Project Management Institute

Walk the tightrope

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Walk the Tightrope

Communication and control help project managers strike a balance between managing costs and meeting goals.

BY RACHEL BERTSCHE PORTRAITS BY CARLOS SPOTTORNO

Francisco Javier Rodriguez-Blanco, PMP, Nokia Solutions and Networks, Madrid, Spain

They might not be the first words that come to mind for an ideal project manager, but today's volatile economic climate has prompted a conservative financial mind-set for project managers in many sectors. The always-important task of controlling the budget has become a primary focus on virtually every project, says Hadeel Assaf, PMP, a former IT project manager at twofour52, a government-run media agency in Abu Dhabi, United Arab Emirates.

“Ten years ago, money was a factor, but not the driving factor—time and quality of the deliverables carried more weight,” she says. “Now we are forced to cut back on project budgets and profit margins to enable us to compete.”

Increased competition and savvier customers are also creating a need for cost management that's defensive, or conservative, from a project's start, says Francisco Javier Rodriguez-Blanco, PMP, project management office (PMO) head for Nokia Solutions and Networks, Madrid, Spain.

“Customers and competitors are being more and more aggressive. That pressure is translated to the suppliers, so all the margins have to be lower in order to be competitive,” he says. “We are always looking to improve the efficiency of the company and reduce costs.”

Of course, there's a fine line between project management defense and being too focused on savings. Favorable results are still the primary objective, says Kiron Bondale, PMP, project portfolio management consultant at Aksys Consulting Inc., Mississauga, Ontario, Canada.

“If I come in at or below budget on a project but what I deliver doesn't meet the expected outcomes for the project, then I‘ve failed,” he says. “Regardless of whether cost is the most important constraint, project managers have to take a balanced approach.”

So how, exactly, do they walk the budgetary tightrope? Good communications and strict controls are part of the answer.

Setting the Stage

Understanding costs and identifying risks are among the first steps when taking on any project. But running a tight ship also requires an in-depth assessment of any new or unknown variables, says Jeanine de Almeida, PMP, senior project manager at Unisys, Wellington, New Zealand.

“How much do you know about your client, how much do you know about your team members, and how much do you know about the products or services you are going to deliver?” says Ms. Almeida. “The less you know, the more defensive you need to be.”

“Ten years ago, money was a factor, but not the driving factor—time and quality of the deliverables carried more weight. Now we are forced to cut back on project budgets and profit margins to enable us to compete.”

—Hadeel Assaf, PMP, Abu Dhabi, United Arab Emirates

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“Looking at where you can cut back should be a continuous activity,” says Francisco Javier Rodriguez-Blanco, PMP, Nokia Solutions and Networks, Madrid, Spain. If you need to scale down, here are a few areas where he suggests cutting costs:

Materials: If buying in bulk, try to negotiate better prices with suppliers. See if advantageous payment structures, such as cash on delivery, could earn an additional discount.

Contracts: When working with third parties, pay for services à la carte, rather than paying a flat, full-service rate. This helps avoid shelling out for unnecessary services.

Resources: Look for team members who can wear more than one hat to help increase efficiency and keep labor costs down. Also use the right subcontractors for the right tasks, such as specialized or temporary functions, rather than forking over high hourly rates for work a full-time employee could do.

It's the project manager's job to find out from the client where flexibility exists in the project. Clients are often willing to play time against finances—and the more time given, the more costs can generally be cut, Mr. Bondale says.

Laying out realistic project goals within a conservative fiscal framework helps ensure that the client, stakeholders and project board share the same vision for expected results. “You want to increase the degree of confidence, for everyone, that cost constraints can be met and you will still end up with something that everyone will be happy with at the completion of the project,” Mr. Bondale says.

Gauging the Distance

Providing an accurate assessment of realistic goals at the outset is often the hardest part of working within a set budget. “Most of the time, the requirements analysis stage is where the surprises appear,” Ms. Assaf says.

To set an accurate project cost baseline—which is tracked against execution—project managers typically start by summing all estimated costs for activities included in the project scope, Mr. Rodriguez-Blanco says. That figure, together with the contingency reserve, provides the total project cost baseline.

To ensure consistent tracking against the budget throughout the project's execution, Mr. Rodriguez-Blanco recommends using the same criteria that will be used to assess incurred costs—and getting buy-in from all the people responsible for reporting those costs early on.

“If incurred costs will be provided by colleagues from the finance department in the execution phase, they should be involved in the planning phase in order to anticipate costs in the same way they will be measured,” he says.

“Regardless of whether cost is the most important constraint, project managers have to take a balanced approach.”

—Kiron Bondale, PMP, Aksys Consulting Inc., Mississauga, Ontario, Canada

When to Take the Offensive

Even in budget-conscious times, there are instances when investing aggressively in a project is still a smart idea. “Whenever you go on the offensive from a spending perspective, you're trading off budget with a benefit on another side, whether that be from a schedule or scope perspective,” says Kiron Bondale, PMP, Aksys Consulting Inc., Mississauga, Ontario, Canada.

If any of these drivers are key to a project's success, make a play for an offensive approach:

Time to Market: If a rival is coming out with a similar product or service and the clock is ticking, it's probably worth spending a little more to bring in the best players and get your project finished ahead of the competition. Investing extra cash now—to avoid getting “scooped”—can mean big profits later.

Visibility: For the launch of an innovative new product that needs to make a big splash in the marketplace, word-of-mouth marketing and YouTube videos probably won't do the trick. Now's the time to make sure the project includes a marketing budget and to consider becoming a platinum sponsor at a conference.

Quality Assurance: If a project's end deliverable is on time but doesn't produce business value, your team's time and energy will have been wasted. If you're tasked with developing a new product, for example, what goes to market needs to work— and work well. To avoid flaws or bugs in the end product, it can be helpful to invest in a dedicated quality-assurance specialist when you enter the final phases of execution. This can be especially beneficial when on a tight schedule with a hard launch date rapidly approaching.

The final component of a defensive project strategy is the allocation of contingency reserves. Ms. Assaf holds no more than 15 percent of her budget in reserve in highly cost-constrained situations. But the exact number usually depends on the degree of project uncertainty.

“After you go through risk identification and analysis, you should have a good understanding of the project's risk profile,” Mr. Bondale says. “That's where you, as a project manager, will determine how much to hold in reserve should any of those risks get realized.”

Walking the Walk

Once a project begins, tracking costs against the baseline helps avoid overruns—or at least allows them to be quickly curtailed.

“Weekly monitoring of the project—both through invoices and time sheets—to compare your current reality with the plan and to see if risks have realized, is most important,” Mr. Rodriguez-Blanco says. “If a risk is no longer there, you might be able to release parts of the contingency reserve, and you will have an immediate increase in your profit margin since you're reducing your estimated cost.”

Successfully monitoring costs, however, requires gathering timely financial information, a task easier said than done at many organizations. Project managers are often cut out of the invoicing loop or given project actuals weeks or months after they are received by the accounting department, Mr. Bondale says.

“Try to put in the appropriate metrics and tracking mechanisms so that you're getting financial data as close to real time as possible,” he says. “That way you're in the position to take corrective action in a timely fashion.”

To gain faster access to external labor costs, Mr. Bondale advises establishing a good relationship with accounts payable staff and communicating to them how early notification of vendor invoices helps to manage project costs. If internal labor costs are not being tracked using a time-tracking tool, he suggests asking team members to complete a simple time sheet each week.

“How much do you know about your client, how much do you know about your team members, and how much do you know about the products or services you are going to deliver? The less you know, the more defensive you need to be.”

—Jeanine de Almeida, PMP, Unisys, Wellington, New Zealand

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“Customers land competitors are being more and more aggressive. That pressure is translated to the suppliers, so all the margins have to be lower in order to be competitive. We are always looking to improve the efficiency of the company and reduce costs.”

—Francisco Javier Rodriguez-Blanco, PMP

Maintaining strict budget controls helps project managers identify costly risks and provides the chance to take corrective action. Most important, it lets project managers identify problems—and potential solutions—before the situation gets worse.

For example, if a team member realizes he or she underestimated the time it would take to build a software module, communicating that information immediately allows the sponsor to decide whether to invest more money to get the product on time, remove that module from the project scope or accept delay. While no one likes dealing with problems, giving sponsors the opportunity to determine the project's future instills confidence in the project manager's abilities, Ms. Almeida says.

“It's very frustrating when you need to tell a client after the fact that there was a problem,” she says. “Usually the client will appreciate that you got them involved in the decision before the problems were realized.”

When it comes to managing the bottom line, proactive planning is the key to a winning strategy. The best offense is a good defense. PM

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

OCTOBER 2013 PM NETWORK

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