You’re a Project Manager and have 22 people on your project – should everyone charge their time for work completed, and should all time be invoiced to the customer?
At the surface, this seems rather straightforward. However, it’s surprising how many project managers don’t understand the fundamental difference between; (a) Charging time to the project for work completed, and (b) Invoicing the customer for work completed.
Let’s explore this critical philosophy a little further beginning with the first point – which happens to be the easiest! In short, everyone who works on the project, to complete some aspect directly related to the project, should charge their time to the project accordingly. This is not open for interpretation or discussion, and should be regarded as a directive written into project management governance for the organization.
In order to understand the true cost of the project, one must accurately record the time spent to complete the project. This data can be used for future planning, including; project estimating, resource planning, profit margin, etc.
This edict becomes even more critical for project managers when the cost of the job begins to exceed plan. A robust Project Controls program should be able to identify this risk well in advance, analyze the issue, develop recovery plans, and implement changes to prevent future occurrence.
To use a very simplistic example:
Your project is to build a box
Your budget is $15 (15-hours) to complete the build
You have a team of 22 people (@ $1/hr)
Each person has spent 1-hour working to complete the build
At the completion of the project, you have spent 22-hours and the cost is $22
A simple example, but you can see that it cost you more and took longer to complete the project than planned. ‘Why’ is another topic altogether.
If 7 individuals did not to charge their time to the project, it would still have cost more and took longer than planned.
If we state that all time to complete a project must be charged to the project, it stands to reason that all time charged must be invoiced to the customer, right? Well, no!
This brings us to the second point, which can be a little more difficult for some to understand. For a number of reasons, an organization may elect to invoice a customer for less than the cost to complete the project. Again, a topic for another day.
Keeping with our very simple ‘box’ project:
The sales team has decided to sell the box for $15
Although $7 less than the cost to build, they have elected to offset this loss by marking up the cost of the part inside the box.
Once again, very simple, but you can see here the Sales group feels they have a better chance of winning a bid by taking a loss on the packaging and making it up on the contents.
Of course, there are other cases where, for example, something went wrong with estimating and the actual cost of the project exceeds the plan. Perhaps there were mitigating circumstances and it’s possible to recover the additional cost through change orders. However, an organization may again elect to invoice the customer for the contractual cost – forgoing often contentious change orders, and preserving a relationship that will benefit the organization in the future.
In closing, it is important that this fundamental concept of Project Management be incorporated in organizational governance. Understanding the true cost of a project will serve to benefit the organization.
In order to define project control we should realize what we are controlling in projects. There are many aspects of projects that need to be monitored and controlled by the project team; although, there are three constraints in every project that need to be monitored and controlled closely:
Cost
Schedule
Scope
This is referred to as the ‘Project Management Triangle’ – also called Triple Constraint or the Iron Triangle (Figure 1). All projects need to be performed and delivered under certain constraints. Traditionally, these constraints have been; Cost, Schedule, and Scope.
Figure 1
The Cost constraint refers to the budgeted amount available for the project. The Schedule constraint refers to the amount of time available to complete a project. The Scope constraint refers to what must be done to produce the project’s end result. These three constraints are often competing: increased scope typically means increased time and increased cost, a tight time constraint could mean increased costs and reduced scope, and a tight budget could mean increased time and reduced scope.
Although Quality is not an official part of the project management triangle, it is the goal for all deliverables. Quality is implied, by virtue of the project management triangle, since a change to any side of the triangle affects it. Frequently, project managers believe ‘high quality comes with high cost’, which to some extent is true. By using low quality resources to accomplish project deadlines does not ensure success of the overall project.
Project Controls are the data gathering, management and analytical processes used to predict, understand and constructively influence the time and cost outcomes of a project or program; through the communication of information in formats that assist effective management and decision-making.
This definition encompasses all stages of a project or program’s lifecycle from the initial estimating needed to ‘size’ a proposed project, through to reflective learning (lessons learned) and the forensic analysis needed to understand the causes of failure (and develop claims).
Project Controls encompasses the people, processes and tools used to plan, manage and mitigate cost and schedule issues and any risk events that may impact a project. In other words, Project Controls is essentially equivalent to the project management process stripped of its facilitating sub-processes for safety, quality, organizational, behavioral, and communications management.
Project Controls and Project Management
Project controls and project management are not interchangeable. Project controls is a function of project management.
The three main differences between Project Controls and Project Management are:
Project Controls is a subset of Project Management with the primary focus of managing the cost and schedule,
Project Manager is directing the work while the Project Controller advises the Project Manager and the team of possible cost and/or schedule issues, and
Project Controller generates the project’s cost/schedule information while the Project Manager digests the information to make decisions for the project.
Project management is the use of knowledge, skills, tools and techniques to achieve specific objectives within agreed upon parameters in which there is a defined deliverable project. There are five basic elements of project management:
Initiate
Plan
Execute
Monitor & Control
Close
According to the Project Management Body of Knowledge (PMBOK® Guide), project management knowledge draws on ten areas, two of which (cost and time) fit within Project Controls:
Integration
Scope
Time
Cost
Quality
Procurement
Human Resources
Communications
Risk Management
Stakeholder Management
Project Controls: What is it?
So what is Project Controls? Project controls are processes, tools, and skills used to analyze a project’s data to help keep the project on budget and on schedule. Project controllers report their findings regarding budget, schedule, progress, and performance to project manager. Project controls are charged with answering (and controlling areas around) two key project questions throughout the project’s lifecycle:
Cost: How much is the project costing and will it be completed on budget?
Schedule: How long will the project take to complete, where is the project performance relative to schedule, and will the project be completed on time?
At first glance it may appear that Project Controls falls within the fourth process (monitoring and controlling) of project. However, to be most effective project controls needs to be involved in all aspects of project management. Project controls focuses on controlling the project costs and schedule, and those are estimated and determined at the initiation phase of a project. And all phases of the project deal with its costs and timing. Project Controls can use project performance data to forecast schedule and costs – allowing the project manager to take corrective actions to keep the project on track.
Throughout the lifecycle of the project, project controls professionals oversee and control the costs and schedules. They report and advise the project management team of any budget or schedule deviations to the project.
Why is Project Controls Important?
The successful performance of a project depends on appropriate planning. The execution of a project is based on a robust project plan, accomplished through an effective schedule control methodology. The development of an appropriate Project Control system is an important part of project management effort.
Despite the continuous evolution in the project management field, it appears evident that the traditional approach lacks the application of Project Controls. There have been a number of articles published to support the importance of control in the achievement of project objectives. Time and time again it has been proven that project performance can be improved if dedicated Project Controls’ systems are in place. An IBC 2000 Project Control Best Practice Study carried out by IPA identified that good Project Control practices reduce execution schedule slip by 15%. Project Controls’ cost range from 0.5% to 3% of the total project (including cost accounting), therefore, to break even, Project Control needs to improve cost effectiveness by around 2%. A sample study carried out by the IBC Cost Engineering Committee (CEC) in 1999, showed cost improvements for the projects in the study, was more than 10%. It is noted also that NPV (Net Project Value) also benefits from schedule improvements. Success factors are based on good Project Control practices, which result in good cost and schedule outcomes.
The fact that one failed project can potentially wipe out an entire year’s profit helps put the value of Project Controls into perspective.
Why Are The Components of Project Controls?
Depending upon how Project Controls are viewed will influence what is considered as the component. In this article, it is assumed that Project Controls are concerned with; estimating initial baseline performance metrics, determining the current status of the project, estimating future potential of the project, identifying any variances (baseline to current position and baseline to potential future position), and considering appropriate action to be taken to recover any positive variance. Here variance refers to actual differences identified in project control documents and also the potential variations possible from project threats, issues and opportunities. On this basis the component elements of Project Controls are about measuring and monitoring controlling variables, these are principally time and cost aspects:
This is not a comprehensive list of all attributes of Project Controls, but it includes the key important ones.
Project Structure from a Project Controls Perspective.
At the core of a project that successfully delivered a required benefit, will be an agreed project schedule that follows a few basic rules in its development, that also benefitted from a robust and complete Project Management Plan. Amongst other important elements contained within the Project Management Plan would be a description of the project scope, the Work Breakdown Structure (WBS) and the Organizational Breakdown Structure (OBS). The WBS ties together the scope, schedule and costs of the project. It is output orientated and breaks down the project scope into deliverable items. It should be developed in parallel with benefit identification so that deliverable items can be mapped to required benefits. The WBS structure would normally follow the project budget structure and provide a framework for project reporting, it should be detailed to the lowest level of deliverable items. The OBS defines the organizational structure and the roles required within the project team to enable successful delivery. From the OBS it should be possible to identify specific accountability and responsibilities for delivery within the team. It enables resource requirement and management. Once the WBS and OBS are defined it allows a Responsibility Matrix to be developed that aligns people against deliverable items of the project scope, their accountability and levels of responsibility. It generates the basis of the project’s control and assurance frame-work – including Control Accounts and Control Account Managers (CAM). The project will have identified a Cost Breakdown Structure (CBS) from the scope, WBS and OBS. It informs further project breakdown at increased levels of detail, reporting and budgeting requirements.
