Posted on

Project Charter Development

Project Charter Development happens during initiation.  The project charter is presented at the end of the initiation and reviewed and hopefully approval by management. That approval authorizes the sponsoring project manager to begin detailed planning and to make use of corporate resources in that process.  That’s not a go-ahead started project would rather to start the planning.  The project charter includes at least the high-level scope, high-level risks and it appoints the project manager.  The charter also can include estimates of the amount of resources and time which the project will take as well as explanation of the assumptions that are behind the scope of the project and the constraints that it faces.  A good charter triggers a lot of discussion and occasionally conflict. But it’s much better to find out during initiation that some departments won’t lend you resources than after your 30% finished.  Charter is a very useful device for avoiding surprises by surfacing potential conflicts at the beginning of the effort.

This is a lecture video on Develop Project Charter by Dick Billows, PMP, from the Initiation Process Group and the first process in the Integration Knowledge Area.

Lecture Video

Project Manager in Action Video

Posted on

Project Scope Statement

Dick Billows, PMP
Dick Billows, PMP
Dick’s Books on Amazon

The Project Scope Statement is defined by the project sponsor. The project manager must ask the right questions to get the sponsor to clearly state the end result they want the project to deliver. It must be stated in measurable terms as acceptance criteria. Those criteria are the real definition of what the sponsor wants and how they will measure if the project is a success. Project Scope

Executives who are not used to project managers asking questions may resent it. But a successful project manager responds to the sponsor’s objections with a reasonable statement like, “I can’t deliver the business end result you want if I don’t know precisely what it is.”

Executives may not like that push back. But it is worth a bit of early executive dissatisfaction because it helps you define a measured business result for the project scope rather than a list of ever-changing requirements.

Project Scope Statement: The Sponsor’s Role

Another reason why the Project Scope Statement definition is not easy to get is because too many sponsors don’t know how to properly play their role in the project. During project planning, the sponsor’s role is to define the project in a statement of work (SOW), prove its value to the organization in a business case and define the scope statement. After they have completed those requirements, the sponsor’s role and their level of involvement declines. Then it consists of approving plans and any changes to those plans as well as accepting or rejecting project deliverables. Project Phases Main Page

In too many organizations, the project sponsor role is poorly played. Instead of defining the Project Scope Statement that will drive the project to a successful end, many sponsors do destructive things. Some play cat and mouse games with the project manager, refusing to commit to exactly what they want. They may do this because they don’t actually know what business result they want the project to deliver. So they are unable to define the scope. Or they are vague because they want to be able to avoid blame if the project fails. They can say, “That’s not what I wanted the project to deliver.”

Either way, this behavior dooms the project to failure. It drifts from one goal to another while the project manager and team members try to figure out what the sponsor really wants. They often find out a month before the due date (which the sponsor has arbitrarily set). That sets off the “end of project panic” which is also caused by sponsors who don’t know their proper role. The PM and team frantically try to produce something close to what the sponsor now says he/she wants. It’s not a surprise that what the team produces has no value. So they will spend the next six months trying to fix it. Bad sponsors leave a trail of these project failures in their wake. That’s how you can spot them… and, hopefully, avoid managing their projects. Project Scope

You can learn these techniques for defining the project scope statement in our customized, online courses. You work individually with your instructor and have as many phone calls and video conferences as you need. The Project Management Basics course, #101, teaches you a step-by-step process and how to use MS Project® software to make your job easier.

At the beginning, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

  1. 101 Project Management Basics
  2. 103 Advanced Project Management Tools
  3. 201 Managing Programs, Portfolios & Multiple Projects
  4. 203 Presentation and Negotiation Skills
  5. 304 Strategy & Tactics in Project management


Posted on

Project Launch – Sell the Project & Build Political Support

Dick Billows, PMP
Dick Billows, PMP

The project launch meeting is an opportunity for you, the project manager, and the sponsor to build enthusiasm for the project among the project team and the project stakeholders. The team members are the people who will be doing the project work. The stakeholders are the people affected by the project. Other attendees are managers affected by the deliverables the project produces. Vendors who do contract work on the project may be included as well. Keep in mind that some of the attendees might be people who are not in favor of your project because it is using resources they need elsewhere.  Instead of dreading this meeting, you should view it as an opportunity to convert people who are neutral or opposed to the project. It is also an opportunity to increase the level of enthusiasm of the people who now support the project.

Unfortunately, the launch meeting is often just a series of long speeches about teamwork, sharing and supporting each other. No one in the room believes that hype. These lofty speeches don’t build morale. They tend to undermine it because the opening discussion is full of phony sentiments and, sometimes, outright lies. Good project managers don’t give speeches about teamwork, honesty and supporting each other. They communicate those characteristics by their actions. This takes more time but it’s much more believable and valuable.

In the launch meeting, you communicate information about your carefully developed plan. You state the major deliverables of the project and the overall benefit to the organization. The project launch meeting is not the time to threaten team members with dire consequences if they are late on their assignments. Those threats convince the team that their number one goal is to avoid blame when the project fails. That sort of attitude is crippling for a project. Team members who think the project will fail do not give you their best efforts.

Project Launch: Meeting Agenda

Here is the information to cover in the project launch meeting:

  • Project overview
  • Projet scope
  • Major deliverables
  • Project milestones

Project Launch: Meeting Attendees

These people should attend the launch meeting:project launch meeting

  • Project sponsor
  • Project manager
  • Project team members
  • Major project stakeholders

The project launch meeting signifies the end of the project planning phase and the beginning of the executing and monitoring/controlling phases.  You must make sure that by the end of this meeting, the team members understand how the tasks they will work on fit into the big picture, the project scope. You also want to build enthusiasm and commitment to the project among the team members and stakeholders.

Learn how to run a project launch meeting in our training seminars for clients  or our instructor-led online courses for individuals.


Posted on

Cost-Benefit Analysis in Project Initiation

Dick Billows, PMP
Dick Billows, PMP
Dick’s Books on Amazon

Cost-benefit analysis is a simple technique for comparing the business value a project will produce with the cost of producing it. Project managers use cost-benefit analysis in the project initiation phase to show the value of doing a project. During project initiation, the sponsor and project manager must justify the project to get the organization’s approval to spend the money. The cost-benefit analysis compares the project’s costs to the business value it will deliver. Few organizations want to go ahead with projects that will cost more than the value they will produce. So project managers conduct the cost-benefit analysis by gathering data on the value of the benefits and the cost of the project.

Cost-benefit Analysis: Examples

Let’s say you determined that the benefits produced by the project would be worth $15,000. And you calculated the cost of producing those benefits at $10,000. Then you would divide the benefits (15,000) by the costs (10,000) and  calculate the cost-benefit ratio of 1.5.

Many organizations have rules about what cost-benefit relationship the project must produce for gain approval. In some organizations, new projects must have a cost-benefit ratio of 1.2 to be approved. That means the benefits of the project exceed the costs by 20%. From an external point of view, a project that pays back its costs plus 20% of its costs sounds like a pretty good investment. Other organizations use higher or lower cost benefit ratios.

In a cost-benefit analysis, you compare the dollar value of the cost of a project, a deliverable or a change request to the dollar value of the benefits you expect it to produce. Here is another example. You may calculate a project will produce benefits worth $290,000 and will cost $272,500. So it’s benefits exceed its costs by $17,500 or 6%. Cost-benefit analysis on a small project is as simple as dividing the benefits by the costs to calculate the benefit-to-cost ratio: 290,000/272,500 = 1.06.Cost Benefit analysis

You can use cost-benefit analysis to test a particular alternative or compare several alternatives. It is usually a very simple process to come up with the cost of an alternative. You have access to list prices for equipment, materials and labor rates for people’s time. This is not to say there are never disputes about the costs. But the data is usually readily available.

You can also make the cost-benefit analysis more advanced by making comparisons over time and by adding elements such as the net present value of the benefits or the cost of cash flow.

Cost-benefit Analysis: Foundation for Calculations

The cost-benefit analysis is also the foundation for these calculations:

The details of these calculations will be subjects for later discussions.

Cost-benefit Analysis: The Tricky Part

Whatever level of sophistication the organization prefers, the difficult part of a cost-benefit analysis is coming up with quantified measures of the benefit of a project or an alternative.  The computation is simpler when the benefits come from cost savings. But it is much more difficult to put a dollar figure on the benefits when they are in the form of increased customer satisfaction or improved employee satisfaction. In fact, it is usually the benefit part of a cost-benefit analysis that is the source of conflict and disagreement.


Consider our online project management courses to learn how to use all the tools and techniques of project management. You’ll work privately with an expert project manager as your instructor and coach. You begin when you wish and control the pace and schedule. You can have as many phone calls and live video conferences with your instructor as you wish. Take a look at the courses in your specialty.

[button link=”” style=”info” color=”red” window=”yes”]IT Projects[/button]

[button link=”” size=”medium” style=”download” color=”#1e14a8″ border=”#940940″ window=“yes”]Business[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=“00000000″]Construction[/button]

[button link=”” style=”info” color=”#1e14a8″ window=”yes” bg_color=“00000000″]Healthcare[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=”00000000″]Client Projects[/button]

Posted on

Statement of Work – SOW

Dick Billows, PMP
Dick Billows, PMP
Dick’s Books on Amazon

In many organizations, 60% to 70% of the projects finish late, over budget and/or fail to deliver much value. Not using a Statement of Work – SOW during the project initiation is a major cause of project failure.  Project Phases Main Page

The project sponsor or customer issues the Statement of Work. It is their first communication to the project manager about what the project should deliver. It also describes what resources the project can consume to deliver it. The Statement of Work – SOW defines the deliverables. The sponsor should define the scope with the acceptance criteria that measures the project’s success. A Statement of Work can include the following (as well as other items):

  • Business Purpose: This includes a link to the company strategy
  • Scope of work: A short narrative definition and the quantified acceptance criteria
  • Location of Work: Describes where the project manager and team will do the work
  • Period of Performance: Specifies the start and finish time frame
  • Deliverables Schedule: Lists and describes what is due and when
  • Budget – The largest amount the project manager can spend to produce the required deliverables
  • Type of Contract/Payment Schedule: The project acceptance will depend on whether the budget available will be enough to cover the work required.

A New Project Without a Statement of Work – SOW

People get excited about implementing a new idea or about solving a new problem. All of the discussion is about the project finish date and all the things they must do. Particular attention is paid to the tasks they must do first. Everyone wants to talk about what to do first because they can immediately start work on them. They don’t take the time to decide what business outcome the project must deliver. They also don’t define the specific acceptance criteria they’ll use for the project’s deliverables. In other words, they don’t prepare a Statement of Work – SOW.

In many organizations, there is no thorough decision-making process. No one makes any decisions or commitments before people start work on the first few tasks. The project has little chance for success if the project starts without the sponsor specifying exactly what he/she wants. They must also specify what is “good enough.” “Good enough” defines how the sponsor will measure the project’s success. Here is an example. A goal of 100% accuracy on billing statements is a difficult and expensive achievement. But the goal of 90% accuracy is “good enough” because it is a 15% improvement over the current accuracy rate. Without the specifics of what the sponsor wants and how he/she will measure success, senior management can’t decide if they should approve the project’s initiation.  Additionally, no one is committed to the project’s success. That’s because they don’t know exactly what the project must deliver to be considered a success.

Statement of Work – SOW Solution

The organization can fix this problem by requiring that the project sponsor complete a Statement of Statement of Work SOWWork – SOW for every project before work can begin. The Statement of Work is the sponsor’s (not the project manager’s) commitment to the organization about what he/she will deliver for the resources they will spend. The Statement of Work supports senior management’s control over the initiation of projects. It ensures there are resources available to work on the organization’s major strategic initiatives. When project sponsors use the Statement of Work – SOW properly, they set measurable goals and decide what to include and, as importantly, what to exclude from the project.

To learn more about how to work with the project sponsor or customer to create the Statement of Work – SOW, consider our online project management courses. You work privately with an expert project manager who is your coach and instructor. You may begin a course when you wish and work on it at your pace and as your schedule allows. You and your instructor have as many phone calls and live video conferences as you wish. Take a look at the courses in your specialty.

[button link=”” style=”info” color=”red” window=”yes”]IT Projects[/button]

[button link=”” size=”medium” style=”download” color=”#1e14a8″ border=”#940940″ window=“yes”]Business[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=“00000000″]Construction[/button]

[button link=”” style=”info” color=”#1e14a8″ window=”yes” bg_color=“00000000″]Healthcare[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=”00000000″]Consulting Projects[/button]

Posted on

Project Launch – Video

Dick Billows, PMP
Dick Billows, PMP
Dick’s Books on Amazon

Project launch, also called project initiation, is a critical phase of every project. If it is not done properly, the odds of the project’s success drop significantly. The purpose of the launch/initiation meeting is to build team member and stakeholder enthusiasm for the project. The project manager must also communicate the key strategic issues for the organization that this project will address.

Project Launch Video Synopsis

This video starts with the project sponsor calling the meeting to order and giving a brief description of what the project will produce.  The sponsor makes threats to the project team about what will happen if they finish late. He also argues with one of the key team members about the special packaging that will be required for the new product.  As the sponsor and the team member start to argue, the project manager interrupts and suggests a way out of the problem.

The sponsor then threatens punishment if the project is late. The project manager steps in and explains to the sponsor that his threats and attempts to lower the team’s estimates will not make the project finish on time or early.  The project manager wins the debate but the angry sponsor may take up the issue with the VP.

In this video, watch how the project manager politely but firmly stood up to a terrible sponsor.  She knew she had to stop the sponsor’s bad behavior during the project launch/initiation phase. If she didn’t, it would continue throughout the entire project and lead to failure.  She took responsibility for the project’s performance but would not commit to a completion date without a clear scope statement and information about the resources available for the project. She did a great job defending the team members to the sponsor but she made it clear that their assignments would be stated as measurable business results.

At the end of the video, watch private interviews with the project manager and team members and learn how they felt about what happened during the launch meeting.

Project Phases Main Page


You can learn the steps in a proven project methodology from launch through planning, scheduling, tracking and reporting in our online project management basics courses. You work privately with an expert project manager who is your instructor and coach. You control the schedule and pace and have as many phone calls and live video conferences with them as you wish. Take a look at the course in your specialty.

[button link=”” style=”info” color=”red” window=”yes”]IT Projects[/button]

[button link=”” size=”medium” style=”download” color=”#1e14a8″ border=”#940940″ window=”yes”]Business[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=”00000000″]Construction[/button]

[button link=”” style=”info” color=”#1e14a8″ window=”yes” bg_color=”00000000″]Healthcare[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=”00000000″]Consulting[/button]


Posted on

Strategic Vision vs. Project Myopia

Too often project managers get lost in the minutia and don’t have strategic vision for the project. They don’t see the big picture of how the project deliverables will affect the organization as a whole. In our work with over 300 organizations, this is one of the biggest concerns that client executives have about project managers. That is particularly true of project managers with an engineering or software orientation. The executives’ concern is that the project manager does not see the customer or the product or the larger organization. Instead they dive headfirst into the barrel of technical details.

It’s important to understand your project’s role in the organization’s top level strategy for reaching its goals. Strategic visionThis is true whether you’re assuming ownership of a project that’s underway or starting one from scratch,  Without that strategic vision, your project runs the risk of satisfying its own ends but disappointing the organization and/or the sponsors that supported it.  And that’s not a good thing.

Sources of Strategic Vision

So how do you apply strategic vision at the project level and see the big picture?  As a project manager, you need to have a good grasp of your organization’s long-term goals.  Your project charter should provide that linkage and you may want to clarify that in the project plan by directly describing how the project’s desired outcome supports the strategic goal(s).  If this connection is not made or isn’t clear, you may be only a few well-intended—but unfortunate—decisions away from providing results that don’t meet the project sponsor’s intent.

Questions to Gain Strategic Vision

You should ask yourself the following simple questions and keep them in mind as you execute your project. They will help you maintain that strategic vision and keep your project on track.

1.  Exactly how does my project support the organization’s strategic goals?  How do the project’s requirements and deliverables relate to the strategic goals?  Consider how much flexibility the deliverables can bear before they no longer support the goal(s).  You may even establish a threshold beyond which the project should be reassessed and/or revised.

2.  How will my project’s success be determined?  Success criteria should be spelled out in your scope statement.  If set correctly, success criteria directly support the desired business outcome of your project. By extension, they support the sponsor’s strategic goals.  If you must adjust success criteria due to approved requirements changes, make sure this linkage to success criteria, desired business outcome, and strategic goals remains intact.

3.  Where does my project fit in the organization’s strategic activities?  View your project from the outside. From a broad, strategic perspective, how does your project align with other projects addressing the same or related goals?  There are both benefits to be gained and pitfalls to be avoided from this exercise.  For example, you may discover the potential for synergy with another project, or at least opportunities for mutual support of a strategic goal.  But you may also discover redundancy or interdependencies that must be acknowledged and dealt with.  At a minimum, you will gain valuable insight into the tactical role your project plays in supporting the overall strategic goals of the organization.

4.   What is the long-view of my project?  As project managers, we often become mired in the here-and-now issues that demand our immediate attention.  Without meaning to, we may lose the ability to see our project in the long-term and not recognize when we have strayed from our core purpose.  It is important, maybe even critical, to allow yourself time now and again to look far downrange and make sure that the course you are on isn’t leading to the wrong destination.

5.  Do I truly understand my project’s cause and effect relationships?  By dwelling too much on low level management of daily project operations, it’s easy to miss or underappreciate cause and effect relationships that stretch beyond that myopic perspective.  Problems you’re dealing with today may have roots far in the past, maybe even preceding your appearance in the project.  As a project manager with “strategic vision,” you’ll have the ability to step back and understand the full scope of that relationship. That will allow you to address it appropriately.

Posted on

Project Due Date Trap – Video

The project due date trap occurs when the boss will only talk about the project’s due date. They want a commitment to that date without defining what they want the project to deliver.

Dick Billows, PMP
Dick Billows, PMP
Dick’s Books on Amazon

This project due date trap is deadly for a project manager. What draws you into this trap is fear of the boss’ anger. You are certain that your career will be over if you don’t commit to their due date. So you don’t even ask some reasonable questions.  Project Planning Main Page

Experienced project managers have learned how to deal with the executives who set the project due date trap. They have learned that a project manager won’t be fired for refusing to commit to a due date. But a project manager could be fired for failing to hit a due date or budget they have committed to meet The first step is getting the sponsor to clearly define the project scope. The scope includes the major deliverables the project must produce and their acceptance criteria. Without that information, the project manager cannot estimate a realistic due date and commit to it. So the project is doomed.

Project Planning Blunders - Plucking Due Dates Out of the Sky

Project Due Date Don’ts

The wrong way to do project planning is to start by identifying the first task you’re going to do on the project, then the second, then the third and so on. This “to do” list approach is easy because it doesn’t require much thinking. But it has major downfalls. Project managers who use this approach tend to include a lot of good, but unnecessary, requirements. They don’t limit the plan to include only what they must do to deliver the result the boss wants. So they waste lots of time and resources. And since they don’t know exactly what the boss wants, they can’t decide what to do to deliver it. They end up adding things to the project later on that they suddenly discover are vital. This “to do” list approach to project planning gets off to a fast start but ends up with projects that take longer and cost more than they should.

Project Best Practices

Long-term success requires that you learn project management best practices. Those are the skills you need to deliver the project scope on time and within budget. For small projects, a five-step methodology is enough. Here are the steps:
Project Due Date Trap

  1. Project planning – focus on a clear scope and a deliverable-oriented project plan. Create the work breakdown structure by working from the scope statement down to individual team member assignments. Clearly define the deliverables that are required to reach the project’s end result.
  2. Assigning work to the project team – focus on giving them a crystal-clear understanding of what you expect them to produce before they start work. The deliverables must be measurable.
  3. Estimating – focus on how much work it will take to produce each deliverable. It’s always best to have the team member who is going to do the work take part in this estimating process.
  4. Tracking progress against the plan and spotting variances – use project management software and status data from your team members to stay on top of your project. Anticipate problems when they are small and before they impact the entire project.
  5. Designing corrective action and reporting status – design corrective action when you find problems. Clearly report problems and solution options to the project sponsor for their approval.

Learning a simple methodology like this will help you be successful on the vast majority of projects most organizations do.

Get free articles and videos like this every week


Posted on

Stakeholder Analysis

Stakeholder analysis is one of the most important tasks in project management.  Stakeholders are the people who are affected, positively or negatively, by the project.  You must make an effort to the identify the project stakeholders early in the planning process.  Let’s look at an example of a small project and see how to identify the project stakeholders.

Dick Billows, PMP
Dick Billows, PMP
Dick’s Books on Amazon

Stakeholder Analysis Example: Part One

The boss calls you into her office and tells you she is getting complaints from other managers about items out of stock (stock-outs) in the supply room. This situation is wasting people’s time and delaying their work because they can’t get their materials when they need. She goes on to tell you that she wants you to run a project to cut the number of stock-outs in the supply room. She will be the project sponsor. Stakeholder Management Process

You ask some probing questions to quantify the project scope and the acceptance criteria. She states that less than five stock-outs a month would make the project a success.
With the initial scope defined, you tell her the next step is to identify the project’s stakeholders. Then you must do stakeholder analysis. That includes speaking with them to understand their issues with the supply room and their requirements for improving it. The sponsor shakes her head and says, “Let’s not turn this into a never-ending circus by asking other people to give us their to do lists. We’ve got to make a plan and identify how we’re going to deliver the project scope I just set. Let’s keep the planning group small so we can move fast. I don’t want to involve a lot of people who have other ideas we’d have to consider.

You say, “Well if I don’t identify project stakeholders and get their ideas, it may come back to haunt us at the end of the project.”

The sponsor interrupts and says, “We know what we need to do in the supply room. We don’t have to let other people stick their noses into this project.”

You say, “I really think that is a mistake…”

“Then it’s my mistake,” the sponsor said. “I want you to get started making the detailed plan.”

Over the next few days the planning went rapidly and you were able to develop high-level deliverables and a work breakdown structure. You identified procedure deliverables, training deliverables and a new workflow for managing inventory levels. The sponsor approved them all and she assigned people from her department and one from the supply room to serve as your project team and authorized you to start work.

Stakeholder Analysis Example: Part Two

Things went very well for the first week and you and your small team knocked off one deliverable after another. But as you moved into the implementation phase you ran into a couple of problems. FiInfluencing Project Stakeholders

First, the project sponsor called you and said, “The purchasing people have their nighties in a knot about how you want to manage the supply inventory. You better get down there and talk with them about what you want to do and get their cooperation.”After spending the next two days meeting with the purchasing people and modifying the entire workflow and procedure you had developed to meet their requirements, you were behind schedule. You knew you would have to hustle to avoid any more slippage in the schedule.stakeholder analysis

Then the human resources trainer finally returned your call. She explained that the training you wanted on the new supply room procedure did not meet corporate standards for training classes and needed to be extensively revised. You explained that the supply room procedure was undergoing modification anyway and the trainer explained that you should have involved her in this process from the beginning.

You stopped the team members who were revising the supply room inventory procedures and told them they would have to wait until the end of the week for a meeting with the human resources department trainer.

Stakeholder Analysis Example: Part Three

To bring an awful week to an end, you met with the project sponsor to submit your status report and explained why the project was at least a week and possibly two weeks late compared to the original plan finish date.

The sponsor asked what the problem was and you said, “We did not identify our project stakeholders in the beginning. That would have let us gather their requirements before we started work. Now we are discovering those requirements and having to redo much of the work we have done over the last two weeks.”

The sponsor’s facial expression went from anger to embarrassment and she said, “Next time we’ll identify the project stakeholders early and do a better stakeholder analysis.”

Learn how to do stakeholder analysis and management in our online project management basics courses. You work privately with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish.  Take a look at the courses in your specialty.

[button link=”” style=”info” color=”red” window=”yes”]IT Projects[/button]

[button link=”” size=”medium” style=”download” color=”#1e14a8″ border=”#940940″ window=“yes”]Business[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=“00000000″]Construction[/button]

[button link=”” style=”info” color=”#1e14a8″ window=”yes” bg_color=“00000000″]Healthcare[/button]

[button link=”” style=”info” color=”red” window=”yes” bg_color=”00000000″]Client Projects[/button]


Posted on

Project Cost Benefit Analysis

A project’s cost benefit analysis is important in any organization, especially in the banking sector. It always comes down to costs and benefits. The perceived value of a project and the prognosis for approval heavily depend on the ability of the project manager and sponsor to show how it benefits the organization. The tool most often used to justify projects is the Cost Benefit Analysis.  Cost Benefit Analysis Main Pagecost benefit analysis

Now a cost benefit analysis or CBA is meant to be an objective tool, using numbers and math to determine the true potential of a project. However, there is an issue with its total objectivity. The three basic components of every CBA are:

  • assumptions
  • a mathematical analysis of the assumptions with inputs like numbers and volumes
  • the time series.

The last two components are objective. But the selection of assumptions is a mainly subjective process and it leaves plenty of room for creativity.

In organizations that rigorously use CBA’s, one of the tricks project managers often use is to include assumptions on benefits that are hard to measure. Examples are intangible benefits, avoided costs, avoided investment, stronger customer loyalty, stronger brand, etc. Although there is nothing wrong with trying your best to justify a project, I believe there is an issue with basing a case on difficult to measure benefits.

These assumptions often produce estimates that are difficult to prove. They look good on paper, but are easily challenged in a board room. Cost Benefit Analysis with fat numbers based on intangible benefits can be deflated and cause the board of directors to distrust the project manager. These assumptions become weak when faced with simple questions like, “Will these numbers be visible in the P&L?” And when you answer with, “No but….,” the executives most probably stop listening.

Some companies do follow-ups after projects are closed to verify the assumed benefits were realized. If a project with bloated numbers is actually approved, the project manager has a tough time proving the existence of the promised benefits.

For a current example, we can look at what is happening in the IT industry where the disconnect between promised and actual results is often large. There are many suppliers that meet with executives and promise huge savings in implementing IT best practices, such as ITIL or COBIT.

The company ITSMF, for example, makes several outrageously unsubstantiated claims in its An Introductory Overview of ITIL [version 2] . *”Over 70% reduction in service downtime, ROI up by over 1000%, Savings of £100 million per annum, New product cycles reduced by 50%.”*

However, looking at it from the other side, we see different results. *”In a survey carried out by Bruton of 400 sites, about half of the 125 organizations which were found to have adopted ITIL made no measured improvement in terms of their service performance…”*

Finally, I do not really trust nor like an “outsmart them”approach when writing a CBA. My advice: be pragmatic and state strong, measurable and clear assumptions in your figures. If the project is strategic but difficult to argue on paper, then build the case on the strategic part and state that the benefits are difficult to quantify. If there is only a 50% chance that the expected benefits will materialize, this fact should be clearly stated. By being truthful, accurate and straightforward, you can build the trust of your executive team and establish yourself as a trustworthy and effective professional.