September 28 & 29, 2020 | Virtual
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I think you've partially answered your own question - padding or perhaps referred to more professionally as contingency is added to cover unknowns. Over and above that, it might also be included to increase the profit on a project to make it commercially attractive, or to make it so expensive that the customer rejects the bid. Another reason for including it is to protect profit margins if you're expecting the customer to want a lot of technical support beyond what has been budgeted for in the contract.
It might also be added to protect a reputation or to give the PM an easy ride - allows you to under promise and over deliver on a project = still deliver on time and to budget even after delays. The extent you might do that depends somewhat on the culture of the organisation you're working for, or perhaps how aggressive you view your customer.
You might need to do this where you are uncertain of resource availability - in a weak matrix organisation where the PM has little control over resources and the projects he's responsible for are viewed as lower priority in the organisation, it's practically impossible to accurately schedule a project and therefore padding is really only pointing out a realistic situation.
I'm sure other members can add other reasons but I've given a few to get the discussion started.
Thanks for your input. I actually have a totally different point of view and opinion than yours (With all resoect to yours of course) and this is the reason I raised this question in order to see how other professionals interpret this concept.
IMHO, Padding and Contigency are totally two different and completely opposite approaches. In creating contingency reserves, the PM Team would have the neccessary information to reliably calculate what additonal time or funds the project may need and it is called "Reserve" whereas in padding, the PM Team will arbitrarily determine how much additional time or cost they want to attach to their estimates and it is called a "Pad".
- Undermines the professional responsibility of a PM to develop a realistic schedule and budget.
- It is a poor sign of Project Management.
- Can be detrimental to the Project.
- It will most probably give you unrealistic schedule and budget and might end up losing the Project.
In cases where the estimator has too many unknowns and there is no information to identify those unknowns, the potential need for additional time and cost should be addressed through the risk management process where uncertainties are turned into identifiable opportunities and threats (Risks) instead of using padding and just adding any values based on best guess.
I personally do not see how padding can make a project commercially attractive or profitable (Taking into considerstion that clients and owners will have a sense of price for their projects when they put them on the tsble for bidding so they would definitely realize that these figures are unrealistic) but I can see it becoming more expenses and rejected during the bidding process.
Every uncertainty should be addressed via Risk Management, not Padding.
Sorry if I gave the impression I thought padding was ok - I don't. I agree with you that it's bad practise, but I was trying to give you some scenarios when it might occur (and I'm sure does).
As you point out, PM's refer to reserves of time / money as contingency (or reserves) and we justify and give reasons for needing this. However at a certain point, contingency could be viewed as padding particularly where a PM is very risk averse or over-estimates the effect of the project risks and therefore allocates too much contingency to deal with it. To them it's not padding - it's contingency, but a more experienced PM or someone who either underestimates the risk or views it as lower, would probably say there's so much contingency that it's padding. However, even allowing for this, I would agree that adding time/money over and above what you have identified as needed to deliver the project successfully, is bad practise from a project management point of view.
I would mention, that I've worked for companies who have no concept of risk management and who just add a fixed proportion of the project cost as reserve/contingency to the quotation. In fact I'm working for a client like that at the moment. Contingency in this company is worked out by the accountants and the PM is told how much has been allocated to the project! Would this be viewed as padding or contingency bearing in mind that in determining the amount, no view has been taken (by the accountants) of the project risks?
So perhaps it's not always clear where contingency become padding?
Consider also from a company point of view: generally speaking companies aim to maximise profit. One of the ways they do this is by understanding what prices the market can bear - market based pricing. They might well pad out a project schedule, or over-state project risks then to justify higher prices, and so whilst it's not good PM practise, to them it's good commercial practise... Would you not agree that this could make a project commercially very attractive? It just depends whether you're the buyer or seller.
First of all, thanks a lot for your detailed constructive feedback and time.
Yes, I agree, Padding does occur a lot (This was another reason for raising this question).
With regards to your client, if the accountant takes no views and just assigns figures, yes I would call it padding as there is no basis for it except best guess. I also believe that the size of the project plays a pivotal factor, if it is a small project, there is a limit for your pad but if it is a large complex one then the pad just goes larger and larger.
While it is not a good practise, I agree it might be to some companies a good commercial practice but at the same time, they might loose many bids from this practice because others will be at lower prices. This, I can say, it can be a case by case issue but the padding situation I am talking about is after the project has been awarded and the PM Team are running estimates to determine budgets.
We are on the same page for sure Michael.
Yes, padding (or tolerance) can indeed be a professional option, if it is assessed and allocated professionally and managed properly so it doesn't just become an excuse for sloppy planning or delivery.
Risk management methodologies tie into this - too often they are also used just as a vague add-on done just to tick a box, but serious professional risk management can determine the scale of tolerance that should be applied.
Moreover, padding is not tolerance (Padding is a best guess without a basis to justify it) and if it is based on assessement it is no more called padding. Please refer to my reply to M. Gray above which is based on information from both PMI and Rita Mulcahy's book.
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