Tuesday, May 26, 2009

Is Your Project Budget like Selling a Car?

Have you ever had the experience of buying a car from a dealership? Remember negotiating the price of a car? The salesperson would provide an offer. You’d counteroffer. The salesperson would counter-counter offer until you provided your “final offer”. The salesperson would shake his head and tell you “I am going to have to talk to my sales manager”. The salesperson would come back and say “we just can’t do it. Here is our final, final offer.” Yet if you started to get up to walk out, inevitably and miraculously, there was room to negotiate. Most project managers would never dream of using a car sales strategy in determining a project cost, yet we often do things just as damaging to trust and credibility. Here’s what I mean.

Let’s say you provide your sponsor with a cost estimate for the project and without any discussion, the sponsor tells you to cut that estimate by a third. What does it say if you came back to the sponsor with a revised estimate but no changes to the work or quality of the project? I would think that either you are a poor estimator or you had put a lot of pad in the original estimate. Neither assumption would increase my assessment of your competence or credibility.
Some of the most difficult conversations project managers have with their stakeholders concerns money. With hard economic times, organizations want the most bang for the buck including investments made in projects and of course as overachieving individuals we want to deliver. Yet real project success is more than making a stakeholder happy with “a good cost number”. Long-term success means delivering that project with the quality, timeliness and the cost our stakeholders expect.

The triad of quality (scope), time and cost is often called the project management triangle. Each side represents a constraint that defines/binds a project. Within a given level of technology, if quality or scope of a project is increased, for example, it will affect cost, time or both. Yet establishing project cost goes well beyond the mechanics of project management and a “triangle”. Establishing cost is another tool of communication and a pillar of trust. Why?

When there are issues concerning cost, there are usually unclear expectations or disagreements on the methods/processes that are driving the cost. If your stakeholder cannot appreciate how you are going to achieve project goals, odds are she won’t understand why it costs so much. Sometimes you and your stakeholders don’t have an understanding of the quality of the project. If I provide a project estimate to “build a Cadillac” but the customer is thinking “Focus”, there will be sticker shock. So while there is pressure to provide a number, I have found that asking a few questions concerning quality, process and time expectations open the doors to a better understanding of what the project should cost in terms of the Project Management Triangle.

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