Posts Tagged ‘costs’

The Soul of a Project #3: Truth vs. Propaganda

by Gary Monti on February 8, 2012

“Truth is the first casualty of war,” is attributed to Senator Hiram Johnson, R-California, 1918. This can occur on projects as well.  What can really muddy the waters is the confusion between facts and truth. Think of all the political hacks on cable news shows.

Facts vs. Truth

Facts stand alone. If it is 75° F outside that reality is what it is. It is free of dependence on anyone’s frame-of-mind.

Truth on the other hand is different because it is, to some extent, dependent upon one’s frame of mind. In fact, the definitions for “truth” range from “consistency with facts,” to “being true to a set of beliefs.” That latter definition is what muddies the waters. In other words, it gets personal.

Frankly, I’ll support someone who conforms to the facts and has a personal belief system that is disciplined, humble, and compassionate. When that person speaks from the gut I resonate like a tuning fork. I might lead, I might follow. Frankly I don’t care because that person seems trustworthy so I’ll risk they’ll negotiate in good faith.

On the flip side, when propaganda is being used, “run!” is the word that comes to mind. That person’s truth is scary! This is especially true when beliefs I hold to be true are being hijacked and parroted to promote the other person’s agenda potentially at the expense of others, the team, and myself. I can get so caught up in hearing what I want to hear that the ability to see the propagandist is lost.

Truth vs. Propaganda

What makes propaganda so dangerous is its seductiveness. It goes something like this. If we just go along with a bending of the truth we can get something in return. Usually it is relief from a fear or getting something we’ve been after, some possession, recognition, money, sex, the list goes on-and-on. “Tow the company line” sums the situation well. Here’s an example.

Employees can invest highly in consultants brought in to bring about change. The employee believes something like this, “After they listen to me they’ll just HAVE get management to shape up and then my life will be okay.” Those employees will champion the consultant.

This is a form of self-propaganda. How do I know that? By watching employees being left flat when I tell them that for the change to take place they will have to individually, one-by-one, commit to the needed change. The propaganda was this, I would be both the shield and sword that will take on senior managers and get them to follow sound project management principles. Believing this to be true, the employee feels safe.

Now there is truth in this.  Consultants have an obligation to challenge variances from the principles appropriate for a situation regardless of the employee’s position – from Board member to janitor. However, this simply sets the stage by spooling up one frame-of-mind through the organization that fits the project’s needs. There is a second part to this, though. During the one-on-one’s each person must hold their ground in sticking with the planned improvements. THIS can be a very challenging task when the resistant person in the conversation is higher up in the food chain.

Propaganda can set in and emotionally dishonest arguments and judgments surface. Sticking with the example, the employee says, “The truth is, the consultant has failed.”  The unconscious reality (self-serving agenda) is the employee might be afraid for their job and doesn’t want to risk taking a leadership position in the conversation by disagreeing legitimately. Granted, this fear can be very real. However, the bending to the propaganda, whether one’s own or someone else’s, can leave lasting damage.

Socrates said it well. As he was quoted in Plato’s Phaedo:

“False words are not only evil in themselves, but they infect the soul with evil.”

Unfortunately, in the end Socrates was asked to drink the hemlock since he wouldn’t drink the Kool-Aid. It can be hard leading a project. Tread carefully.

Project Accounting – Do you really need it?

by Matthew Carmen on November 22, 2010

Let’s save answering the question posed in the title, for later on… lets first address a more fundamental question – What exactly is project accounting?

Project accounting is the act of tracking total costs of a project, from concept through implementation. This means all of the expenses, labor and capital expenditures related to completing any operational or strategic project. This project tracking can be done in tandem with the corporate accounting department (usually the case in large companies) or separately (as with small and midsized companies, when these companies actually perform project accounting). Depending on the size of the projects that a corporation is undertaking, the complexities of project accounting grow.

As the complexities of project accounting grow, technology plays a greater role. The business may be able to get away with Excel spreadsheet models – at least in the early stages of proving its concepts. This can continue to be useful for small companies that have small straight forward projects that are usually expense related. Once the use of internal labor, software development, and capital expenditures come into the mix, additional resources should be considered – irrespective of the size of the company – in order to reach conclusions successfully.

These added features include:

  1. Project accounting software – There are many packages on the market, from inexpensive versions that allow a small company to track their costs, to large modules that plug into a company’s SAP, Oracle, or other enterprise-class financial system. The larger and more expensive the software package, the more time and energy it will take to integrate into the company’s technology environment.
  2. Legal expertise – As a company’s projects become more intricate and complex, the project accounting office will need to understand things such as tax implications, capitalization of assets and labor, etc. The company’s legal and corporate finance teams will need to get involved.
  3. Information Technology – In most cases, new servers will need to be leased or purchased, power usage in the company’s datacenter will need to be reviewed (either with owned or outsourced datacenters). The datacenter strategy itself may need to be reviewed (depending on the size of the project, A large project may not fit into the company’s current datacenter), as well as any related labor costs going forward.
  4. Financial – The actions in this area of the company include the creation of a business case, business intelligence initiatives, the ability report on the successes of the project, activity based costing, budgeting, etc.
  5. Regulatory – depending on a company’s business, there may be regulatory issues that make project accounting necessary. Some regulatory programs may be tax deductable, while others just have to be done. Tracking regulatory projects is necessary to show that these are one-time costs associated with doing business.

Once a company has implemented the project accounting system that works best for its size and needs, something amazing things starts to happen, information that can be acted upon to make operational and strategic decisions is created. For example: In large scale projects – those that take place over years and have multiple layers of complexity – costs can be looked at by repeatable activity (i.e. labor during a certain stage of the project that happens at different locations) and ways in which these costs can be minimized become apparent. Business intelligence is then created to illustrate that having the right labor in the right place will minimize costs and keep the project on or below budget.

Conclusion

The time has come to finally address the question in the title! Project accounting, whether implemented on a small or large scale, can provide great value to more efficient management of the business. In these challenging economic times, managing a business at the highest level of efficiency is more important than ever. Reporting on and containing costs is a priority and should be pursued with great care and scrutiny. Not only do you need to have solid Project Accounting in your organization, your organization’s long-term success DEPENDS on it!

Regardless of the size of your organization, someone is responsible for identifying the need of a service or product being purchased. One could therefore surmise this individual would also assume the ongoing ownership and maintenance of the product, providing vendor management oversight, right? Well, you might be surprised by the number of occasions on which the linear progression of identifying a need and satisfying the need becomes disconnected in technology organizations.

This disconnect often occurs when a business unit obtains approval to bring a new product to the company which in turn places new or expanded requirements on its Information Technology (IT) organization.  With their backs often against the wall, the IT department will “buy” the technology in order to meet required deadlines. What happens in this case is that the IT department ends up relying on the vendor to manage the technology, and often times let the supplier act as the IT point of contact for the “customer” – the internal business unit.  Well, as we know problems often start out small and later mushroom out of control.  This situation is no exception:  If the new product the company has developed becomes successful, IT will continue to buy more of the necessary technology for the business unit.  The next thing you know, the original contract for, say, $100,000 morphs into an agreement covering perhaps $5M in purchases – and since the vendor manages the technology, no clear internal owner exists.  A sure-fire recipe for big problems.

The process starts with the negotiation of the contract which typically initiates a rather ‘interesting” time within the organization.  The discussions with the supplier often times become stressful with both sides treating the negotiations as a form of competition to obtain the best price and terms.  This is further complicated with the coordination of the different groups who provide input and are required to approve on both sides of the agreement. For example, the finance departments will be called upon to review the financial impact to budgets and Return on Investment (“ROI”), while the procurement and legal departments review terms and conditions.  With all these organizational units involved, the final agreement ends up segregated into sections which are relevant to disparate groups within the organization, and in many instances no single person understands the agreement as a whole.  This issue can be avoided by identifying the organizational unit that owns and drives the negotiation of the agreement, and ensuring this unit also has the authority to represent the company and manage the supplier.  By insisting on thorough preparation and coordination regarding input and approval processes in advance, the individual or group acting in the vendor management capacity will not only secure a contract which is beneficial to the company but will also foster a positive ongoing relationship with the supplier.

With the vendor management role clearly defined, you will avoid the most costly mistake of relying on the supplier to manage the agreement for your company.  The vendor manager will not only monitor the suppliers’ performance, but will also leverage the vendor on your company’s behalf to provide service level and performance metrics along with other valued services such as expert consulting support.  The individual acting in this role in your company can carry the title of Vendor Manager and coordinate with the technology owner(s), or this role can actually be incorporated into the technology owner’s job description.  In any event, the most important role of the vendor manager is to routinely meet with the supplier to review performance and to insure the negotiated service level agreements are applicable and are being met.  For those of you who practice ITIL, you may even want to invite your suppliers to attend your problem management reviews.  Problem Management aims to resolve the root causes of incidents and thus to minimize the adverse impact of incidents and problems on business that are caused by errors within the IT infrastructure and to prevent recurrence of incidents related to these errors.   Inviting suppliers to problem management reviews was always my favorite way to make sure the supplier understood my business and was focused on working for my company.

Identifying issues with your existing contract will insure that your company is prepared when it is time to negotiate a new agreement. This is especially critical in large organizations with dedicated procurement departments.  These procurement teams are responsible for negotiating agreements on behalf of the technology owner(s), often based upon templates and procurement methodologies meant to cover everything from bed pans to mainframes.  In these circumstances, the vendor manager must be prepared to identify and educate the procurement manager on any issues with the current supplier. This is especially true with products that the procurement department might consider as “commodities”.   (Products are referred to as commodities when the product is seen as fungible or the same no matter who produces it.)  The commodities tag can sometimes prove to be a BIG mistake, especially with technology as this term is often applied incorrectly.  I once had a junior level negotiator assigned to a request for purchase because the procurement department perceived desktop computers as fungible commodities.   That quickly changed once we were able to quickly show – from trends in our monthly product performance scorecards that we had experienced a 20% failure rate of over 75,000 desktops that had been in service less than a year.  These failures not only had a negative impact on customer service but also negatively impacted IT service level metrics with a dramatic increase in help desk calls and required additional contracted field support to fix the devices.  The vendor manager was subsequently able to successfully team with the procurement department and negotiate product quality guarantee’s which the suppliers indicated had never before been included in their contracts.

Once your suppliers are being actively managed, your organization can maintain a fully mature vendor management model by monitoring the lifecycle of your agreements.  The hallmark of a mature vendor management lifecycle model is tracking when agreements are scheduled to terminate.    Being prepared for expiring contracts is critical because your vendor manager will make sure all necessary parties are prepared to enter into a negotiation and avoid delays which result in the original agreement being extended because the organization was not ready to negotiate.  This is often times the point where organizations which are not prepared will bring in outside assistance to coordinate the competitive bid process and subsequent negotiations.  If you believe your organization needs external assistance, make sure that whomever you contract with is not only negotiating terms and conditions, but also provides an on-going vendor management model after the negotiation.

Lastly, I mentioned the importance of fostering a positive relationship with your supplier.  You want your account manager and his/her team to be the envy of the organization for account relationships.   Obviously the amount of revenue an account team brings to their organization is a major component in determining their performance within their company.  However, don’t underestimate the importance that suppliers place on their representatives to maintain healthy relationships.  Just as within your organization, you want your suppliers’ account team to be proud to be working for their company and proudly say they are servicing your company because, at the end of the day, your success is a result of performance – and support – of suppliers’ product and services.

At this point you’re ready to begin managing your vendors.  As we’ve seen, a successful relationship with your suppliers begins not with the contract itself but with the management of the agreement after it has been negotiated.  If you haven’t met with your suppliers recently give them a call and initiate your vendor management process by asking for an account review.  Before the review, draft a list of items you would expect them to cover when they walk into the room and then compare your list with their presentation.  You’ll quickly be able to identify gaps in your supplier relationship and use your list as a roadmap for obtaining better pricing and services from your vendor.  The results are guaranteed not only to surprise yourself but will result in new respect from your vendor.

Leadership Cancers #3: The myth of peak performance

by Gary Monti on March 30, 2010

From sex to deodorants the push is for peak performance. The message is, “If you aren’t number one then there is something wrong.” After all, isn’t it important to be the biggest, fastest, or strongest? To use the classic project management answer, “It depends.” Let’s look at peak performance, its costs, its misuse, and a realistic alternative.

What Is Peak Performance?

Peak performance as used here might best be defined with an example – the successful return of the Apollo 13 astronauts. From the time the oxygen tank ruptured on April 14, 1970, until the landing on April 17, roughly 87 hours passed of intense activity. The mission was deemed a successful failure.

It would be an understatement to say considerable teamwork, focus, persistence, and ingenuity were required. Essentially, the stakeholders involved dropped everything they were doing to focus on solving the myriad of problems the tank explosion created. A new balance point had to be created centered around the successful return of the astronauts. The integrity of the mission literally had a hole blown in it!

What Does It Cost?

What does peak performance in such a situation cost – everything. With Apollo, hard deadlines had to be met and resources were scarce. Everything else was secondary and viewed only in terms of its utility in saving the astronauts.

Its Misuse

There is no doubt the mission was noble. So, how could peak performance be viewed as a cancer? For most of us we work in a day-to-day environment far removed from saving astronauts. Even at that, there can be a great deal of significance gained from putting in a days work.

The cancer arises when peak performance is misused. The term I’ve coined is “mesa performance.” With mesa performance a peak is hit and sustained. It’s a plateau. Most of us hear it as “setting the bar higher.” I prefer mesa performance because when one jumps over the bar there is a coming back down to normal levels. The misuse of peak performance has the expectation of staying at that level. It is the new standard. We can be told we are above everyone else and will stay there. We are on the mesa.

To put it in perspective, imagine after the astronauts returned safely everyone was breaking out the cigars and champagne, slapping each other on the back and celebrating. In the middle of this Gene Kranz, the flight director, said, “Oops, we forgot to tell you. Apollo 13.1 is having problems and we need to get on it right away! You did well with 13 so we expect you can do the same with 13.1.” No one has slept for 3 days.

When this becomes business-as-usual you know where it is headed. It can be summed in one word, unsustainable. Remember how everything was viewed as a resource with Apollo 13? Ongoing consumption of everything including reserves and backups has several major downside characteristics. People burn out and start making serious mistakes, the wiggle room for different options disappears with the drop in resources. The organization cannibalizes itself. The list goes on.

A More Realistic Option

A more realistic approach is one that is sustainable. You can see this in the word “overtime.” It means going beyond a certain reasonable limit of effort causes, over time, the consumption of infrastructure.

Overtime is best when it has a specific goal in mind and is stopped once that goal has been reached.

Ideally, planning ahead occurs and reserves are built with the knowledge they will get consumed from time to time. Flexibility and the ability to meet customer needs is maximized.

If you would like to delve deeper into project management and leadership and how to become more successful send me an e-mail at gwmonti@mac.com or visit www.ctrchg.com where you can get a free Executive’s Guide to Change Management white paper.

A little more about Projects

by Himanshu Jhamb on December 7, 2009

ProjectA while ago, I had written about “What a Project is Not”? This post is an extension of that post in which I will discuss why projects are needed and what projects, in fact, are. You will probably get as many interpretations of what a project is, as the number of people you talk with and most of them, are probably right in their own way. But, we are not talking about right or wrong here; we are concerned about what makes for a more powerful interpretation and that’s that. This obviously leads us to the question:  What makes something powerful? The answer is really simple – Anything that is in alignment with why it was invented in the first place makes up for a powerful way of existence. In Projects speak, this would be the purpose of the Project.

So, Why are Projects needed?

Projects are needed when old practices and ways of doing things no longer generate effective results or worse, generate breakdowns that we have to cope with. One of the most common sources that generate the need for projects is the rapidly changing marketplace. Today’s marketplace (as opposed to the one that existed 30-40 years ago) calls for the invention of new projects at breakneck speed. All you have to do is nothing for a month (probably, not even that) and you’ll see how your competition edges you out to obscurity.

What do you need to Invent a Project

The most fundamental thing that is needed even before a Project can be invented is – You must be “Up to” something. It can be as simple as going from point A to point B OR as complex as going to the moon. What you are “Up to” defines why you are inventing the project.  Entrepreneurs are inventing projects all the time. Projects teams are enrolled in this “Project mission” and “execute” on a “plan” towards achieving this goal.

How are projects brought into existence?

Projects are brought into existence by making specific declarations of what it is that will be produced at the end. There are, of course, other parameters on which specific declarations are made around – scope, time line and resources, to name a few but, at a fundamental level these are all declarations of producing a specific result by a certain time frame.

Projects are Costly, yet Unavoidable and Necessary

This is perhaps, the only guarantee, a project carries. Yes, it’s unfortunate, but true. Projects are inherently costly (we obviously see this as an investment – that’s why we incur the cost, but I’ll continue using the word “Costly” for now)  and what makes them so is that it takes time, energy, money and lost opportunities to learn the new practices & tools that are needed to run the project, efficiently. Then there are the costs associated with resources and then there are the many unknown costs – that only show up during the execution of the projects.

It would be a disservice to the topic of projects if I ended on the rather somber “Projects are Costly” note… Projects are also unavoidable and necessary … in that, they will continue to exist and invented as long as the marketplace continues changing and businesses find themselves coping with the changing landscape. Projects have an immense capacity to produce exceptional results to take care of the concerns they are invented for – as long as they are planned for, managed and executed well.

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ProjectPlanningWhen we constitute a project we set out the desired project outcome – these are deliverables or key success factors (KSF). Why are these so important and for whom?

As covered in an earlier post of mine Project Management – Planning or Marketing? Projects are undertaken to implement some change – normally to deal with a threat or an opportunity. Projects have a definite start and an end – however the course between these points is an adventure in discoveries of capabilities and possibilities.

We initiate projects by declaring, at the beginning, what the desired outcome the project should produce, however we do not know the exact path to produce this expected outcome! These outcomes are the expectations of the project sponsors. This is a measure of the ‘willingness’ of the sponsors to undertake the project risk to capitalize on the threat or opportunity.

As we journey through the project life cycle we make discoveries of the unknowns – these unknowns invariably force us to change the course (both favorably and unfavorably) to achieve our declared KSF or change the KSF themselves, or worse quit the project.

Think of the project as a ride in a rental car from the airport to a client meeting in the country using your GPS. You plug in the address and the GPS provides an ‘expected’ arrival time at your destination 15 minutes prior to your meeting. You set off and shortly after joining the freeway you see a detour sign taking you off the freeway. At this point the GPS recalculates the routing down some secondary roads projecting your arrival at the scheduled start of the meeting. You do not have insight into the length of the detour but the traffic is backed up now. So an assessment is made to follow the GPS and reroute down the country roads. You drive through open country for over an hour still with an expected arrival time at the start of your meeting, when you come upon a flooding river that has submerged the bridge ahead. At this point you are only 10 minutes from your destination but the next river crossing means retracing your route back to the detour and following the freeway round, a 2 hour minimum duration. Most would give up on their meeting, but just before calling to cancel a heavy truck comes from the opposite side and crosses the submerged river and it appears the water is only 4-5 inches deep. You look at your economy rental – what do you do?

This is the situation the project sponsors find themselves in when they have to evaluate new unforeseen situations. If the driver has years of off-road experience they might make the assessment they can cross and it is worth the risk to attend the meeting. If not they will call to cancel and rearrange the meeting or do it via conference call from the side of the river. The expectation is still the same but the background by which the assessment is made is what differentiates the outcome.

Things to consider when evaluating the ‘detours’ of your project:

Background – What does this project now mean to the future of the sponsors? Are they an off-roader and the KSF are still looking achievable?

Value – What are the feasible limits of the project? A project will not be constituted for the sake of achieving the bare minimum. Look to understand at what point the project loses effectiveness from a cost, time, resource or quality point of view.

Situation – Does the threat or opportunity still exist or has it changed since initiation? Do they have a truck at the client site? Or can you conference call in?

When these unknowns present themselves they are reported back through project board meetings – but in effect all we are doing is performing expectation management. Expectations about what the project can and will produce, at what cost, by what date etc. These expectations are evaluated by the project board against their criteria for initiating the project, the current situation and a perceived value.

Manage the outcomes relative to the expectations of the project board and you can steer a project to success!

Manage that financial belt…or it will get you!

by Guy Ralfe on July 15, 2009

tightening-budgetsEntrepreneurial business ventures have the same business concerns as their conglomerate competitors – they all want to turn a profit. They want their revenues to be significantly larger than their costs.

Keeping it simple, to increase profit we have two approaches:
~ increase our revenues relative to the cost
~ reduce our costs relative to our revenues

During times of economic prosperity companies often deal with challenges associated with growth, in their operations, by sacrificing operational efficiency. Typical examples are acquiring equipment when we expand our orders rather than reworking the scheduling; hiring additional staff rather than reorganizing the process.

I will use an example to simulate a company going through a growth and contraction to highlight the effect:

A sample company produces 1000 widgets per month at $5/piece, produced by 2 machines costing $2,000/month each. Throughput is 500 units per machine.

Through economic prosperity, production increases to 2,000 widgets per month, however this production requires 5 machines because along the way as each successive machine is acquired, the sudden capacity relief resulted in a decline in efficiency. This efficiency is not regained as you approach each successive machine capacity limit. Throughput is now 400 per machine.

In a market contraction,  production reduces back to 1,000 widgets. This is half the peak value so the machines scale back at this new throughput rate of 400 units per machine (1000/400=2.5) This requires 2.5 machines which we obviously can’t have, so now we need 3 machines to produce our 1000 units per month.

If we look at these three scenarios from a profit margin point of view (below) the accumulated inefficiency during growth has a drastic effect on the profitability when operations have to be scaled down. This example used machines but the same concept applies to all resources.

chart numbers

Going back to the factors that influence profitability, this translates into value, which is what we are prepared to pay for items:

  • the value produced for customers through product offerings – this will preserve the revenue side of the equation through both expansion and contraction.
  • the value to the organization of resources (assets, employees, cash) – cost is the component that seems to creep out of hand quickest and can be difficult to reign in again once you have established a lower value to the organization. This usually shows up in falling utilization (% of productive time) and realization (% of potential revenue)

The market is cyclical and the challenges faced in prosperity are the same that will haunt you during contraction. So as your business grows, pay attention to which notch you keep the belt on!

Cost of Health?

by Guy Ralfe on June 24, 2009

stethoscopeWhat is the likelihood of a small startup being successful if its members don’t take their health seriously? In small companies it is known that everyone has to wear multiple hats and it usually takes all hands on deck just to keep things going. So if you have an unhealthy1 person or organization can you afford the cost?

There are numerous studies and statistics on how much health affects the performance of an individual. It is also known that in business people have to work in social networks in order to get tasks done and the mood of one can often lower the mood of a group. Often the findings of health studies on employees or employers environments with poor health shows up with increased absence, lower work-rate, mistakes, minimal teamwork and poorer customer service. All of these are expensive costs to any size business.

Who do you want out there in front of your clients and prospective customers  – your lean healthy employee that got up and exercised before work, is energized and in a great enthusiastic mood for the day ahead or your overweight and unkempt employee that no one in the office will work with? Choices like this are easy but we don’t always find ourselves in a position to choose, often this degradation of health takes place over a period of time. The answer lies in not trying to avoid the issue – and that is by both the employer and employee – but to make a conscious decision to act to take care of it.

A company in the UK – Parcelforce – in a bid to improve employee motivation and attendance, introduced health screening clinics, gym memberships, bicycle loans and health education support covering stress, smoking and nutrition. Absence reduced by 33%, employee satisfaction improved by a similar amount, workplace accidents reduced by 45% and the program contributed towards productivity and customer service improvements.

As individuals our bodies are the one source of god given power that we all have by virtue of being born – How we take care of our health over our 40 odd year careers is likely the most powerful daily decisions we will make!

1 Unhealthy being anyone not respecting their bodies like illness, weight problems, poor diet, smoking, alcohol and drugs abuse, physical fitness, mental health, work-related stress, tiredness, irritability