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Scheduling and Cost Control in a Complex Environment

The recent UK Government’s enquiry into the management of major projects was cut short by world events, but the interim report and oral evidence make for interesting reading.[1] Experts involved included respected consultants and also academics such as Professor Flyvbjerg, from the Major Programme Management Department at Saïd Business School, Oxford. In short, experienced, but above all evidence-based experts. Unsurprisingly the variables under discussion were cost, schedule and benefits.

Professor Flyvbjerg’s evidence showed that out of 12,000 major projects studied globally, fewer than half were on budget, fewer than 8% also on schedule, and only 0.5% also achieved projected benefits.

The really big projects of course have public and political dimensions and it is generally accepted that such projects are inevitably underestimated in order to gain approval. Take the Olympic Games, for example. As expected, it has a 100% record in delivery on schedule, but no Olympic Games has ever met the original budget (mean cost over-run 172%).

Of course, many will look back and say that it’s not about the cost, just look at that fantastic thing we built. Whether it’s the Olympics, Eurotunnel, Crossrail or something specific to our organisation, we can look back and say simply ‘It was worth it because we like it’.

And that may be true, but there is a big ‘but’ in terms of hindsight bias. Prof Flyvbjerg gives the example of Eurotunnel: it’s hard to argue that it’s a magnificent achievement, but it has been shown that at the time of construction, economically there were many better infrastructure projects to spend £8bn on. There is also a big ‘but’ in terms of availability bias: we tend to forget all the failed or unused initiatives.

And of course, for our projects and our organisations, we don’t have Governments to bail us out. Organisations that are unable to reliably realise the planned benefits from their investments will either be lucky, or more likely eventually fail. We do not have the luxury of throwing resource at projects and simply hoping that in the future people will look back and say, ‘what a great project that was’!

Common challenges in schedule and cost flow through our projects and programs whatever their size. Here’s some of the things we should be thinking about:

1. Front-End Planning Starts with the Business Case

Experience and hard evidence tell us the importance of project front-end loading, that is, rigorous project initiation and planning. Every $ spent in FEL rewards multiples of that in implementation.

But projects are not initiated simply in order to deliver a project. Projects are delivered in order to realise benefits. And FEL does not begin at the start of the project, rather it begins much earlier with a rigorous business case, containing a thorough analysis of options, project costs and of the benefits to be realised. Benefits are much harder to estimate but it can still be done, and experienced companies are able to map projected benefits, albeit within wider ranges than for project costs, whilst avoiding the natural tendency to over-estimate those benefits. The project delivery plan is then linked directly with a resourced benefits realisation plan, and both become part of the overarching business case against which the project is tracked.

2. Benefits become Eroded as Well as Cost Targets

Post-project analysis of margin erosion (or cost increment) usually shows that costs accumulate in small increments: for example, a defect with no charge-back to the contractor, a material price increase with no contractual mitigation, internal design changes and so on. However, failure to realise benefits may also accumulate in small increments. Examples of such erosion include obvious things like a failure to follow through on the benefit realisation plan, but equally, benefits may be eroded through being missed in the business case, or lost because of design changes, or because of time delays in the delivery. The important thing to understand is that benefits may become eroded even before project completion.

So, watch the details, and link project decisions to benefits realisation. A simple example might be where the cost of acceleration within the project may appear excessive, but in relation to benefit realisation it might be cost-effective.

3. Complex Environments Are Different from The Simply Complicated

In complex projects cause and effect are not easy to distinguish. Instead we must learn to identify patterns. There’s more to go wrong of course in terms of schedule, cost and benefit delivery, but problem factors inter-relate with each other in difficult to predict ways. Research presented in the major projects enquiry above demonstrated that in a study of over 247 projects in dispute there was an average of 13 interrelated causation issues per project. We need to understand when we are in a complex environment, apply the right form of leadership and choose the right tools.

4. Schedule and Cost Control Starts with Good Estimates

Despite the development of many frameworks and best practices, evidence shows that we are not good at estimating, especially in complex projects. And (maybe surprisingly) organisations that are better at delivering benefits to their clients are even worse at estimating.[2] Easy to say, harder to do: use a rigorous estimating process and remember that the best estimators incorporate benchmarking within their processes.

5. Having Controls Doesn’t Mean That You’re in Control

Of course, no project team allows multiple issues to escalate on purpose, however just because there are project controls in place does not mean that the project is in control.

Traditional controls such as simple cost, work and schedule measures will not give an accurate picture in complex projects.

Modern controls must be based on gathering ‘intelligent’ sources of data in addition to cost and schedule, such as earned-value and resource utilisation progress measures. Similarly, ‘intelligent’ analysis must involve trend analysis: trends of work, efficiencies, cost, date delivery, criticality, subcritical path criticality, float degradation, liabilities, margin v cost, benefit status, changes, defects as well as other key indicators.

In major projects reporting quality is also of concern, and data regarding schedule quality, compliance with procedures, reporting accuracy, contract controls, and process benchmarking must also be in place.

6. Strategy Must Be Aligned with Work Through Portfolio Management

Organisations can only be successful through strategic alignment. This goes further than the vertical flow down from strategy to portfolio to delivery to benefits. It is essential that projects and programs are also integrated horizontally through portfolio management to ensure that costs, benefits and risks can be understood across the whole organisation. Dedicated portfolio management software must be used for this.

7. Risk Must Be Factored in At Every Stage

This should go without saying; however, our models should include not only project/ program risk, but also delivery risk. And remember that all forms of uncertainty must be modelled and communicated. Monte Carlo simulation is the only way to understand the real picture.

 

There’s a lot to think about but given the poor record in general in estimating in complex projects, there are great prizes to be won. Remembered too that cost increase/ benefit erosion typically happens in small increments: look after the cents and the dollars will look after themselves!

Strategy Execution (part of Korn Ferry) have a complete range of programs on Scheduling & Cost Control, Project Risk Management and Adaptive Leadership. Download our course catalogue to learn more.

[1] https://www.parliament.uk/business/committees/committees-a-z/commons-select/public-administration-and-constitutional-affairs-committee/inquiries/parliament-2017/inquiry1/publications/
[2] PWC, Insights and Trends: Current Portfolio, Programme, and Project Management Practices The third global survey on the current state of project management, 2014.

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About Rick Graham

Rick Graham
Rick Graham, an instructor with Strategy Execution, has been an active project manager for over 20 years. Areas of expertise and experience include strategic alignment, risk management, and optimisation of business value. Recent examples of projects with which Dr Graham has been involved include support in aligning project portfolio management systems with corporate strategic vision (telecommunications), development support in roll out of a global project risk management system, and support in project contracting strategy development and execution (oil & gas). He is a frequent speaker, and has been a keynote speaker at regional PMI conferences.

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