The numbers simply don’t stack up.

In 2009 I wrote a blog called Projects at NIL cost! Essentially, I found that (too) many project managers were working on projects without including any estimate of the cost of their time. In general, management time was not costed.

Move forward to October 2012 and the West coast mainline franchise fiasco. (see http://www.guardian.co.uk/uk/2012/oct/03/west-coast-mainline-rail-franchise-cancellation-reaction) It is interesting to see that Richard Branson was able to put a cost to developing the Virgin Rail tender submission at £14million. I wonder how many companies know the actual cost of tendering and the key question; whether its worth tendering at all.

A quick story (my aha moment):

Around about 5 years ago, I was searching for something on my PC. By chance I saw all of the tenders I has bid for. Lots of them, millions of ££ of work (literally – it was over a 10 year period) and after some reflection, I realised that I was wasting my time. I had not won any of these tenders!

Interestingly, it was one tender that led me to decide, no more tenders. I calculated my time to prepare the tender, prepare for the presentation to the inevitable panel (and travel costs) and realised that I needed to work around 10 days to win back my costs. The contract was for 12 days. Call me naive but it was my aha moment!

As a result of this, I started to cost out my time and look at the return on investment. This led to no more tenders being submitted, freeing me up for more productive work. It was a wise decision.

Since pulling out of all tender races I have spoken with many companies who fail to look at the costs of the tender process versus the income/profit from the work. They fail to cost internal management time! In one case the company won the contract however made a significant loss because the auditors identified the costs of tendering and managing the contract well exceeded the income. (These costs were not included in the original tender process – no account was taken of management time or even project management time.)

I have long argued that the business case for a project should try and include internal staff costs. Too often ‘free’ staff time gives the impression that this is a great project. However, business cases often fail to mention this. Nor are they picked up later on within the project.

MY aha moment worked for me however I wonder if it works for you.

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3 Responses to The numbers simply don’t stack up.

  1. Pingback: The numbers simply don’t stack up. | #PMChat

  2. I too have seen this at several organisations. I find it difficult to understand why an organisation will go into detail working out costs and cashflows, IRRs and NPVs, whilst ignoring a significant proportion of the cost (typically SME time and the PMs’ time). Yes, the PMs and senior management SMEs “would be there anyway” (the usual reason given) but if they weren’t managing the projects, they could be doing something else that may be more profitable to the company so there is an opportunity cost in having a PM managing a project, and the IRR / NPV is not complete.
    What reasons have you heard for omitting these costs?

    • Ron Rosenhead says:

      You ask a great question Ken: What reasons have I heard for omitting these costs (project management time for one)?

      My problem is that I have not heard ANY reasons. I repeat, i have not heard ANY reasons. No matter how hard I try, it is not part of the vocabulary I have come across.

      For me, the numbers simply do not stack up i.e. when you start to add the amount of ‘management time’ the costs of the project escalate and this impacts on the overall benefits realisation approach.

      Lots of education needed I believe.

      Many thanks Ken for your comments and great question.

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