Project financial management is even more important now, as we work in a climate of increased financial awareness, given the recent economic crisis.  Gone are the days – if your organisation ever had them – when companies had money to spend on whatever the company felt like.  Now, with increased competitive pressure and a general tightening of the belt all round, as project, programme and portfolio managers we have to be really careful that we are spending money on the right projects, and that we are budgeting carefully when that money is allocated to us.

People often think that managing money on projects is very boring, mathematical and dull, and therefore not something that they want to spend much time working on.  I don’t feel that project budgets are dull – in fact, getting the finances right is one of the challenges I enjoy the most with the projects I manage.  However, even if you feel that managing your project budget is the worst job in the world, you should still know how to do it properly.

There are three components to project financial management:

1. Project budgeting
2. Project accounting
3. Charging

Today I’ll be looking at project budgeting, and I’ll cover accounting and charging later in the month.

Does your project have a budget?  Even the smallest project will have overheads:  your time as the project manager as a minimum.  Nearly all projects will have more than that, so part of your role in setting up the project is to define and propose a budget for the work and get that approved.

Creating a budget is like putting together a project schedule.  You can work out how much money you will be spending based on what you know needs to be done, just as you work out how much time the project will take based on the same information.  Think of the budget as a shopping list of all the things you need to buy to make sure the project gets completed.  Just like a trip to the supermarket, you might not end up spending exactly what you expected but at least the list gives you a reasonably accurate starting point.

Companies that carry out a lot of projects will probably have a standard template for submitting a budget, so you will probably find that a form that already exists.  If there isn’t one, or if you don’t like the one that is provided, you can create your own.  Essentially it’s just a spreadsheet with the various items and their cost listed out, again, like a shopping list.  I’d advise that you group similar costs together so you have sub-totals as well as an overall total and include a line of contingency for risk management.

Once you have your budget written down, it needs to be approved before the project can spend anything.  This is normally done during the project initiation phase, although even before this point you may have to provide some high level estimates.  However, you shouldn’t start your project in earnest without a clear view of exactly how much it will cost.  Your sponsor, project board or steering committee is the first point of approval, and you might need another department or the Finance team to approve it as well.

The budgeting process also includes forecasting, which you do at regular, pre-defined times throughout the year to check that what you have budgeted is actually what you still think you will spend and nothing has changed.  Projects that have a short duration may not need to reforecast, but if your project will run for more than six months it is worth checking to see at what points you will need to provide a reforecast.  Companies do this at various points throughout the year, normally at the end of each quarter, although a major reforecast may only take place half-way through the year and this might be the one they ask you to contribute to.

There’s a lot to budgeting, if you do it properly, but this has been a very quick overview of some of the things you need to consider when you start a new project.

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Configuration management is the business of creating, maintaining and controlling the change of configuration during the project lifecycle.  A Config Management Strategy sets out how products will be controlled and protected, and who can make changes to them.  Projects will also have a config management system, which is an approach that is used to manage config data.  You might use the config management system of your customer or supplier rather than reinvent one yourself, although your PMO probably has an approach to use in the absence of anything else.

PRINCE2 defines any project product, document or ‘thing’ that is being put under configuration management as a config item.  Essentially, that config item is subject to the configuration management processes.  You can put anything under config management:

• A document or set of documents
• A piece of code
• A component of a deliverable
• A release (for example, a version of software or a complete project deliverable)

Configuration management fits under the theme of Change in PRINCE2.  However, you can’t have configuration management without a process by which config items can be changed.  So you need to make sure that the config management processes integrate with the process for managing change.  This is essential, because an item under config management will necessarily change throughout its life.  You don’t only config manage an item when it is complete.  Think of a document:  you produce a draft, you circulate it to the project team for review, they provide comments, you send it on to the Project Board, they provide comments as well, all the remarks are incorporated and then the final document is issued.  In configuration management terms, you would have:

• A version for the draft document
• A version incorporating the comments from the team
• A version incorporating the comments from the Project Board
• A final version, signed by everyone and issued.

That is at least four times that the document would go through the configuration management process. In fact, for documents it is often called version control, although in essence it is the same thing.

Configuration management is often done very well on software, and especially on pieces of source code, but not so well anywhere else on the project.  That’s because it is often difficult to remember, hard to use a configuration management system or because the item is changing so frequently that it is just easier not too.

The point that the Better Projects blog makes is that it is easy to get config management right.  All you need to do is not overwrite the existing project files.  Never save over anything: always create a new version, and that will give you a complete history.  You can do this in any piece of software.  Save a copy of your Word file.  Save a baseline in your Microsoft Project Plan.  Save a new version of your DropMind mindmap.  It’s not difficult to get it right if you follow that basic premise.  Always new, never over!  That way you will always have a saved version to go back to, if anything happens.  You’ll be safe, with a recovery plan and a clear history of the version of your config item.

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It’s the fifth annual survey that Arras have run, and that means they can set the results in a historical context, so we can see the evolving trends.  The headlines this year are:

• Programme and Project managers in the private sector have been hit harder than those in the public sector.
• Contractors were the hardest hit group: 42% saw their pay fall compared to only 14% of public sector full-timers.
• However, public sector workers are more nervous about the next phase of the economic cycle and the impact of the forthcoming general election.

Project and programme managers were also asked about their confidence for the coming year.  What did they predict for 2010?

• 15% of contractors expect their pay to increase.
• 42% of employees expect their pay to increase.
• 30% predict steady, normal growth in 2010.
• 34% predict a contraction of the sector or hard times during the year.

This final figure seems pretty gloomy, but actually, the picture is better than this time last year.  The per cent of people responding positively to the question about sector confidence has actually increase by 4% and the negatives are down by 5%, so in general there are small signs that people are feeling better about 2010 than they did about 2009.

And it gets better.  At least, for private sector works.  Last year, the private sector project and programme management community were not a happy bunch.  They felt neutral about the prospects for 2009.  This year, however, they responded with an increase in confidence.  On the other hand, the confidence in the sector felt by public sector workers has collapsed, with 15% fewer positive responses.

So that’s the state of play for the sector.  The responses about how people feel personally about going into 2010 also reflect the same levels of confidence.  In the private sector, 72% of project and programme managers report feeling buoyant or steady in their careers.  Public sector workers are not so positive about their personal futures.  In fact, 53% of people in the public sector are expecting job cuts in the area of project and programme management this year – with 9% of them predicting that those cuts will be major.

Asking someone if they feel financially better off is not a very scientific question, but it is useful to gauge gut feel about how the recession has personally impacted project and programme managers’ finances.  Unsurprisingly, very few people – only 5% – reported that they are personally much better off.  Nearly 50% of people said that they were worse off, and they were split almost equally between the public and private sectors, and contractors and employees.  Comparing the results to last year, private sector workers are feeling the hardest pinch, with 12% of them falling into the worse off categories this year.

The survey also provided the opportunity for people to leave verbatim comments, and as you might expect, there were several themes that came out repeatedly to do with the economic situation and personal finances:

• The cost of living has gone up, but project and programme managers’ income has fallen.
• There were lots of permanent staff redundancies reported during 2009.
• Contractors found it more difficult – and some found it impossible – to find work during 2009.
• Pay cuts or pay freezes were adopted in order to save jobs.
• Employers are taking advantage of the pool of available candidates by offering packages that would have been seen as uncompetitive a while ago.  Now, however, they can offer lower salaries as employees compete for work.
• Day rates for contract project managers have also fallen, and some contractors have gone back to permanent work for the security that this brings.

It’s not surprising that people are feeling nervous about their job prospects during 2010.  Nearly 8% of respondents to the Arras survey hadn’t worked at all during 2009, the majority of whom were previously employed in the private sector, on permanent contracts.  From the whole pool of project and programme management professionals, project managers were the most likely to find themselves not working last year.

It isn’t a hugely positive picture overall for the future of project and programme managers during 2010, but it is a bit better than last year.  And that’s something to be grateful for.

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The analyst company has predicted that an IT department will add four new roles to the team in the coming years.  None of them are specifically project related but they all have an impact on the way in which we manage IT projects.

The roles are:

• Litigation support manager
• Enterprise information architect
• Digital archivist
• Business information manager.

What these roles mean for IT project managers

Litigation support manager

There is a lot of regulation that surrounds IT, and with the economic crisis this is set to become more prevalent.  There are likely to be more IT projects aimed at ensuring compliance.  The litigation support manager’s role is to act as a liaison between the legal and IT departments, so IT project managers could well end up working alongside this person co-ordinating the work to prepare for an audit or to cope with a litigation exercise or legal investigation.

Enterprise information architect

Think about all the project documentation you produce.  You can probably put your finger on any individual piece of information, because you use your project files every day.  But what about in six months time?  Could you find it then?  What about in a year?  An enterprise information architect will help you find the information stored in your Project Management Information System.  Their role is to get the best out of the information systems within the company by coming up with taxonomies and data models to ensure everyone can find everything, regardless of how much data is produced by the company.  As project managers know, data is just data until something useful is done with it, so it is important to turn that data into knowledge, and it can then be used to support projects (amongst other things).

Digital archivist

Gartner are predicting that one in five businesses will no longer own all its IT assets by 2012.  That is a lot of information created collaboratively and stored in the cloud.  Cloud computing is on the rise, and there are plenty of project management tools that are hosted in the cloud.  Seavus DropMind is an example of mind-mapping software that has a web version available, which hosts your project data in the cloud.  The digital archivist has the role of keeping a record of where all this online data is.  In a paper-based age this would have been done by the corporate librarian or archivist, but in the electronic age there are corporate assets – and project artefacts – that are created online and could easily be ‘lost’ if there is no record of where to find it.

Project managers could also get involved with projects to set up taxonomies,  virtual archives and knowledge repositories for digital data.

Business information manager

This person will become a key project contact for all IT projects.  The aim of this role is to link the business with IT.  Many large programs will already have a business change manager in this role, but they may not work in the IT department – a business change manager is more likely to be linked to the PMO.  The business change manager and the project manager will find themselves working in tandem with the IT department’s business information manager.  This could be overkill, unless it is to support a very large project or program.  I don’t agree with the dichotomy of ‘business’ and ‘IT’ so I think the job title is unhelpful, but I do think the role could add value and ensure that IT projects are fit for purpose.  More happy customers at the end of the day is what we need.

The business information manager’s role is a step up from the role of business analyst.  Gartner is predicting that 20% of companies will have business information managers by 2013.  Only 5% had people in this role last year.

The changing face of the IT department is actually a good thing for project managers.  All of these roles add something to our ability to deliver projects successfully.  The litigation support manager could help us draw up contracts and become involved with negotiations with IT suppliers.  That could stave off some difficult procurement situations.  The enterprise information architect will require our input into creating useful taxonomies for the PMO function.  And the output will be better access to project data, and the more useful application of that data, which in turn means better learning from post-implementation reviews.  A digital archivist will make sure that project artefacts are not lost and that other projects, and the customer, benefit as much as possible from the products.  And the business information manager will act as a point of liaison between the business teams and the IT teams.

From a project management perspective, as well as increasing the number of stakeholders on our project teams, this could mean that IT projects don’t fail so often, which can only be a good thing!

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Here are what their experts came up with as the top reasons that technology projects don’t complete successfully:

Work starts too soon

We’ve all been there: the project sponsor or key customer who is desperate for work to start on their project before everything is properly scoped out.  The due diligence phase is important.  Project managers should push for all the upfront negotiations and planning to be nearing completion before any ‘real’ work starts.  Otherwise you risk adding time to the project in the long run as you will have missed out contractual clauses and requirements.

Contracts are ambiguous

If the contract does not clarify exactly what is required, you can run into trouble later.  Of course, you don’t want to be referring to the contract before every phone call with your supplier as that doesn’t exactly engender trust in the relationship.  However, you do want to make sure that there is clarity in what has been agreed.

Contracts are broken

The contract is there to help you, so when one party no longer adheres to what the contract says things are bound to go wrong.  You can always amend a contract, for example, if the scope of the project changes and you require the supplier to carry out more work.  But do it through proper change controls, with analysis of the required changes and have everyone sign up to the changes.  This is especially important as changes can have knock on implications for other parts of the contract.  You aren’t just changing project scope, you are changing project budget and resources as well.

Work isn’t estimated adequately

This is another symptom of rushing the early project phases.  A failure to scope out the work adequately at the start of the project will lead to underestimating how long things are likely to take.  Technology projects are complex, and the estimates should reflect that.  Unfortunately, complexity usually adds cost, so suppliers might want to play down the impact that complex requirements will have on the budget and resources.  Make sure the right people are involved in the estimation process – don’t leave it up to the sales team!

Lack of engagement

Well, this one won’t come as a surprise.  Projects fail because people aren’t bought in to the objectives and outcomes.  The supplier and the project team need to work closely together to get a satisfactory project delivery.  And they both need to involve the end users, preferably as early as possible.  Project communications plays a part here.  Unsurprisingly, projects do better if the right people are involved.

These issues were discussed at a recent Computer Weekly round table and Computer Weekly reported this week (in the print magazine) that there was consensus amongst the participants that good project management skills can help address all these issues.  They also agreed that having the right people involved was far more important than the technology or processes that the project was trying to deliver.  So you have to ask, when we know all this why are IT projects still failing?

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It’s up to project managers to make project sponsor’s lives as easy as possible.  There are lots of communications tips to use when dealing with senior people.  Here are some to try with your sponsor:

• Don’t use vague email subjects.  What do you think is more likely to be read: ‘Project ABC news’ or ‘Project ABC within 2% budget’?  If you label your emails in a way that makes it clear what the content is they are more likely to be read in a timely manner.
• Write short emails.  Anything that requires scrolling down is too long.  Use bullet points.  Write your email and then give yourself the challenge of reducing the word count by 50%.  It can be done!
• Use colour.  Use RAG (Red, Amber, Green) statuses.  You can put text in colour and use cell fills in spreadsheets and tables.  It does make a difference – sponsors will be able to see the red bits (the bits you want decisions on) quickly and will be reassured that everything else is going to plan if it is green.
• Don’t send files that the sponsors can’t open.  Not everyone has Microsoft Project. There are alternative Gantt chart viewers available that can make your project plan more accessible to people without the software, like Seavus Project Viewer.  And not everyone can understand a Gantt chart, so be careful what view you make available to sponsors.  The day-to-day project team management view of 1200 lines is not the one to send to senior management!  Roll the milestones up and change the calendar so they don’t have to scroll too much.

However, this works both ways, and Ron Rosenhead has written recently about the poor quality briefings that project managers get from sponsors.  If your sponsor talks nonsense or is too vague you need to find a way to get the information you require.

If you need to get information from your project sponsor, try some of these tips:

• Make an appointment.  Some sponsors will be more than happy for you to knock on their door and interrupt.  However, they might take this as an informal chat and not a formal project meeting.  Other sponsors will require you to make an appointment.  Get to know their preferences, and their PA.  Don’t book an hour when you only need half an hour, and make sure that they know why you are coming.  Email a brief agenda or the questions you have in advance, so they can prepare.  This helps you get more out of the time and they won’t feel ambushed.
• Parrot it back.  “Let me just paraphrase to see if I have understood.”  Use this technique for your own benefit to ensure that you really have got the message.
• Clarify in writing.  It’s not everyone’s favourite project management style, but sometimes you do need to clarify the outcome of a discussion in writing.  It doesn’t have to be formal minutes.  It will suffice to put a few sentences in an email to the sponsor summarising the salient points.  This is particularly useful if the sponsor has made a decision.  You don’t need to send them a copy of your project decision log, but you could mention that you have recorded their decision in your project files.
• Ask if it’s convenient.  If you ring the sponsor, check it is a suitable time to talk. You’ll get a better quality response if they aren’t just about to go in to a Board meeting. Actually, it is polite to ask anyone you have just rung up or dropped in on.  Just because you have the time to speak doesn’t mean they do.

Project communications are challenging, but they are 80% of project management, so getting them right is essential.  You can improve your communication skills with practice – whether you are a sponsor or a project manager – so keep working on them!

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Unfortunately, you can’t deduce any of that from a percent complete measurement.  The security that you might feel when someone tells you that a task is nearly done is misplaced.  And 80% is a popular ‘almost done but not really’ number, which you will hear over and over from the members of your project team who don’t understand that this is not a good way to estimate completion and work remaining.

Measuring percent complete is common practice. Software like Microsoft Project even does it for you.  It encourages you to enter a percent complete which then rolls up from sub-tasks to umbrella tasks to give you a final percent complete for the entire project.  But while it might be common it is a dangerous way to measure project progress.

Meri Williams puts it like this in her book, The Principles of Project Management:

People are overoptimistic.

How often have you thought something would take half the amount [of] time that it actually took?

People lie.

They know when you want the job done and will reassure you that it’ll be ready, even if they haven’t actually started (often this comes after the overoptimism mentioned above).

Work expands to fill the available time.

Even if a task seems to be half-done after two days, if you’ve allocated six days to it, there’s a good chance that it will take six days to achieve.

Overoptimism is the most significant problem.  Unless it is a task that has been done many times before, chances are that you don’t know exactly how long it will take, however good the estimating process.  If you used to leave your college essays until the night before as you reckoned they wouldn’t take that long to do you will understand this estimating dilemma!

So, how can you get round estimating project progress by percent complete?  There are a number of better ways to estimate progress.  Earned Value Analysis is one of those, but I have always felt this is overkill for smaller projects.  By the time you have set it up, the project will be completed.  It is also only as good as the data you have to hand to plug in.  However, on large projects EVA is a safe bet and its growing use in the UK is testament to the fact that some project managers find it incredibly useful.

Another approach is to track time to completion.  Instead of looking at how much you have done on a particular task, look at how much there is still to do.  Ask your team members to give you updates in terms of work remaining.  Forget percentages, go for days, or hours, or another unit of time that makes sense to you and the project.  It changes the mindset of the team to think about how much more effort is required instead of an arbitrary percent complete.  You could measure effort to completion or elapsed time to completion, but make sure that everyone is clear what you choose: a task that has four hours remaining could be completed this afternoon, but if that is four hours of effort spread out over four weeks the project could be another month off seeing this particular task ticked off on the plan.

An easier, and completely non-scientific way, of measuring progress is to adopt a binary approach to completion.  A task is either complete or it is not.  Anything not complete requires further work.  For an even clearer approach, Williams recommends measuring the number of deliverables completed against total deliverables instead of tracking task activity.

Whichever method you choose, try to think carefully about how it will impact the working practices of the team.  Make it as easy as possible for them to give you meaningful updates – you’ll get better data and more accurate status reports.  That will give you a much better chance of hitting your scheduled dates!

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So – here is the round-up of the best project management articles submitted to the Carnival this time:

My favourite post this time comes from Elyse Nielsen at Anticlue. Her post is called Taming Chaotic Project Management – Dealing with Changing Priorities posted at Anticlue, saying, “Prioritization is the art of choosing what not to do, and it is hard for organizations without good business governance to choose what not to do. If you find yourself dealing with changing priorities, here are 5 tactics you can deploy.”

Gilad Lev-Shamur presents What are the 5 basic rules of project management? at a relatively new blog called The Project Management’s Thinker.  Not a particularly grammatical title, but it’s good that there are new project management blogs entering the field, and this one looks promising.

Here is another relatively new site, aimed at contract project managers: Steve has been putting some final touches to Contractor Project Manager over Christmas, and the site looks great.  He submitted Advice on becoming a PMO/Project Management Assistant, so if any of you are looking for a career change in the new year, this could be a good starting point.

GeekMBA360 presents Is team work overrated in corporate environment? posted at GeekMBA360. A controversial post that I don’t agree with – in a project environment I believe team work is essential. Granted, there are always people who don’t pull their weight, but bad management (or absent/ineffective management) are equally to blame for allowing these situations to continue. Projects are done with teams, therefore teams are important.

SpiKe presents Productivity Down! An Emergency Response Guide posted at Organize IT. A good post on getting going again when you can’t get a grip on what needs to be done.

Finally, here are two posts about public speaking, which I thought were interesting especially as I have just read Scott Berkun’s excellent book, Confessions of a Public Speaker. First, GreatManagement presents How to use the audience for dramatic effect when public speaking posted at GreatManagement Blog, saying, “Many of us would love to start mastering public speaking.  One particular technique that works wonders in any public speaking engagement is to involve the audience.”  He goes on to discuss how this can be done.

Second, CA has The presentation secrets of Steve Jobs posted at Atlantic Canada’s Small Business Blog, saying, “The glowing feedback after my next presentation indicated to me that following the steps outlined in the book helped. If I can do it, so can you. Here are four tips that, if you adhere to, will ensure your presentation will be a success. To provide some context, my presentation shared the results of a project with senior management.”

That concludes this edition.  Submit your blog article to the next edition of carnival of project management using our carnival submission form.  The next Carnival will be the February/March edition (regular Carnival followers will know that we are down to bi-monthly Carnivals now) and will most likely be back at the Carnival’s permanent home, A Girl’s Guide to Project Management.  However, for this month, we enjoyed the road trip to another host – thanks for your hospitality!

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Arras People (you know them, the How to Manage a Camel people) are running their Benchmark Report survey again – for the 5th year.  It covers the UK Project Management Industry in areas such as salaries, rates, gender, current climate, specific project management areas like professional bodies, competency and the outlook for 2010.  If you are feeling gloomy about going into the New Year, this is the place to have your say.

The survey is UK-specific, so if you are based here please take part in the study. The aim this year is to increase the number of participants and to gain a more detailed study across the sectors where people are working within project management.  The full results will be set out in a report next month, so you haven’t got long to get involved.  The report is free – and you don’t get much for free these days.

They survey doesn’t take long to complete, and it covers the current issues and hot topics within the PPM field along with the usual data points on salaries, remuneration and day rates so that we can add to the databank and provide comparisons to last year and predictions for 2010.

Last year the study presented some really interesting findings that reflected a rather negative approach to the prevailing economic difficulties.  For example, Public sector employees were better protected than private sector employees. Twice as many private sector employees and 5% more contractors expected rewards to fall in 2009.  Did they actually fall?  We’ll have to wait until the salary and benefits numbers are in for this year.

To take part in the survey please visit the Arras website.

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