Project Management

Facilities Management

Agile Project Management – Cost & Schedule Integration

It amazes me how corporate processes and general management methodologies can become so polarized considering that all corporations strive to achieve a common goal when it comes to Cost and Schedule.  I believe that it’s fair to say that hitting budgeted costs and staying on forecasted timelines is a holistic statement of truth….not some stereotypical generalization.  I’m not saying here that trade-offs between cost and schedule are in question; but rather that the management of cost and the management of schedule are either not connected at all, or are fragmented across multiple tracking tools and/or multiple departments each having their own systems and processes.  All would claim, hand on heart, that they’re collectively working to a common goal to control cost and schedule, yet are secular in retrospect regarding the interaction between cost and schedule.

The lens of cost management professes that good local performance equates to good program performance.  For those companies that maintain strict financial governess most often have their own independent systems in place that dictate processes and tracking tools that are pushed down to the Cost Account Managers (CAM)s.  These tracking tools don’t deal with nor care about inter-task dependencies, but rather focus on cost allocations that roll up to the correct Work Breakdown Structure (WBS) element.  The correlation to the schedule is either assumed to be coupled, or is loosely coupled via a manual human eye-balling or semi-automated month-over-month snapshot.

The lens of schedule management professes that good Critical Path Management (CPM) equates to good program performance.  For those companies that maintain strict milestone governess most often have their own independent systems in place that dictate processes and tracking tool that are pushed down to the CAMs.  These tracking tools don’t deal with nor care about cost, but rather focus on inter-task dependencies that form the critical path for the project.  The correlation to cost is either assumed to be coupled, or is loosely coupled via a manual human eye-balling or semi-automated month-over-month snapshot.

On a regular cadence, cost and schedule are updated.  Both cost and schedule are in flux as team performance and various change requests are adopted into the project’s deliverable cost and timeline.  Add to this variations in resource demand, and you have yourself a minimum of 4 balls in the air that you’re juggling to keep everything under control.  When cost and schedule management are not managed as a tightly integrated system, the Project Manager (PM) spends a considerable effort manually synchronizing the systems.  The following 10 items must be considered and managed as an integrated cost and schedule system:

Master Schedule Alignment

Whether you’re managing a project in a small or a large company, a master schedule is most often used for planning purposes.  Assuming that this planner is maintained, this schedule may be either a sprawling monster or a more wisely mapped sub-schedule aggregated rollup of all lower level projects or control accounts that comprise the portfolio.  If you’re dealing with the sprawling monster (i.e. 10,000 + line schedule), then you’re likely not entering resources or non-labor costs and only tracking activity To-Do’s.  This practice is not responsible governess as it only tracks the optics of looking busy.  Cost and resource alignment will be a continuous challenge.  Schedule updates must be funneled through one schedule owner who cannot keep up; hence, simply restricts the schedule to a Gantt view of activities.

Calendar Alignment

Corporate calendars can often deviate from the three globally recognized calendars such as Gregorian, Julian, Hindu.  Some companies develop their own to financially align fiscal months to weekend (Sat/Sun)  end dates.  This changes the working hours per month which changes the resource loading numbers. This will directly impact cost and resource demand, but will not translate into schedule planning when the systems are not integrated.  One way to ease this problem is to create a custom calendar so that your resource planning entered into the schedule will have an improved alignment to the costing world.

Resource Management

Corporate resources must be managed closely in order for a project to be successful.  When resource demand is tracked on its own separate from schedule, then miss-steps will almost certainly occur.  If this planning is separated from the schedule, then it is often driven by the derived cost tracking which cannot possibly supply the team dynamic demand.  Throughput management which is entirely managed on the schedule is underpinned by resource supply and demand. Any corporate process that separates resource management from schedule management is doomed.  This is fundamentally why CPM has been regarded as the nemesis of successful project management.  This has led to the incorrect conclusion that Gantt methodology cannot be applied to an Agile Project Management strategy.  This is an incorrect conclusion.  Gannt methodology depends upon cost and schedule integration.  Unfortunately CPM has classically not incorporated thorough resource visibility.  This is where Critical Chain Management (CCM) kicks in, and is a key ingredient to holistic Agile Project Management.

Daily Dynamic Management

Resource management is a key Segway into a complete and full understanding of dynamic management.  Dynamic management is much more about what needs to be done and in which order things need to be done.  Cost and Schedule management ensure that dependencies and resources at a tracked deliverable level are in place.  What the PM does with the resource(s) is not to be visualized on a project schedule; hence, the sprawling To-Do waterfall approach can only work if the PM’s crystal ball is perfect.  Unfortunately many organizations have abandoned cost and schedule management and replaced it with agile framework.  Agile Project Management cannot afford to be cost and schedule agnostic by simply advocating a propensity to an improved Getting Things Done (GTD) framework.

Change Management

Managing change is part of all projects.  Change always impacts the triple constraint in some shape or form.  Cost and schedule management never escape the wrath of change.  Driving change into a project without integrated cost and schedule will certainly become disheveled to the point that after a number of changes you won’t even recognize the project.  All changes must be captured in cost and schedule even if it is determined that a particular change can be absorbed.  In almost all cases, change does impact cost or schedule.  If, for example, schedule is changed and cost is absorbed, it still changes the cash flow.  When cost and schedule become decoupled, then the CAM or PM has two independent trackers to change.  This is not productive and will certainly lead to errors.

Actuals Reconciliation

The collection of actual costs is important in order to process how the project is proceeding.  If done correctly, the monetization of work effort is one data point that can provide the PM with an indication that claimed progress is making sense.  The more objective the reporting, the better these metrics will provide a good source of input.  In order for the CAM or PM to fully understand if they have the fuel to finish the job, the actuals reconciliation is important.  There will always be a variance; therefore, keeping track will keep the runway we planned for in check.  As we show variances, the runway either shrinks or grows.  Its also a great way to poke at the schedule performance.  This is important to determine the true amount of safety that was embedded into the estimates from the get go.

Cost Indexing

Cost indexing is the time cost of services due to inflation.  On long multi-year projects, the cost for the same level of service is higher in the future.  This being the case, schedule delays increase the cost of the services.  This is important because the delay of work to a later time period will increase the cost even if the scope of service is exactly the same.

Annualized Cost Management

As part of the fiscal responsibility, corporate governess will often lock down expenses within a given fiscal period.  In some cases, this may be micro-managed at a fiscal quarter.  This is a very difficult metric to maintain because project timeline changes will flow across these date lines.  If these reporting periods are very strict, the interim Estimate At Complete (EAC) must be maintained.  It’s clear that financial governess needs this data, but it is unreasonable to expect interim EAC data to be held firm.  There is no way to maintain a realistic timeline management model while pinning down interim fiscal EAC.  The only way I know of is to create time constrained cost buffers at the fiscal dates and simply balance the cumulative cost each reporting period.  This is totally unnecessary and poor use of a PM’s valuable time.  Knowing the fiscal cost is one thing; holding it constant is just fun with numbers.  Finance can adjust their net earnings reports which is a more truthful and responsible financial reporting.

Performance Tracking

Performance metrics at the management level are almost exclusively monetized earned value numbers.  Strictly speaking, these numbers can be managed independent of the project schedule because net present value time phased numbers are derived at the baseline, the performance is often subjective, and the actuals are collected through independent channels.  The intrinsic value of these metrics hinges on three things (1) the earned value model, (2) the degree of objectivity, and (3) that the baseline recognizes the current scope of the project.  As for the EV model, there are two recognized models being (a) %Complete and (b) %Physical Complete.  Model (a) is completely useless because it assumes that the Schedule Performance Index (SPI) is always = 1.0.  This is contrary to collecting metrics in the first place.  Objectivity is very important.  Agile Project Management must insist on only tabulating work product that is 100% complete.  Dynamic management must set a reasonably short cadence in order to stay on top of true performance.  Lastly…if the baseline doesn’t recognize approved change requests, then the earned value system is completely useless.

Enterprise data Continuity

At the enterprise level, the management of cost and resources are aggregated from all project inputs as submitted by CAMs and PMs.  The vehicle for submitting these updates is often what drives the corporate processes for tracking.  Various forms may be created that are either manually updated or are semi-automated with spreadsheets that are maintained by the PM.  This data is then processed, corporate reports are published, and Resource Managers review and/or adjust their staffing and logistics.  The schedule is often not processed at the enterprise level because it is thought to be a visualization of cost reporting.  This is flawed at many levels.  Reporting of performance metrics is a schedule dynamic that is often very subjective.  This being the case, it is no surprise that the realization of cost and schedule overrun is detected too late.  In larger projects, performance is only discussed at higher level rollups, therefore the underlying problems are not caught early enough to be proactively managed.

In conclusion, cost and schedule must be tightly integrated.  Scheduling tools such as Microsoft Project are designed to manage the holistic project including cost, resources, and deliverables.  In larger projects, the Integrated Master Schedule must be an aggregation of sub-projects.  This is true for many reasons.  All approved change requests must be incorporated and a new working baseline must be snapped.  Regardless of what enterprise cost and resource management system is in use, data can be exported from CAM and PM schedules which contain all of the data required to drive the enterprise.  This frees up valuable time for the PM to manage the job as opposed to manage the optics.

Agile Project Management – Job Management Distortion Field

Picking up from last weeks post on Agile Project Management – Managing the Job, I’d like to focus on the concept of money becoming the central deliverable of the project.  I like to refer to this as the Job Management Distortion Field.  I didn’t really intend this to be a parable to Steve Jobs but, if we were to draw comparison, Mr. Jobs never made it about the money.  It was always about making the world better with his product creations.  The distortion field I’m referring to completely ignores product and market users.  Most importantly it ignores the work; the critical ingredient in the product.  Here are a few of the key signs and indicators that the project has fallen victim to the likes of the distortion field.

Long Term Infinitesimal Financial Detailed Planning

This is a prevalent practice in certain industries that have long New Product Introduction (NPI) cycles and are staunch waterfall centric planning advocates.  Here the level 1 schedules are typically 10,000 to 30,000 line items spanning up to five years.  Each task (some being a single day activity) is time phased and costed.  This is the kind of absurd management philosophy that has led to the complete abandonment of gantt based planning.  With such a plan cast at initial project kick-off, the baseline is set, and the financial time phased plans are imported into the Enterprise Requirements Planning (ERP) system.

Annualized Budget Alignment

With the multi-year planned down to ten to thirty thousand tasks, the job and financial expectations get extracted in a similar way that the media would extract incriminating phrases out of context.  This methodology perpetrates fairly rigid annul financial gates.  To jump back to the product and work world for a moment, will the dynamics of the work environment follow this detailed roll out?  Well, not to bloody likely!  The reality of late and changing requirements will almost immediately reshape the intermediate milestones which will most certainly change the annual financial targets and actuals.  This is the classic plan to fail mentality.  As much as it’s not being said, this is clearly setting money as the deliverable.

Scope Change without Re-Baselining

This is a favorite pet peeve of mine.  A scope change, by standard project definition, is a change outside the control of any Work Breakdown Structure (WBS) element.  For those projects being managed as described herein, management will acknowledge the need for change in the form of an approved growth to time and/or cost.  For change cause within the WBS overall structure, the project contingency absorbs the effect but, for cause outside the WBS the budget and timeline must be re-baselined.  This realignment is absolutely essential to apply earned value metrics to the work.  In my experience, the distortion field doesn’t recognize this impact thereby continuing to set financial expectations to the baseline.

Short Range Outlook Financial Management

This practice is one of my favorites.  Essentially Short Range Outlook (SRO) planning is likened to driving in the rear view mirror.  In these planning sessions, senior management will hedge bets on future spending based on past financial performance.  Considering that the baseline is completely out of step with the work (i.e. approved scope change without re-baseline), then SRO management exponentially distorts the project.  The hedging doesn’t consider scope change or work as it is focused solely on money as the deliverable.

Resource Fill Rate Management

Resource fill rate is a manpower tracking metric that is used in Job management to hit enterprise level targets.  It is obviously important for the enterprise to supply the project demand but the distortion field effect completely ignores the work execution which is synchronized to product deliverables; not money deliverables.  Organizations that focus only on the linear Job view the project as a static “turn the crank” mechanism.  The fill rate mis-alignment is a self fulfilling prophecy.

Summary

These are just five examples of how a project can be completely hijacked when the job financials become decoupled from the work.  As much as the financial metrics are true indicators, they are only accurate when the plan stays in sync with the work.  When the earned value metrics indicate a misalignment, the ONLY way to remedy the situation and get the project back on track is to manage the work scope and fix the work execution.  The financial numbers will snap in line.  Reversing the cause and effect results in Job Management taking on a form of fantasy management otherwise referred to as managing the optics.