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6 Obvious Budget Overruns to Avoid
Categories:
Project Planning
Categories: Project Planning
| Nowadays, we rarely hear about projects that finish below a given budget. On the contrary, we hear about projects that need more people, more material resources and more time, which ultimately translates into additional costs that strain the project budget. Although it is clear that project costs can be influenced by external factors beyond the project manager's control, there are at least as many factors that can be controlled from within the project, through appropriate project cost planning. Here are six simple reasons that projects incur cost overruns -- and how to prevent them: 1. Underfinancing. You've probably heard about projects that start with an undersized budget ("We could only allocate that much for this project..."). Such projects will have a high risk of overrunning the initial budget, as well as a high risk of failure. Mitigation: Clarify with the project sponsor from the very beginning how cost overruns, which are very likely to occur, will be handled -- for example, through scope reduction or additional funding. 2. Unrealistic costs estimates. Projects that have costs estimated based on gut feelings or inexperienced personnel are poised to face budget overruns. Biased and inaccurate cost estimates are likely to look unrealistic at a later stage in the project. Mitigation: Break down the work into smaller and more assessable packages. Get help from subject matter experts and experienced personnel when estimating costs. Make the cost estimations comprehensible, by applying different estimation techniques (e.g., three-point estimates, parametric estimating or bottom-up). 3. Underestimated complexity. Many projects nowadays, especially larger ones, have constantly growing complexity. The Berlin Brandenburg Airport and Terminal 1 of Munich Airport, for example, were quite similar in scope, but conducted at different times (25 years apart). Yet Berlin Airport, the more recent project, continues to have considerable budget overruns and delays. One of the reasons: the underestimated complexity concerning the financing of the project, the construction of futuristically designed facilities and newer regulations. Mitigation: Split the project in smaller work packages or phases. Avoid planning everything extensively from the very beginning (the planning alone of the Berlin airport project took 15 years). Plan iteratively -- per work package or phase -- and throughout the project. 4. Extended project schedule. Just because the project schedule is met doesn't necessarily mean the budget will be met as well. On the other hand, it is highly likely that if the project schedule is not met (for example, due to a project time extension), then the project budget will be blown thanks to additional costs that may pile up, since the project team and resources will be needed for longer. Mitigation: Manage the project time and schedule well. Focus especially on the tasks on the critical path, which can have the most impact on both project schedule and costs. If you get asked to extend the project time, explain to your stakeholders that this probably will cost more. Remember the scope-time-budget project triangle. Time is money! 5. Improper buffer planning. If you don't plan (or plan improperly) for a budget buffer, the smallest deviation in scope or schedule will cause an overrun. Mitigation: A budget comprises estimated cost and some contingency. Plan the contingency for unexpected scope changes, unusual weather changes or possible problems with suppliers. Consider a buffer for the costs that cannot be accurately or predictably estimated. Some of the cost estimates will be more accurate than others -- for example, commodity prices will be more predictable than labor costs for a specific service. 6. Improper resource planning. Labor resource costs could be one of the project's biggest expenses. If the project lacks labor resources, a later labor force acquisition will be an unexpected project cost. It can also mean a higher cost since the contracting conditions might not be the same as when initially planning the project. Similarly, resources allocated in excess will mean unnecessary allocated costs, plus unnecessary blocked resources that could have been useful on other projects. Mitigation: First plan the scope, then the required work to be done, and then the related assumptions, dependencies and risks. This will facilitate a better understanding of the work needed to be done and hence will help better assess the right equipment, amount of resources and required skill sets. How do you manage costs on your projects, and which measures do you apply to avoid cost overruns? |
From Lab to Hospital, More Lessons Learned
| In my last post, I discussed my experience at the lab and insurance desk at a hospital. Now I'd like to share the remainder of the story and my analysis on the lessons learned from the hospital stay. A nurse on my first evening in the hospital asked me to sign some papers. As I read the papers, there was a note that said I should not sign if the paperwork was not explained to my satisfaction. I looked at the nurse and said, "No one has explained anything to me. How can I sign?" The nurse looked at me and asked me to hold on for a moment. After some time, a doctor came, explained the process and situations that could arise during the operation. I asked some more questions that he answered, and I signed the papers. Thursday morning, the operation was completed successfully, with follow-up visits by the doctor and nurse. On Friday, the process continued. A group of three senior staffers came in the room, introducing themselves as administrators, and asked if the air conditioning, food and other services were okay. In the evening, the doctor visited again and told me all was well and he would discharge me the following day. He said he would start the process in the morning and requested my patience as the billing and insurance-approval process might take many hours, even perhaps the whole day. On Saturday morning, the administration staff visited again and asked if all was well. At noon, the staff took my signature on the bill and asked me to wait for approval. I sat around and inquired about the approval few times, but no luck. I finally got approval by 7 p.m. -- but by that point I had had dinner at the hospital and afterward moved to my house. Analysis: My experience at the lab and at the hospital were quite opposite. At the lab, the work at hand was minor, but it escalated. However, at the hospital the work at hand was greater and there were more opportunities for issues to arise, yet all went well. I think it was the hospital's well-defined process and disciplined execution that allowed for a smooth experience. Takeaway 1: Words Have No Meaning, Only Action Works At the lab, the manager was trying to defuse a situation by promising and explaining, but actions were missing, and therefore the matter became heated. At the hospital, when I was asked to sign papers without explanation, I raised the concern -- and the nurse and doctor both handled it well by doing what was expected without uttering a single word to the contrary. Takeaway 2: Keep the Ego Under Control The manager at the lab appeared to possess a big ego. First, he did not accept the problem; moreover, he defended his and his team's actions. Second, as he was also a doctor, he could have collected the blood himself but chose not to, perhaps because it wasn't in his job description. He missed the opportunity to win over customers and set an example for his staff. Takeaway 3: Set Expectations If the hospital staff had not set expectations that it would take two hours for approval on the estimated cost and a whole day for approval on the final bill, I would have waited impatiently and probably fought with the staff over the delays. But setting expectations in advance helped them control customer reactions and achieve satisfaction. Takeaway 4: Have a Process, Maintain Discipline and Re-evaluate The most interesting thing I found is that the administration staff visited my room twice and personally asked if all was going well. They were monitoring that discipline was being maintained and if anything in the process needed to be fixed. I think this was critical in ensuring foolproof processes and disciplined staff. What's the top customer service lesson you've learned from an unlikely source? |
Eliminate the Fear Factor
Categories:
Stakeholder Management
Categories: Stakeholder Management
| A Guide to the Project Management Body of Knowledge (PMBOK® Guide) and most modern management texts emphasize leadership and motivation over directive control. Yet if employee surveys are to be believed, around 70 percent of managers still operate in command-and-control mode. These managers rely on authority, discipline and fear to drive performance. And their team's commitment to the organization and performance suffer accordingly. It's simply futile to tell people they must come up with a bright idea within the next 30 minutes or sanctions will be applied! Fear damages creativity and destroys openness; frightened people cannot work effectively in a knowledge economy. If people are scared of being blamed, the last thing they'll do is pass on accurate information about an issue or a problem. And effective management decision-making depends on the open transmission of bad news. Project controls staff must know what's really happening and need honest estimates of future consequences to provide planning advice. To understand how serious this problem can be, consider that one of the causes of the up to ₤425 million loss so far on the ₤2.4 billion U.K. Universal Credit program -- ultimately credited to "weak management, ineffective control and poor governance" -- was that no one in the development team felt able to highlight their problems to senior management. Fear of being blamed kept the knowledge of the problem from the people who needed to know. Trusting and empowering your team, open communication, leadership and motivation are all closely interlinked and in combination create high-performance teams. This is not a new concept. At the beginning of the 19th century, the Prussian military developed auftragstaktik (or mission command) under the core tenet of bounded initiative. The leader's role is to clearly outline his/her intentions and rationale. Assuming people have proper training and the organizational culture is strong, subordinates can then formulate their own plan of action based on their understanding of the actual situation. What do these ideas mean for project managers?
How do you eliminate the "fear factor" from within your team? |
Are Portfolio Managers the Next Chief Strategy Officers?
| A relatively new but increasingly important role is emerging: the chief strategy officer (CSO). From Starbucks to Siemens, many organizations now have a designated CSO. A CSO can be defined as an executive responsible for assisting the CEO with identifying, communicating, executing and sustaining strategic initiatives -- basically, what a portfolio manager does. And I would argue that the next CSOs will come through the portfolio management ranks. Strategy itself is about renewal, and renewal is achieved through transformation. Therefore, a key part of strategy is innovation. That's not just technical or product innovation. It's also managerial, organizational and process innovation implemented through portfolios (and of course, the corresponding projects and programs). As with a portfolio manager, the core responsibilities of a CSO include translating strategy into execution:
There are four main types of CSOs:
What do you think? Are portfolio managers the next chief strategy officers? |
Benefits Realization by Roller Coaster
Categories:
Benefits Realization
Categories: Benefits Realization
| In 2011, a new landmark emerged in southern Taiwan: the E-DA Theme Park. Even today, few know that it was the outcome of a massive town regeneration program. Or that its main backer was one of the most successful companies in the Asian business world: Taiwan-based Yieh United Steel Corp. (YUSCO). The E-DA Theme Park -- and the many development groups behind it -- was an initiative proposed by YUSCO's founder, I-Shou Lin. Mr. Lin committed YUSCO to this venture because of his desire to transform a decaying city: Kaohsiung. Fifteen years ago, Kaohsiung was an industrial center and a major harbor for southern Asia. But in the intervening time, stagnation had set in. The price of land and levels of pay kept falling. And as decline became a long-term trend, the city started losing its population. Mr. Lin thought tourism could regenerate the city. And, as the biggest company in the city, he felt YUSCO had a duty to help. Thirty years ago, Mr. Lin bought land on the nearby Guan Yi Mountain. He purchased it not for a short-term commercial plan, but as a long-term investment. And E-DA Theme Park was just the investment to build on the land. To help him realize this ambition, Mr. Lin found a program manager, Chi-Hwa Yang, who had been very successful in retail, restaurants and construction. After visiting and studying different kinds of tourist centers across the world, Mr. Yang formulated a strategy. To make the best use of the remote and enclosed mountain landscape without disturbing the existing economy of the city, Mr. Yang calculated that two tourist attractions, a theme park and a shopping mall, would fulfill Mr. Lin's vision. The shopping mall would bring in major brand outlets and customers, while links to the theme park and shopping mall would be through the nearby international airport and the existing transportation infrastructure. Tourists drawn to the theme park and the shopping mall would have to use Kaoshiung's hotels, restaurants and other local businesses, safeguarding existing jobs and creating new ones. Due to the limited land available, about 3.7 hectares (9 acres), Mr. Yang folded most of the 50 theme park attractions into several buildings, which allowed the creation of a controlled, comfortable environment for tourists despite the often-scorching sun of southern Taiwan. Mr. Yang also thought the theme part needed something distinctive and decided on a Ferris wheel -- but where it was situated was as important as the iconic attraction. The Ferris wheel was placed directly in front of the hotel, so tourists and hotel visitors could clearly see each other. This initially sparked controversy over lack of privacy for hotel visitors -- but Mr. Yang solved the problem by limiting the wheel operation to the daytime and installing "blackout" curtains for the hotel rooms facing the ride. It worked. When the theme park opened in 2009, the Ferris wheel's glorious, iconic image helped attract a large number of visitors and investors. The Ferris wheel was just one of many decisions that Mr. Yang made the right choice on. For the past three years, many business outlets at the theme park have experienced massive growth. The park is also very popular, getting packed to capacity during holidays. This has meant the hotel occupation rate across Kaohsiung has risen to new levels. And across the city, businesses were not adversely impacted by the new development. Following Mr. Lin's vision, Mr. Yang's out-of-the-way development meant the E-DA Theme Park didn't draw customers away from the city -- rather, it became a destination for tourism, with the city as its base. Furthermore, the rise in tourism boosted local businesses and led to an increase in local property prices and new development. The success of the development groups backed by Mr. Lin and guided by Mr. Yang is a mark of excellent program management. It is also an example of the long-term, wide-scale benefits that when, handled professionally, program management can deliver. Who says business and social responsibility are mutually exclusive? Have you worked on a project where program management benefited social needs and business objectives? |