’s important to spend time in the project planning phase thinking through how procurements will be managed. Will you have a dedicated procurement professional to manage the contracts and run point with suppliers? Who is going to manage supplier relationships? What’s the process from choosing a supplier and negotiating a price to actually getting the contract signed off and the order raised? I know from personal experience that this process is easier said than done!

If you have someone managing the contracts on your projects, they will need to know what the project needs to buy, when the team needs it for, what the lead times are likely to be and a lot more. Given that at the moment the lead times on all kinds of equipment and building materials seems to be extending – our own build project at home has been delayed – and the price of materials is rising – it’s really important to be all over the numbers, process and plan for this aspect of your project.

There’s more to the Planning domain than simply thinking about the money and contractor relationships, but these aspects are essential if your project involves procurement work. It’s all too easy to get sucked into scope discussions and deadlines and milestones – because executives want to know when the project will get delivered, not who in Finance is going to be processing the requisitions.

So this is just your friendly reminder to make sure you allow adequate time in the planning stages of your project to factor in the finance planning – and that it’s an ongoing activity for each stage, and as your project evolves.

How much do you really know about that supplier you are thinking of using on your project? They’ve sent you a quote, and you’ve got a nice glossy presentation with photos of their account managers, but what’s it really going to be like?

In this video I share some of the things I’ve found important when starting a relationship with a new third party – in fact, before the relationship even gets going it’s important to ask these questions.

If you prefer to read, there’s an article here on what to check before you sign on the dotted line: What you need to know about your supplier.

If you’re a video kind of person, and you want to hear my personal experience, then click Play on the video below! Let me know in the comments under the video what else you consider when you are assessing what organisations to partner with for project delivery. I’m sure you’ve got some great stories too!

We need to measure project performance to see if the project is on track.

The graphic below shares some ideas on the different ways you can measure work performance. None of these suggestions is better than any other – they are all appropriate for different projects, environments and levels of project management maturity.

Do you use any of these approaches to measure progress on your projects? Why (or why not)? Let us know in the comments section below!

If infographics aren’t you thing, you can get almost the same information (with perhaps a teeny bit more detail) over at this article:

7 Contract Terms You Should Know

Your project needs things. But should you buy them, or make them yourself?

It’s a big decision, and one that affects lots of industries and deliverables. My experience has mainly been make or buy in the software world. Should we develop our own software, or buy a tool that is known to be best in class?

With software particularly, there are a lot of considerations. Cost. How easy it will be to interface any off the shelf product with your existing architecture. Supporting it once it’s built and installed. Managing upgrades. So many questions!

While this video doesn’t have all the answers, it might help clarify the big picture for you so you can start a confident conversation with your management team about the things you need to procure for your project.

For more information on project procurement and what you should be considering, check out this article.

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