Sunday, May 6, 2007

“Project overspend? Don’t worry about it”

The Triple Constraint and why not to ignore the cost (even if your client does not mind).

Any project manager will tell you that the ‘triple constraint’ is the most important part of managing any kind of project. Namely: ‘Scope, Time and Budget’. This week, I have been mulling over the third constraint, budget. Why is it that so many large corporations, take their eye off the budget? For many large companies, over spending is not ‘welcome’ but it is not a serious misdemeanour either, especially if the over-spend has occurred ‘in-house’.

For whatever internal political reasons, it is still hard to come to terms with and understand how this comes about. Is it because so many companies have Hey Grade type rewarding systems? The kinds where staff are ranked and rewarded by the numbers of employees they have reporting to them, or indeed, how large their departmental budget is? If there is a link, then perhaps it is little wonder that budget is so often over-looked (assuming that their end of year assessments are allowed to sweep away the issues of over spend, after all maybe their boss is not so interested in reducing departmental budget either)?

As an interim manager, a relaxed attitude to budgets annoys me profusely. Mainly because I know that it is not good for the long term of the business and also for the shareholders (who ultimately, I like to feel I report to). Of course running a massive project with hundreds of reports, with a seven or eight figure budget is great fun, but if you discover that it is just a game for the management team and big ego trip for you, then you get a sour feeling, that this is simply not right.

Working for small companies with cash constraints and limited resources maybe frustrating for a host of reasons, but their need for ‘value for money’ and on time delivery is strong revision lesson for us all. I always think of all the things the business could do with the over spend money, especially when it could have been avoided.

The difficulty often lies in not being able to control the budget adequately. Whether it is an external supplier increasing prices, or internal departments dumping booked man-hours onto projects that are under budget, the result is often the same for the well performing project manager. Those around you are screwing up big time, while you can the financial can. “Even if the management team, say don’t worry, it’s only an internal budgetary issue, for a passionate interim manager, it really is a kick in the guts.

I feel it is the duty of all interim and project managers, no matter what project they are on, to take a serious interest in the spend rate, and to continually report back progress versus budget, no matter how unwelcome the news might be. This has the additional advantage of ensuring that if your budget gets dumped upon, near the end, you can demonstrate that all the way through the project you were on track. After all at the end of the project, the management team will remind you exactly how much the project cost and memories are very short when it comes to exactly why the project ended up 35% overspend.

The day after a party, it is usual to moan about the bill. What gets me is that it is often the good old interim, or project manager (whatever title he or she has) that is the easy target for blame.

3 comments:

Chevket said...

USSR rise and fall.

The initial wellfare state that the company is facing is leading the company to a decrease of productivity. As USSR the initial wellfare state, providing work, food, housing and education to all, has a vicious impact on people desire and thus productivity. Soon this lack of productivity leads country in downturn. But people have found new way of generating money, Black market…
Black market has not only a good effect on marketer’s wallet but the introductions of prohibited items trigger other people desire. After the fall of USSR, Russian people eagerness has push Rusian to innovate and to take control of their destiny. As consequence russia and other baltic states have a high economic expansion (for russia: 6,7% on average between 1999 and 2005) .
In conclusion we could say that the lack of ressources or constrains have creating desire, productivity and by the way benefits.
As like I have seen in Multinational organization (EU, NATO…), once you have created the total budget of a project, you should deduct 20% of the budget. Once this new budget created, you must manage project accordingly.
From a global budgeting perspective, all this 20% money set aside, only a portion should be actualy reserved. This selfcreated penury will force the company to pull the best of of the available ressources.

B_Xavier said...

USSR rise and fall.
The initial wellfare state that the company is facing is leading the company to a decrease of productivity. As USSR the initial wellfare state, providing work, food, housing and education to all, has a vicious impact on people desire and thus productivity. Soon this lack of productivity leads country in downturn. But people have found new way of generating money, Black market…
Black market has not only a good effect on marketer’s wallet but the introductions of prohibited items trigger other people desire. After the fall of USSR, Russian people eagerness has push Rusian to innovate and to take control of their destiny. As consequence russia and other baltic states have a high economic expansion (for russia: 6,7% on average between 1999 and 2005) .
In conclusion we could say that the lack of ressources or constrains have creating desire, productivity and by the way benefits.
As like I have seen in Multinational organization (EU, NATO…), once you have created the total budget of a project, you should deduct 20% of the budget. Once this new budget created, you must manage project accordingly.
From a global budgeting perspective, all this 20% money set aside, only a portion should be actualy reserved. This selfcreated penury will force the company to pull the best of of the available ressources.

Harley Lovegrove said...

An interesting concept: reducing budget by 20% on day one! That's like the trick of reducing the timeframe for the next deliverables when project teams are complaining that the deadlines can not be met... I am sure it works sometimes, but I guess not always! ;-) H.