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Computing the project cost using our project management tools is a fundamental step in planning a project. Yet, I’ve found that some managers have a tough time when large numbers are involved or it is the first time they’ve ever seen an accurate overall cost of a project.

Project management cost sticker shockWe had a COO who cancelled an effort to put out a new version of our software product because “it was too costly.”   The humorous part was that the costs were not additive as we were using the people we already had.  When she saw how much a two year project was going to cost using a significant portion of 100 engineers she decided that it was “too much.”   We had no intention of letting anyone go and we were struggling to keep our staff from leaving in a competitive job market.

What were we doing will all our staff?  One thing was “giving them away for free” to our customers to help fix their problems — even though we had agreements to charge them for our services.  Each day that went by was “costing” us the amount of the staff who continued to worked on lower value, less revenue generating, activities. Sitting on the balance sheet the staff looked reasonable for the company as a whole. Strangely, when they were associated with a specific project the cost looked prohibitive to the COO.   (Compare this to other unexpected project planning behaviors.)

Get The Project Management Cost RightWe never did produce an updated product, though we had the staff to do it. The company was ultimately bought out by a competitor and the product line was retired as out-of-date (along with  the senior staff and most of the engineers).  The staff cost was the inhibiting factor in , but it was only inhibiting when the cost was associated with a project.

Cost is a fundamental factor in any project or product.  Getting the cost estimate right up front may result in sticker shock.  We need to make sure we put the costs in perspective. We should always consider what we would gain by the project (ROI) and what we would not be able to do because we took on the project.  Getting the project management cost right involves seeing the whole plan and not just the cost figure.

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2 thoughts on “Get the Project Management Cost Right!

  1. Bruce Benson says:

    Perry,

    Great example. I’ve also experienced where we valued the productivity of the staff (effective hours vs overhead hours) and then had someone (very senior) decide to change the productivity ratio and crank it way up(claiming she had talked with her “peers” in industry and they had “confirmed” this ratio). Planning and estimating, which we had improved hugely, now generated very silly schedules and hence costs.

    Folks “making up” numbers rather than basing them on hard facts about our own organization has been the root cause of many very unsuccessful projects.

    Thanks

    Bruce

  2. Perry says:

    Great example of the downside of not properly costing the internal resources of a company.

    It’s difficult to prioritize the cost of employees against projects if there is no accounting for their time.

    I worked for one organization that tried to do this with the IT resources and it did work to some extent. Unfortunately someone got the idea the the costing should reflect the market value of the resources rather than an imaginary number close to their salary costs. Then it all fell apart. The funny thing was, the resources were not available to the market.

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