Project Cost Controls

The Walk of Shame

About a year ago I bumped into a former work colleague who I hadn’t seen in about 6 years. It prompted us to go have lunch to get caught up on life, family, business and everything else. His name was Dan. And since leaving our former employer, he went on to become CFO at a large construction & manufacturing company.  It was quite fortuitous for us to have reconnected because he was having a lot of struggles with his company’s projects suffering disastrous cost overruns & delays. “I get so frustrated,” he said as he knifed his steak sandwich. “it’s like they [the project managers] deliberately leave it to the end to figure out where things are at with their projects.” He was referring to how information flows to his financial group about the status of the various projects on the go in his company. “What’s the point in that? Why can’t we have those conversations six months earlier?” He waved his hands dismissively in the air as though he was at a complete loss as to what to do. “I used to think they were avoiding me.” He continued. “I figured they knew all along that it was bad news, and they didn’t want to have to face telling me. But now I know that they simply have no idea what’s going on until pretty late in the project. Essentially, until all the invoices have come in. Then it’s like, they just add up all the invoices and figure out what we owe. Then they come tell me. Is that normal?” Sensing that he was waiting for an answer at this point, I told him that it really isn’t all that uncommon for projects to

Mike is an Excel Pro

When I first met Mike he was a senior project manager at a seismic services company that operates large 3D seismic shoots all over North America. Mike was an Excel pro. He planned & tracked those seismic shoots with pretty decent precision considering the size of the projects – and especially considering he did it using a collection of about 6 spreadsheets. Unfortunately for Mike however, he had no idea that he was spending about 30 extra hours every week just on spreadsheet management. In addition to the extra time, it also wasn’t clear to him that there was very little ROI on that effort since the solution that he’d built was achieving only minimal results. The challenge for Mike – and many others like him – was that he had invested so much time and personal emotional equity in the creation and management of his solution, that the idea of abandoning his dear spreadsheets for a better, more efficient solution was like asking him to drown babies. In our first meeting, he presented his solution to a boardroom full of his colleagues as well as a couple of us 4castplus guys. His presentation took just under an hour, and during that time, there were surprisingly few questions asked. It became clear why by the end: everyone in the room had a jaw-dropping stunned look on their face at the sheer complexity and enormity of his solution. He, on the other hand, was excited and quite proud of his major accomplishment and appeared to be expecting a round of applause.  It was practically impossible to truly understand his whole process. There were so many parts to it; and so much movement of data, and copying

Do you Face the Pain?

  When you see something wrong in your organization, do you fix it? Or are you more the type to ignore it and hope it goes away? In our business we come across quite a number of people who are more the breed that put off making any needed changes in their organization until they’re drowning deep in pain and frustration. It’s bad enough sometimes that they reach a point where they need a rescue line to bail them out. It’s not uncommon for organizations to go through a period of growth where they become far too busy to address the numerous challenges that go along with that growth.  Instead of confronting the creeping deficiencies as they appear, they side-step the obvious and hope for the best. That is – until these deficiencies result in what I call a “Defining Event”. A defining event could be any number of undesirable results (catastrophic even) such as: a project that went way over budget; a legal dispute with an owner or subcontractor; an embarrassing shortfall in productivity or performance; loss of business; safety incident; etc.   There are a load of reasons why people avoid addressing the pain head-on.  First of all, people are born procrastinators. It’s pretty rare for someone to fix something before it becomes a real problem, even though they know that the longer they dodge the issue, the bigger problem it becomes. People also fear change. Even though they may be very aware that their current methods are inefficient, difficult, error-prone and time-consuming, these failing methods are a pain they know. A familiar pain that they’ve just learned to deal with – and for some reason the perceived pain of fixing it seems

Big Projects use Cost Controls – Why don’t You?

The use of project cost controls solutions is becoming pretty widespread these days amongst bigger construction organizations that execute on capital projects. For any big, billion dollar project (or any number near that), it’s understood that proper planning, cost controls and detailed progress reporting will be followed on that size of project. They have to. There’s just too much risk otherwise. Even 10 years ago, however, it wasn’t necessarily the case. There have been many bad years and a poor track record from the “project cost overrun” point of view in the world of big projects. So bad that people have got quite used to hearing about the colossal project cost overruns – you know the ones, the $3-billion project that ballooned into an $8-billion dollar project like it’s just a part of life. People have got so used to it that they’re often amazed to hear about these big projects that are actually running on budget and on schedule. The reality is, however, that projects which do actually run on budget are becoming more common. The big disasters still happen from time to time, but it’s becoming more and more infrequent. And that’s largely a result of: better planning, better controls, better information and better tools to get all that with. For a $1-billion project to go over-budget by even a modest 10% – that’s an enormous amount of money. Even for big companies & governments. They simply can’t afford to NOT use a cost controls solution. Unfortunately, this adoption of cost controls hasn’t trickled down to the typical mid-sized organization.  For this tier of company – the ones that are running $10-million to $100-million projects – they still mostly use spreadsheets and paper-based

Got projects going over budget?

You're Not Alone. Project cost overruns are common. Statistics will tell you that over 85% of projects go over budget. But Why? What are the mechanics behind project cost overruns and project schedule delays? Plenty of talented and experienced professionals engage in dialog about this very topic every day, and try to arrive at conclusions about how to stop projects from going over budget. In this article I’d like to shed some light on the underlying workings as to the root causes of cost overruns and schedule delays. In order to tackle the problem of how to eliminate overruns, it’s important to understand the main reasons why they happen. Obviously, there’s no one-sentence answer to these questions since every project is unique and the influences that trigger overruns can vary tremendously. Luckily, however, there’s been quite a bit of research and experimentation around this exact problem - since it is a pervasive issue that so many businesses, large and small, struggle with. As a result, there have emerged some key factors we can point to that are the major contributors to projects going over budget and suffering schedule delays. A lot of project managers and business owners have their own theories; and after a good deal of listening and reading, many will have you believe that it all comes down to one thing: Project Changes. Technically speaking project changes are arguably the biggest contributor to projects going over budget and blowing schedule deadlines, but for the purposes of this discussion, let’s leave Change and Change Management out of it. I’m saying that because I don’t believe changes are truly the root cause of cost overruns. I believe that if you approach a project anticipating that

Project Change: Strategies for Making the Best of it

A must-read article on the effects of change in projects by Arthur O’Leary called Coping with Changes during Construction takes a very savvy look at both the reasons changes happen, along with strategies around managing the risk. While O'Leary's focus is on construction projects, this advice and rules are equally valid for projects in any industry that have complexities such as: many moving parts, suppliers, subcontractors, customers, complex WBS, multiple resource types, etc. O’Leary states: “It is seldom that any construction contract can be pursued from start to finish without some changes having to be made. This is in spite of the best of intentions of all parties. Despite stories about fat contractor profits in changes during construction, in reality they are an onerous economic burden on all concerned. Contractors often have difficulty in breaking even on changes.”   So why is it that change has such a big effect on projects?  O’Leary goes on to discuss exactly that point: “Projects plagued by numerous changes can become mired in confusion if they are not administered in an orderly manner. Serious problems arise when multitudes of changes are in various stages of progress. Some in the stages of deciding what to do, redesign or engineering, pricing, reconsidering, negotiation of price, contention about responsibility, approval in part, final approval, or cancelation. Some changes will have a profound effect on scheduling while others will have unexpected effects on interfacing trades. Some parts of the work may have to be deferred while awaiting final decisions and ultimate approvals of proposed changes. In some cases the proposed changes, after careful consideration, are canceled, and the deferred work then becomes critical to the time schedule." "Often, controversy develops among owner, architect,

Ask the ‘Where Am I At’ questions

Wanting to know where things are at during all stages of a project is a healthy thing to do. Whether you’re the owner, operator or customer, there’s no question that every day of your project, you’ll want to know if things are moving along as expected.   And you’ll want to know details; because whether you’re running a $10 million or a $100 million project, going 10% over budget is a lot of money. So you’d better be asking a lot of questions. Where are we at with our suppliers? Where are we at with the Cement Crews? Where am I at with those materials commitments? Where am I at with Task XYZ? Where am I at with cash, did we get paid from our last 2 invoices In this post, I’d like to touch on the top 4 things you’ll need to have in place in order to have easy access to answers on the “Where am I at” questions that flow through the veins of the project manager or financial professional.   The first thing you need is a Reliable Estimate The first part of answering ‘where are things at’ is knowing where you expected you should be at - which is all about Estimating & Planning. You need to have spent sufficient upfront effort in detailing the component parts of the project to determine cost and complexity. (I hopefully don’t need to convince anyone of the need to plan out projects – but you’d be surprised).  What’s key to point out though, is the importance of being able to determine costs down to the resource level. This is absolutely vital to estimating accuracy. If you’re only estimating at the task, or phase level, you’re really only guessing

Kids Define Management, Planning, and Scheduling

Ty is a successful project manager by profession and volunteers as a youth community leader for most of his off-work hours. He decided to make a youth get-together once a week for his kids and their friends. The ultimate goal was to have the boys socialize among a group of kids of similar ages and challenges. Ty told the kids that they needed to brainstorm what to do every week to keep the get-together attractive and enjoyable for everyone. They agreed that they would have a weekly topic to be suggested, and its discussion to be moderated by one of them. The person that suggested a topic was to be prepared by reading and researching about the topic, which was then to be used to challenge the rest of the group. Another activity they agreed upon was to have a weekly lunch together in different places - some of which might even be out of town, in a park, or on a boat to break-up any kind of monotony. They decided also that the cost of every meeting should not exceed fifteen dollars per person.   Everyone agreed to these two activities. Then, Ty asked them to create a timetable which was to be used to assign which two of the kids would be responsible for the activities for each of the weeks. One would prepare a topic and the other would arrange for the lunch. They grabbed a calendar and started to put names with responsibilities for every Sunday.   In this simple situation, where is management, planning, and scheduling?   Here, Ty directs different resources (the kids) and harmonizes their interactions with him and with each other to accomplish the goal of socializing

Innovation is Essential – How One Company Did it, Part I

In our first blog in this series, we talked about the necessity of introducing innovation into your business - to improve efficiency, profitability - to stay competitive. Companies that don’t evaluate how they are doing business, and where they need to improve, are being left behind. Introducing innovation doesn’t have to be overwhelming or complex, and doesn’t have to result in spending a whole lot of money – in fact, the best ways to innovate are to look for ways to simplify and streamline your existing business processes. In this second blog, we’re going to show you how one of our customers, Company A, started to do just that. Company A took a look at a key process – their project cost management - analyzed how they were managing their project costs, how they wanted to manage their project costs and what kind of information they wanted from their project cost management system...and what changes they could make to improve this process. And in future blogs, we’ll see how Company A uncovers inefficiencies in their process, and the result of improvements that they made. Company A has been in business for a number of years, and has been running labor and materials projects that have been fairly similar in nature. They’ve been successful in that key respect that many small business owners benchmark success by – there was cash in the bank at the end of the month. So, all in all, their projects were running profitably – but the question is....how much more profitable could they be? How much more cash-flow could be generated from their projects? Were there trends developing that would signal areas to improve efficiency, shore up the bottom line? As

Innovation Is Essential

No matter the size of your business, innovation is essential.  Looking for ways to bring innovation into your business can offer huge returns – cost savings due to greater efficiency, faster growth due to better decision making, improved retention of talented staff, and a number of other benefits.  In a study performed by the Association of Canadian Community Colleges (“ACCC”) “Colleges and Institutes and Canada’s SMEs (Small to Medium-Sized Enterprises): A Partnership for Innovation”, we find the following statement, “The capacity and ability to innovate is a critical determinant for productivity and growth.”  And critical it is.  In these economic times, where every business has had to take another look at how it does business just to stay in business – incorporating innovation into your business is even more essential. But for the small to mid-size enterprise, injecting new innovative processes into your business can be a challenging objective. When you’re flat-out busy just trying to get business done; how do you go about taking a step back to think about innovative ways to improve and grow - and ensure you survive?  Where do you start? The good news is that innovation doesn’t have to mean abandoning what you are doing to bring in a revolutionary new process. You can achieve great things in smaller incremental steps. As stated further in the ACCC study, “Innovation is defined as applying new ideas in a way that produces new value for the organization.  New ideas do not mean 'new to the world'.  New ideas mean 'new to the organization'.” It can be as simple as this:  take one existing process and find small ways to improve it.  As you’ll see, the benefits reaped from that one decision can