Probably the first question out of most stakeholders’ mouths when it comes to an IT project is "how much is it going to cost?" And the spotlight on cost does not let up from the moment the project is conceived until it is delivered. Deservedly so, if you consider that, according to an industry study by the Standish Group, 71% of IT projects go over budget.
Essentially, IT project managers deal with two important cost components: human resources (labour) costs and non-labour related costs; and the project manager that understands and keeps firm control of the budget will have a definite advantage from the get-go.
It is vitally important to understand exactly how much each phase of the project is going to cost. And, in order to do this, you need to plan carefully; identifying exactly what must be done, who will do it, how long it will take and how much it could cost.
If this sounds simplistic, consider for a moment that a single project could encompass many 'work packages', each dealing with a different aspect of the project and involving different people.
The fact that the project manager is also juggling different aspects of the project adds to the challenge of managing the financial side of the project. Almost inevitably some slippage starts to creep in along the way and it may be necessary to invest more money to get the project back on track by, for instance, bringing in more people or paying extra for overtime work.
One way that the project manager (PM) can contain costs and keep to the project’s baseline (that is, the agreed duration and cost) is to juggle resources. A smart PM will explore creative (and non-monetary ways) to get the project back on track – like rewarding team members with time off once the pressure eases, instead of paying overtime; or letting a more junior team member, that earns less, take some of the load off.
A somewhat complicated, but valuable and underutilised theory that helps manage costs is "Earned Value Analysis", which effectively provides a crystal ball for the project.
Earned Value Analysis ties the budget to the project schedule; establishes measurable means to track the project status; accounts not only for the money being spent but also for what is being accomplished with the expenditure; and allows in-process cost and schedule corrective action in time to favourably influence the project outcome.
Other tools that help with cost management are the Cost Performance Index and the Schedule Performance Index; but it is important that the proper tools are used. For instance, tracking cost performance management in an Excel spreadsheet will show you that you’re over budget but it won’t show you exactly where or how it could possibly be remedied.
At the end of the day, delivering a project within budget is a balancing act that requires keeping a close eye on both the baseline and the costs, and finding imaginative ways to ensure that these two important elements never shift too far apart.
© Tony McManus, McManus Consulting.