When scope expands,
remember: Money talks.
BY GARY R. HEERKENS, MBA, CBM, PMP, CONTRIBUTING EDITOR
“Change in scope” easily ranks among the top issues that keep project managers awake at night. At the project's launch, the scope, schedule and budget are determined. Then, somewhere during the course of the project, someone changes the scope.
In many cases, this decision results in the need to perform more work, but the sponsor expects the original schedule and budget to be upheld. This doesn't make much sense, but it is the reality many project practitioners face.
Project managers adept at negotiation—or lucky enough to have an understanding and compassionate project sponsor—can secure more funding and time to accomplish the additional work.
Problem solved, right? Wrong. In today's environment, project practitioners aren't thinking about change management from a business perspective. And that's something worth changing.
ASKING THE RIGHT QUESTION
More scope typically triggers the creation of some sort of change document. It likely includes information on the nature of the additional work, an estimate of that work's impact on schedule and cost, and a statement describing the motivation for the change in scope. It will then be forwarded to management, sponsors or executives for formal approval. Once approved, the scope change is executed.
That process is insufficient, as it fails to answer an extremely important question: Is the proposed change financially justified?
For me, “financially justified” means that the positive economic effects of a proposed decision outweigh the negative ones. And although financially justifying project scope change is the most important aspect, only the most business-savvy project practitioners do it.
ADDRESSING THE RIGHT ISSUES
While it is obviously related to the original project, a change in project scope is actually a separate investment decision that must stand on its own merits. Once this is understood, the process for evaluating whether it is financially justified is pretty straightforward. The key is to look at it incrementally from two main perspectives—cost and schedule.
The scope change will ordinarily require an additional expenditure. Will the incremental increase in economic benefits meet or exceed the additional expenditure? If not, the proposed scope change should not be approved.
The scope change will also ordinarily delay the project's completion and make the benefits stream delivered by that project late. That has a negative economic impact for the organization. Project practitioners must be able to answer: Will the increase in economic benefits brought about by the scope change exceed this negative impact? If not, the proposed scope change should not be approved.
If your organization does not routinely conduct a financial justification of proposed changes in project scope, it will—from time to time—waste money. Even worse, it will be consuming valuable resources on losing propositions. PM
Gary R. Heerkens, MBA, CBM, PMP, president of Management Solutions Group Inc., is a consultant, trainer, speaker, and author and has 25 years of project management experience. His latest book is The Business-Savvy Project Manager.
