Project managers use trade-offs during project planning and every week during the life of the project whenever they have a variance or a change request. Project Manager Skills Main Page
Here is an example of a project trade-off. The sponsor demands an earlier finish date and the project manager says, “Yes I can shorten the duration of the project by two weeks. But to do that, I will need to have two additional engineers for the month of April.” A trade-off has two sides. First, there’s the positive side where the PM shortens the duration of the project. Second, there’s the negative side where the project manager says they need two additional engineers for the month of April. Trade-offs are part of the language good project managers use. You must build the project plan with quantified measurable outcomes. And the schedule must have work estimates and accurate precedence relationships. Then you can model every change with a compensating trade off. Risk Management
When project sponsors want to make a change, successful project managers never say, “Oh no, we can’t add that to the project.” What they say is, “Certainly I can add that to the project, but I will need three more people full time.” Or the negative side of the trade-off could be, “We will have to increase the budget by $10,000” or “We’ll have to reduce the savings in our scope by $6,000.” This is the language of trade-offs. The project manager is not saying no. Instead, they are telling the sponsor or stakeholder what it will “cost” to bring about the change they want. Trade-offs maintain the feasibility of the project. Merely shortening the duration does not.
Project Trade-off Language
Successful project managers use trade-offs between the scope, schedule, cost, risk and quality when they assess problems and changes to the project plan. When anyone wants to add or change something in your existing project plan, you should always assess the impact on all of the project’s dimensions. If the change is significant enough to require a change order, you should document the project trade-offs. That trade-off information allows the sponsor or customer to decide if the change is worth making. You should also use trade-offs when a status report shows variances to the plan and their proposed corrective action. Status Report Template
Here’s a detailed example of using project trade-offs. Let’s say the schedule has a task that was originally underestimated. Now the team member working on that task says it’s going to take 160 more hours of work and two weeks longer than originally planned. The PM agrees with the new estimate and quantifies and documents the impact of that increased time on the project budget. The remaining 160 hours of work will take 4 weeks at the rate of 40 hours a week with the one team member. That will take the task duration four weeks beyond the baseline plan. Because the task is on the critical path, it will cause a 4-week delay of the project completion date.
Knowing that the sponsor will not accept that slippage, the project manager then develops alternative trade-offs for dealing with the situation. First, the PM looks at the trade-off that comes from adding one contractor to the task. Then the existing team member would do 80 hours of work and the contractor would do the other 80. If each worked 40 hours a week, they could finish the task in two weeks rather than four weeks. The cost for hiring the contractor is $100 an hour so the project budget would increase by $8,000. The project manager would present this trade-off as reducing the duration by two weeks for a cost of $8,000.
The project manager decided to also model the trade-off of hiring two contractors. Then the PM could divide the 160 hours’ worth of work among three people. Each person would have to complete 53 hours of work, which would take each of them 1.3 weeks. That duration is a material reduction from the first trade-off. Now we come to the matter of the cost and this is the part people usually get wrong. Adding the second contractor would not double the $8,000. The contractors together would do approximately 160 hours’ worth of work at $100 an hour. So the fees for the contractors in this example would be $16,000. That gives the PM a second trade-off to present to the sponsor.
There are many other types of trade-offs the project manager could use. They might reduce the scope of the project, which usually reduces the amount of work and the duration. There are also trade-offs for quality and risk that could be considered. With this explanation of how trade-offs work, let’s talk about how we use the idea of trade-offs in managing the project.
We can think of a project as having four corners:
- project scope (including deliverable quality),
- cost (human resources and materials).
Think of a project like a tube of toothpaste. When an executive squeezes on a project’s duration corner by cutting the due date by a month, the toothpaste compensates by oozing out from one of the other corners. When the sponsor squeezes the duration, it will deliver less scope, cost more, or have a higher risk of failure. Changes in one corner always impact at least one other corner. We have those effects whether people recognize or not. It is not realistic to assume that making arbitrary changes to one corner of the project, like the duration, can happen without any compensating effects through the rest of the project.
Why don’t sponsors recognize the impact? Because in most projects only one, or at most two, of these corners is measurable. The completion date is always measurable and is often rock solid. In some situations, we have a project budget that is also measurable. But most internal projects have no other measurable dimensions. Even with the two measured dimensions of duration and budget, the business value of the project (the scope) and the risk of not delivering that scope on time are usually unmeasurable. So executives continue to make arbitrary changes to the duration and the budget and think that it will have no impact on the scope of the project. Just think about what happens when a project manager goes back to his team and says, “We have to finish two weeks earlier.” What will the team members do? They will look for shortcuts. The quality may go down and the level of deliverables produced may suffer as a result. They also take shortcuts that increase the risk of the project failing. But no one knows.
Therefore, project sponsors assume there’s no risk from their arbitrary reductions in duration or budget. They are 100 percent confident in delivering the scope within the duration and/or budget. Now every project manager knows100 percent confidence is ridiculous. Particularly because most organizations have a project failure rate above 50 percent. Yet few project managers give their sponsors the opportunity to make decisions about the level of confidence they want.
There is a better approach. If you have a quantified measure of the project’s scope (the business value) and you follow best practices when building the project schedule and budget, you can present your sponsor with quantified trade-offs between the “4-Corners” ™ of the project plan. This data-based decision making and “fine-tuning” is a good platform for approval. It is far better than arbitrary changes to one or more of the “4-Corners”™ without any offsetting changes to the others. You will also use these quantified trade-offs every time there is a variance to the plan. Your status reports should include trade-off analyses between the “4-Corners.”™ That gives executives data to evaluate the alternatives for taking advantage of opportunities and recovering from problems.
This project trade-offs approach is inconvenient for executives who want to make a change to just one corner. If they do that, you will have projects that aren’t feasible, are late, over budget and achieve less than planned. Arguing with the project sponsor doesn’t work, particularly when they are your superior or your customer. What does work is using decision-making data. That’s the benefit of using project trade-offs.
Foundation for Project Trade-Offs For Scope, Budget & Duration
- The foundation for developing alternative combinations of scope, budget and duration is building a project plan and schedule using best practices. The requirements are that you define every deliverable and every task in the work breakdown structure (WBS) with acceptance criteria. That way there’s no ambiguity about the progress or the completion. You base the project plan and schedule on work estimates, not just start and finish dates. With those components in place, you can offer the sponsor and decision-makers alternatives and trade-offs between scope, budget and duration.
- During the initial presentation of the project plan, you should model at least three project trade-offs or alternative ways of doing the project. Starting from the base design, you construct three project trade-offs to finish at least 20% earlier than the base design. You also construct three alternatives that collectively lower the cost of the project by 20%. Having these options available during the project presentation gives you the ability to answer the question that executives often ask, “How can we do this cheaper and faster?”
- When your weekly status report shows variances from the plan, you should use project trade-offs to model alternative corrective actions to address the variances.
- When you have change requests, you should assess the impact of the change on the project scope, budget and duration and then present trade-offs between those constraints.
Project Trade Offs Summary
It is a project management best practice to assess the impact of a change or variance on the project’s scope, cost, duration and risk. Then you model project trade-offs between those “4-Corners” ™ and give the decision-makers alternative ways to deal with the opportunities and problems.
To learn the specific techniques for framing your projects and developing these “4-Corners”™ trade-offs, look at our project management bookstore or consider taking one of our project management training courses. We offer them in-person at your site or as online courses where you work privately with your instructor according to your schedule.
To master these techniques and the way to present them to the project sponsor, take a look at our advanced techniques courses in your specialty.
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