Project management and project cost management: two worlds.

Quite often when we speak about project management, we usually refer to the set of monitoring tools that are utilized to ensure that we shall deliver the project according to the three universal criteria:

• Deliver on time

• According to the specifications

• According to budget

It is rather simple to list the required specifications and to comply, and it is relatively easy (everything being kept in perspective of course) to plan the final delivery date for a project. However, it is more difficult to incorporate changes and contingencies that may arise during its execution. In general, project management tools used to manage these changes along the way allow limiting risks, at least on the organization point of view. It remains no less true that these changes have an impact on the financial component of the project.

Therefore, the concept of delivering ‘according to the defined budget’ becomes quite often uncertain.

The importance of billing method is obvious:

If we invoice the real number of hours and related expenses, then the situation is perfectly clear and there are no problems in sight. Whatever the changes involved in the life of the project might be, the billing will be done based on the real number of hours incurred in the performance of services and expenses. However unforeseen costs may occur after project delivery.

If we bill on a fixed fee basis, the following question will soon or later arise: what do we do if our flat rate billing does not reflect the reality on the ground? In other words, if we charge a lump sum which in equivalence is less than the selling value of the worked hours? Shall we post the difference in losses, or initiate a negotiation with the client? It will depend on the customer’s goodwill and on our negotiating skills.

Anyway, at this point we find ourselves still in the phase of delivery of services, but what about services rendered to customers beyond the delivery date of the project? Although these occur in retrospect, they were not initially budgeted, and as such they will affect the level of profitability of the project.

Let’s take an example:  we develop a software solution for the industry.

My project consists of three phases: needs analysis, development, commissioning. For the entire project I planned respectively 25, 100, and 50 hours for a total of 175 hours. My average hourly cost is $ 35 and my average hourly rate is $ 70. The agreement with the client is based on a lump sum of $ 14,000 (175 hours and a 25 hour buffer at the rate of $ 70).

I underestimated, in my analysis, development needs. In addition, the Beta version contained bugs that I had to fix. In total I spent 40 hours more than anticipated in my original budget (excluding the buffer). In compliance with the agreement I have  with the client I charged a flat fee of 200 hours and therefore have recorded a loss of 15 hours, representing $ 525  (cost). Software has been delivered. Two months later, the client informs me that there are recurring malfunctions and I have to work twenty hours to correct the situation. In total, although the project has been delivered I recorded a second loss equivalent to $ 700 (cost). To summarize:

Beyond project delivery, financial loss may occur. It is therefore appropriate to include in the budget a risk factor which ideally would represent the price of one year of service contract. In the example, besides the 25 hour buffer, it would have important to add an amount to cover the risk of post-delivery, for example 10 to 15% of the total contract value. Abak software specialist in time recording, billing and cost management of the project includes a component for budget calculation. Tell us about your projects, we will discuss your budget.

 

 

Implementing new software sometimes looks like walking in the desert.

Each company is sooner or later confronted with the need of new management software, for instance a time, billing and project cost management solution. Such kind of software is a tool which belongs to a constantly changing world, and its life cycle is quite often very short.

Installation is only a preliminary stage of an implementation process that can sometimes be complex and require a lot of time. In the case of ERP systems, for example, the implementation process will generally require several months. One can imagine the stress and uncertainty that such an operation generates within a company.

Beyond technical considerations such as compliance of the IT infrastructure with technical prerequisites, integration with other software, and import of existing data, there are other important elements that play a role in the successful implementation of the new program.

These are human parameters. They should be taken into account in the specification of the implementation process:

• the risk of reluctance to change
• the motivation of key players involved in the implementation process
• the availability of key personnel during the implementation process.

Reluctance to change
The situation is well known, and very symptomatic. For example, employees of a company are accustomed to log their time in an Excel format. The implementation of new timesheet software can be seen as a disruption of habits and a strengthened way of controlling employee’s time.

Another example: invoices are generated manually with word processing software. The advent of software that processes timesheets, expenses and generates billing may create irritation and reluctance because its implementation will modify work methodologies which often are deeply rooted among the employees. This climate of reluctance could generate the risk of delaying the commissioning of the new time; billing and project cost management software and affect its performance.

Motivation of key players during the implementation
Before making a choice of change or acquisition of a new timesheet management tool it is crucial to ensure that key stakeholders, that is to say, the managers of the company are really motivated by this implementation and consider this new project management software as a significant improvement in their current processes. If this is not the case, the duration of the implementation will be longer than normal, and the brand new tool is likely to be under-utilized. A common example refers to professionals with highly developed ‘creative’ skills (communication professionals, architects, and others) who could be poorly motivated by the perspective to use organizational and financial software features for monitoring their projects.

Availability of key people
When you implement a new management time and expenses recording software, key people (Controller, General Manager, HR …) need to be available in order to assiduously attend training sessions. Experience shows that too large time gaps between training sessions has the perverse effect of diluting the knowledge acquired progressively, to discourage individuals and to significantly slow the process of implantation. In addition, the software vendor expects to be guided by his client to set its product plan and organize training according to the customer’s expectations.

Conclusion
Choosing a time and billing software based on technical requirements and software performance is a good strategy of evolution of the company. In contrast, the human component, as briefly mentioned above should require a detailed analysis beforehand. If all the conditions required for the implementation (technical and human) are not gathered, one should then perhaps postpone the operation to ensure its success later. In a nutshell, availability and motivation of key people constitute the key to a successful implementation. When a company decides to move forward with our time and billing and project cost management software we take those human parameters into consideration, and work closely with the customer to ensure a successful implementation.