Why You Should Consider People Aspects when Planning Cost Management

A Cost Management Plan must budget the cost of staff burnout.Despite the most valiant attempts to develop a realistic Cost Management Plan, it is often set aside in the throes of project execution. Whether because of competition, or client naivete, or staff that want to show their heroism, our industry continues to have difficulty executing to estimates.

What is a project Cost Management Plan? According to the PMBOK® Guide it is a plan that defines “how the project costs will be estimated, budgeted, managed, monitored, and controlled” (Project Management Institute, 2017, p.235). In fact, the Cost Management Plan is a major component of the Project Management Plan.

It often begins with the summary budget information from the Project Charter, and prescribes the use of:

  • historical information and lessons learned from past projects,
  • corporate financial databases,
  • formal and informal cost estimating policies and procedures,
  • and expert judgment derived from the knowledge area in question.

Its primary concern is with the cost of resources needed to complete the project activities. For example, it may include items such as:

  • templates or checklists for the estimation of technical resources (servers, PCs, networks, disaster recovery, etc.),
  • administrative resources (office space, furniture, communication costs, etc.),
  • and human resources (project managers, systems analysts, business analysts, programmers, administrative staff).

Note how clinical the above description seems to be. Obviously, the development of a project cost estimate requires complete objectivity in estimating the number of required resources. Obviously, the Cost Management Plan requires this objectivity. However, for as many project cost estimating exercises in which I have participated, it always bothered me that “human” resources were given the same attention as other fixed or variable costs applied to the estimation process. Just a bunch of widgets to plug into a formula.

As I’ve noted before in these 52 PM Success Tips articles, my project management experience is overwhelmingly influenced by a long career of proposing and delivering fixed price projects. Nevertheless, whether we’re bidding a project from the perspective of an outside consulting firm, or estimating the cost of a corporate project from the perspective of an internal IT organization, the challenges are the same. How do we provide solid estimates to our client organizations, not knowing all of the requirements, to allow the client the ability to make an informed decision as to whether or not the project should proceed for the estimated cost?

It’s my belief, having worked for several consulting firms and alongside several internal IT organizations, that the cost management process seldom takes into account the people aspects of project management. We can estimate servers and PCs and some replacement or repair factor because these resources sit in a corner and serve us 24 x 7. But when we estimate “human” resources (and I really hate that term), we estimate them as interchangeable widgets working 2,000 hours per year, or 168 hours per month. We assume that they will be at our beck and call – evenings and weekends included. I’ve seen some “enlightened” organizations estimate based on six hours of productivity per day rather than eight. But when such estimates push the project end date out past what is tolerable, it’s amazing how quickly the six hours once again become eight.

So, the cycle continues. Estimate the job to get the win or, in the case of an internal IT organization, to persuade senior management to let them proceed with the project. Then deliver the project according to the estimates, no matter what it takes. Declare victory and do it all over again for the next project. In this cycle we burn out staff, cut quality, reduce scope, and, if we manage to deliver at all, the client does not believe that it received all that had been promised.

Wouldn’t it be great to be part of an organization that has cost management processes that deal with the people aspects of project management? That have formalized processes in place to take careful inventory of projects that have succeeded and ones that have not fully met the client’s objectives?

Imagine an organization that understands its rate of staff turnover (due to project burnout and the inevitable toll this takes on staff) and builds that into its estimating models. Perhaps after two or three projects, where the factors that result in staff turnover are understood and dealt with, the turnover rate may be reduced significantly.

Imagine an organization that encourages staff to take their earned vacation time and does not penalize them when (and if) they do. Better yet, imagine an organization where staff is not penalized for taking earned vacation time by having them work extra hours before and after their time away in order to make up for the “lost” time.

Imagine an organization that builds contingency into the various phases of the project, understanding that not all clients are the same, and that some clients slow the project down by not meeting their own deadlines. Or that not all of the staff assigned to the project are of the same caliber upon which the cost estimates were built, and therefore some contingency is required to develop a reasoned estimate.

Imagine an organization that takes staff promotions into consideration during the life of the project and builds in a salary escalation factor.

In past articles I have written about the tension between sales and delivery. How often have we heard, “Let’s bid to win, then manage the customer to our bid price once we get the project.”? That technique has some merit; however, the project schedule and Cost Management Plan tend to be far more optimistic on paper than what becomes the reality of project delivery.

I struggled with this tension all throughout my career. True, if we applied the people aspects as I suggested earlier, we would potentially bid a higher price than our competitors and lose the job. On the other hand, if we bid aggressively to get the win, there is potential for our client to hold us to strict adherence to our bid, such that the only way to deliver is at the cost of our project delivery staff.

It’s a vicious cycle. Bid to what it will likely take to do the job and lose the opportunity to a competitor. Bid to win and deliver at the cost of our project team members. Similarly, for an internal IT organization, provide realistic estimates and senior management is likely to put its money elsewhere. Provide estimates that look good on paper and senior management will hold the team to those estimates, again at the cost of the delivery staff.

So why does our industry have such a poor track record of delivering projects successfully?

Could it be that we have not properly trained the client organizations, our clients, in what it really takes to deliver a project to meet their requirements?

Could it be that there are always rogue bidders out there willing to “low-ball” the cost estimates to get the win?

Could it be that too many projects are expected to be delivered based on the hero complex – delivery staff working long hours, cutting vacations, and losing evenings and weekends to project work – in order to deliver according to the estimated costs?

I don’t have all the answers. But there is certainly enough blame to go around.

I do know this, however: when the Cost Management Plan and processes take the people aspects of project management into account, and when the delivery team is given the chance to deliver with those people aspects in mind, the project is invariably a tremendous success.

Footnote

Project Management Institute. A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition. Newton Square, PA: PMI Publications, 2017, Print.


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