Risk Management

Late & Over-Budget? How to Avoid PM Disasters

Initiating a large IT project can be like entering a long dark tunnel without knowing where to find the exit. It’s how, coming in at £4.6 billion, the French-English Channel Tunnel managed to overshoot its budget by 80%. Philip Moscoso and Jaume Ribera Segura write for Forbes about applying a PM methodology that will give projects a fighting chance to avoid such a fate.

5 Traditional Project Life Cycle Phases

According to the article, there are five phases of a project life cycle crucial to the understanding of risk from a management perspective:

  1. Selection
  2. Defining
  3. Planning
  4. Execution & Monitoring
  5. Finalization

The Cost-Plus-Incentive Fee

But there are alternatives to traditional models. If a company is concerned about low-cost bidders revising their budgets upwards after the contract is awarded, they can consider an approach that was used before the construction of Heathrow Airport’s Terminal 5. It’s called the “cost-plus-incentive fee” contract, and this is how it worked with Terminal 5:

As the client kept the overall responsibility for the project, and committed to paying the builder its costs plus a share of profits, an incentive was created for both of them to work together on innovative solutions that improved features, lowered costs and got the work done faster.

Buying a Project Sandwich

One great example of determining which parts of a project to eliminate involves getting sandwiches for an afternoon lunch with friends. Buying sandwiches obviously adds value. Going to the store to get the sandwiches does not, but is necessary for the purchase. Having the sandwiches wrapped at the store and then unwrapping them at home may not be necessary or add value, but calling your friends again at the store to confirm their choice of sandwich can absolutely be avoided with proper planning.

The four categories used in the sandwich analogy, 1. Adding value, 2. Necessities that don’t add value, 3. Non-essentials that don’t add value, and 4. Wait time (which detracts value), should be used by PMs to manage risk and to stimulate the proper risk culture at your organization.

Read the original article at: http://www.forbes.com/sites/iese/2015/03/09/late-and-over-budget-a-method-to-avoid-project-management-disasters/

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