How to Manage Allowances and Contingency in Your Schedule

It is quite amazing that in conventional project management practice, risk management is widely applied to cost (with allowances and contingency), but not so much to schedule. And this happens although for large, complex projects, schedule is the main driver of the project performance! In particular, appropriate convergence at the few critical points of the project play a crucial role. Why and how can we extend the concept of allowance and contingency in the field of schedule management? Discover this amazing topic in our new White Paper 2012-18 “How to Manage Allowances and Contingencies in Your Schedule”.

Can you really stop time?

Schedule risk is generally considered activity by activity, and no buffer of “time pot” is actually created like it is when it comes to money. Why not use the same methods than the ones applied to cost: use activity floats and overall buffers as allowances and contingencies are used in cost?

This would avoid systematic padding of activity duration, as is commonly observed. Explicit activity floats and buffers would allow a healthy monitoring of the effective convergence and progress of the project toward the due date.

Our schedule management system in large, complex projects needs to be deeply overhauled to avoid having project managers constantly try to slow down the inevitable passing of time…

Instead of hanging on the clock trying to stop the catastrophe from happening, read our new White Paper 2012-18 “How to Manage Allowances and Contingencies in Your Schedule”!

The Right Way to Keep Money for the Hard Times: Allowances and Contingency Management

Keeping money aside for the hard times is, in everyday life, quite a usual and recommended behaviour. In a project environment, if done poorly, it can make your project noncompetitive and produce unexpected surprises for your stakeholders down the road. You need to implement some basic principles for allowance and contingency management to keep your project healthy and fit. These principles are fundamental to the correct reporting and understanding of the project performance. That’s exactly the topics developed in our new White Paper 2012-17 “The Right Way to Keep Money for the Hard Times“.

Do you keep some reserves?

It is very important to understand the difference between allowance and contingency, and when it is allowable to store money in these buckets.

We believe that allowances should be banned at pricing / tendering stage to avoid excessive padding and protection; and that allowances should be allowed during project execution to dampen the surprises that the project will uncover, in the positive and negative way.

Contingencies should be calculated on unpadded cost estimates of the project items and it is important to workout regularly the allowances and contingencies to check that the money kept in store is really needed, or if it should be increased.

Discover more on this hot subject of allowances and contingencies in our new White Paper 2012-17 “The Right Way to Keep Money for the Hard Times: Allowances and Contingency Management“

Enterprise Opportunities and Risk Management, a Great, Untapped Source of Value

Opportunity and risk management is the key to sustainable project success. There are also huge opportunities to gain to apply specific practices at the organizational level. Indeed, specific challenges need to be addressed at the organizational level for organizations that manage simultaneously several complex projects. In our new White Paper 2012-16, we go one step further than the previous post “Take Risks, but Take Risks the Right Way: Reframing the Opportunities and Risk Process for Complex Projects” and the associated White Paper 2012-11 which reframes opportunity and risk management at the project level. We address what needs to be done further up, at the organization level, to further release significant value to the organization and its stakeholders.

Protecting the dollar

There are several areas of action in terms of risk & opportunities which can be effectively leveraged at the enterprise level. In particular, resource buffers are generally the responsibility of the organization and not of a particular project.

All in all, the PMO should see its mission extended to advise whether projects that are considered are a good fit for the current portfolio’s risk in terms of effect on resources and buffers, and advise on the deployment of resources to avoid ongoing project to get stuck, creating a domino effect in the organization.

Well implemented, organization-level opportunity & risk management is an investment with a very high ROI, so why hesitate and neglect this function?

Read our new White Paper 2012-16 “Opportunity and Risk Management at the Organizational Level for a Complex Projects Organization: a Great, Untapped Source of Value”.

What can make execution of large, complex projects more reliably successful?

In the “Industrial Megaprojects” book, Edward Merrow, a long time researcher of large, complex projects and founder of the consultancy Independent Project Analysis Inc., provides key statistical data and insights about the failure rates of large infrastructure projects and what are the factors that would make them more successful.

What can we learn from this data when it comes to the execution of these projects? That’s what we cover in our new White Paper 2012-15 “What can make execution of large, complex projects more reliably successful?“

Industrial Megaproject construction

Yes, two-third of these projects fail one way or the other. Merrow insists a lot on the quality of their preparation. Still, there are some useful insights when it comes to their execution:

• Speed kills – start with realistic expectations and review your schedule accordingly!
• Clear Project Objectives are primordial (re-read Define Clearly your Project Objectives! and the associated white paper White Paper 2012-13 “Define Clearly your Project Objectives! Why is this Key Project Step so Often Skipped?“),
• Strong, integrated owner teams are key,
• The contracting strategy does not really influence the outcome; the strength of the owner team does,
• Remoteness and new technology make it more difficult,
• Early permitting is critical.

Read NOW our new White Paper 2012-15 “What can make execution of large, complex projects more reliably successful? – reading notes from “Industrial Megaprojects” by Edward Merrow“

Read – and don’t forget to put these ideas in practice, they might save you millions!

Why Project Managers of Large, Complex Projects Should Have a Higher Status in their Organizations

It is astonishing to observe how, even in project-oriented organizations that execute large, complex projects, project managers are generally placed on a lower status than functional managers. This happens although project managers directly influence the business performance, which is not the case of functional managers. In particular in organizations that deal with large, complex projects, it should clearly be the contrary. Why is that and what should be done?

In this controversial new White Paper 2012-14 “Why Project Managers of Large, Complex Projects Should Have a Higher Status in their Organizations”, Project Value Delivery makes the point that in the case of large, complex projects, project managers often have a crucial impact on the overall’s organization financial results. And still, even mature organizations consider functional managers to be higher in terms of status.

Dilbert project manager struggling to be heard by management. Will he be successful in his project?

The appropriate approach is to recognize explicitly that large, complex projects require a different skill set and to give a different title for the project leaders of these projects. They will not be numerous because they are dealing with a few large projects. Actually it is a constant observation of Project Value Delivery that large, complex projects leaders often have a large influence in their organization, which is not formally recognized or only through ad-hoc organizational setups. Why not give them the status they actually deserve as part of their contribution to the performance of the organization?

Read our new White Paper 2012-14 “Why Project Managers of Large, Complex Projects Should Have a Higher Status in their Organizations”

Estimate Your Actual Risk Level in a Project: the PVD Risk Level Formula

A simple yet robust and powerful framework for opportunity and risk management in large, complex projects has been described in the paper 2012-11 “Take Risks, but Take Risks the Right Way: Reframing the Opportunities and Risk Process for Complex Projects”. In addition, Project Value Delivery offers here a valid quantitative risk measurement system for complex projects. It is simple, and it is extremely powerful and easy to use by the project leader as a decision tool.

what milestones? The convergence plan convergence points of course!

The only thing is not to be afraid of basic mathematical formulas! In our new White Paper 2012-12 “Estimate Your Actual Risk Level in a Project: the PVD Risk Level Formula”, we give a very simple approach to evaluate the real risk level of the upcoming activities of your project.

It is simply based on the consumption of the float before the main convergence points of the project. The convergence points are defined in the project’s convergence plan (see White Paper 2012-04 “Convergence Management: the Key to Large, Complex Projects Success“). If the key activities are delayed one month every month, you won’t converge and the cost will become infinite.

Beware of really taking into account the convergence plan convergence points and not milestones defined arbitrarily by management to apply this method, not like in the cartoon!

Check out our new quantitative approach to risk in our new White Paper 2012-12 “Estimate Your Actual Risk Level in a Project: the PVD Risk Level Formula” – a simple, robust way of measuring and prioritizing your risk areas in large, complex projects.