Project Hero Blog

More Project Management Best Practice Tips

Managing Risks of Fixed Costs

Last week we looked at fixed schedule, so its only natural to want to look at fixed costs too. Or perhaps I should more precisely say "fixed price" since fixed costs have a connotation of overhead. And there's a further clarification to make as well (finances are so much more complex than schedule and time) -- we're talking about risk to the seller. Many buyers like fixed prices since they know exactly what their budget will be, but its the seller who has to manage most, if not all, of the risk.
 
Now with the clarifications aside, here's my top 5 list:
 
1. Well defined scope and specifications: Having a well defined project scope and necessary specifications will make it easier to manage and estimate. Uncertainty leads to errors.
2. Diligently completed estimates: if there was ever a time to be cautious in estimating, this is it. Obviously you're not going to be able to "sandbag", but a carefully thought out and documented estimate provides a solid basis for success. Be...
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Look Before the Project - Part III

For the last two weeks, we looked at two different ways to evaluate project selections to determine which to work on. This type of activity is often carried out by senior management and not the project manager. The project manager is usually involved once the project charter has been developed. A special form of project charter is the Statement of Work or SOW. Its often associated with a contract and describes in detail the work or services to be performed. I always use a SOW on a consulting engagement.

I almost called this post “where’s the contract?” I sometimes hear “I didn’t know I bought that” — well the good project manager always checks the contract and SOW first to understand the project and what is involved. If you’ve been “knighted” as the project manager, the SOW is a good document to request.

The SOW can also be a tool to set expectations. There is always a great deal of uncertainty when projects start. Sales...

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Look Before the Project - Part II

Last week we looked at the BCR -- Benefit-Cost Ratio as a way of evaluating a project. This week I'd like to look at a related technique -- Total Cost of Ownership (TCO). The purpose of many projects is to introduce a new product or service. Often this new product or service has a later ongoing operation. For example, if you have installed Oracle Financials, there is a need to develop the customized software and populate the initial data, but once that is complete, there are expenses associated with rolling out the project, paying the maintenance fees, hiring the staff to keep the data current, etc. Similarly if you project is to construct a housing development, there are ongoing expenses after the homes are built to sell them and get the buyers moved in.

Total Cost of Ownership goes beyond BCR in that it looks at the ongoing expenses associated with a project and let's you know more about what it will really cost to keep things going once the project has ended. This is an important...

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Look Before the Project - Part I

For the next few weeks I'd like to take a closer look at initiating projects, with special attention to costs. This is an area of weakness for many who jump in to do work before looking at the consequences or rewards. Rather than use a microscope, you need a telescope to see to the far and of the project. We'll focus on costs, but once again, there are many other factors which must be analyzed.

There are many different methods and techniques, but one easy one is to determine the ratio of benefits to costs, starting with the "hard dollars" -- the real cash to be spent and saved. This is also a good sales tool since it shows the tangible benefit of buying the project, product, or services. One easy illustration can be found in imaging systems.

Let's looks at the hypothetical costs of the imaging system -- a small server ($5,000), software ($100,000 -- its a high end package), and a high speed scanner ($10,000). We may also need to pay someone to install the system ($20,000) and...

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Cheapest Isn't Always Least Expensive

When selecting any resource of any type for a project, always keep in mind the automatic selection of the "cheapest" won't always be the least expensive option. This is why we have competitive bidding for major contracts -- we get a peek at the other dimensions. Does the resource meet our need? Will our requirements be met? Will quality meet our standards?

Let's suppose we can choose between 3 "near shore" programmers working for $20 an hour each or a local programmer making $80,000 per year (or approximately $40 per hour). All facts considered, we are paying the near shore programmers $60 per hour or $20 more per hour than the local programmer. Now we also need to look at their track record -- what is their history of project delivery -- to assist in making the right decision. If the near shore programmers can deliver in less time and higher quality, they may be the right choice.

Some of you may remember the 4 Hour House, a project/competition sponsored by the San Diego Building...

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Keeping Your Projects on Track with Earned Value

A lot of folks in San Diego wonder how the construction of Petco Park, a managed project, could have possibly spent all the funding before it was half completed without anyone knowing. While I certainly don't have proof as to the actual cause, there is one very good way projects can get into this state -- they failed to look at all three key project success factors -- time, cost, and performance.

The usual illustrative story goes something like this ... you hire a painter to paint four walls in four days. Each day is budgeted for $1,000 for a total of $4,000. If at the end of 2 days, I tell you the painters spent $1,500, do you know what the status of the project is? No because you don't know how much work was actually completed. If I were to tell you the painters finished 3.5 walls, would you know? No, because you don't know how much was spent.

Earned Value is a project management technique which can help you look at time, cost, and performance of your project. Using it can provide...

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Earn Your Value - Part III

To recap parts one and two of this post, we saw:

- how earned value is useful for monitoring both costs and schedule
- the basic formulas used to see if our projects are off track (and by how much)
- the recommendation that earned value be looked at weekly
- the ideal values for cost and schedule index are one (1.0)
- a simple way of communicating earned value information to our clients.

This week I'd like to take a look at the things we can do to manage our projects, especially if the CI and/or SI is much bigger or much smaller than one. Note that I can merely suggest causes -- you will need to diligently look at your projects and their circumstances to arrive at the conclusion right for you. You may want to produce a graph or visual of your progress so you can pinpoint the time at which things started to go south.

CI << 1 and SI = 1
Being on schedule but over budget might represent a significantly underestimated budget (or a tight budget dictated by the project sponsor), a...

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Earn Your Value - Part II

Last week we looked at the basic principles and formulas surrounding Earned Value Management. While the full practice of EVM may be very complex, it also provides a simple way to update clients on the status of smaller projects. But before we look at the "how", let's take a look at the "how often".

The frequency will actually depend on many things, but I recommend you start with once a week. If a month passes by and there's a problem, its usually too late to do anything about it. Once a week allows you to keep closer track of expenditures and invoices. Once a week also let's the client see the progress. You can always skip reporting for a week if you didn't work on the project, but you still need to follow up on tracking of expenditures and invoices. I usually log expenditures, invoices, and payments to see the full project picture.

Your weekly report to clients needs to contain the basics of cost and schedule variance, plus an estimate of the remaining expenses. Knowing the cost...

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Earn Your Value - Part I

As I was thinking about what to write this week, I noticed my only mention of Earned Value Management was both brief and some time ago. It's an important topic, so I'm going to devote my next three entries to it. This week, we're going to look at the basics. Next week, we'll look at how to report Earned Value to clients and stakeholders. In the third and final post in this series, we'll look at how to use Earned Value Management principles to manage projects.

The usual illustrative story of Earned Value goes something like this ... you hire a painter to paint four walls in four days. Each day is budgeted for $1,000 for a total of $4,000. If at the end of 2 days, I tell you the painters spent $1,500, do you know what the status of the project is?

The answer is "No" because you don't know how much work was actually completed. If I were to tell you the painters finished 3.5 walls, would you know? Also "No" because you don't know how much was spent.

Earned Value is a project management...

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