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Topics: Communications Management, Construction, Cost Management
Communicating bad news about Project Financials to Senior Management
Network:478



Hi all,

In my current market, I've noticed a trend where PMs along with the Project team tend to hide dips in Profit margins (due to cost overruns), from Senior Management, when they issue their monthly / weekly progress reports. This is especially evident as the cost to complete is a result of cost balancing to ensure that the profit margin stays consistent at the planned amount. This means that more often than not, Senior Management only becomes aware of cost overruns when it is too late.

So apart from the obvious visibility issue that Senior Management faces on the actual performance of the Project, how could this practice affect:
a) The Project
b) The Organization as a whole

Really looking forward to hearing your views on this, to know if this is a wise spread practice or not and the issues this may invite.
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Network:987



Transparency in processes and results is a principle of the PMI code of ethics.
"Golden pill" when results are presented, besides being unethical can harm the company in the medium and long term due to lack of financial sustainability.
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1 reply by Sunny Lalwani
Sep 24, 2019 3:49 AM
Sunny Lalwani
...
Absolutely agree with you.

However, with such a practice, how can one go about combating it?

Bringing about cultural change seems like an uphill task when it comes to communications and people.
Network:597



It is unfortunate that some PMs do this to shield themselves from being reprimanded in the hope that eventually,they will recover the cost overruns which as it turns out is often never the case. The code of ethics on honesty bestows upon us the duty to understand the truth and act in a truthful manner both in our communications and in our conduct.As a prudent PM,you should communicate the bad news but also give your evaluation of the problem and proposed mitigative measures to arrest the situation.

Aluga
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1 reply by Sunny Lalwani
Sep 24, 2019 4:03 AM
Sunny Lalwani
...
That is true.

Rather than hiding / covering up any setbacks, it is best to come clean with mitigation plans.

How do you think a Project and an Organization would be affected with such a practice?
Network:478



Sep 24, 2019 2:43 AM
Replying to Luis Branco
...
Transparency in processes and results is a principle of the PMI code of ethics.
"Golden pill" when results are presented, besides being unethical can harm the company in the medium and long term due to lack of financial sustainability.
Absolutely agree with you.

However, with such a practice, how can one go about combating it?

Bringing about cultural change seems like an uphill task when it comes to communications and people.
Network:478



Sep 24, 2019 3:48 AM
Replying to Collins Aluga
...
It is unfortunate that some PMs do this to shield themselves from being reprimanded in the hope that eventually,they will recover the cost overruns which as it turns out is often never the case. The code of ethics on honesty bestows upon us the duty to understand the truth and act in a truthful manner both in our communications and in our conduct.As a prudent PM,you should communicate the bad news but also give your evaluation of the problem and proposed mitigative measures to arrest the situation.

Aluga
That is true.

Rather than hiding / covering up any setbacks, it is best to come clean with mitigation plans.

How do you think a Project and an Organization would be affected with such a practice?
Network:47



Having Senior Management lose trust in you as a PM, through lack of honesty, is fatal. With the correct metrics and reporting, it should be clear early on where a budget is starting to become fragile. There will always be reasons for this, so understanding the root cause and ensuring visibility to the management is key to addressing the issue.
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1 reply by Sunny Lalwani
Sep 24, 2019 8:02 AM
Sunny Lalwani
...
Definitely agree with you.

Apart from losing trust, how else do you think the organization may get affected as a whole?

It's honestly a very interesting area for me, since lack of reporting could potentially have some serious ramifications aside from loss of trust, since there's always a possibility that any financial impacts are only identified once it's too late.
Network:478



Sep 24, 2019 4:16 AM
Replying to Karl Twort
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Having Senior Management lose trust in you as a PM, through lack of honesty, is fatal. With the correct metrics and reporting, it should be clear early on where a budget is starting to become fragile. There will always be reasons for this, so understanding the root cause and ensuring visibility to the management is key to addressing the issue.
Definitely agree with you.

Apart from losing trust, how else do you think the organization may get affected as a whole?

It's honestly a very interesting area for me, since lack of reporting could potentially have some serious ramifications aside from loss of trust, since there's always a possibility that any financial impacts are only identified once it's too late.
Network:95



Unfortunately we have the same issues. When PM's are reporting to senior management, dashboards are all typically green. It is only later that they learn of schedule delays, and cost overruns. To help combat this, there are three approaches that have been implemented:
1. 3-Point Schedule Estimates will soon be mandatory (hopefully with confidence levels included)
2. 3-Point Cost Estimates are mandatory
3. Financial data is now being pulled automatically from our ERP system (SAP) directly into the reports. This now prevents manipulation of the data. Additionally, reports have been generated that allow senior management to pull data directly themselves from the ERP system on project data. Bit by bit the noose is tightening...
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1 reply by Sunny Lalwani
Sep 25, 2019 4:47 AM
Sunny Lalwani
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Hi Steve.

How would a 3 point cost and schedule estimate help exactly?
Network:264



In the short term, the PMs hiding their metrics might actually get more support, since it looks like their projects are doing better than they really are.

Let's say your PMO has 5 PMs managing 5 big projects, and they're all struggling to stay on schedule and within budget. But one PM obscures this struggle and reports that everything is going well. Executives with oversight might be fooled into thinking this is their top performing PM. They might even put this PM on their next big project, because it's too important to be left with the 4 under-performing PMs.

In the movies, this PM would eventually be found out and receive an embarrassing comeuppance, and an honest PM would finally be recognized. In real life, this dishonest PM will probably start looking for another job when the lies become too difficult to maintain. It will fall to one of the honest PMs to report that the project is not doing well, and the executives will secretly fume to one another that the PMO can't be trusted.
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2 replies by Stéphane Parent and Sunny Lalwani
Sep 24, 2019 1:54 PM
Stéphane Parent
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Sounds like a soap opera, Wade: "As the project turns..."
Sep 25, 2019 4:49 AM
Sunny Lalwani
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This seems like the most likeliest of scenarios.

The entire outcome seems very disruptive to say the least
Network:104040



Sep 24, 2019 8:56 AM
Replying to Wade Harshman
...
In the short term, the PMs hiding their metrics might actually get more support, since it looks like their projects are doing better than they really are.

Let's say your PMO has 5 PMs managing 5 big projects, and they're all struggling to stay on schedule and within budget. But one PM obscures this struggle and reports that everything is going well. Executives with oversight might be fooled into thinking this is their top performing PM. They might even put this PM on their next big project, because it's too important to be left with the 4 under-performing PMs.

In the movies, this PM would eventually be found out and receive an embarrassing comeuppance, and an honest PM would finally be recognized. In real life, this dishonest PM will probably start looking for another job when the lies become too difficult to maintain. It will fall to one of the honest PMs to report that the project is not doing well, and the executives will secretly fume to one another that the PMO can't be trusted.
Sounds like a soap opera, Wade: "As the project turns..."
Network:478



Sep 24, 2019 8:38 AM
Replying to Steve Ratkaj
...
Unfortunately we have the same issues. When PM's are reporting to senior management, dashboards are all typically green. It is only later that they learn of schedule delays, and cost overruns. To help combat this, there are three approaches that have been implemented:
1. 3-Point Schedule Estimates will soon be mandatory (hopefully with confidence levels included)
2. 3-Point Cost Estimates are mandatory
3. Financial data is now being pulled automatically from our ERP system (SAP) directly into the reports. This now prevents manipulation of the data. Additionally, reports have been generated that allow senior management to pull data directly themselves from the ERP system on project data. Bit by bit the noose is tightening...
Hi Steve.

How would a 3 point cost and schedule estimate help exactly?
...
2 replies by Glen Dean and Steve Ratkaj
Sep 25, 2019 8:52 AM
Steve Ratkaj
...
Hi Sunny;

The intent is to force PM's to put a bit more thought into the cost and schedule "estimates". Tied to that would be confidence levels. If exploited properly, senior management should be asking that cost and schedule estimates be backed by some evidence based analysis, and require that all data should have mandatory confidence levels of lets say not less than 90% at the end of the definition stage. With the 3-Point estimates, at least senior management would have a range between pessimistic and optimistic values that within +/-3 standard deviations (assuming a normal distribution of the data) would give a 98% plus confidence level.
Sep 25, 2019 4:24 PM
Glen Dean
...
I think providing 3 point estimates on a live project will just undermine the credibility of the PM in the eyes of leadership, in that it will either display an attempt at 'smoking mirrors', or indecisiveness. Furthermore, the time and effort to create 3 point estimates with objective confidence levels is not value-add to anyone. Best bet is to give your single, honest and well-reasoned estimate.
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