The costs of delivering projects are going up. In this article you will see why costs are going up and what you can do to bring costs down.

On the 9th July 1997 a new interim Chief Executive was appointed to company making a loss every year. With sales down 30% the company was 90 days away from going bankrupt.

The new chief executive quickly identified one of the major problems. They had so many projects on the go that staff were being stretched too far. He therefore cut the number of projects by 70% with staff redeployed to the remaining projects.

By focusing on fewer projects it was identified that the company had more staff than it needed. With the reduction of projects 4,100 employees were made redundant which was 31 % of the workforce.

This approach focused the company into doing less with more people which in the short term reduced the total company salary cost. The following year the company made a profit thanks largely to releasing a new product.

Ever since 1998 the company has made a profit every year and now employees over 123,000 people.

In 1997 the chief executive said “Deciding what not to do is as important as deciding what to do. It’s true for companies, and it’s true for products.”

You may have heard of this company and chief executive; Apple and Steve Jobs.

"Deciding what not to do is as important as deciding what to do. It's true for companies, and it's true for products."

If you are focused on too many things chances are your staff costs are too high. Do less with more not more with less.

It is well known that the longer a project takes to complete the more it will cost. This is because every day that goes by a salary cost for the people working on the project needs to be paid. Projects get delayed for a large number of different reasons and regardless of the reason the end result is increased project costs.

While it can be easy to see project costs often organisations are unaware of other hidden costs. One of the biggest hidden costs is how projects slowly increase the overall salary cost of an organisation. These costs are often missed and never included within the cost of the project.

How these costs appear

Let us say for example you have a small project with only a few people assigned to work only. You also decide that it should be possible for these people to do their day jobs alongside the project. As the project progresses it becomes clear that there is more involved with the project than first thought. With project deadlines looming people work harder on the project and might miss so of their day job tasks. Or they might have day job deadlines that stop them doing project work. This in turn puts more pressure on getting project tasks done. Before long you have a situation of a stressed member of staff where there are two options 1) Nothing is done and the person goes off sick or 2) You hire someone to do the day job. This results in the organisation salary costs going up.

Some organisations get wise to this and say that cost will have to be allocated and paid for by the project. However when the project budget was agreed their was no cost associated with backfill salary the end result is the project goes over budget.

So the question is do you show the project as overspent or do you hide the cost in the organisation overall salary costs. While you can get away with it in the short term eventually people start to notice at board level that salary costs are too high for the size of the organisation.

So what do you do about it?

There are lots of ways to resolve this but one of the easiest is having a gated project process. A gated project process enables you to commit a small amount of money at each stage of the project. This stops the need to make large inaccurate estimates. With a gated approach you just need to secure project funding to pass through to the next gate. The way this keeps a lid on project costs is by the time you get to the gate you will have a much better idea on how much the next stage will cost.

I have developed a simple gated approach to deliver projects based on my time delivering projects for a number of social housing providers. I have called it the Social Housing Project Life Cycle and you can download a free copy here.

In addition to a gated approach I recommend assigning a cost to the time people spend working on a project. Rather than a trying to work out the salary of individuals make it simple by assigning a fix cost for internal staff that work on a project.

Studies have been done and it has been established at a figure of £300 per day is a good amount to assign to internal staff who work on projects. This number was reached by adding up the true cost of an individual member of staff to include benefits as well as salary along with other staff costs.

A great reason to have a budget of internal staff working on projects is it enables you to substitute internal for short term external staff with exceeding project or organisation salary costs.

Summary

In summary the longer a project takes the more it will cost. This is because every day that goes by a salary cost for the people working on the project needs to be paid.

When staff are assigned to work on projects alongside their day job one or both is likely to suffer due to deadlines. This leads to either a project overspend or increased organisation staff costs as more staff are hired to take on the work that is not getting done.

A good way to stop this is to implement a gated approach to projects so planning and estimating is only done up until the next gate. This combined with assigning a cost to internal staff will ensure there are no hidden surprise costs.

If you would like to reduce your project costs and maybe implement a gated approach for delivering projects I highly recommend you carry out a best practice assessment on project delivery. One of the best best practice assessments is the P3M3 assessment.

The reason I recommend this assessment is it can be tailored to the organisation and therefore can be very inexpensive to do. Once you have completed an assessment you will be given a series of recommendations that you can implement to improve the way projects are delivered.

I have developed a simple gated approach to deliver projects based on my time delivering projects for a number of social housing providers. I have called it the Social Housing Project Life Cycle and you can download a free copy here.

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Projects take longer than expected